UNIVERSIDAD DE LAS AMÉRICAS PUEBLA

ESCUELA DE NEGOCIOS Y ECONOMÍA

LICENCIATURA EN ADMINISTRACIÓN DE NEGOCIOS INTERNACIONALES
ADMINISTRACIÓN INTERCULTURAL
PROFESOR: ELIZABETH SALAMANCA PACHECO
OTOÑO 2015
INDIA CASE
INTEGRANTES:
Raquel Carrillo Durán
150360

Alexis Aparicio Ames

149779

Virginia Guadalupe Betancourt Garibay

150323

Andrea Chávez Saldaña

150921
 WAL-MART IS COMING TO INDIA
Problem / Opportunity

India represents a great opportunity for Wal-Mart to expand its market. The
retailing industry is expected to grow during the next years. India’s middle class is
growing; they are earning and spending more. At the same time, Wal-Mart entry
might benefit in social economic aspects the Indian society.

Cultural Aspects

India is a large, diverse, and technologically advancing country; however it is also a

really poor one and has high rates of unemployment. This country represents great
opportunities for FDI in different industries. The technological development (which
generates an important part of employment) has given it an important name around
the world, however its retail trade industry has not developed as expected. In fact,
the large-chain retail stores, which are benefiting from technological tools, make up
only about 3% of the retail sales in India. The lack of investment in this industry is
not the only problem. The retailing business is unorganized. Most of the millions of
“kirana” shops are quite small (500 sq. feet or less), have very few items to sell,
and little capital for growing. (Swamy 2005) These millions of “kiranas” sell all
kinds of daily needs, including milk, vegetables, and fruits. However refrigerating
perishables are rare because they are in its infancy stage.

There are also important aspects related to the customer’s culture. They find
retail shopping frustrating, time consuming, inefficient, and expensive. India is
decades behind several other countries where the retailing business is dominated
by supermarkets and shopping malls; as well as the convenience and pleasure of
shopping that they provide. It is very difficult to find sufficient space for locating
superstores or malls on or near the main streets of India. Indians are non-
confrontational, value relationship building and harmony, so they avoid hard
selling, pressure tactics, and any sort of conflict or confrontation. Seniors usually
make final decisions. Discounts are expected and so are bargaining. Typically the
customer has a price in mind and bargains to get to that price. The vendors
normally are prepared for negotiation and the price to which they need to settle to.
(Culture Crossing, 2014). The middle class is growing, the centuries old tradition of
self-denial and saving for the future is giving way to their appetite to consume and
enjoy here and now. The 65% of its people are under 35. However, it is also
important to consider that Indian consumers are known to be price sensitive.
(Paromita, 2009)
 Finally, the labor condition is also important for the case topic. Labor in India
is more organized and powerful as compared to its counterpart in many other
countries. For example, according to the Indian labor laws, any company
employing more than 100 workers cannot fire employees without first obtaining
government permission to do so. Likewise, no worker can be made to work more
than 75 hours of overtime a quarter (Rai 2006).

Theoretical Literature / Example

Inside the business literature there are certain parameters established by

researchers related to the decision of expanding abroad. These characteristics are
closely linked to the case of Wal-Mart entering to India, due to the fact that this
multinational must take into consideration all these aspects in order to have
success overseas. Based on the book International Business, the three basic
decisions that must be considered by any multinational that is planning to go
overseas are: Which market to enter? When to enter? , and on what scale? The
attractiveness of a country for being a potential market to invest in depends on the
balance between costs and risks associated at practicing business in that country
(Hill, 2011).

