Scott Price is miffed his firm cant leverage the investments it has already made in India; the Asia head of Walmart must have been hoping that the retailers cash and carry enterprise in Indiaa 50:50 JV with Sunil Mittals Bharti groupwould serve as a base for the multi-brand piece. Although any multi-brand operation of Walmart can source up to 25% of its merchandise from the wholesale enterprise, the investments made wont be counted as part of the compulsory spends that global retailers need to make in back-end infrastructure. Moreover, Walmart must also have pencilled in a partnership with Bhartis Easyday chain of 200 front-end stores. But that too has been ruled out since the government wont allow foreign retailers to buy into existing chains. The worlds biggest retailer is also understood to be uncomfortable with the sourcing rule that says retailers buy compulsorily at least 30% of their manufactured or processed goods from SMEs. The last appears to have become something of a deal-breaker even after the ministry, in mid-July, doubled the definition of a small-scale unit to one that had investments of $2 million in plant and machinery; it also said retailers could continue to source from these units even if their investments grew larger. Price said he didnt see how foreign retailers could comply when no domestic retailer was. The apprehension that they may not be able to source close to a third of their requirements from SMEs seems justified given that today consumers prefer branded products in most categories save those like fruit, vegetables, flowers, grain and poultry.
While it is possible to nurture SMEs to produce store brands, while keeping a check on quality, consumer acceptance of such brands could take time; moreover it might not be feasible to source too many products via this route. The bulk of stock keeping units (SKUs) in kiranas would be from multinational FMCG firms, so why would they be any different for a Walmart So far, the governments attempts to ease the rulesnow retailers need invest just half of the first $100 million in back-end infrastructure and no moredont seem to have cut much ice with the global retailing fraternity. Indeed, while foreign retaliers arent exactly thrilled with the geographical restrictionsstate governments will take a call on whether or not they can set up shop in various citiesthey will probably come in if some other rules are eased. The government, however, refuses to budge even on on letting them in via the franchise route, a move that would have encouraged entrepreneurship locally and help keep rentalsso critical in this businessin check. It needs to do a rethink.