Opportunities and Challenges for Wal-Mart in the Indian Retail Sector: Project Proposal

INTRODUCTION

The Indian economy has been growing fast since the early 1980s. The growth rate of the economy has picked up speed since economic reforms were initiated in the year 1990s. Most of the sectors of the economy like Banking, Insurance, and Telecom have experienced high periods of growth. Economic reforms have opened up the economy and allowed the foreign players to set shop in the country. The Indian government now allows foreign investments of up to 49 percent in most of the key sectors of the country (Mehdudia 2013). However, one of the key sectors of the economy where foreign investment is not allowed is the Indian Retail Sector. Indian Retail sector is one of the biggest in the world and employs millions of people (Shinde 2010). The sector allows gives livelihood to millions of other people indirectly. However, most of the Retail sector is run in the conventional way where middle men dominate scene. The number of organized players in the sector is very less and the sector is dominated by unorganized players called as Kirana Stores. The Indian retail sector offers a number of opportunities for the foreign retailers like a huge untapped market by the organized players. The rising income levels of the Indian middle-class customers is another he opportunity before the foreign retailers (D&B n.d.). At the same time, the Indian retail sector also poses a number of challenges to foreign retailers in the form of unfavourable regulatory mechanism, poor infrastructure, and limited understanding of the local market. The successive attempts by the government to open the retail sector for foreign investment have failed due to the opposition from the players in the unorganized market and from the opposition (Tandon 2014).

The sheer size of the retail sector offers a large number of opportunities for the foreign players in the form of a vast untapped market. However, the retail sector also poses a lot of challenges in the form of continued opposition from both the state and central governments, lack of proper infrastructural support, and lack of support from the government. The current research proposal looks into the opportunities and challenges faced by Wal-Mart in the Indian retail sector. The study first looks into the background information regarding the Indian retail sector and the opportunities and challenges that foreign retailers might face while operating in India. The experience of Wal-Mart while trying to enter the Indian market will be looked into next. The past literature in the field will be analyzed to identity the gaps. Taking the gaps into consideration, a research proposal is put forward with the suggested research methodology and limitations.

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OUTLINE OF THE INDIAN RETAIL SECTOR

The Indian retail sector is one of the biggest and most promising in the world. It is also one of the biggest in terms of its sheer size when compared with other major economies of the world. The size of the Indian retail sector is estimated to be around US$ 450 billion (TOI 2012). The huge population of the country also makes India’s retail industry as one of the fastest growing in the world. However, most of the retail sector in the country is dominated by the small Kirana stores. These kirana stores are operated by trading families and are passed from generation to generation. The fragmented nature of the Indian retail sector makes it inefficient. Smaller retailers cannot procure directly from the manufacturers of goods and hence could not enjoy the same economies of scale as that of the organized players. A typical retailer procures goods from a local wholesaler who in turn procures from a distributor. The number of middle men increases the cost of goods by the time they reach the final customer. The limited scale of small retailers’ operations also means that they cannot offer good service quality to the customers. Outlets of small retailers in the unorganized retail sector are poorly maintained and do not any facilities like air conditioning. Many analysts have reckoned the Indian retail sector to be the most inefficient in the world. Opening of the retail sector is supposed to give a lot of benefits to the consumers. Organized retail constitutes just 5 percent of the total market and is dominated by a few players like Reliance, Trent, and the Fortune Group (TOI 2014).

WAL-MART IN INDIA

Wal-Mart entered the Indian market in the year 2006 in partnership with India’s Bharti Group (Kinetz 2012). It planned to open retail outlets when the retail sector is finally opened for private players. Initially it opened some wholesale outlets across India. While Bharti Group managed the front end retail outlets, Wal-Mart managed the back end operations like supply chain ad cold chains. Wal-Mart was the first foreign retailer to enter the Indian retail market. However, the delay in the opening of the Indian retail sector to foreign players made it difficult for Wal-Mart to expand its presence in India. As a result, Wal-Mart exited from its partnership with Bharti in 2013 (Shankar 2014). However, it continued its wholesale stores in the country. Wal-Mart brought out its stake in the joint venture from Bharti. However, it continued to operate its wholesale outlets in the country. Wal-Mart was still keen of expanding in the Indian market as and when FDI is completely allowed in the sector. Wal-Mart was also contemplating to enter Ecommerce business in India.

