(Updates with analyst comment in ninth paragraph.)
Oct. 7 (Bloomberg) -- Wal-Mart Stores Inc., the world’s largest retailer, said it is in talks with Indian partner Bharti Enterprises Pvt. on its future business plan and aims to reach an agreement in the next few weeks.
Wal-Mart has a “very good” relationship with Bharti and has had multiple conversations with billionaire owner Sunil Mittal in the past few days to determine the next steps, Scott Price, head of Wal-Mart’s Asia operations, said on Oct. 5. His comments come after local media reports in India suggested that Bharti is seeking to exit the joint venture due to Wal-Mart’s lack of progress in expanding Indian operations.
“We are having very productive discussions with Bharti, there are multiple options and we are working through what those options might be,” Price said in a telephone interview. “I would hope probably in the next several weeks we will reach an agreement with them. But no matter what happens, there is no pressure in the relationship.” He declined to comment on speculation that the company may break up the partnership.
While the nation changed laws in September last year to allow foreign retailers to own majority stakes in multibrand retail chains, no global retailers have sought such licenses yet. The government also loosened rules covering sourcing, infrastructure investment and store location in August, in an effort to woo Wal-Mart, Tesco Plc and other global chains to open retail stores in Asia’s third-biggest economy.
Under the recently amended rules, foreign-owned retailers will have to buy 30 percent of manufactured products from small- and medium-sized local firms with less than $2 million invested in factories and machinery. Earlier rules were stricter, defining “small and medium” companies as those with investments of under $1 million. Even after these changes, the entry barriers for foreign retailers “aren’t workable,” Price said.
Wal-Mart’s Asia head said these rules still don’t provide a level playing field for international retailers compared to local rivals, and the need to comply with them is the “biggest sticking point” holding back the company’s foray into traditional retail in India.
“Until the sourcing issue is resolved, I believe no foreign company will apply and can comply,” Price said from Bali where he was attending the Asia-Pacific Economic Cooperation forum. He is the chairman of the National Center for APEC, a U.S. business group. “We are not interested in investing until that’s clear.”
“I’m hopeful that the negotiations that we have been undertaking for some time with the government means that there’s an opportunity for us to invest directly into retail in India,” he said.
It would take 12-18 months to open retail outlets in the world’s second-most populous nation, Price said last September. The plan may be delayed at least until India’s general elections expected by May next year, and companies like Wal-Mart may hold off its decisions due to uncertainty over the next government’s policies on foreign investment in retail, said Dhvani Bavishi, analyst at brokerage ICICI Direct.
“It’s so close to the elections and the government is not going to go all out to woo them with further incentives,” she said.
Bharti owner Mittal told the Press Trust of India on Oct. 2 that he is waiting for Wal-Mart to take a decision on India retail before the company evaluates its options.
Bharti declined to comment on Price’s comments.
The Bharti and Wal-Mart joint venture operates wholesale cash-and-carry stores, that are similar to Costco Wholesale Corp. outlets in that they allow entry only to registered members who would include restaurants and local retailers. Foreign investment in such stores is subject to fewer government restrictions in India than retail outlets.
The venture opened its first wholesale store in the northern city of Amritsar in May 2009, and now operates 20 such outlets in the country. New store openings have slowed, with the company’s most recent being almost a year ago, according to its website.
The halt in store expansion comes as the company faced two government probes and carried out an internal investigation on possible violations of U.S. anti-corruption laws in India. The American retailer has also suspended some senior staff in recent months.
In June, Wal-Mart’s chief executive officer of the India joint venture, Raj Jain, left the company amid government and internal investigations. His departure came seven months after Pankaj Madan, the venture’s chief financial officer, was among executives suspended. Madan has since been hired by billionaire Mittal’s Bharti Airtel Ltd., India’s biggest mobile-phone operator, the Economic Times reported in August.
Price said the company is putting in place better compliance mechanisms and declined to comment on expansion plans.
“We love the cash-and-carry format. We are committed to India,” he said. “The process by which we have stood back to reinforce our compliance and to invest in the basics of the business has not signaled a lack of interest in the format.”
“We are still working on a business plan,” he said. “It’s not that there’s any sort of back room concerns in terms of how we move forward,” with Bharti.
The Economic Times reported on Sept. 12 that Wal-Mart was considering whether to continue its business or exit its operations in India. It will also decide whether it wants to keep Bharti as its partner, according to the article.
“Like in many instances, speculation has got nothing to do with reality,” Price said. “We aren’t talking to other partners. The relationship is good.”
--Editors: Stephanie Wong, Anjali Cordeiro