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Walmart becomes the largest investor in the Indian online retailer Flipkart

May 17th, 2018 2:38 pm | By admin | Posted In Business News

This week the business world received shocking news when Walmart acquired the control of the successful Indian e-commerce marketplace Flipkart through a billionaire deal. It is not only that Walmart invested $16 billion to have a presence in the Indian online retailer, but that the investment was the most important purchase made in the e-commerce sphere and was the largest transaction made by a foreign company to buy a stake in an Indian firm.

 

For Walmart, the future now seems better in the Indian e-commerce business. With its new 77% ownership of Flipkart Private Limited, the company behind the Flipkart brand, the giant retailer hopes to improve its position in the Asian online market. According to the statement published by Walmart, “Flipkart will leverage Walmart’s omni-channel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while Flipkart’s talent, technology, customer insights and agile and innovative culture will benefit Walmart in India and across the globe.”

 

The interest in India might seem obvious—India is a huge market with one of the largest populations in the world at 1.3 billion people. Not only is it the population of the Asian country that makes it such an ideal target for ecommerce deals, but  India also has a growing economy with a rising middle-class that purchases and consumes many products, mirroring many of its Western and European counterparts. In the traditional retailing channel, Walmart operates 21 “cash and carry” outlets in India with no presence on e-commerce. Although the Indian e-commerce market is still small in comparison to the country’s size, it is already the tenth largest in the world, according to e-Marketer, with estimated sales of $21 billion in 2017. Moreover, it is a dynamic industry that’s expected to rise quickly as Indian people increase their use of smartphones and Internet services continue to reach more users. The business potential is enormous and Walmart knows it.

 

Walmart also made the move to combat their biggest competitor, Amazon. Amazon was trying to buy Flipkart but the Indian legal framework acted as an obstacle because of the potential negative effect on the competitive landscape. Flipkart did fight against Amazon and, at least for now, it had won. This company was born in October 2007 and took advantage of the Indian online retailing’s potential. According to Euromonitor International, Flipkart held a third of the Indian e-commerce market while Amazon had about 27% in 2017. It was funded like a start-up by Sachin Bansal and Binny Bansal (no relation) and, before Walmart’s entrance into the company, Flipkart had already attracted other big players such as Microsoft, E-bay and the Softbank Vision Fund, among others. Rumors say that Google, through Alphabet, is interested in Flipkart too. This Indian firm is now an organization with 30,000 employees, 54 million customers net sales worth $4.6 billion.

 

What does Flipkart gain with this deal? Walmart announced that it would support Flipkart’s transition into becoming a publicly-listed company. Walmart is a big enough company to put in the money required for future investments so it can continue its war against Amazon. Flipkart is not profitable yet and Walmart is foreseen to provide global experience as well as a more efficient supply chain process. In the process, it will bring higher product variety and lower prices. But not everybody is happy. Indian suppliers think that Walmart will introduce its own brands, taking out thousands of smaller local players. Although Walmart promises that the partnership will benefit the Indian economy, some Indian business people predict less India and more “global” in the future of the retail industry.

 

Like in any radical transition, there will be losses, but Flipkart founders and initial investors won this round. Undoubtedly, Flipkart became a success story thanks to two local entrepreneurs that were able to make their company part of one of the largest corporations in the world in less than 11 years.

 

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