11 MAY 2018
Online retail flip
Walmart’s controlling stake in Flipkart shows why the government must update policy
India’s e-commerce market, which accounts for less than a tenth of its overall retail opportunity, has just got a significant thumbs-up from American supermarket giant Walmart. It has announced a plan to buy a controlling stake of around 77% in home-grown e-commerce firm Flipkart for a sum of $16 billion. In the process, Walmart has pipped rival Amazon, which is just behind Flipkart when it comes to its share of the Indian e-commerce pie and has independently been vying to acquire the Bengaluru-based company. China’s Alibaba, with its investment in Paytm Mall, is vying to compete in the space as well, along with the likes of Snapdeal, which around this time last year was being linked to a much-speculated merger plan with Flipkart. But the big battle for Indians’ e-tail space, for now, will play out between two of America’s biggest companies. Not surprisingly, traditional retail players have responded with willingness to adapt to this paradigm shift and consider strategic alliances with online rivals. Interestingly, Walmart investors have voted against what they saw as an expensive bet, with the firm losing about $8 billion in value on the bourses after the deal was finalised. Though e-tail may have changed shopping habits among swathes of Indians, it remains heavily dependent on discount-peddling. Flipkart, in particular, has reported accumulated losses of ?24,000 crore.
Walmart is betting on the future growth it can unlock from this full-frontal entry into a market that has proved difficult despite its best attempts for over a decade. The company had entered India in 2007 but exited the joint venture with the Bharti group and restricted its operations to cash-and-carry stores, in the face of strict curbs on foreign direct investment (FDI) in the multi-brand retail sector. These restrictions, ostensibly to protect smaller retailers, have remained in place under the NDA government, belying expectations of a reset. Facing heat at home from Amazon, which is now moving from online-only to a brick-and-mortar plus e-tail model, this is a vital time for Walmart to get into India’s business-to-consumer segment. That this deal doesn’t ruffle extant policy restrictions, in fact, reveals the inefficacy of India’s approach to retail FDI in a rapidly changing global marketplace. Local trade lobbies as well as swadeshi advocates are determined to resist the deal, while analysts are wondering how Walmart will turn around Flipkart’s cash burn rates. However, for India’s policymakers, neither of these should matter. It is important to assess if, and how, the U.S. firm will integrate Indian suppliers into its international operations. Most importantly, it is time to nuance the debates that have dominated India’s retail FDI policy — big versus small, local versus foreign — to create a truly level playing field where all can compete, without artificial safeguards that can be overcome via such deals.
Malaysians bring back the 92-year-old veteran in a historic election
Mahathir Mohamad’s spectacular victory in Malaysia’s elections has the potential to spur democratic movements across Southeast Asia, where one-party rule and the military’s preeminence are pervasive. Winds of change could be in the offing, with elections looming in a number of countries. A clear majority for the opposition Pakatan Harapan (Alliance of Hope) in the new federal legislature signals Mr. Mohamad’s resounding comeback. Outgoing Prime Minister Najib Razak’s overall economic track record was not sufficient to salvage the ruling Barisan Nasional (National Front), or its principal party, the United Malays National Organisation. Neither did his government’s stringent curbs on media freedoms, last-minute meddling with electoral constituencies and promises of generous handouts do the trick. This is a historic transition, with UNMO ousted from power for the first time. Mr. Mohamad had helped found UNMO, held power between 1981 and 2003, and in 2009 handpicked Mr. Razak for the big post. Now, the 92-year-old challenged the party that was once his, with the single objective of overthrowing his old protégé. Mr. Razak’s alleged involvement in a multi-million-dollar embezzlement scandal in a sovereign wealth fund appears to have turned the popular mood. Investigations in several countries into investments in the fund, 1Malaysia Development Berhad, dented the country’s reputation as a regional tiger economy. The scandal and Mr. Mohamad’s strong Malay nationalist credentials gave the opposition the momentum it had long sought. Also, he forged an alliance with his arch-rival, Anwar Ibrahim, the leader of the Alliance of Hope, now in prison.
Mr. Mohamad’s return to the Prime Minister’s office after more than a decade coincides with the recovery of global commodity prices to Malaysia’s advantage. A regional heavyweight in the 1980s and 1990s, he was known for grandstanding on Asian values of collective well-being over the West’s emphasis on individual rights. He may find little need for such sermons on the world stage today, given the West’s diminishing appetite to hold leaderships to account on their human rights record. In any case, Mr. Mohamed has recast himself, and his promise to uphold the rule of law will strike a chord among both his domestic audience and across the ASEAN belt. The region has come to regard lack of democratic accountability as stumbling blocks to consolidating gains from economic integration. It remains to be seen how Mr. Mohamad honours his word to hand over charge to Mr. Ibrahim, whose return to politics is subject to a royal pardon. That would be a statesmanly gesture to cap an epoch-defining victory.