India is considered one of the last gold mines for global retailers. The problem is, no one can seem to break into it.
The country’s strict international regulation has all but locked most retailers out of the lucrative market, and although recent reports illuminated that Wal-Mart Stores Inc. (NYSE:WMT) might’ve finally found its in, a report by Reuters Monday reasserted that its Indian expansion is still very much stalled.
Wal-Mart has long been combating Indian’s current policy that keeps foreign retailers from holding more than 51 percent foreign direct investment. After lobbying for almost six years, the retailer was finally given the go-ahead to set up shop last September, predicting that it would open its first retail store within two years. But now Wal-Mart is eating its words, because several sources have reported that the retail giant doesn’t expect to even apply for a retail store license before March 2015, meaning the first retail outlet in the country couldn’t open before 2016.
This is a hard pill to swallow for a company that hasn’t broken Indian ground since last fall, but planned to open eight stores in 2013. Bharti Enterprises, its partner in an existing wholesale business, also isn’t pleased with its status on the expansion timeline. Though it has denied considering an exit from the venture, it wouldn’t be surprising if the company recognizes the partnership’s bleak prospects for returns and makes the decision to instead bow out.
And, additionally, Wal-Mart is being closely eyed as an ongoing internal bribery probe relating to its Indian operations continues to develop. The company was charged with paying bribes and has been under a watchful eye, especially after reports of the company’s Mexican bribery broke, and lawyers suggested that India was one of the countries at highest risk for corruption. Unsurprisingly, this has effectively slowed expansion in a country where Reuters explains that paying bribes is seen as a standard cost of doing business.
So now, Wal-Mart remains at a standstill, as many of Bharti Wal-Mart’s employees are suspended as mandated by the internal investigation, disabling it from making any further plans to become the first global supermarket chain to apply for application in the lucrative Indian retail market. Even the company’s executives recognize how ominous the situation is, and how likely Wal-Mart is to miss out on the “first-mover advantage.”
Late last month the head of Wal-Mart’s Indian operations, Raj Jain, quietly left the company. Ramnik Narsey was appointed to his position without explanation, but analysts don’t expect the management change to improve the situation.
Devangshu Dutta, head of Bangladore-based retail consultancy Third Eyesight explains, “It will take lot more than a management change to fix things. Wal-Mart is being investigated for breaking entry rules, bribery, and these are problems that are much larger than any individual or the changes he can bring about.”