Walmart and Bharti - An International Partnership Part One

Stuart Haack, Kristy Junio, Zeyad Maasarani, Kim Tabaretz

The formation and dissolution of corporate partnerships is nothing new, particularly in the global marketplace. Venturing into a partnership is always spurred by some objective. In the case of Bharti and Walmart, it was due to the untapped riches of the emerging Indian retail marketplace. Walmart had been expanding internationally for some time, but had never been able to break into Indias market due to strict government regulations which limited foreign direct investment (FDI) to 51% (Bose, p. 3, 2012). By developing a 50-50 venture for back-end supply chain management and wholesale cash-and-carry operations, (Bose, p. 9, 2012) Walmart was able to utilize Bhartis domestic corporate headquarters as a doorway to this vastly expanding market. On the other side of business development, Walmart was allowed to franchise itself while sharing expertise and technology with Bharti to support the retail stores that would be built by Bharti Retail Ltd, its wholly owned subsidiary. (Bose, p. 9, 2012). Foreign multi-brand retailers, in lieu of sharing ownership, were also allowed entry into the India retail market by sharing information and technology with Indian domestic partners (Bose, 2012). Another reason for the partnership as stated by Sunil B. Mittal, chief executive of Bharti in The Economic Times article Walmart Says Namaste India, with Bharti, Bharti, with its deep knowledge of Indias fast-growing consumer market and Walmart, with its extensive global retail experience, share the same commitment to

building relationships with producers. (2006) And finally, what made Bharti an even better partner for Walmart was Bhartis prior experience in dealing with foreign direct investment (FDI) and international businesses. In fact, Over the years, Bharti had attracted a total of US$1.2 billion in foreign equity more than any other Indian telecom firm. (Bose, p. 8, 2012) From the other perspective, Walmart was a particularly attractive partner to Bharti for several reasons. It was the technology and infrastructure that Mittal, chief executive of Bharti had his eye on. (Bose, 2012). Bharti saw an opportunity to turn around the infrastructure, supply-chain and IT through a strategic alliance with retail-giant Walmart. A SWOT analysis is attached as Table 1.0. Benjamin Gomes-Casseras notes in Managing International Alliances: Conceptual Framework (1993) that to maximize the benefits of collaboration, the partners [in an alliance] need to have complementary needs and assets. In the rapidly growing organized retail market in India, Walmart and Bharti were able to leverage the strength of Walmarts supply chain operations to build a backend framework for the planned retail establishments. This expertise enabled the alliance to quickly implement best practices for retail operations, thus furthering their current early-mover advantage. In a market where the retail industry was known to be inefficient and scattered (Bose, 2012), by using Walmarts Information Technology (IT) framework, the alliance created inventory control systems to track and manage inventory throughout the new retail outlets ran by Bharti Retail Ltd. The alliances ability to effectively forecast demands along with Bhartis knowledge of the local market, enabled both companies to

beat global rivals (Bose 2012). Market knowledge and established processes seem to have played a major hand in the success of this alliance. Since the company already had established buying relationships, the alliance can further leverage these relationships for inventory for the India retail and wholesale establishments. The added benefit is that local sourcing could also possibly help Walmart overcome its reputation of being socially irresponsible, which was one of its key weaknesses coming into the alliance (Bose, 2012). By increasing inventory purchased within India and by partnering with a reputable Indian company, Walmart may be able to positively influence consumer perception. Furthermore, since Walmart already was able to maintain lower prices on merchandise sold throughout its network of stores, Walmart should also able to bring competitive pricing to India that has been negotiated throughout its international infrastructure. The alliance had the advantage of knowing what was allowable in the highly regulated retail market. Walmart was able to bypass many restrictions that would have hindered its ability to enter the market. By cannibalizing on Bhartis local retailer status and running their retail operations under this entity, Walmart bypassed restrictions normally placed on international players. Both companies had complementary strengths they were able to utilize to quickly expand in India. This enabled the alliance to maintain its early mover advantage. Leveraging each others expertise, both entities were able to use and build upon best practices that had proven successful for both companies in their individual ventures, performing better than either company could do alone in the growing Indian retail

market. Table 1.0

Strengths: Walmart

Weaknesses: Walmart

Supply chain expertise International infrastructure Leverage with producers

No access to Indian market without partner

Inability to establish presence outside Americas

Cultural challenges in S. Korea and Germany

Bharti

Gender discrimination/predatory pricing lawsuits

Existing presence in India Experienced with Indian culture

Bharti Strong reputation

Needs multi-brand experience

Track record of retail/working

Supply chain inexperience

with FDI Opportunities:

