#92 Here we go again: Wal-Mart in India

Wal-Mart BhartiThis week, the two houses of the Indian parliament have decided to finally and fully pave the road for foreign direct investment in the country’s retail sector. Long awaited, and heavily disputed, this measure opens the sector to foreign retailers who have been waiting at the doorsteps of one of the largest consumer markets in the world. Until recently, only partial ownership has been allowed which didn’t prevent some retailers from tipping their toes into this foreign land. As important as the passing of the legislation has been, it shouldn’t distract from the fact that there are many other barriers to overcome than just the formal barrier of the law. As, I’m certain, US retail giant WalMart, which entered the Indian market in 2007 under a joint venture with the Bharti Group, can confirm. Originally, foreign companies including Wal-Mart’s joint venture were only allowed to operate wholesale stores. Based on recent changes in the law retail stores came within reach, and Wal-Mart announced that it would expand over the next few months. Now, in India’s bureaucratic culture, expansion can be cumbersome. Often, because of the burgeoning bureaucracy and the overlapping of federal, state and local laws, fifty or sixty different permits may be required before the opening of a store is approved. The suspicion is that the expansion train was going too slow, so that some Wal-Mart employees started to grease the tracks. An Indian government agency called Directorate of Enforcement therefore has been investigating Wal-Mart on suspicions of such corruption. Even before that, Wal-Mart had already suspended a number of employees, potentially including its CFO in India based on investigations related to the US Foreign Corrupt Practices Act. The fact that Wal-Mart started similar probes in Mexico, Brazil, China and India shows that blaming entire countries or cultures for corruption may only tell one side of the story. It always takes one to take the bribe, and one to pay the bribe. Implicitly or explicitly, employees must have felt a certain pressure to speed up the process, to please their bosses, or to bring results so that they can get the raise and the promotion. This case also shows that entering mature or developed foreign markets is difficult enough, but when it comes to emerging markets or developing countries, the differences in local practices can often create severe difficulties even for the best companies and the most skilled employees. Strategies that fit Western, industrialized nations, don’t necessarily fit emerging markets, and therefore need to be adapted carefully.

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8 Responses to “#92 Here we go again: Wal-Mart in India”

  1. Nina Reiter Says:

    Walmart wants to be on the spot everywhere, if possible in every country in the world. Therefore it is not surprising that Walmart had its eyes on India early, as it has a high potential because it is the world’s 2nd fastest growing economy.

    According to Hofstede’s dimensions India has a long term, pragmatic culture while the United States have a short time, traditional culture. In such long term cultures time is not as important as in western countries and they usually forgive lack of punctuality. As a result it is hardly surprising that the Indians are used to long bureaucratic ways, while Americans are not able to handle such situations very well.

    2012 the United States had a Corruption Perception Index of 73, which is rank 19 in comparison to India which has a CPI of 36 and is on rank 94 out of 174 countries. In despite of everything there is a very wise saying included in the blog: “It always takes one to take the bribe, and one to pay the bribe.” I don’t think that the Indians where the ones suggesting the employees of Walmart to pay a bribe. Howsoever this case just shows that as described in the blog there might be countries which faster agree to corruption, but that does not always mean that they suggest it.

    To take the initiative of fastening the process again reminds of Hofstede’s dimensions. The United States are highly individualistic, therefore it was to be expected that some employee tries to ease the process with any tactics.

    In terms of power distance the United States have a score of 40 which is pretty low. This means that superiors and managers are always accessible for the employees and managers rely on individual employees, while societies with a high score have a strict hierarchy and the decisions are made top down. This might be the reason why Walmart’s employees where under pressure to speed up the process and please their bosses.

    Last topic is that I think it is not that easy for a huge company like Walmart to start business in India. The diversity of the Indian people is a nightmare for every marketer. Furthermore it is important to know that most Indians do their shopping at the millions of “kirana” shops. Kirana shops are small independent shops, they sell a limited range of goods and those in tiny quantities. The majority of Indians, especially those living in rural areas, so their shopping in such shops because they give credits and are bent on delivering even the smallest orders.

  2. Theresa Lafenthaler Says:

    Generally speaking it is a great opportunity if a country opens its economy for foreign businesses. On the other hand I have to say that a business partner in a foreign country is the best way to enter a country, as he knows best about cultural differences, bureaucracy or laws and regulations. The adaption of products is also easier with a partner as he can give specific knowledge about his home country. Abandoning the partial ownership might also cause certain problems for local companies, as they might get huge competition from foreign companies settling down in India.

    An important advantage foreign companies have to stand up against is that local businesses know their customers; they know their culture, their behaviour and everything that is important to reach consumers efficiently. Therefore, foreign businesses have to broaden their knowledge to understand certain bureaucratic behaviour and other barriers, which are likely to occur. Understanding Hofstede’s dimensions might also help to avoid problems. India is a country with high power distance; hierarchy and respect are a very important point in this culture. Moreover, it is a very masculine society, which means that they are very focused on success, but on the other hand through their middle rank in uncertainty avoidance Indians accept if things are not perfect – which is sort of a contradiction and difficult to predict when which dimension might take effect. Furthermore, India is very collectivistic which means that society and being a member of society is more important than satisfying individualistic needs.

