NEW DELHI – A top Wal-Mart Stores Inc. (WMT) executive said Friday he was encouraged by talks with unnamed “very senior” Indian government officials here as the world’s biggest retailer lobbies to gain access to one of the world’s fastest-growing economies.
Mike Duke, Wal-Mart’s vice chairman and head of international operations, told Reuters that the retailer would help modernize India’s inefficient supply chain and provide quality jobs if it were permitted to open stores here.
“We continue to be encouraged by the steps that have been taken by the government but also anticipate, and want to encourage, additional steps,” Duke said in an interview with Reuters.
India does not allow foreign retailers such as Wal-Mart to directly invest in the retail market, although analysts widely expect restrictions to be eased within the next two years.
The country recently relaxed rules for stores that sell a single brand, such as Nokia or Nike, allowing them to take up to a 51 percent stake in retail businesses in India. Many of them already sell goods here through franchisees.
Asia’s third-largest economy has a population of more than one billion, so its appeal for multinational retailers is obvious. With a large and rapidly growing middle class estimated at about 56 million people, it has a further 220 million or so “aspirers” earning $2,000 to $4,400 a year who can afford a motor bike, refrigerator and television.
Organized retail chains control perhaps 3 percent of the market, so analysts see monumental room for chain store growth. Duke said India was among the retailer’s top priorities for international growth.
The United States accounted for roughly 80 percent of Wal-Mart’s $312 billion in sales in the last fiscal year, but slowing growth at home has made international expansion more attractive.
Cracking the Indian market won’t be easy for foreign players. Wal-Mart and other global retailers face stiff opposition from the coalition government’s communist allies, who considers Wal-Mart the poster child for the perils of unchecked capitalism.
Many local retailers also oppose relaxing restrictions for fear that global titans will drive local mom-and-pop stores out of business, and topple fledgling retail chains that are only now building up sizable positions in a fragmented market.
But Duke, who once ran Wal-Mart’s widely respected logistics business, said the retailer would bring much-needed expertise to modernize the supply chain, adding jobs and lowering prices. The stores themselves would provide jobs and opportunity for promotion to management positions, he said.
“Reasonable people of any party look at it and realize that the consumer speaks loudest,” he said. “India is becoming a consumer economy. It is the consumer that ends up voting.”
Many of the objections raised here mirror complaints leveled against Wal-Mart back home, where critics contend that the retailer bankrupts competitors and pays poverty-level wages and stingy benefits that force employees to rely on public aid for health care.
“There is a lot of noise that filters around but I think in the long run, the consumer ends up knowing what the real truth is,” Duke said. “The facts overcome the noise. We would treat our associates with respect, we will provide tremendous opportunity for them.”
Most of India’s retail trade now flows through millions of small corner shops. Duke said he visited some of those stores — called kiranas — and was convinced that they can survive because of the convenience and service they offer.
They may even benefit from lower prices if Wal-Mart is successful in improving supply chain efficiency. Indeed, that may be Wal-Mart’s most compelling argument.
An estimated 40 percent of India’s farm produce spoils before reaching consumers — an alarming statistic in a country where millions go hungry. Farm goods typically pass through six or seven intermediaries before reaching stores. Cold storage is scarce and expensive.
Duke said Wal-Mart would work directly with farmers and logistics suppliers to help develop a cold supply network that could get produce to stores faster, and with more money staying in farmers’ hands.
“That’s not an overnight fix, but we will certainly, over time, have dramatic impact on that,” he said. “We can dramatically benefit the consumer, the farmer, the government, the country, the community.”
For now, Wal-Mart has applied to open a liaison office in Bangalore so that it can study consumer habits here, and Duke said he was hopeful that the application would be approved ”very soon.”