Calling off the venture, the two companies said in a joint statement on Wednesday morning that Wal-Mart would buy out Bharti’s 50 per cent stake in the cash-and-carry business for an undisclosed amount and take over the full wholesale operation in the country. There’s no FDI cap in cash-and-carry. Bharti will also pursue the retail venture EasyDay on its own. The employees have been given 3 months to decide which side they want to be on. They have been told that there will be no job losses, for now.
The seven year itch-the companies came together in 2007 to start the Cash-n-Carry business together - was obvious though the two sides had boasted about being ‘natural partners’ like in any marital arrangement. The divorce was expected on the return of Wal-Mart Asia head Scott Price, back from Bali where he had hinted that the break-up was imminent.
The genesis of the separation has been perhaps the strong disagreement in pursuing common policies. Bribery action was reported against Wal-Mart under the America’s Foreign Corrupt Practices Act (FCPA) and several senior employees including Indian Head, Ravi Jain were suspended. There was also an Enforcement Directorate enquiry initiated against the Joint Venture Company, resulting in a halt on the expansion activities. Wal-Mart’s disclosure to the US Senate on its lobbying activities to gain greater access to key markets, including India also caused a political furore in India.
Stringent policy conditions, such as mandatory 30 per cent sourcing from Indian small and medium enterprises, has also been a bottleneck for expansion. Other clauses like a minimum investment of $100 million in new facilities (half of which has to be on building back-end infra structure), have also not been well accepted. The forthcoming national elections in 2014 and state-wise approval to FDI in retail are also seen as detractors.
Interestingly, Pankaj Madan, one of the five suspended after an internal anti-corruption probe, was appointed by Bharti for its African operations. Raj Jain, who had stepped down as Wal-Mart India head in June would return as an advisor to the Bharti group, clearly indicating that the two partners were not in sync on the anti-corruption stand, especially in a country where bribery is not considered a pariah and by most accounts is a part of the system.
The development implies that the American chain will not open retail stores in India in the near future.
It could also imply that global business leaders lack confidence in the Indian policies at present. Arvind Singhal of the retail consultancy firm Technopac is on record saying that the government must be more pragmatic than dogmatic on the policy front.
A senior official of the Department of Industrial Policy and Promotion (DIPP) reportedly maintains that the government is not going to review the conditions linked to the multi-brand FDI policy and that policies could not be made or tweaked for specific companies, adding that this was a partnership issue and the government cannot do anything about it.
Bharti Retail’s EasyDay, a franchisee of Walmart will not have any connection with the American chain. According to Rajan Mittal, Vice-Chairman of Bharti and MD, “Bharti is committed to building a world-class retail venture and will continue to invest in Bharti Retail across all formats. We believe that with our current footprint of 212 stores, we have a strong platform to significantly grow the business and delight customers.”
Tags: Wal-Mart, Bharti Enterprises, EasyDay, Scott Price, Ravi Jain, Rajan Mittal