    The bribing WalMart employees apparently did shows some lack of planning on WalMarts side. Of course it is devastating if launching new retail stores takes a long time but in my opinion such a big internationally well-known company should stick to the legal procedures, otherwise it will really damage their image. Therefore, the employees took some risk to speed up business, which was apparently not wanted by the WalMart Headquarter as they dismissed some people who were responsible for it.

    Lastly, I have to add that a highly developed country should think twice before acting in a developing country, as the clash of cultures is significant between such countries. Some measures used in developed countries might work out quite well and others might lead to big problems and the other way round of course.

  3. David Schweinzer Says:

    Although Walmart had it´s problems when entering the Indian market I also have to say that it was a good idea to start this foreign business in collaboration with a local partner called the Bharti Group. In fact it is the best way to avoid difficulties as far as local laws, regulations, problems with India´s bureaucratic culture etc. are concerned and the partner might give useful advice how to enter the market without causing any stupid mistakes the company might regret afterwards. Beside the fact that Walmart´s employees must have felt a certain pressure to speed up the Indian bureaucracy process, there are some more points which should have been discussed within the company before entering emerging markets like India in order to adapt local strategies the best way. Hofstede´s two dimensions called power distance and individualism are completely different when comparing the US with the Indian country and might have been useful looking at before acting in this emerging country.

    The United States, with a score of about 40 points, is a low power distance country. American organizations managers often try to rely on individual employees and teams for their knowledge and expertise which might caused the idea of speeding up the bureaucratic process without thinking about its consequences to fulfil the wants and needs of their superior managers. Furthermore American hierarchies are established for convenience compared to Indian organizations which are renowned for their top-down structures. Another point which is completely different compared to the Indian country with a high power distance of about 77, American employees as well as managers commonly want to be consulted and informed throughout an informal, direct and participative communication style.

    Furthermore the high individualism score of about 91 points indicates that the American society is a highly individualistic culture compared to Indian people who are forming a collectivist society. The reason for these long lasting bureaucratic processes may be because Indian people rather want to make decisions within groups. This means that the actions are influenced by various social networks like work groups, different departments etc. which might take too long whereas in strong individualistic countries decisions are mostly made by one person.

    Although it had been a good decision using the knowledge of a local company, Walmart should have taken more time in planning how to enter this highly potential market because these two countries are completely different as far as the cultures, societies and situations in the market are concerned. Starting to analyze and plan the process of entering the Indian market right on time, in order not to use illegal methods to speed up the Indian bureaucracy process, might have avoided such bad publicity for Walmart.

  4. Bianca Benschitz Says:

    In my opinion Walmart is nearly the same like McDonald’s. This means, you can find Walmart nearly in every big city everywhere in the world. If you move to another country or visit another city you can always find Walmart and familiar products. From this follows that the expansion to India was a very good idea, in addition, like Nina Reiter mentioned before India is the world’s 2nd fastest growing economy.

    Maybe Walmart had such problems with the processing because of non-consideration about the dimensions of Hofstede. According to Hofstede, India scores high with 77 by power distance, which means India indicates a well structured Top-Down hierarchy instead of the United States. Moreover the two countries are absolutely different in case of individualism. India is a high collectivistic culture and they belong to family and also to work groups. So maybe in this case, additionally to other factors of bureaucracy collectivism influence the Indian business people a lot in making decisions. Whereat the U.S business people make decision on their own and do not need that long time to confirm the order. The only think I am a little bit confused about, is that India is not the first country Walmart wants to expand. Maybe in other countries the differences were lower and less important for this job. Although, if a company wants to expand in a foreign country, they should consider the four dimensions of Hofstede to be successful in this country. Culture is one of the most important and influencing factor of how business is done and if a company or a product will be successful.

  5. Julia Rehn Says:

    In my opinion Walmart is a little too arrogant concering its market entry strategies. Although to start with a joint venutre is normally a good possibility to collect experiences on their own and to benefit from others experiencest before fully entering a new market, Walmart fell back to its old structures. Even though they learned from their mistakes made in the past like the failured market entry in Germany I think that Walmart is not willing to really adapt their strategies properly acoording to their potential markets needs. In my opinion the corruption among Walmarts staff in India is a good example for that, as they are used to faster processes they were not willing to adapt to Indian structures.

  6. Martin Mikulik Says:

    Going into another country bears a lot of risks. We all know the aspects of cultural dimensions by Hofstede and the power they bare. India is one example, but I know also a lot of companies especial in the finance industry trying to expand to Eastern Europe or the Balkan. German banks took huge efforts to start business there. And they failed very costly. They did all the work necessary to expand, bought local companies and knowledge, made all the business and expansion plans. But they did not succeed. What was the reason? The Germans are a straight forward people with direct communication. The opposite is the case in Eastern Europe. Here, as in Austria, people are used to indirect communication; otherwise this is seen as impolite. And also the local business habits have to be taken into consideration. Briberies and other catalysts for business are a factor in those countries.

