The Indian retail and startup environment is set to benefit from the Walmart-Flipkart deal.
There is an aura of excitement in India’s business community after Walmart picked up 77% of Flipkart for a whopping $16 billion. But not everyone is happy. Small traders feel threatened by the entry of Walmart into India. The government is still digesting the fact of the acquisition and is yet to envisage the potential impacts that it will have. Further, many others are pointing at a possible digital colonisation and cannibalisation. This article will argue that the looming fight between the American retail behemoths, Amazon and Walmart, post-acquisition of Flipkart by the latter, will have a positive impact on the Indian economy.
It is pertinent to note that Flipkart was already in foreign hands and the present exchange is a mere change of hands. Then why the hue and cry after this deal? The primary pain point is that the new owner is not a mere investor, rather it is the world’s most powerful and experienced retailer. Walmart, with its immense technological know-how and deep pockets, is known to undercut its competitors to death. This is further exacerbated by the fact that it will be fighting with Amazon and hence, it has an even stronger incentive to roll out heavy discounts. Furthermore, it has an array of in-house brands, sold only on its platforms and at prices much cheaper than competing brands. Consequently, small retailers and traders have a feeling that Walmart will leverage Flipkart to employ its strategies on India, disrupting their businesses. Retail being one of the largest employers in India, it has been argued that such disruption will result into huge job losses. While the looming disruption can’t be denied, fears of joblessness and threat to the economy are unfounded.
Walmart’s entry into India will affect three primary stakeholders: the consumers, the small traders and workers, and lastly, the middlemen spread throughout the supply chain.
1. Consumers: The consumers undoubtedly stand to gain immensely from this deal. The competition for controlling the Indian e-commerce market and expanding it will mean that the customers will enjoy the best of the prices. Further, the coverage of e-commerce will increase and a greater number of customers can enjoy better prices and service. Walmart’s introduction of new brands will cause an increase in variety and value. In response, Amazon too will increase its in-house product offerings. Increased value for consumer will lead to increased consumption and an expansion of the retail market. Walmart’s brick and mortar entry into an unorganised market is known to increase market efficiency and size, reducing cost of living and increasing real income.
2. Workers & Traders: The second set of stakeholders, that is, the traders and the workers, do not stand to lose because of the deal. Their roles, however, might change. First, the local Kiranas will continue to be relevant as Wal-mart and Amazon, for the time being, will only have an online presence. The convenience of buying petty and daily use consumer items cannot be disrupted by mere online presence. Similarly, the local hawkers of groceries, fresh food, fruits and vegetables will continue to be relevant. The traders who stand to be affected the most will be the owners of medium and high cost retail like fashion, books, electronics, etc. Undoubtedly, a group of traders will lose market but employment at large will not be affected by disruption of small businesses. Most of the workers displaced will find new jobs in the new supply chains and delivery services. Moreover, these jobs will transfer these workers from the now informal retail market to the formal labour market, ensuring for them labour rights. Further, a large number of traders will also be absorbed by new opportunities like becoming sellers for Walmart and Amazon, handling logistics, providing storage and transportation services. This will work to their benefit because of the increased size of the market.
3. Middlemen: Finally, the middlemen in the supply chain will also be affected as more and more customers move online. Direct procurements by Amazon and Walmart from the producers will make the role of the middleman redundant. While it is true that a large group of middlemen will be displaced, it must be kept in mind that middlemen are mere symptoms of the deeply pervasive inefficiencies in the supply chain. Often they wield immense exploitative powers over small manufacturers, producers and retailers. Their displacement will result into better prices for consumers and higher revenues for manufacturers. This will lead to a rise in scale of and employment in the manufacturing sector and hence, absorbing the labour displaced from the supply chain. Most of the middlemen will also see a shift to manufacturing, logistics and primary industries.
The above analysis clearly shows that the jobs in the retail market will be intact. But this deal will result in benefits beyond just the retail sector:
1. First, the heavy price tag for Flipkart has re-instilled a sense of investor trust on the Indian startup world, which had been waning for some time now.
2. Secondly, this acquisition will mean that Indian e-commerce market will now be consolidated and hence, entrepreneurs will be forced to come up with innovative ideas and models. This will start the next phase of Indian startup revolution, moving from mere flailing attempts at selling products online. Fin-tech, artificial intelligence, internet of things and other new techno-consumer innovation will hence, receive a boost. This counters the arguments of cannibalisation of Indian startups by foreign firms. The so-called cannibalisation is merely the acquisition of the existing startups. These acquisitions and ticket to personal riches will nudge entrepreneurs to innovate and create new businesses, which will benefit the economy in the long run.
3. Lastly, the deal and future acquisitions will create a new breed of millionaires and billionaires, many of whom are Indians. The nouveau riche will look to reinvest their wealth and help create the new aforementioned ventures.
Thus, it can be concluded that the Flipkart-Walmart deal is going to be a watershed moment for Indian retail and startup sector. But at the same time, the government must step in to control excesses like predatory pricing, issues of privacy and taxation.
 S. L. Rao, Foreign Investment in Retail Trade, Economic and Political Weekly, Vol. 36, No. 41 (Oct. 13-19, 2001).
Categories: Economics & Corporate Law