RESEARCH QUESTIONS

Below are the research questions for the proposed study:

• What are the opportunities and challenges for Wal-Mart in the Indian retail sector?
• How can Wal-Mart overcome the hurdles to enter the Indian retail sector?
• Will the entry of foreign retailers pose a serious threat to the domestic small retailers in India?

Aims and Objectives of the Current Research

Based on the above research questions below are the aims and objectives of the current research:

• To empirically analyse the opportunities and challenges for Wal-Mart to operate in India.
• To come with suggestions for Wal-Mart to overcome the hurdles to enter and operate in the Indian retail sector.
• To understand the problems posed by the entry of foreign retailers on the domestic Indian retailers.

LITERATURE REVIEW

There is a good academic literature on FDI in the Indian retail sector. Most of the studies focus on the impact that foreign retailers have on the Indian retail sector and the opportunities and challenges for retail sector in India. The literature review first looks into some international studies on FDI in retail sector and later focuses on some India specific studies.

There are some studies that focus on the benefits that FDI in retail sector would bring to the host economy. These studies will help retailers to better project the potential benefits that their entry would bring to the local economies. Andreas (2005) studied the impact that the entry of foreign players will have on the economies of host countries. His study used published secondary data and used econometric modelling to study the impact of the entry of retail firms on the growth rates of local economies. The study has found that the entry of foreign players has a positive spill over effect on the economic growth of host nations due to technology transfer and the inflow of physical capital.

FDI in retail sector was also founded to be having positive effects on the host country’s economy beyond the simple monetary gains it brings. In a study done by Hawkes (2005), the effect of FDI in retail to bring a nutrition transition was examined. Data for the study was collected from the secondary published reports and databases. Analysis of the data has found that the increase in the FDI into countries has resulted in the amount of money invested in the food processing sector. FDI was found to be more effective than trade in increasing the acceptability of processed foods. The authors conclude that FDI in retail is a key mechanism to bring non financial benefits to the host countries like increased acceptance of processed food.

In a study conducted by Mann and Byun (2011), the authors used the Porter’s (1990) diamond model to identify the opportunities and challenges for foreign retailers to operate in the Indian retail sector. The study was exclusively focussed on the Indian apparel sector. As part of the study, the authors have conducted research thorougha review of the secondary published material that is available on the Indian retail sector like academic journals, publications by trade associations, and the websites of government and private players. After analysing the data collected from the secondary sources, the authors have identified some of key opportunities and challenges to foreign players for operating in the Indian market like inability to understand the local market conditions, lack of proper infrastructure, competition from local players, etc.

In a study done by Joseph et al. (2009), it was found that there was no significant impact on the domestic retail sector due to the entry of foreign players. The study argues that both the traditional kirana stores and the modern organized retailers can exist side by side with their markets. It was found in the study that just 1.7 percent of the traditional kirana stores were closed due to the entry of foreign players. The authors analysed secondary data on the impact that foreign retailers had on the Indian retail sector. The authors have concluded that many local retailers have successfully competed with the foreign players and gave good competition to them. The study has also found that FDI in retail also had a positive spill over effects on the economy as many foreign retailers source from the local partners.

In a study by Srinivas and Jagtap (2007), the authors study the trends in the Indian retail sector and identify the opportunities for foreign retailers in India. The authors opine that the increasing income levels of Indian consumers and brand recognition makes India as an ideal destination for foreign retailers. The paper also explores the role of government policy in the growth of the sector and need for further reforms. The limitation of the study is that it depended upon the published reports on Indian retail sector and did not focus on empirical analysis of primary data collected exclusively for the study.