    This situation might and will change in the next few years, but actually these habits are still valid in the business life in those regions. There are also some “creative” remuneration principles in those countries and people are still used to them.

    So, a company which wants to expand in a country in Eastern Europe has to take these aspects into account. Otherwise, if the corporate governance is violated, it is better to stay out.

  7. Ursula Bittner Says:

    As a very bureaucratic society India do not have the best requirements to attract foreign investors, but this is accepted by companies when taking the potential in consideration.

    The Indian market is obviously a very interesting market with a high potential, although over one quarter of the whole Indian population is living below the poverty line and every second inhabitant of Mumbai have less than 1 $ a day. Hence the majority of Indians population is not the target customer of Walmart (Taking into consideration that up to one million people are living in the slum Dharavi, the biggest slum in Asia placed in the center of Mumbai/Bombay).
    Supermarkets in India do not have the reputation of cheap shopping, only 3 years ago India “opend” its market for foreign retails chains. „Mom and pops“ stores are mainly used for shopping and have a deeper cultural background. Especially poorer people only use these possibilities. Going into a supermarket like Hypermarket, Bharti or Walmart means that you are richer than the majority of your fellows. Walmart must be aware of the customer he wants to attract and what aim it wants to reach – Achievement of market leadership is not realistic, fast market growth is definitely its aim and can be realistic, development of its market share, positioning compared to competitors and positioning in a specific target customer segment could also its objective.
    The product portfolio is also very different from that what Indian consumers are used to. Like mom and pop stores, Markets are very common, even in big cities. Fresh meat means living animals on the market, bargaining and a cultural exchange and experience are coming along with buying food. Buying food is not only a mean to an end but a whole experience.

    What would be needed to avoid, in this case, the bribing? A better analyze of product readiness would have been useful. I am not sure about place and promotion in this case but these are also two key indicators to have a successful implementation on the Indian market (place – have the supermarket in a “richer” area, promotion – use for the Indian culture acceptable marketing strategies). The analysis of societal issues and the administration/legal requirements would have been necessary.
    The information and analysis about the regulations in Indian districts (administration/legal/political) and the cultural behavior (societal) of Indian employers would have needed to be better prepared. Strategies should have been adapted to this. Through a sophisticated analysis Walmart could have filter the threats (like we saw the bribery) of losing time and money though local circumstances.
    Business strategy should suit to national and cultural regulations and behaviors. A standardized approach is not possible when an American company, with such a different history, culture and business idea enters a market like India. Walmart would have realized that when it would have analyzed the Indian market and its own company accurately.
    Cost reduction in marketing, economic of scales and efficiency, through standardization is rendered in India! A fast implementation without adaption will cost time and money.

  8. Wilhelm F Says:

    Isn’t it nice that companies say they have to adapt to the foreign markets and then they manage to adapt to the local corruption culture and fail to adapt to the customer.

    As written in the Article India is a very bureaucracy culture. I’m used to such a bureaucracy culture during my last work in Kazakhstan. For me it seems that this bureaucracy culture is a really boost for corruption. Exactly what the bureaucracy should avoid it supports.

    I often saw the result of corruption. Low quality products were bought, because they paid the highest bribes. Even hard punishment did not avoid people to request and take bribes. I’m the same opinion like the article, that there must be always 2 parties. One who takes and one who offers.
    I see it very critical that officials investigate against Wal-Mart and did not look in their own rows. I don’t want to go into details of corruption mechanisms now. In this example can be seen that foreigner should not adapt to everything. A foreigner should be aware, that what is tolerated from locals is often not tolerated from foreigners.

    During my international work I learned that it is only sustainable to work ethical correct on a high level of quality. Bribing always provides only short time success. If you start with such behavior you open Pandora’s Box. Most products bought by corrupted procedures earlier or later have to be fixed or replaced by high quality products. In my opinion companies should simply step back from corrupted projects and wait to come inside later, when the corrupted solutions failed.

    Of course I understand that many companies are afraid that if they are not first on the market they will lose competitive advantages. Sometimes it is even better not to enter a market to increase the market value of a brand.

    For me a very interesting example is IKEA. When I worked several years in Kazakhstan I understood that the Kazakh population would like to buy goods from IKEA. 2008 many announcements were published that IKEA will open branches in Kazakhstan. I left Kazakhstan in 2013 and no official IKEA branch existed till this time. According a roomer IKEA wanted to open a branch in Kazakhstan, but it failed because IKEA was not prepared to pay bribes.
    This meets exactly with the following articles of IKEA in the Ukraine.
    “Dashed Ikea Dreams Show Decades Lost to Bribery in Ukraine”
    http://www.bloomberg.com/news/2014-03-30/dashed-ikea-dreams-in-ukraine-show-decades-lost-to-corruption.html
    For me IKEA is an idol to show how you can be successful with an ethical correct behavior.

    Often can be observed, that companies behaving unethical in one area are doing it also in other areas.
    It seems that the level of bribing by a company reflects indirect proportional the quality of a product.

    Is now the quality of Wal-Mart so bad that they have to bribe?

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