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

This 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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