In a study done by Halepete et al. (2008), the authors have tried to explore the challenges that foreign retailers might face in India. For the study the authors have the case study approach and tried to analyze the experiences of Wal-Mart that had small scale operations in the country in the form of wholesale stores. Apart from just studying the Indian retail market, the authors have analyzed Wal-Mart’s experiences in other countries like Germany and South Korea where it had shut its operations. The authors have applied the Dunning’s eclectic theory (in international expansion) to analyze the factors that contributed the failure of Wal-Mart in Germany and South Korea. The same theory is then applied in the context of India to understand and analyze the possible advantages and disadvantages for Wal-Mart in India. Findings of the study showed that Wal-Mart (and other prospective foreign retailers that want to enter India) face a lot of challenges in the form of ownership and locational issues. A major limitation of the study is the case study analysis followed did not consider the opinion from the executives in the Indian retail sector.

In a study by Sahoo and Mishra (2008), the authors studied organized retail in India in the context of Wal-Mart. Case study approach was used for the study. In the study the authors explore the opportunities and challenges for Wal-Mart to operate in the Indian retail market. After outlining the opportunities offered by the Indian retail sector, the challenges before Wal-Mart to expand in the Indian market are analysed through a case-study approach. The authors conclude that the best way for Wal-Mart to expand in the Indian retail market is to enter into strategic partnerships with the Indian retailers. While the case study approach was helpful in analysing the problems faced by Wal-Mart in India, the lack of first hand empirical analysis was a serious limitation of the study.

As is clear from the above literature review, studies done in the past related to prospects for foreign players like Wal-Mart in the Indian market were either based on the models developed by other researchers or basing on the data collected from published secondary sources. In contrary to the past research, the current research will not use the frameworks that are already developed by other researchers. It is proposed that the current research will be based on the responses collected from the executives working with the retail sector. The study will be revolutionary in that no past studies focused on taking first hand responses from the people who are working in the industry.

RESEARCH DESIGN

Overall Approach to the Project

As underlined in the gaps in the literature, despite being a well researched topic in the area of business, most of the past studies were limited to analyzing the published secondary data or analyzing the general trends in the industry. The main gap identified in the literature is the lack of studies that have empirically examined the opportunities and challenges for foreign players to enter the Indian retail sector. The proposed research is aimed at filling this gap.

ANALYTICAL FRAMEWORKS

For the current research, multiple method research will be used for collecting data. Multiple method research refers to the use of more than one data gathering technique for the purpose of collecting the data required for the study (Saunders, Lewis, and Thornhill 2012). Empirical research conducted by taking the responses of the executives in the retail sector will be conducted to understand the ground level challenges of the Indian retail sector. The current research will use both quantitative and qualitative research techniques for answering the research questions. While quantitative research involves analyzing the data from secondary sources, qualitative data analysis enables in getting insights that are not possible in quantitative research.

RESEARCH METHODS

As suggested above answers to the above research questions will be arrived after conducting appropriate research. The research methods that will be used for the proposed research are: analysis of secondary data through basic descriptive statistics and collection of responses from the executives working in the Indian retail sector through in-depth interviews. This will help in understanding the current trends of the Indian retail sector and issues faced by Wal-Mart in India. Use of the secondary data for the study is justified due to the limitations for an academic study of this size. Collection of primary data will be not be possible due to the limitations in time and budgetary resources that are at the disposal of the researchers. Secondary data that is required for the study is collected from sources like website of Wal-Mart, online databases, trade journals, other websites, and printed sources. Secondary data sources that can accessible through the college library will be particular importance for the present study. Relying on the secondary data will be beneficial for a number of reasons like ability to rely on authoritative sources, access to cheap or inexpensive data, and ability to reduce any mistakes in the data collected. However, secondary data also suffers from a lot of limitations like lack of flexibility to contact the required sources and the possibility of reproducing data with errors.