The first decision (Which market to enter?) is based on the potential profits
in a long term offered by the country selected for the expansion. The second
decision (Moment of entry) will define a variety of advantages for the multinational,
but at the same time might generate certain risks. An early entry (when a
multinational enter into an external market before other competitors) can give the
company a first-mover advantage. This means that it can take the market in a
significant way, establish a strong brand name, have advantages in costs over the
competitors, etc. However, there also exist certain disadvantages of entering first
to a new market, such as: pioneer costs that the first must assume and the second
might avoid, time and money on understanding the new market, etc. A late entry
occurs when the multinational enters after others have already taken the market.
The advantages of entering second is that the company can benefit observing and
learning from the others mistakes in terms of costs and analysis of the market, but
it also involves the risk of finding a market taken by really strong companies and
cannot easily enter on it (Hill, 2011). The third decision (On what scale?) refers to
the investment and speed in which multinational will enter into the new market.
 One example closely related to the case of Wal-Mart in its plans to enter
India, is the case of the British retailer Tesco, referring to its growth international
strategy. In Asia, Tesco has a long history of entering into joint ventures with local
partners. For this expansion, Tesco took into consideration the three decisions
previously mentioned for expanding abroad. At the beginning of the 90’s its
capabilities in terms of marketing and branding established it as the biggest retailer
in the UK. In 1998 it started its expansion in Asia, taking great part of different
markets such as: Thailand, South Korea, Malaysia, and China. This expansion
helped Tesco to become one of the most important multinationals in the world,
inside the retailing industry; along with Wal-Mart Carrefour, and Ahold (Hill, 2011).

Tesco associated with local partners that understand in a huge way the
Asian markets, but that doesn´t have the financial strength and retail capabilities
that it actually has; so both were benefited by this alliance and the probabilities of
success were huge.
Another theory that can be applied inside this case is “The Four Dimensions
of Distance”, presented on the book Transnational Management, which can
dramatically change a company’s assessment of the relative attractiveness of
foreign markets. This theory is related with this case due to the fact that it involves
an American multinational with possibilities of entering in an external market
(India). The types of dimensions influence business in different ways. These four
dimensions are: Cultural Distance, Geographic Distance, Administrative or Political
Distance and Economic Distance.

The first one (Cultural Distance) establishes that a country’s cultural

attributes determine how people interact with one another and with companies and
institutions. Differences in religious beliefs, race, social norms, and language are
all capable of creating distance between two countries. Indeed, they can have a
huge impact on trade. (Bartlett and Beamish 2014). The second one (Geographic
Distance) says that in general, the farther you are from a country, the harder it will
be to conduct business in that country. It is necessary to consider the physical size
of the country, average within-country distances to borders, access to waterways
and the ocean, and topography. Man-made geographic attributes also must be
taken into account—most notably, a country’s transportation and communications
infrastructures. Obviously, geographic attributes influence the costs of
transportation. It is important to keep both information networks and transportation
infrastructures in mind when assessing the geographic influences on cross-border
economic activity (Bartlett, 2014).
 The third dimension (Administrative or Political Distance) refers to the fact
that the historical and political associations shared by countries greatly affect
international trade. Finally the fourth dimension (Economic Distance) mentions that
the wealth or income of consumers is the most important economic attribute that
creates distance between countries, and it has a marked effect on the levels of
trade and the types of partners a country trades with (Bartlett, 2014).

The possibility of Wal-Mart entering to the Indian market is totally related to

the study of these four dimensions. The multinational is planning to get into another
continent and to enter into a completely different market in cultural aspects. Its
necessary to plan how does the infrastructure and transportation costs are going to
be covered. However this analysis doesn´t finished here, the economic aspect
would also have a great influence in the decisions to be taken, due to the fact that
India is a completely different country in aspects such as wealth and income of the
potential market. All these cultural barriers must be considered by Wal-Mart in
order to have success, having always into consideration that it is not the same to
open a new store in United States or Canada, that opening in such a culturally
different country as India. Now it cannot only replicate its business model, it has to
generate a really different multicultural strategy. However it will certainly find
opportunities in exploiting resources and opportunities of the new market.

Possible Solutions (Positive and Negative Consequences)

1. Be the first global retailer to enter the market with a joint venture with Bharti
Group or any other company that has the adequate knowledge of the Indian
market, with the requirement of being the senior partner.

