Walmart’s relentless striving for “everyday low prices” make it a great envoy for capitalism in a price sensitive market like India.
Is Walmart Inc.’s $16 billion acquisition of loss-making Indian e-commerce company Flipkart Group a smart decision? For many investors and analysts this is the big question arising from last week’s announcement of the deal, the largest acquisition to date for both the retailer and India, and the most expensive purchase anywhere of an e-commerce firm. Walmart shares fell 3% on the day of the announcement.
In my most recent Wall Street Journal column (read it here), I argue that it’s too early to say if Walmart’s acquisition of Flipkart is a commercially sound decision. But if Walmart succeeds it will not only help the firm’s bottom-line but also serve a larger purpose: exposing 1.3 billion Indians to a powerful case for capitalism.
What makes Walmart special in an Indian context? After all, scores of international companies already operate successfully in Asia’s third largest economy. For many Indians, it’s perfectly commonplace to drive a Ford, use a shampoo made by Unilever, shop on Amazon, and watch a favorite show on Netflix.
Nor are domestic firms laggards. Reliance is driving a smartphone revolution with its Jio service. In many consumer goods categories — everything from toothpaste to instant noodles — the yoga guru Baba Ramdev’s Patanjali, with its promise of back-to-the-past goodness, has emerged as a market leader.
Without taking away anything from these firms, Walmart could still play an outsize role in making the case for capitalism to ordinary Indians. For starters, the company’s sheer size (nearly $500 billion in worldwide sales) gives it a heft that most others lack.
Walmart’s famed logistics and supply chain skills give it an ability to boost efficiency across the Indian economy, and plug Indian producers into the global market. This could be especially beneficial to farmers. “Walmart knows how to make things happen,” says my AEI colleague Derek Scissors. “They can figure out how to get produce in good shape from Uttar Pradesh to New Mexico.”
Most of all, however, it’s the company’s relentless striving for “everyday low prices” that make it a great envoy for capitalism in a price sensitive market like India. The people who benefit the most from this cost-conscious ethic are the people who shop at Walmart. If Walmart can stretch the ordinary Indian’s rupee — as it has historically stretched the ordinary American’s dollar — with quality products at cut rate prices, it can make the case for capitalism in India more powerfully than most.
This was originally published in AEI ideas and has been republished with permission.