Data from the executives of the Indian retail sector will be collected through in-depth interviews of 30 executives from the sector. In-depth interviews are a method of qualitative research where the researchers ask questions to the respondents personally. Traditionally, in-depth interviews are done face to face (Crossman n.d.). However, in-depth interviews are also being conducted on the telephone and online. Being a qualitative research tool, in-depth interviews allow researchers to ask open-ended questions so that he can get the required information in a flexible way (Kvale 1996). The key justification for in-depth interviews for the present study is the limited sample size that will be used for collecting the data. The main advantages of using in-depth interviews are the ability to get the data with the desired flexibility and ability to contact the respondents over the phone or online questionnaires. On the other hand, the main weakness of in-depth interviews is the lack of coherence in the interview process due to the reliance on open-ended questions and the inability to group the respondents at a single place. In-depth interviews will help in getting personal opinions of the executives regarding the impact of the entry of foreign retailers in India. Respondents will be first asked some close ended questions which solicit their opinion on the challenges before Wal-Mart in general and the Indian retail sector in particular. After that, a few open ended questions will be asked. Open ended questions will a lot of flexibility in giving their responses (Babbie 2001). Respondents will be free to give their responses in the form of a short oral reply. Replies to open ended questions will be recorded through audio recording software on mobile phones or personal computers. The recorded responses will be content analysed to identify the recurring theme of responses by the multiple respondents.

CONCLUSION

The Indian retail sector is the last major retail Industries in the world that is left to be explored by the foreign players. As the western retail markets got saturated and the big retailers in the world find it difficult to expand in some eastern markets like China, it is imperative that big foreign retailers enter the Indian retail sector (Lewis 2012). Big international retailers like Wal-Mart have tried to enter India but failed due to the problems faced by them there (Halepete et al. 2008). The existing studies that have analysed the opportunities and challenges for foreign retailers in general and Wal-Mart in particular that want to operate in the Indian retail sector were based on the third party models developed by other researchers and secondary published data. These studies offer no concrete guidelines for Wal-Mart which was struggling to expand in the Indian retail sector. The current research will fill this gap by conducting an empirical study on the opportunities and issues before the Wal-Mart to enter India. Data collected from the responses of executives will help in coming out with appropriate suggestions for Wal-Mart to overcome the barriers in entering the Indian retail sector. The study will also contribute in understanding the problems that the domestic retailers in India will face due to the entry of big foreign retailers into India. As the study will be based on the responses of the executives from the industry, it will also contribute in understanding the ways in which domestic retailers can take on the competition from big foreign retailers.

RESOURCE REQUIREMENTS

Since the proposed will utilize both the published secondary data and primary data collected through interviews, multiple resources will be needed to complete the project. The secondary data regarding the Indian retail sector will be collected from online sources. Some secondary data that is not available free on the Internet can be accessed through our college library. Interviews of the executives of Indian retail sector will be done through email questionnaires and by contacting them personally. In cases where executives need to be interviewed personally, services of an external marketing research agency will be utilized.

ETHICAL CONSIDERATIONS

The current research will adhere to some ethical considerations. Secondary data required for the study will be collected only from freely available sources on the Internet. Data from copyrighted sources will not be collected without taking permission from the relevant sources. Bell (2005) suggested that the identity of respondents for a study involving primary data collection should be confidential. In the case of information collected from personal interviews, the details of the executives like their names and the companies they work for will not be published without taking prior approval from them.

LIMITATIONS OF THE STUDY AND CONTINGENCY PLANS

The study has a number of limitations in view of the time and resource constraints. Data collected from the 30 executives working may not represent the opinion of the Indian retail sector. However, the sample size for the collection of responses from the executives in the retail sector cannot be increased beyond 30 due to the resource constraints. Similarly, executives from all the key areas of retailing like food, technology, apparel, online, etc. may not be covered with the limited sample size proposed for the study. The study will be limited to Wal-Mart. Moreover, inability to access premium secondary data may pose a big limitation for the current study because of the limited resources available for a project of this kind.

Inability to get responses from the executives of the Indian retail sector can jeopardise the research plan. In case of any inability to get responses from the desired number of respondents, efforts will be made to contact executives in the retail sector through the alumni relations cell of the university.

 

REFERENCES

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