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Posted in Business Services by Adolf on Jun 12,2018 1361
The story of the world’s greatest ecommerce deal began almost two decades ago spanning across two continents. With secret negotiations and a local rival on the tail, it seemed like a never ending marathon for the involving parties. Yes, we are talking about the home grown company – Flipkart, a venture that started out by selling books online - has now been acquired by US retail giant – Walmart.
Walmart Inc has finally wrapped up the acquisition of Flipkart, which is deemed as the world’s biggest purchase of an ecommerce company so far. The Bentonville based company paid $16 billion for around 77% stake in the Bengaluru based company. The deal has widely shook up one of the most thriving ecommerce markets the world over. Although Walmart will have the major control, Flipkart co-founder - Binny Bansal has maintained that the Indian brand will remain different and will continue to focus on becoming a publicly listed Indian tech leader. Walmart CEO Doug McMillon further assured that the company plans to invest in the form of additional capital and use Flipkart’s expertise to expand globally.
Initially, Walmart was focused on acquiring a minority stake in Flipkart, but over time, both sides came to a conclusion that it would be better if it owned a majority stake. From a business perspective, Flipkart would provide a base for e-commerce dominance in India, while Walmart could give a vital boost in the grocery delivery business. Also the take-over has benefited many of the investors - Accel, Tiger Global Management, Naspers and Soft Bankwith, with a healthy return.
The much talked about deal eventually materialized, after Amazon reportedly made a bid to acquire a controlling stake in Flipkart. The Seattle based ecommerce giant had offered to purchase a 60% share and also sought a non-compete agreement.
So what makes the Bangalore-based company so attractive to America's retail giants? An explosion in the tech market along with rapid economic growth could make India's e-commerce market worth $200 billion by 2026. Amazon CEO Jeff Bezos -- currently the world's richest man -- had made his intentions clear, saying in 2016 that he saw "huge potential" in India. The company has rapidly expanded its Indian business, introducing its Prime video and music services as well as its annual Prime Day blockbuster sale. Additionally Amazon is looking to reduce costly competition, so that it can focus on developing its business further.
Driving the deal was the retail giant’s push to make its presences in e-commerce and emerging markets like India. By obtaining a hold in Flipkart, Walmart was able to get into India's retail market without building stores. It had once visualized operating in hundreds of locations across India but was unable to do so due to the long-standing governmental rules for international retailers. However, it entered India in 2009 through a joint venture with Bharti Enterprises, and took full control of that business in 2013 - currently operating 20 wholesale clubs in India that serve small businesses.
The Flipkart-Walmart combine and Amazon have, according to industry estimates, 80% of India’s ecommerce mark. Although India’s population is rapidly coming online, the number of people with enough income to shop online is still tiny. Walmart has repeatedly stumbled in its e-commerce efforts in the United States, but is paying a hefty premium to buy its way into India’s e-commerce market. While Flipkart is currently the market leader, Amazon’s relatively new India site is quickly closing the gap.
However, experts say, a loser in mega deals like Walmart-Flipkart is the make in India drive. The ideal situation would have been domestic startups taking advantage of local market opportunities. With India being the next big opportunity for many companies - within and outside the technology industry, these mammoth companies will look to swamp the market with their money and lucrative offers, thus intensifying competition. The deal is set to bring about a big change in Indian retail. The intense battle between Flipkart and Amazon is likely create a huge supply chain infra, along with a large number of jobs. While Walmart is sure to bring its cut-price game to India, Amazon is trying to ensure that merchandise prices in India heads even lower.
As some say, it is probably too late to save Indian e-commerce from modern-day East India Company style colonization, but there are many other industries in which Indian startups can still lead the world. Be it positive or negative, only time will tell the fate of the high profile merger as well as the emerging start-up companies of India.