When the Flipkart-Walmart deal was announced, my mind switched back to a conversation I had with a top venture capitalist (VC) in 2006-07. After exchanging pleasantries, he got to the point: e-commerce simply won’t work in India. Why? The VC had a whole laundry list of reasons: low PC penetration, poor computer literacy, the absence of a large credit cards user base, lack of trust with anything online, and preference for physical stores, people etc.
Cut to 2011. Another chat with another global VC. This time I was trying to raise money for BigBasket. Again, there was a dhobi list of reasons why things won’t work in food e-tailing: the logistics were impossible, food retail was too fragmented, Webvan–the U.S. e-grocery business was the biggest failure of the dotcom era etc.
And now, here’s the world’s largest retailer Walmart spending $16 billion to buy a majority stake in an e-commerce company which has been around for just about a decade. The moral of these stories is this: If you bet on seemingly improbable entrepreneurial ventures headed by the right people, the rewards are more often than not disproportionate to the risks you take.
There’s a story about Bata, the shoemaker, in Africa. I don’t know if the story is apocryphal or true. But, here goes. Apparently, at the end of the 19th century, Bata sent its top salesmen to Africa to scout for a market for its shoes in the continent. One shoe salesman did a tour of Africa and promptly got back with this message: “Nobody wears shoes here. So, no market.”
The other salesman also toured the same places that this salesman visited and wrote back: “Nobody wears shoes here. So, massive market.” That approach is the big difference between folks who spot either an opportunity or a calamity.
Walmart’s acquisition of Flipkart simply demonstrates that India is a land where many, many more “shoes” are yet to be sold. Broadly, here are some of big conclusions that we can draw from the acquisition.
One, it validates the Indian entrepreneurship story at a global level. It doesn’t take a genius to recognise India’s 1.3 billion population, the growing middle class, and increasing Internet penetration as the biggest opportunities in the world today.
Walmart’s acquisition of Flipkart is the proof of the pudding: that Indian entrepreneurs can build a business bottom-up, scale it up and eventually get one of the largest companies in the world to buy it. Flipkart’s acquisition has firmly put India entrepreneurship story in the spotlight.
Two, in a recent column, I questioned how the acquisition proves that there are multiple models for growth. Critics who kept harping about Flipkart’s “discounting” model of growth will now have to re-evaluate if their old model of “profits and multiples of profits” is the only way to measure the success or failure of disruptive companies.
Three, the acquisition validates the fact that despite all the challenges that India as a market throws up, Indian startups can win big if they innovate on globally tested business models. For example, while Flipkart’s e-commerce model was inspired by Amazon, it adapted it by introducing several locally relevant innovations like Cash on Delivery (CoD) and reverse logistics.
Four, the money that the Flipkart founders and employees make will not lie idle. And there is one space that this group understands: entrepreneurship. Expect more startups and investors to come from the “Flipkart stable”.
Finally, this acquisition is a wake-up call for Indian conglomerates. For them, this is a missed opportunity. Who spotted India’s market potential and changing demographics? Who saw the Internet wave first? It wasn’t the Indian behemoths but the likes of Tiger Global and SoftBank. These investors were the first to back entrepreneurs like the Bansals of Flipkart and are laughing all the way to the bank.
Today, seven of the top 10 most valued companies in the U.S. are tech companies. That’s an indicator of where India is headed. India conglomerates will lose out if they don’t continue investing in this space.
Now, the acquisition itself raises two questions: one, why did Walmart acquire Flipkart? Two, what does Walmart bring to the table?
Let’s start with why Walmart acquired Flipkart. In 2017, Walmart's sales surpassed $500 billion for the first time–three times bigger than Amazon. However, Walmart is still heavily dependent as a company on the U.S. market. Walmart International generated approximately 24% of the company's net sales last year.
On the other hand, Walmart and Amazon have been on a warpath ever since Walmart sewed up a $3.3 billion deal to acquire startup Jet.com in August 2016. Jet has been the fulcrum for Walmart’s online shopping strategy. In turn, Amazon made a foray into offline retail in June 2017 when it snapped up Whole Foods Market for $13.7 billion.
Simply put, their two worlds are beginning to collide. And then, there are the market realities. Walmart has been looking for growth from Asia, especially India and China, even as key markets like Brazil and the U.K. flounder.
In India, in contrast, the e-commerce business is nascent and booming. India’s e-commerce industry is expected to grow from $38.5 billion as of 2017 to $200 billion by 2026, suggest reports. The next level of growth is likely to come from tier 2 and tier 3 towns.
The Flipkart acquisition gives Walmart a solid trench to launch its Asia assault. As for what Walmart brings to the table, the giant brings a whole bunch of skills and experience ranging from best practices, help in vendor development, education, sourcing, and an increased access to global talent.
The acquisition will also seriously challenge other horizontal players given that the two giants–Amazon and Walmart–have a massive war chest and won’t have half an eye on when the next round of funding is coming from.
Like the old African saying goes: “When two elephants fight, the ants suffer.”
The author is partner, GrowthStory, and promoter - BigBasket, Portea Medical, Freshmenu.