Flipkart now is an icon for all startups and its success proves that our bright youngsters can even blossom domestically and generate wealth for the country. What attracted Walmart to Flipkart?
The news of the Flipkart-Walmart deal put an end to all negative news about India. It made very satisfying reading, that a US$16 billion deal was happening, to take over Flipkart by the highest revenue-earning company, Walmart. This was the highest deal the world over for an e-commerce company.
Walmart, a US-based company is the biggest retailer in the world. Flipkart, 10 years old, was started by two Indians, Sachin Bansal and Binny Bansal (not related). This company is valued at US$21 billion; its 77% shareholding was purchased by Walmart for US$ 16 billion. Binny Bansal stays back in the company while Sachin Bansal moved out. Flipkart was started with a modest capital of Rs. 4,00,000 in 2007 by two middleclass youngsters and now they are billionaires. Flipkart is now an icon for all startups. Our human capital is well known the world over but the success of Flipkart proves that it can blossom domestically too.
Flipkart and Walmart are two distinct opposites; while Flipkart started as a startup selling books on an e-commerce platform and then gradually progressed to selling electronic items like mobiles and fashion garments, Walmart started in 1969 as a retailer and has chains of stores in many countries. Flipkart is still a loss-making company while the turnover of Walmart is US$480 billion. Flipkart attracted capital from venture capital funds, while Walmart is financially very strong.
What attracted Walmart to Flipkart? It was he technological platform along with the vast e-commerce potential of our country. Walmart understood business and took the decision to expand its business in the fastest emerging country.
The promoters of Flipkart, the Bansal friends should be role models for our youngsters. These young boys initially worked with Amazon and learnt the mechanics of e-commerce trade. With modest capital they started their own e-commerce business with just one item for trade. They worked hard and did everything themselves, as there were no employees to begin with. Business picked up as they added more items. They added innovative ideas of cash on receipt of goods and even return of the merchandise within 30 days of receipt. Business required more capital and they succeeded in attracting venture capital funds. SoftBank of Japan became their biggest shareholder.
Walmart was looking for a new market and the new business of e-commerce. The rapid growth of Amazon the world over was an eyecatcher for the bricks and-mortar retailer. The two opposites thus met for a win-win situation for both
It was their confidence, honesty and transparency, together with a powerful technological base that impressed investors. They had big competitors like Amazon and the domestic startup Snapdeal, but they kept on moving up. Despite their loss, the value of the company kept increasing with more venture capital funds moving in. They kept an eye for fast-moving products and kept widening their product matrix, acquiring new companies like Myntra. Walmart was looking for a new market and the new business of e-commerce. The rapid growth of Amazon the world over was an eye-catcher for the brick and mortar retailer. The two opposites thus met for a win-win situation for both.
What does such a mega deal mean for the country? In my opinion, there is much good for us. Walmart has established a reputation for serving the customer better by selling at cheaper prices. They believe in bigger turn over by reducing profit margins. So consumers will benefit. Because of stiff competition, other e-commerce companies too will have to reduce their margins. Employment will increase as Walmart will do things on a larger scale. They have already announced that they will put in an additional US$3 billion to widen the business of Flipkart in India.
Also, Walmart has expertise in selling farm products that are directly purchased from the farmers, so that both the farmers and consumers are served better. This way, there will be a direct impetus to farmers’ income. The only persons to suffer will be brokers and wholesale agents. These days in the absence of infrastructure like cold chains and warehouses, a good proportion of our horticulture produce is lost. Walmart with its rich expertise of cold chains and enough money to build them will help save our products, which will benefit both producers and consumers. The present ‘kirana’ stores will be part of the supply chain for Flipkart, hence even their business is guaranteed to increase. In a nutshell, there will be job increase, increase in the income of farmers and kirana stores and at the same time consumers will be better served.
Earlier, Walmart could not flourish in India as there was a ban on foreign multibrand retail in our country. Currently, Walmart is running 21 wholesale cash-and-carry businesses in partnership with the Bharti Group, but without much success. Flipkart will give it the platform to sell a large variety of items.
There is a going to be a significant revenue gain for the income tax department. Shares will be sold for a total of US$16 billion which approximates to about Rs.1.08 lakh crore. There will be a levy of both short and long-term capital gain, depending on the duration of shares held that will be sold. Flipkart India is held by a Singaporean company and there will be a revenue gain even if the shares held by the Singapore unit are sold outside India, as the entire business of Flipkart is in India. There will not be any controversy like the one that happened when Vodafone came to India, as the relevant provision of the Income Tax Act now stands amended. There will be a huge indirect tax (GST) gain as well, since large-scale trading will emerge when Walmart runs Flipkart.
The deal marks the coming of age for Indian commerce. It is expected to turn the tide for startups in India where low returns have often been criticised. There may be many mergers and acquisitions in the offing. The deal does not just validate the potential of the Indian retail market, but also sets the stage for the big showdown among Alibaba, Amazon and Walmart, making India the ultimate battleground of global dominance in retail. It makes Indian retail hard to be ignored, which is expected to be a US$200 billion market by 2026.
The deal does not just validate the potential of the Indian retail market, but also sets the stage for the big showdown among Alibaba, Amazon and Walmart, making India the ultimate battleground of global dominance in retail. It makes Indian retail hard to be ignored, which is expected to be a US$200 billion market by 2026
The deal will work as a catalytic agent, to get more FDI. The criticism that it is difficult to do business in India will also get negated by this deal as the world’s biggest retailer wants to come to India with a big buy. It also certifies the technological base in our country as it is one of the reasons for Walmart acquiring Flipkart. The country of 1.30 billion people is not just a market, but has com petent and intelligent people to do business with big partnerships. So the deal enhances our image globally.
Our countrymen are intelligent and hardworking. They can generate wealth for themselves and for the country if they passionately apply themselves to it. We do not have to wait for the government to solve the unemployment problem if we turn entrepreneurs ourselves with small soft loans from Mudra Bank or any other bank. Government jobs are fewer visà-vis our population. There is no sense in increasing jobs unless they are really needed, as it increases the national cost while at the same time goes against the concept of a slim bureaucracy. The private sector too is not expanding, hence there is no growth of jobs there. The limited growth in the job market is happening due to government’s spending in the infrastructure sector, but there is a limitation. The only solution rests with us, through startups. We have to start taking risks instead of endlessly waiting for jobs. “The only strategy guaranteed to fail is not taking risks,” said Mark Zuckerberg. Why can’t we become Mark Zuckerberg or Steve Jobs or Bill Gates? The success of Flipkart should be an inspiration for us.
by S K Jha