Threats:

Emerging Indian retail market Favorable demographics Early mover advantage Shifting Indian mindset on retail

Cultural diversity Strong political opposition Governmental regulation Indias underdeveloped infrastructure

and brands

Hostility from unorganized retail and middlemen

Walmart has large supply base in India

Walmart and Bharti - An International Partnership Part Two

This is Group 3's stakeholder analysis of Walmart and Bhartis strategic partnership in India. This is a primary stakeholder analysis of influence and support based on the introduction of this new business venture in India, but does not necessarily represent the evolving stakeholder analysis as relationships and regulations change. Now, we will divulge why we placed each stakeholder on the chart where we did.

1. Shareholders: (High Influence, High Support) Walmart and Bharti shareholders are a very high priority for us because their trust in our vision/strategy is one of the most critical deciding factors in our ability to execute this partnership effectively. A negative reaction from our stockholders could send our corporation into disarray. Thus, they have a high level of influence and support for this venture.

2. Government Agencies / Regulators: (High Influence, Mid-Low Support ) The Indian government and its regulators are the gatekeeper for this partnership, hence their high influence designation. They are slightly supportive of the partnership because they passed legislation that allows it, and they also are likely to benefit from the resulting economic stimulation that will come to fruition if Walmart and Bhartis partnership proves successful.

3. General Public in India: (High Influence, Mid-High Support) The public of Indias acceptance of the partnership, and their ensuing shopping habits will be the ultimate deciding factor to the success of this partnership. The Indian market is trending towards organized retail, and the consumer base is growing more and more professional, so there is a level of support from the public, but wed like to see that level go higher as a result of this communication campaign.

4. Media: (High Influence, Low Support) There is no question that the media plays a crucial role in our ability to communicate effectively. The Indian medias quest to

connect with its viewers, however, may force Indian outlets to take a negative stance towards the partnership (because of the negative impact it may have on retailers). It will be up to our communication messages to try to have the media portray Walmart in a positive light.

5. Employees: (Low Influence, High Support) Although Walmarts rank-and-file employees wont be playing a highly critical role in our ability to strategically communicate this venture, their support level to the project is a key to success. We need to have them buy in to the vision, so they can then move in-line with it, and help us execute it.

6. Suppliers: (High Influence, High Support) Our relationships with our suppliers is quite critical in our ability to make a smooth transition into the Indian market. They are highly supportive of the venture because of the monetary benefits it offers them, but we need to effectively communicate this partnership to make sure we get the best value and commitment from our suppliers.

7. U.S. and Indian Analyst Community / Potential Investors: (High Influence, Neutral Support) As publicly-traded companies, Walmart and Bharti need investment bankers and potential investors to be sold on their ability to manage this partnership - hence their high influence. Since their loyalty is to their employer, they have no vested interest either way, which is why their support is neutral.

8. Competitors: (Neutral Influence, Lowest Support) Although competitors us ually wont have very much influence, due to Indias retail landscape and possible hostile marketplace, they do wield more influence than usual. Also, just because of the nature of competition, theyre at the lowest possible support level. They want to see Walmarts partnership fail, but there are some benefits they may experience, like improved infrastructure.

9. Labor Unions / Trade Unions: (Low Support, Low Influence) Labor Unions and Trade Unions wont be the biggest fans of the partnership, but they wont have substantial influence either, at least from the primary perspective. Once employees are in place, that could change. It would be in our best interest to monitor and these groups, because, even with their low level of support ad influence, they will eventually have indirect influence via our employees.

