Two interesting things on Walmart’s strategy in Asia. First, an interview with Lee Scott, Walamrt’s Chairman, from CNNMoney on what they are doing in China.Vodpod videos no longer available.
Part of this hits on things he has said before along the lines that if a firm cheats its workers on pay or safety conditions, why should he expect that firm to not cheat Walmart? He also says some interesting things about their experience working with suppliers. Specifically, that the ones that are out of compliance with regard to labor laws or what have you also are generally poorly run. Consequently, as Walmart works with these firms in order to bring them up to standards, costs fall dramatically. Walmart thus gets a real windfall out of the deal — not only do they get a qualified business partner, they get a cheaper supplier.
The second thing is an article from the New York Times on Walmart in India (In India, Wal-Mart Goes to the Farm, Apr 13). The Indian market is very different from China if only because of regulations. Walmart can’t own stores in India as they do in China. Hence, they have partnered with an Indian firm and have begun to build a distribution network. So they are not selling to individuals but they are selling to retailers who serve Indian consumers. A large part of that is building up a network of agricultural suppliers:
Establishing good relations with farmers is a centerpiece of the company’s plans. Though Wal-Mart is pushing many of its traditional products in India, like clothes, electronics and home goods, perhaps none is as essential as food. Wal-Mart needs high-quality produce at low prices to draw customers in volume.
The challenges are significant. Buying and transporting produce are difficult tasks because India has millions of small-scale farmers and an agriculture system riddled with middlemen. Here in Haider Nagar, in the bread basket state of Punjab, farmers who supply vegetables to Wal-Mart say they like working with the company. It typically pays them 5 to 7 percent more than they earn from local wholesale markets, they said. And they do not have to pay to transport produce because Wal-Mart picks it up from their fields.
Walmart has also invested in making farmers more productive:
Two years after Wal-Mart came to India, it is trying to do to agriculture here what it has done to industries around the world: change business models by using its hyper-efficient practices to improve productivity and speed the flow of goods. … Abdul Majid, who sells cucumbers to Wal-Mart, says his yields have risen about 25 percent since he started following farming advice about when to apply fertilizers and which kinds — more zinc, less potash — from the company and its partner, Bayer CropScience.
It will be interesting to see how this plays out in India. Walmart seems to have made significant strides in China in improving the quality and capabilities of their suppliers. There is a similar opportunity in India. As the Times article depicts it, the biggest challenge in India is as much regulatory as anything else. It is unclear how Walmart can live with the current set up. At the moment, they have significant investments in the back end of a retail supply chain without access to a corresponding front end. If that doesn’t change in some way, this may not be sustainable.