Walmart-Flipkart deal: a mere change in ownership of a marketplace

India is important to both Amazon and Walmart. Neither company has done well in China. They don’t want to miss the bus in India.
The Walmart-Flipkart deal is important for several reasons. It proves to venture capital investors that there’s money to be made in e-commerce in India, if only through smart exit(HT)
The Walmart-Flipkart deal is important for several reasons. It proves to venture capital investors that there’s money to be made in e-commerce in India, if only through smart exit(HT)
Updated on May 10, 2018 05:51 PM IST
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Hindustan Times | By

Anyone who needs more evidence that the huge interest in Indian e-commerce marketplaces (which provide a platform for sellers and also take care of such things as payment and delivery) is partly driven by the country’s laws that do not allow foreign direct investment in so-called multi-brand retail need only look as far as the $16 billion Flipkart-Walmart deal. The world’s largest retailer has bought 77% of India’s largest e-commerce marketplace because this is the only way it can tap the retail market in India – for now. The Indian market is worth $672 billion currently and set to cross the $1 trillion mark by 2020, according to industry lobby group Assocham.

The deal is important for several reasons. It proves to venture capital investors that there’s money to be made in e-commerce in India, if only through smart exits. The bulk of the money involved, around $14 of the $16 billion, will go to existing investors with only about $2 billion coming into the company. It provides Walmart, which otherwise has a modest cash-and-carry or wholesale business in India, with a more robust presence in the retail market, allowing it to invest in such things as supply chain and logistics that could come in useful when (and if) it is allowed to enter the multi-brand retail business in India. It provides Flipkart, which needs money, with capital to fight Amazon, and prevents the company from worrying about working towards a public share sale. It will create jobs, directly and indirectly, and help create much-needed supply chain and cold chain infrastructure — something that could actually improve India’s abysmal farm-to-fork efficiency, thereby benefiting farmers. And, of course, it stirs things up.

India is important to both Amazon and Walmart. Neither company has done well in China. They don’t want to miss the bus in India. Interestingly, both were in the race for Flipkart, although Walmart perhaps wanted the marketplace more than Amazon (which, among other things, perhaps didn’t want to allow its largest rival in India to be owned by Walmart, a company no retailer, online or offline, can afford to take lightly).

While the deal has attracted the attention of some conservative right-wing groups, including a few that are affiliates of the current government, regulators should see this as a mere change in ownership of a marketplace, which, according to current laws, can have 100% foreign investment. Flipkart, by most definitions, was already a foreign company; it just has a different owner now, the world’s biggest retailer.

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Monday, January 24, 2022