10. Indian Real Estate: (High Support, Low Influence) Indian Real Estate market is going to receive stimulation with this partnership, as facilities need to be acquired. Hence they will support the partnership, but will hopefully wield little influence, which will give the company leverage.

The implication of these positions is the diverse and varied interests of the stakeholders, and the subsequent processes in which communication must be handled by Walmart. Although each stakeholder has a vested interest in the success or failure of this

partnership, each stakeholder sees a different aspect of the partnership through their viewfinder. Walmart must keep these varied perspectives in mind when developing a communications campaign that delivers an aligned, overall strategic message, but makes each constituent feel their questions are answered and portrays Walmart and Bharti in the best possible light.

The bottom line for most constituents is, Whats in it for me? They want to know how the information being communicated will impact them, their families, their businesses and their communities. So a clear and concise message is crucial to avoid miscommunication or misinterpretation by constituents (Argenti, Howell & Beck, 2005). As Dells CEO suggested, modifying a message to fit the different constituents is valuable and important to address their unique concerns. However, it should be considered that the message will likely move beyond the targeted group. So as Cendant learned, when growth is involved, Walmart must create a clear, controlled and consistent message to be followed strictly to ensure various constituents dont perceive the company as too complex (Argenti, Howell & Beck, 2005).

Having a unified brand message, such as Improvement and then looking at that message from the perspective of each constituent will allow Walmart to speak in harmony(Argenti, Howell & Beck, 2005) but still allow each stakeholder to feel aware of how the partnership will impact their life, ideally phrased to sound as though it is for the better.

In examining the four quadrants of the stakeholder analysis, Walmart must

consider the levels of influence and support that apply to each stakeholder when formulating the specific message for each.

Stakeholders in the Empower quadrant offer high support but low influence. In this case, Walmart should consider setting expectations for performance but work diligently to maintain open channels of two-way communication.

The constituents in the Monitor quadrant, with low support and low influence, must be treated with respect but also acknowledged as a need to know circumstance.

Stakeholders with high influence but low support are in the Engage quadrant. must be persuaded to buy in to the campaign. These constituents have a significant opportunity to damage Walmarts reputation and even its level of success if they do not agree with its actions,

The final quadrant, Partner, represents stakeholders who have both high influence and high support of the Walmart partnership. These parties are in a decision-making position and their reaction could heavily influence the other constituents. With that in mind, Walmart must now create some primary strategic communications.

Although, there is a vast range of constituents to communicate with regarding the joint venture, the primary messaging coalesces around four key themes that Walmart can leverage to reinforce its decision to enter the Indian organized retail market. Focus on these primary themes can drive financial confidence and market support from various stakeholder groups, if the messages are customized to be relevant to all audiences

(Argenti, Howell & Beck, 2005).

The first messaging opportunity for Walmart is to take advantage of its ability to bring affordable products to the Indian market (Bose, 2012). By leveraging the strength of its current sourcing model, Walmart can bring new merchandise to India at price advantages that competitors unlikely have the resources to mimic due to the sheer volume Walmart purchases to supply its global retail network (Bose, 2012). For Walmart, this advantage will likely further improve its pricing advantage; higher volume should equate to best/lowest wholesale pricing from suppliers. To bring this message to market, Walmart should consider creating a marketing communications plan targeted at the general public to promote products offered by the company. Through mass marketing communications and advertising, Walmart can set the expectation that it offers competitive pricing and access to products that other retailers may not be able to mirror. For the wholesale division, Walmart has the opportunity to frame its communications to local retailers to reinforce competitive pricing through its cash-and-carry business. Similar to the message for the general public, Walmart should also leverage its ability to supply a vast number of products, some of which may not have been readily available through other wholesalers.

The second messaging opportunity that Walmart should focus on is the contributions that the company will make to the retail infrastructure in India (Bose, 2012). Although this will be the crux of Walmarts distribution strategy in this new market, it will also create benchmark practices within the country, which in turn may force competition to raise standards in the marketplace in order to compete. This work

will be contingent on Walmart setting clear expectations with suppliers, regulators and industry coalitions looking to advance the infrastructure for Indian organized retail sector. By leading structural contributions to the retail industry, Walmart has an opportunity to emerge as a market leader and to set standards that it already has in place for other markets, thus supporting the development of a more efficient and innovative marketplace. This message should primarily be targeted at competitors, suppliers, regulators and government agencies.

