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Walmart Flipkart Acquisition Deal Redefining Indian eCommerce

Posted in Finance Articles, Total Reads: 4676 , Published on October 04, 2018

On May 10, 2018 global retailer acquires the Indian online E-commerce start up founded by Sachin Bansal and Binny Bansal. The acquisition took over for $16 billion; a valuation of over $20 billion which makes it world’s biggest e-commerce deal. Walmart owns around 77 per cent of the company stake. When we see Indian retail mart can be considered as fragmented brick-motor retail market, online spending is increasing where Indian shopper can purchase wide number and variety of products in one site.

According to the stats it present that $21 dollar had been spend in e-commerce in the year 2017, being 10th biggest e-commerce in the world. Indian retail market is mounting very fast; the market is expected to grow 141 per cent to more than $50 billion from 2017-2021. India as overtaken chains as amazon most important international market. Walmart prediction also states that Indian e-commerce market is expected to grow up to $200 billion by 2027. This facts show that India has potential growth in upcoming years in e-commerce market. But here we discuss about the positive and negative aspect of the acquisition and the reasons behind Walmart acquisition of Flipkart in such a huge amount, after the tie up Walmart shares has dropped as much as 4.2 per cent to $82.12 immediately after the acquisition.

Image: company website

Reasons for acquisition:

1. India’s potential growth in retail industry in long term future. The internet and telecom industry is working on providing better services and number of people using smart phones is increasing day by day. India making only 4 per cent in retail industry Walmart has predicated the growth in near future.

2. Walmart has very low presence in India having only 21 stores so this allows the company jump straight to small but growing business.

3. It can help Flipkart to go online. India offline stores plays important role however the business model is very different from the online store but Walmart being an offline store can help Flipkart to go offline and compete among other competitors like D-mart, Future groups and others.

4. The talent and technology improvement has attracted Walmart. Flipkart had acquired PhonePe which is a digital payment start-up in 2016 this brings Flipkart its own payment flat form and also investments in AI and use of data across the platform. Flipkart also has acquired Myntra, Jabong and e-bay holding 70 per cent of share in India – Walmart has seen potential in Indian market in future.

5. Amazon and Walmart problem- Amazon net income the previous year was amounted as $billion and Walmart was $20 billion still Amazon is listed on the top 5 companies in the world in terms of mart capitalization. Amazon market cap is $680 billion where Walmart market cap is $250 billion. In the US Walmart competition was Amazon where Amazon has penetrated globally and increased its market cap globally. India being the second biggest in terms of retail market growth Walmart predicts India ‘s market to grow in coming future and acquires Flipkart to be present on online market too and complete against its competitors mainly Amazon in India.

Positive aspect of acquisition:

1. Flipkart was running out of cash in kits battle to compete with the US giant Amazon. Acquisition helped Flipkart to run their business and get funding which amount to $16 billion.

2. Elimination of small companies in India and further creates new job in Indian market.

3. Walmart comprising of all the kinds of product from FMCG to furniture it has a lot of product differentiation which can benefit the consumer with low price.

4. Walmart being on in digital sector can boost the economy and employment opportunities.

5. Flipkart can have global reach through the Walmart supply chain reaches of Indian product in global market this again benefits the Indian economy.

6. The deal also saves Flipkart, which was running out of cash in its battle with Amazon. Both competitors have been "burning cash" in massive sales and discounts pegged to Indian festivals in a bid to acquire more customers.

Negative aspects of acquisition

1. It may lead to competition for Flipkart’s India suppliers- not just from American import but from Chinese imports as well as the fact that Walmart USA works closely with the suppliers from China.

2. Walmart might enter the market with its own private brand which can threaten the existing brand in which are already present in Flipkart.

3. It has high competition with the local brands and shops.

4. According to FDI regulations of India, It restricts Walmart to have B2C business in India. Whereas Walmart is bypassing the laws by taking over the Indian retail B2C retail company.

5. The data of all the Indian shoppers can be shared with the US giant who can give large control to foreign firms over the domestic value chain in customer’s goods and space.

6. Walmart can scrap small businesses which are selling at ultra-low price through Flipkart. It may bring its own label with hyper-competitive prices and threaten and replace the domestic MSMEs

This article has been authored by Niharika Nepal from SIBM Pune

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