In light of recent events, it is very hard to understand if the Walmart Acquisition of Flipkart is actually a good thing for India, especially the Indian Consumers and Sellers that heavily relied on this platform. Flipkart was a pioneer and an exceptional example of makeshift Indian origin Start-Up business that made it to the Major Leagues. Flipkart’s success story could not be yet written because they were not done yet and they were still rising and growing. However, they hit a number of caveats in their initial stage, which mainly included their issues with market shares, dealing with competition like Snapdeal & Amazon, most of all their issue was that they started out late. Moreover, the Indian Market didn’t even recognize the marketplace model of online retail hence subjecting Flipkart to a number of regulatory actions that they may not even have deserved.
Flipkart, in order to sustain their business and drive exponential growth, needed financial liquidity and that is where they got stuck because of the Indian Taxation and FDI laws. Flipkart, in order to avoid drowning by getting tangled in the cobwebs of Indian Investment laws, had to figure out a way to sustain themselves. In a report dated 25 November 2014, a leading media outlet reported that Flipkart was operating through a complex business structure which included nine firms, some registered in Singapore and some in India among which the Flipkart Pvt Ltd held maximum shares. This was a big underdog move that Flipkart used to expand its business without selling its shares to any existent corporate giants with financial liquidity. Singapore has very lenient laws in terms of import and export duty fees & it’s corporate tax rate is almost half of that of India’s.
India had a huge market that was a likely target for most International E-Commerce retailers. In midst of all these, Amazon since its entry on 2011 is trying to gain dominance over this market. In the US, Amazon is consistently in competition with Walmart & Ebay and that, in turn, made them the corporate giants they are now. With the untapped potential of the Indian Market, Amazon spent around 5 billion dollars in its initial stages to gain a stronghold on Indian E-Commerce Market with Flipkart being it’s biggest rival to date in India. Flipkart, in order to consistently compete with its rival, had to keep on expanding its business and in a new round of gathering funds Amazon & Walmart, both were bidding on Flipkart where eventually Walmart got the upper hand. The 16B $ deal that Walmart is supposed to make will get them the majority shares (around 77%) of Flipkart and they are yet to reveal the structure of the deal. The deal will basically get them dominance over the Singapore entity which controls majority shares of Flipkart India.
A number of articles popped up and criticized Indian FDI & Taxation laws for not supporting Flipkart when they needed and in light of that the Flipkart-Walmart deal seems like a big negative thing for India as the huge amount of capital that was supposed to come to India will divert to other places and hence won’t exactly contribute to Indian Economy. Anyway, this is nothing particularly against Walmart as these issues would have emerged in case of any international giant taking over Flipkart’s Majority Shares.
There are certain benefits that India and its people are likely to gain from this deal like more international goods and possibly at more competitive prices. It can also help Flipkart resolve most of its internal issues by adopting more of Walmart’s more experienced internal policies and regulations. Amazon not being able to buy Flipkart kept the competitive tug of war alive and if Amazon would have acquired Flipkart they would have controlled the majority stake in the Indian E-Commerce Market resulting in a monopoly which could have been a doom for this booming industry. India hopes to see a head to head competition to be ‘#1’ between Amazon & Walmart much like what is pre-existent in the States.