How are Indian SMEs piggybacking on Wal-Mart?

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By Sana S Vishwanath

Wal-Mart has long epitomised the great side of American capitalism: its self-made billionaire founder, its highly efficient customer care and brilliant use of technology. Not only is it the world's biggest company, it is arguably the most controversial. While everyone is talking about the wholesale store it has launched in Amritsar in collaboration with Sunil Mittal's Bharti Enterprises, very few are aware that for the past seven years, Wal-Mart has been actively procuring products for its global stores from India.

What might be even more surprising is the fact that most of these products, worth over USD 1 billion, are sourced from India. Of this, over USD 425 million is from the country's small and medium enterprises, including cottage industries. So how did Indian SMEs build big businesses riding piggyback on Wal-Mart? And what lies ahead for them as the departmental store prepares to set foot in India?

Just over 150 km away from the bustling city of Coimbatore lies Karur, a small town teeming with entrepreneurs who supply to some of the biggest brands across the world. From a mere Rs 3-crore economy in 1998, Karur has now grown to a thriving Rs. 3,000-crore economy!

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According to Rajnish Kapur, General Manager of Wal-Mart Global Sourcing, India, "We have been going to small towns in India aggressively for sourcing; that's why we are opening offices closer to bases in Delhi and Mumbai, to make growth more inclusive-cities like Karur, Panipat and Moradabad." Revenues of some of these companies have grown to over USD 100 million from just USD 5 million.

Kitchen textile company JVS Exports was set up in 1931 by C Swaminathan Mudalier with two handlooms and a mere USD 8. The baton has been passed to his grandson, Britto M Joseph, who runs the company that has a turnover of over USD 40 million. This journey toward huge profits began when Britto walked into a Wal-Mart store near Chicago and saw one of his products on display. He quickly realised that striking a direct deal with stores like Wal-Mart would be much more beneficial than dealing with middlemen, who ultimately take home the profits.

So, in 1998, through Pacific Resource Enterprises (PREL), Wal-Mart's then operating agency in India, Britto struck a deal for a Christmas promotional offer, which accounted for 50% of his company's USD 1 million turnover that year. Says Britto, "The initial order was for dishcloths-200,000 promotional packs of 12. The value was about USD 750,000." Today, JVS Exports supplies as many as 35 different items to Wal-Mart.

However, supplying to a global company like Wal-Mart has not been a cakewalk. Being a regular supplier to the store meant boosting production facilities to meet the numbers, while ensuring world-class product quality. This naturally meant upgrading machines, manpower and investment.

"My first order was in a handloom or a basic power loom that had two limitations-no bulk and no quality. I then switched to shuttlers loom and I'm now meeting both the quality and quantity challenges. A normal power loom costs about USD 1,000 and a normal handloom costs USD 200. Shuttlers loom, on the other hand, costs about USD 100,000, but it provides us with both production and quality. We have to do this to stay in the market and continue serving customers like Wal-Mart," Britto explains.

Today, JVS Exports' supply figure to Wal-Mart has touched the USD 14 million mark, significantly up from the USD 7,50,000 in 1998. Having added 35 new products to their supply portfolio, not only has their network grown to over 3,500 stores in the United States, but they also enjoy some key advantages for expansion. "Supplying to Wal-Mart has been a major marketing tool for me," says a proud Britto, "Because I was a supplier to Wal-Mart, I was able to supply to one among the top ten stores in America, Canada, England and even South Africa. My association with Wal-Mart has changed my life, especially since I lost a key customer around that time. I was struggling to find customers around the world. Had it not been for Wal-Mart, I would have never reached this level."