Positive Consequences

 Wal-Mart would have access to the knowledge of the local partners;

besides, it would share the development costs and possible opening risks.
 By being the first transnational retailer to enter the market, it would have the
capability to dominate it and catch the demand through the establishment of
a strong brand; since western brands are an indicator of social status for the
Indian population.
 Take advantage of the distribution channels of the local corporations in
order to reduce research and logistic costs.
 Minor investment than if it enters as a wholly owned subsidiary.
Negative Consequences

 Lack of the entire control about decisions to be taken and the infrastructure
of the joint venture.
 Interests conflicts because of the diverse nationalities of the parties
involved.
 Difficulties on finding a local partner willing to enter into a joint venture as a
minor partner.
 In case of breaking the joint-venture relationship, the partner might know
some of Wal-Mart strategies, reproduce them, and become a future strong
competitor.

2. Enter the Indian market with a wholly owned subsidiary before international
competitors, in order to capture the market.

Positive Consequences

 Wal-Mart would be able to protect its technology, strategies and know-how

of the retailing industry.
 Have total control over the operations in different countries, which is needed
to participate with a global and strategic coordination, in order to be able to
use the income obtained from a country to backup competitive risks in
another one.
 Having 100% of the profits generated in the foreign market.

Negative Consequences

 High costs and risks about how entering into the Indian market and Indian
culture research expenses.
 In case of being the first global retailer to enter the market, it would probably
have pioneer costs that would have to cover alone. Foreign business
system of the country is different than the one of the home country.
 Dealing alone with foreign authorities and policies, as well as difficulties
adapting its business system to the country conditions without the
knowledge and support of a local partner.
  “Indian government has a requirement for the retailers in which at least 30%
of their suppliers most be Indian companies, so this limited in a certain way
the distribution channel plans of Wal-Mart” (Loeb, 2013).

Conclusion (Selection of Alternative / Recommendations)

Entering to India is an opportunity for Wal-Mart, not only to expand its

operations towards a potential market, extend its sales and take advantage of
the benefits offered by a growing economy, but also to diversify its suppliers
and not depend on a single country. The best option is to enter the Indian
market in a joint venture with Bharti Group or any other company that has the
necessary knowledge of the local characteristics and necessities. This would be
the most reasonable strategy in order to be the first global retailer to arrive, and
exploit all the benefits that it represents. Retailing is a local business that
requires full knowledge and a clear vision of the host country culture, even for a
leader in the retailing industry such as Wal-Mart. The multinational must be
aware of any changes inside the market, in order to manage its strategy in the
best way possible, considering the positive and negative aspects of a joint
venture or any other entry mode.

It is a reality that the entrance of Wal-Mart to India might generate

unemployment, because of the great impact that its investment will bring out in
the operations of the “kiranas”. However, it is necessary to have in mind that
kiranas would be reduced with or without the Wal-Mart investment, due to the
fact that local retailers are doing its best to continue growing as well as the
innumerable technological developments that are affecting the way in which
business are performed, so as a result it might also exist the possibility of still
finding high rates of unemployment.

Wal-Mart’s entry is an opportunity for India to develop as a country in social

and economic aspects. It would receive foreign direct investment, that will
generate a great list of positive effects for the country, such as: productivity and
economic growth, lower prices on medicines, standardized and better quality
products for population and tourists, infrastructure development, and waste
reduction.
References

Hill, Charles W. L. (2011). Negocios Internacionales. México: McGraw-Hill.

Bartlett, Christopher & Paul Beamish. (2014). Transnational Management. México:

McGraw-Hill.

Culture Crossing Guide. (2014). India. 20 de Agosto de 2015, de Culture Crossing

Guide. Sitio web:
http://guide.culturecrossing.net/basics_business_student_details.php?Id=22
&CID=96

Loeb, Walter. (2013). Walmart: What Happened In India?, Forbes. Sitio web:
http://www.forbes.com/sites/walterloeb/2013/10/16/walmart-what-happened-
in-india/

Narendra C.Bhandari. (2010). WAL-MART IS COMING TO INDIA - THE CASE.