The third area of opportunity for Walmart is to communicate the positive impacts Walmart can have on the Indian economy through job creation in the Indian market place. With plans to expand its back-end infrastructure along with wholesale cash-andcarry operations and franchised retail operations, Walmart will likely hire local resources for this work. Additionally, the construction industry as well as trucking industry in India will benefit from the increased need for their services if Walmart is successful in building out the back-end infrastructure. Primary audience for these messages would include: regulators/government agencies, labour unions/trade organizations, prospective employees, media and shareholders.

And the fourth theme for our primary strategic communication would be to create discussions, partnerships and initiatives in the sociopolitical environment of India. Walmarts reputation for corporate and environmental responsibility is not enviable by any company in the world. In When Social Issues Become Strategic, Bonini, Mendonca and Oppenheim tell us that companies not only need to understand the sociopolitical

landscape that surround an organization, but also need to step up and take leadership in the conversation and its development. It can no longer be a reactionary situation, but rather should be at the core of the business strategy (2006). By getting involved in the betterment of India, with regards to the environment, employee welfare or any other sociopolitical concerns, Walmart can potentially shirk the inevitable backlash from activist agencies who see Walmart as an unnecessary evil. Rather than being viewed as a foreign invader, creating havoc in India only for monetary gain, it might be able to change opinions instantly by doing good works in the community. These communications would largely go to media outlets, government agencies and regulators, shareholders and the general public of India.

Furthermore, we would be remiss if secondary messages were not taken into consideration for future communications. As the partnership advances, Walmart will need to do ongoing communications with key stakeholder groups in order to maintain market and consumer confidence.

As competitors emerge or grow, marketing communications should be constantly looked at to ensure that the general public maintains a positive view of the company and is reminded of the value delivered through Walmart retail and wholesale outlets. Suppliers must be kept in the loop regarding market demands and shifts. Government agencies/regulators may have a need for ongoing reporting of the partnership. Investors and the analyst community will require regular updates of financial performance in the form of quarterly earnings calls and annual reports. Environmental agencies and other

stakeholder groups such as labour unions and advocacy groups will be interested in developments that may impact their own stakeholder. The real estate industry will be interested in growth plans. Walmart will also want to continue to monitor media portrayal of the partnership in order to manage and curb any possible public relations concerns. Competitors should be monitored but also approached if opportunities arise to further build alliances to ensure the continued growth of the Indian organized retail industry. And of course, ongoing communications with employees within the company is critical to maintaining morale and corporate stewardship.

Throughout the lifecycle of the partnership, leaders should continue to monitor and assess communications needs and match them to the changing needs of the business (Arengti, Howell & Beck, 2005). Communications supporting this partnership, will require vigilant monitoring of many constituents and should be part of the overall corporate strategy (Arengti, Howell & Beck, 2005). Beyond the tactical elements of the communications plan, serious consideration should also be made as to how both Bharti and Walmart leaders interact and communicate with each other and about the partnership. By leveraging strategic communications, leaders of both companies can shape public opinion and support of the partnership.

References

Argenti, P., Howell, R., Beck, K. (2005) The strategic communication imperative. MIT Sloan Management Review, 46(3), 83-89

Bonini, S. M. J., Mendonca, L., and Oppenheim, J. (2006) When social issues become strategic, The McKinsey Quarterly, 2, 19-31

Bose, I. (2012). Wal-Mart and Bharti: Transforming retail in India. Asia Case Research Centre. pp. 1-18.Retrieved from: http://embanet.vo.llnwd.net/o18/USC/CMGT500/Week4/docs/CMGT500_w04_ Walmart_and_Bharti_JV_Case.pdf

Gomes-Casseres, (1993). Managing international alliances: A conceptual framework. Harvard Business Review, 1-20.