Wal-Mart has decided to call it quits on its Indian joint venture with Bharti Enterprises citing struggles with foreign direct investment (FDI) rules.
Under the original partnership forged in 2007, Wal-Mart owned a 50:50 stake in Bharti Wal-Mart Private Limited to run wholesale cash-and-carry operations with the goal of serving small retailers, manufacturers and farmers.
Hefty restrictions on foreign investment have long been a barrier to entry for potential foreign retailers in India and Wal-Mart’s growth in the region has been stunted as a result. Last year, India eased its rules for foreign retailers to allow international companies to open multibrand retail stores with 51 percent ownership and an Indian minority partner. Foreign companies can have 100 percent ownership in wholesale chains.
As a foreign retailer, Wal-Mart must also source 30 percent of its goods from local businesses, something, the company said, made continuing the partnership even more of a struggle.
Wal-Mart will take over Bharti’s share, acquiring the 20 Best Price Modern Stores they were running under the partnership and the two companies will now operate independently. Bharti will take full ownership of its 212 easyday chain stores and continue to grow the business.
Speaking on the sidelines of the Asia-Pacific Economic Cooperation (APEC) conference in Bali Oct 5 -7, president and chief executive of Wal-Mart Asia Scott Price said that Wal-Mart’s existing agreement with Bharti was “not tenable” considering the strict FDI regulations, IB Times reported.
“We created a franchise in retail with Bharti in the hopes that there could be a potential freeing up (of foreign direct investment) that would allow it to potentially be the base of the business. But frankly, the FDI has passed,” he said.
Wal-Mart said it would continue to work with the Indian officials to settle on sourcing conditions that would allow a mutually beneficial relationship with the retailer and the country.
Price said, “Given the circumstances, our decision to operate independently will be beneficial to both parties,” according to Reuters. “Wal-Mart is committed to businesses that serve our members and provide good returns for our shareholders and we will continue to advocate for investment conditions that allow FDI multi-brand retail in India,” he added.