Wednesday, April 14, 2010

Wal-Mart's Expansion into India, a Hypothetical Discussion

(inside the corporate strategy meeting room at Wal-Mart HQ in Bentonville, Arkansas)

manager: we need to expand. the current markets where we've gained foothold are or will become saturated.

new analyst: China?

manager: been there, done that. we need to boost profits this year if we want to stay in-line with our growth targets.

analyst #2: India?

manager (pointedly, as everyone else walks into the room): India? they've banned foreign companies from direct-to-consumer retail.

director: but if we start to build a relationship with the Indian farmers now, they'll want to work with us later when legislation loosens up.

Raj Jain (Head of Wal-Mart's Indian operation): not having access to our own retail stores through our own investments is a serious impediment. how do you pay for that big back end if you are not going to have access to the front end?

director: yes, well, it's also an impediment to Carrefour and Tesco. we invest the time now, reap the huge benefits--and they will be huge--later. besides, we're already in the B2B business.

Scott Price (President and CEO of Wal-Mart Asia): India already exports $125M, mainly textiles. I would like to set a target of more than $1B of exports ourselves. Today our overall revenue is $400B globally, so a billion sourced by India for exports is not that big a number. I think a lot of product lines could be done from here. If we can get the agriculture to global standards, I think India has a huge opportunity to become a food basket for the world.

manager (playing devil's advocate): so effectively, we become the middleman by default? or is this our R&D plan for eventually doing our core business of retail?

VP: both. it's a win-win. the Indian government wins because we're helping them realize their full potential for exports, and we win because--well, let's face it--we wouldn't be considering this if it wasn't bringing positive cash flow to our books.

Raj: The benefits foreign direct investment in retail can bring to contain rapid inflation [are the subject of] serious debate in government.

VP #2: ok, what you both say make for a great PR stance, but how much upside are we talking about for the company?

(manager looks at new analyst, aka 'excel whiz')

new analyst: our base projection is a range of $a to $b in the first # to ## months, but depending on factors x, y, and z, including feedback from local farmers, it could be anywhere from $c to $d. comps also show a favorable EBITDA.

(all are silent for a moment as they flip through the deck)

manager (proddingly): so, looks like a go? I'll get my team's heads around this right now to see how we can make this happen in the next 6-18 months.

Raj: [I] feel confident that we have a good model[, but] it is a slow process; it doesn't happen overnight... if all goes as per plan, I think, in five years we should have several cash-and-carry operations in India. it may not be across India, but certainly in the important geographies in India. we should have a very good understanding of the end consumer, of the trade. and we should have a scale from which we can grow very rapidly.

manager (to the analysts, after all others have left the room): well, fellas, looks like we're in for some long hours.

analyst #2: no, boss. looks like we're in for one hell of a ride!


Sources of Quotes:


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