If the buzz in the online retail industry is true, then the coming days will witness one of the largest takeovers in the history of not just the online commerce, but also in the history of independent India. Several media outlets across the country are now reporting a possible takeover of the Indian online shopping giant Flipkart by global retail conglomerate Walmart. Even though there have been rumors regarding the same taking rounds for a while, it was in the recent few days that the leading news channels and newspapers that started reporting the news of a possible acquisition. As Walmart finally flips the ‘kart’, it also brings an end to the long due entry of Walmart, which has been trying to reap the benefits of trillion dollars Indian retail sector. This acquisition, if materializes, will also help the Indian giant Flipkart to enter the non-Indian markets, including the USA. And for the customers, it would be the advent of another round of trade wars in the coming months.
It was Reuters that first broke the reports of a possible takeover of the Flipkart and its other online assets by the global retail chain, Walmart. It has been reported that Walmart may even be willing to shed a huge sum of $10-12 billion for the acquisition. If this becomes a reality, it would be one of the largest acquisitions that Walmart has done in the recent past. This would be also an answer to Amazon Inc., which have been invading into the offline territory of Walmart in the past few years. Though there is no official confirmation yet, the deal is likely to succeed as Flipkart is facing one of the unprecedented competitions in the retail market with the Indian giant, often finding it difficult to put up a decent fight with its arch-rival, Amazon. With several billion that Amazon has been pumping into the country, the homegrown traditional players in the Indian retail market like SnapDeal are finding it harder to sustain amidst the predatory practices of Amazon. Even though Amazon had earlier plans to buy Flipkart, this didn’t materialize as the entity thus formed would have had a combined market capitalization of more than 70%, which would then put the partnership in the hot waters of competition commission.
The deal is not just any merger and acquisition between any two firms; rather, it is the deal that would bring a wildcard entry for Walmart into the Indian market. Despite the norms regarding the Foreign Direct Investment in the Indian retail sector being relaxed as early as 2012, Walmart had to cross several hurdles for opening its stores in India. For several Left-leaning Indians and socialists, Walmart was a symbol of American capitalism and modern-day trade-imperialism. Entry of Walmart was also stiffly opposed by the Indian retail chains as well. Owing to these political and psychological issues, Walmart chose to not expand its business in India, as it was expected before. However, with the Flipkart deal, Walmart is once again trying to woo the Indian retail sector and the several millions of customers who generate a grand total of trillion dollar businesses each year. The online retail sector is expected to grow into a whopping $200 billion sector in the coming five years, as per the estimates of industry experts and watchdogs. From the perspective of Flipkart, not only would this investment would make it strong enough to flex muscles against its rival Amazon but also help to expand its business across the borders. As of now, Flipkart has operations only within the geographical boundaries of the country. In the distant future, there is also a possibility that Flipkart may evolve into the online retail arm of Walmart, thus expanding its prospects and customer base across the places where Walmart also operates.
The move certainly will have long-lasting outcomes for the Indian economy. The most important would be a possible reduction in the prices of the consumer goods in the retail sector in the future. With the kind of expertise in logistics and supply-chain management that Walmart brings in along with its capital, Flipkart would be in a comparatively advantageous position to put up a good fight with Amazon. The consumers may gain as there would be heavy discounts offered by both sides to gain and retain market share. The retail sector will further grow as the market would be open to the goods from other countries as well. Though the move would create a substantial amount of benefits for the customers, this would be another round of litmus tests for the petty shops and small-scale retailers across the country. With the emergence of the online shopping wave, businesses are already facing stiff competition. With the entry of foreign firms like Walmart, the competition would further intensify. In economic terms, this would lead to the phenomenon where the market would slowly transform into an oligopoly from the present nature of a near perfect competition. The downfall would be so high that several such petty shop owners and local retailers would be driven out of the market as sustaining in long-run would become highly impossible.
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