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INDIA STEADILY LOOSENS RESTRICTIONS ON FOREIGN RETAILERS

The list of countries where Wal-Mart does business reads like an atlas index: Argentina, Brazil, Canada, China, Germany, Japan, South Korea, Mexico, the United Kingdom and, of course, the United States.

What is missing is a location Wal-Mart has tried hard to enter: India, the world’s second most populous nation, with more than 1 billion people and a retail market estimated at $250 billion.

So far the company has made little progress in getting through that door. India still prohibits not just Wal-Mart but also Carrefour, Tesco and other international retailers from entering the market directly, reflecting widespread fears that their arrival would spell doom for the country’s smaller retailers. India’s Communist Party is most vehemently opposed to the idea.

But in January, after months of political argument, the Indian government gave foreign retailers some encouragement by loosening the rules to allow 51 percent foreign direct investment by companies that sell products in single-branded stores. That was good news for producers of luxury goods such as perfumes and watches but got Wal-Mart not much closer to operating there.

None of this is for any lack of effort on the retail giant’s part. In the spring of last year, John Menzer, the vice chairman of Wal-Mart, who at the time was chief executive of the international division, became the first Wal-Mart official to visit India, where he met the prime minister and had six meetings to discuss opening up foreign direct investment. “We’ve energized the FDI [foreign direct investment] lobby and pre-empted the anti-FDI lobby in India,” he told securities analysts afterward. “I believe we’ve told our story.”

Wal-Mart is already heavily involved in the Indian market, but as a buyer, not a seller. The company imports $1.5 billion worth of goods from India per year, Menzer pointed out, and yet its only presence there is a purchasing office in Bangalore, to the south, the country’s third-largest city and a hub for emerging technology companies.

The question now is whether the government will continue to open its markets to foreign companies or force the big-box retailers to seek another way in.

In his remarks Menzer said Wal-Mart is eager to enter India before the country develops much further. He indicated that a joint venture with an Indian retailer could be in the works.

The company has plenty of experience if it chooses to go that route. Last year Wal-Mart expanded its presence in Japan by acquiring Seiyu, a chain of 405 supermarket and convenience stores. In addition, it bought 140 Sonae hypermarkets and grocery stores in Brazil from Portuguese retailer Modelo Continente. The company also acquired a one-third interest in Central American Retail Holding Co., operator of 363 supermarkets and other stores in Costa Rica, Guatemala, Honduras, Nicaragua and El Salvador.

“Obviously, Wal-Mart is very keen to examine the idea of coming to India,” said Yogesh Samat, CEO of Mumbai’s Inorbit mall, whose owner, K Raheja Corp., also owns the Shoppers Stop chain of department stores. “But there are limitations, and until those doors open up, I’m not sure they will be here so soon.”

Having to take it slow might not be such a bad thing, though. Samat says India remains a highly fragmented market. “Lots of work needs to be done on the back end, in delivery and warehousing,” he said. “At the end of the day, we don’t yet have economies of scale here.

“My sense is that, whether it’s Wal-Mart or any other player entering into India, especially in the larger category of basic goods, a lot of that back-end work should be happening right now if they intend to enter the country even in five years.”

— CH