Raises bigger questions about Indian home-grown businesses
In one of the biggest e-commerce deals, Wal-Mart bought a 77% stake in Flipkart for a consideration of $16 billion. This gave Flipkart an enterprise valuation of $21 billion. For quite some time, Flipkart was looking for an honorable exit after it became clear that it would find it increasingly difficult to match up to the deep pockets of Amazon. First, what does this mean for Wal-Mart?
Big boost for Wal-Mart
For the world’s largest retailer by a margin, this is the right move to create an e-commerce delivery platform for its retail business. The US retail market is growing at just about 2% annually and Wal-Mart needed to urgently get into promising markets like India. There is the Indian promise of the e-commerce market growing from $20 billion to a whopping $80 billion in the next 2 years. India will have 200 million online shoppers by 2020 aided by the greater spread of smartphones and more robust 4G connectivity. Wal-Mart has not had a very good experience in China and will be looking at India in a big way. In the last 20 years, Wal-Mart has attempted a number of inorganic forays into UK, Germany, Europe, South Korea etc. All of these brick-and-mortar forays have been failures and Wal-Mart ended up with losses. Wal-Mart is now clear that the future is online and only India offers the perfect combination of a growing retail market as well as the rapid spread of online connectivity.
Flipkart will be history
The way the deal has been structured; two of the institutional investors’ viz. Softbank of Japan and Naspers will entirely exit their stake. Among the others, Tencent, Tiger Global and Accel Partners will continue to hold a small stake in the new entity. Of the two co-founders, Sachin Bansal will sell his entire 5.5% stake in Flipkart to Wal-Mart for a consideration of $1.15 billion. Binny Bansal will retain a small stake and will continue as the Co-CEO of the new entity. It is clear that Wal-Mart does not want to face allegations of entry into retail through the back door. But the way Wal-Mart has functioned over the years, it is very clear that Flipkart will gradually metamorphose into Wal-Mart 2.0. Effectively, Flipkart as a brand will be history!
Whether homegrown brands
Flipkart is not the first to sell out and will not be the last. Now the e-commerce marketplace in India will be divided between Amazon, Wal-Mart and Alibaba. The question is; how does India create mega Indian brands? Where is the value proposition to the India story in this entire deal? China has managed to create its own version of homegrown tech giants in the form of Tencent, Xiaomi, Alibaba and Baidu. At a time when RIL and TCS are touching $100 billion markets, this is surely a point for the government to ponder about! ©