Journal of International Academy for Case Studies, 16, 79-89. 18 de
Agosto de 2015, De Pace University, New York

Paromita Goswami, Miridula S. Mishra (2009) "Would Indian consumers move

from kirana stores to organized retailers when shopping for
groceries?", Asia Pacific Journal of Marketing and Logistics, Vol. 21
Iss: 1, pp.127 – 143)

Rai, Saritha (2006). Labor rigidity in India keeps firms on edge, International
Herald Tribune, Internet Edition, August 19.
http://www.iht.com/articles/2006/02/09/business/toyota.php

Swamy, Subramanian (2005). FDI in retail must be allowed, rediff.com Retrieved

August 19, 2015 IST from
http://www.rediff.com/cms/print.jsp?docpath=//money/2005/feb/24swamy.ht
ml
 Case Analysis Wal-Mart

India represents a great opportunity for Wal-

Mart to expand its market. The retailing
industry is expected to grow during the next
years. India’s middle class is growing; they are
earning and spending more. At the same time,
Wal-Mart entry might benefit in social
economic aspects the Indian society.

India is a large, diverse, and Example: Tesco retailer in Asia

technologically advancing country; Theory: Four Dimensions of Distance
however it is also a really poor one and
(Bartlett)
has high rates of unemployment.
Customers often find retailing shopping Basic Decisions for Entrance (Hill)
frustrating, time wasting, and expensive,
they even find an special harmony about
unorganization. The westernized products
have become a symbol of status, specially
for the youngs.

1.- Be the first global retailer to enter the market with a joint venture with Bharti
Group or any other Indian company, with the requirement of being the senior
partner.
2.- Enter the Indian market with a wholly owned subsidiary before international
competitors, in order to capture the market.

S1

Positive:
* Access to the knowledge of the local partners; besides, it would share the development
costs and possible opening risks.
* First entry advantages.
* Take advantage of the distribution channels of the local corporations in order to reduce
research and logistic costs.
* Minor investment than if it enters as a wholly owned subsidiary.

Negative Consequences
* Lack of the entire control about decisions to be taken and the infrastructure of the joint
venture.
* Interests conflicts because of the diverse nationalities of the parties involved.
* Difficulties on finding a local partner willing to enter into a joint venture as a minor
partner.
* In case of breaking the joint-venture relationship, the partner might know some of Wal-
Mart strategies, reproduce them, and become a future strong competitor.
S2

Positive Consequences
* Wal-Mart would be able to protect its technology, strategies and know-how of the
retailing industry.
* Have total control over the operations in different countries, which is needed to
participate with a global and strategic coordination, in order to be able to use the income
obtained from a country to backup competitive risks in another one.
* Having 100% of the profits generated in the foreign market.

Negative Consequences
* High costs and risks about how entering into the Indian market and Indian culture
research expenses.
* In case of being the first global retailer to enter the market, it would probably have
pioneer costs that would have to cover alone. Foreign business system of the country is
different than the one of the home country.
* Dealing alone with foreign authorities and policies, as well as difficulties adapting its
business system to the country conditions without the knowledge and support of a local
partner.
* Indian government has a requirement for the retailers in which at least 30% of their
suppliers most be Indian companies, so this limited in a certain way the distribution
channel plans of Wal-Mart (Loeb, 2013).

The best option for Wal-Mart is to create a Joint Venture with a host country national firm in
order to acquire knowledge of the Indian market and also to take advantage of entering a
growing economy. We are aware that the entrance of Wal-Mart may affect the “kiranas” and
also generate unemployment. However, “kiranas” will eventually decrease in number
because of the technological developments and because of the big Indian retailers.
For India, the entrance of Wal-Mart will benefit in these ways. It would receive foreign
direct investment, that will generate a great list of positive effects for the country, such as:
productivity and economic growth, lower prices on medicines, standardized and better
quality products for population and tourists, infrastructure development, and waste
reduction.