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Companies like Walmart have been waiting to get into the Indian market and this gives them access to the organised sector in India.
After years of dithering and a false start in 2011, the government finally notified the rules for FDI in multi-brand retail. Companies like Walmart have been waiting to get into the Indian market and this gives them access to the organised sector in India. Scott Price, the CEO of Walmart Asia tells CNBC-TV18 about the company's plan for the Indian markets.
Note: This piece was originally published on Oct 1, 2012
Here is the edited transcript of the interview on CNBC-TV18.
Q: Let me start by asking you about a comment that you made and you said this idea that the gates have been opened and thus, there is going to be a flood of investment is over what? Do you believe that the fact about a deluge of dollars and a queue of foreign retailers is a bit overstated?
A: No, I think that the market is very interesting. But, it is really interesting in the long-term when we open stores. We open stores for 20 and 30 years and we have obviously been very interested in the opportunity to come to India in retail. After 5 years in India, we have 17 cash-and-carry wholesale stores.
The point I was making is that many foreign retailers are seeing opportunity to invest in India, but that it will take years to build a significant scale of stores in a country as large and certainly, as geographically diverse as India.
Q: I know Walmart is used to dealing with countries that have restrictions, but how restrictive is it going to be for someone like you to operate in the Indian market? You have got the 30 percent domestic sourcing requirement. You are only going to be able to operate in about 53 cities as of today. How restrictive does this make the playing field for you?
A: We are really pleased by this initial step in FDI. I think that the conditions are certainly a compromise to ensure that many of the assumptions about modern retail and foreign direct investment in modern retail can be proven. For Walmart, obviously, the backend investment is an area where we have a lot of experience.
If I look at other developing markets like China, Brazil, or Mexico, we have significant ability to deliver. Some of the conditions that the government sees as an upside opportunity like reducing food wastage, to drive a higher level of efficiency in supply chain and importantly also to create employment, to improve the livelihood of farmers, are areas in which we have the experience of investing in developing markets in other parts of the world.
Q: You have said and your colleague here in India, Raj Jain, also speaking with me did say that the earliest we could perhaps see a Walmart store open in India is about 18-24 months. Would that be a safe estimate in terms of a timeline? I know you don't have a blueprint in terms of your store rollout here, but give me a sense of what we are talking about? Are you looking at a mix between big-box stores, as well as a neighbourhood format? What would really work for you in India?
A: I think the first step that we obviously have to go through is to meet the state approval requirement. Going for FDI means that in each state that has a city with a population greater than 10 lakhs, we have to go through the approval process. I think what Raj was referring to was that generally the pipeline for modern retail takes anywhere between 12 and 24 months depending upon the size of the box.
In terms of format size, in terms of the specifics it is still a bit premature to start talking about those levels of detail.
Q: The rules are now being notified. When do you start seeking approval from the state governments that are onboard and my second question to you in terms of your current joint venture with Bharti is that for the cash-and-carry part of the business, should we expect this to naturally carry forward to the frontend as well?
A: First, when we talk about the cash-and-carry in wholesale we are very pleased with that joint venture today, in our partnership with Bharti. The fact is that we have really built a very solid business that provides to the kiranas. We expect to grow it. We expect to expand it.
I see decades of peaceful co-existence as it were between kiranas and larger more modern retail boxes. It is a very different service proposition, a very different assortment in price. In terms of next steps, I think that that the rules are clear. We will begin the process now of seeking approval state-by-state and then from there begin to design what we see as being the natural backend investment that would support the level of frontend retail that has been allowed.
Q: What about your arrangement with Bharti because your current joint venture (JV) for the cash-and-carry side of the business? As far as the front end is concerned when do you hope to sort the details for that joint venture and is it going to be Bharti? You have said you are not in talks with anybody else and the successful joint venture partnership that you have enjoyed with Bharti would probably be a logical extension to the frontend as well?
A: We are very pleased with the JV that we have with Bharti and we continue to see the opportunity to build on that. It is a natural progression. In terms of changes to the JV structure and obviously some of the conditions on FDI, it puts a level responsibility on the foreign direct investor in terms of the backend. We have to work through those details. But, overall we are very pleased with where we are in terms of the relationship with Bharti today.
Q: By when do you hope to be able to sort out those changes that you do need to make for your JV with Bharti because I am guessing that you will have to do all of that before you actually start applying for state government approval?
A: I think in the natural course of companies, in terms of negotiations there are obviously legal aspects etc. I don't think it is going to be a very arduous process. I would hope in the coming weeks, maybe couple of months, we would have the details ironed out and would be able to work through the next steps.
Q: Let me understand this clearly, so you don't need to first workout your equation, your JV with Bharti before you start applying to various state governments for approval?
A: There is a logical process. There is a requirement for a plan to be put together. Then it would be taken to the department of industrial policy and promotion (DIPP) and from there the approvals of the states can be sought.
We are working through those details now to understand the implications of timeline etc. We are interested in coming to India for a long-term investment. We see huge opportunity to improve the lives of our customers, to offer employment, to invest in the backend and so we will invest the amount of time upfront to ensure that we have quality understanding with our partners, the government and the timeline around it. We will go though a methodical process.
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