Wal-Mart’s India Deal

After years of looking for a way into India’s fast-growing but highly protected retail market, Wal-Mart Stores Inc. is trying a backdoor approach—teaming up with an Indian phone company to court the country’s burgeoning middle class.

The world’s largest retailer, whose sales growth has slowed at home in the U.S., said it plans a joint venture with Bharti Enterprises Ltd., owner of one of India’s biggest cellphone networks, to open a yet-to-be-named store chain here.

The alliance with Bharti would allow Wal-Mart to skirt Indian regulations that bar most foreign retailers from investing directly in the country’s retail sector.

The deal, structured to capitalize on loopholes in India’s restrictions on foreign direct investment, is said to call for Wal-Mart to provide logistics and sourcing expertise, while Bharti would franchise retail units. The alliance with Bharti means that Wal-Mart would get a head start on rivals such as Carrefour and Tesco in the potentially lucrative market.

The retailer will not be able to own any of the stores bearing its name, but is expected to opt for a franchising arrangement with its local partner, a model it has previously used only in small and unsuccessful ventures in Indonesia and Hong Kong in the 1990s. The US company is expected to supply its own expertise in supply chain and brand management, and will probably plan to increase its stake in the venture as and when FDI restrictions are relaxed.

Perseverance always pays, whether in love or in business. If one tracks Wal-Mart’s final entry into India from the time it started negotiations, its behaviour and body language would resemble the determination and single-minded focus of Arjuna in Mahabharata. And perhaps this is where Tesco lagged behind, when it came to Sunil Mittal’s selection of a partner for his retail foray.

“It is the last and a very big frontier,” Mr. Mittal said in an interview at a conference of the World Economic Forum on Monday in New Delhi. “Brazil is done. China is done. This is the last Shangri-la of retail. Where will Tesco or Wal-Mart get their growth? Here.” Tesco is the No. 1 retailer in England. In an e-mailed statement, Wal-Mart, based in Bentonville, Ark., confirmed that a memorandum of understanding had been signed. Wal-Mart has stumbled recently in some of its overseas markets, in part by misjudging local tastes. This year, for instance, it pulled out of South Korea and Germany.

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