Example of a Joint Venture

Wal-Mart, Bharti ink 50:50 joint venture

BS Reporter / New Delhi August 7, 2007

The world’s largest retailer, Wal-Mart, today announced a 50:50 joint venture with Bharti Enterprises for wholesale cash-and-carry business in India that will roll out 10-15 such outlets over seven years. This also covers a supply chain and back-end logistics.

The joint venture has been christened Bharti Wal-Mart Pvt Ltd and the first outlet will open by end-2008. The two companies had signed an agreement in November last year.

This marks the second foreign investment in the cash-and-carry business, after German company Metro AG, which entered five years ago.

Indian laws currently allow 100 per cent foreign direct investment (FDI) only in wholesale retail. Current foreign direct investment regulations do not permit global multi-brand retailers to enter India directly.

At present, 51 per cent FDI is allowed but only for single-brand outlets. “Our joint venture is in full conformity with existing laws,” said Rajan Mittal, MD, Bharti Enterprises.

Wal-Mart has gone ahead with its plans for India at a time when its competitors Tesco and Carrefour have decided to wait for FDI norms to be relaxed.

The joint venture company will initially concentrate on smaller cities in north India, and each store will be spread over 50,000 to 1 million square feet. The cash-and-carry outlets will sell fruit and vegetables, staple foods, stationery, clothing, consumer electronics and other general merchandise.

The targeted customers include small neighbourhood stores (kirana outlets) and fresh produce resellers, hotels and restaurants.

“There are 12 million kirana outlets in India; yet, less than 1 million of them are served directly by consumer goods companies. Our joint venture is well-poised to serve the targeted customer base and to also link the farmers and small manufacturers with customers,” said Raj Jain, country president for Wal-Mart’s operations in India.

The joint venture will source 90 per cent of the goods from India, while the rest will be imported. Wal-Mart today sources goods worth nearly $600 million from India, and this is expected to be multiplied many times over once the cash-and-carry outlets are operational.

Both companies declined to comment on projected investment, turnover or possible revenue realisation from this.

“Wal-Mart’s global vision is to save people’s money. We intend to do the same in India,” said Jain. Wal-Mart’s expertise lies in cutting costs with a technically superior supply chain. Bharti Retail has signed a franchise agreement with Wal-Mart for technical collaboration. It is still not known whether the Wal-Mart brand will be incorporated in Bharti Retails’ stores or even in the cash-and-carry outlets. “We will unveil the brand closer to the launch,” said Mittal.