Joint ventures require strategic management to ensure that they realize their objectives. Wal-Mart and Bharti need to develop an operational plan that will ensure smooth business activities. The political and social environment of the host country plays a crucial role in determining the success of a joint venture. The political environment entails the rules established by the government on foreign investment which may prevent foreign players from initiating operations in certain sectors. The social context refers to the perception of the citizens regarding the foreign firms entering their countries. The current paper offers a situation analysis of the joint venture between Wal-Mart and Bharti, providing alternatives that could be used to solve the issues faced by the joint venture, and recommending the most efficient alternative.
The Joint Venture between Wal-Mart and Bharti
The retail market in India which mainly comprises of fashion accessories, groceries, textiles, and clothing initially consisted of small-scale retailers. As a matter of fact, unorganized retailers accounted for ninety-eight percent of the retail market while organized retailers accounted for the remaining two percent. Nevertheless, the retail market has undergone dramatic changes that have seen a shift to an organized retail market. Traditional markets have been replaced by new formats including supermarkets, department stores, specialty stores and hypermarkets.
This shift has attracted the attention of international retailers who are aimed at entering the Indian retail market currently valued at 320 billion dollars. Nevertheless, the Indian market is heavily regulated. Many of the sectors are off limits to foreign investors. Therefore, international retailers have to utilize specific methods to access this market. Due to the vast and promising Indian retail market, Wal-Mart has entered a joint venture agreement with Bharti, a pioneer business company in India. The joint venture had equal partnership and aimed at helping the company access the Indian market.
Nevertheless, Wal-Mart faced acute challenges in the new environment. First, there was strong resistance from local retailers. These retailers feared that the company would drive them out of business with its efficient organizational structure and vast financial resources. The local retailers accused the company of not being socially responsible thus arguing that the impact of the operations would have an adverse effect on the country. For instance, they claimed that the company’s structure would encourage numerous people to drop at the stores to pick up the goods that may cause pollution. The company’s operational structure eliminated middlemen, who were a major component of the retail market in the country.
The company nonetheless aimed at bringing various benefits to the country including inventory control, new markets, and logistics expertise. Wal-Mart steadily developed primarily due to the logistics that created a competitive edge. Since the company relied solely on its transportation network, it ensured that the processed goods reached the customers faster than those of its competitors. In fact, the company could transport goods to customers approximately four times faster than its rivals. Thus, the company aimed at passing such efficiency to the Indian retail market which was inefficient. The company also adopted a pricing policy that ensured that the products from the company were sold at the lowest price possible. The company could reduce the price of its products since it bought raw materials in abundance which gave it a huge bargaining power to sell products in massive quantities that allowed it to gain profits through the economies of scale.
Despite the rapid development of the retail market in India, the country lacked the expertise in logistics. For instance, in the food and groceries sector, the use of cold chains was not in operation. Cold chains entail the use of refrigeration facilities at the farm and during transportation, which ensures that the products are of optimal quality. As a result, the majority of the food products spoiled before reaching the consumers.
Fortunately, the government identified the inefficiencies in the retail market and acknowledged the need to bring in the international players that would assist the company by providing expertise in the area. The positive stance of the government towards Wal-Mart was met with additional resistance from the local civil groups. The country also had the problem of unskilled employees and inadequate quality control. Untrained workers were inefficient hence increasing the operational costs. On the other hand, insufficient quality control resulted in the production of inferior goods which decreased customer satisfaction.
However, Wal-Mart faced serious challenges as it entered the Indian retail market. The company relies on a good infrastructure since its efficient supply chain is the major way by which it attains value. Nonetheless, India had a poor infrastructure which significantly hampered the operations of the company.
Involve Small-scale Retailers
The company should involve the small scale retailers by buying products from them at a slightly lower cost. The company should make arrangements where the small-scale retailers sell all of their products to the company which would be resold to consumers. The company should establish a code that would determine the quality of the required goods and allow small scale suppliers to provide their products. Furthermore, the firm should create new jobs for people who have lost their jobs due to the organizational structure of the company. For instance, the company should incorporate middlemen in the processes other than the supply chain.
Provide Suppliers with Facilities
Wal-Mart should provide all of its suppliers with the respective facilities they require to ensure the quality of goods. For instance, farmers should be provided with refrigeration facilities at their farms to store the products before the firm obtains them. The provision of these facilities is essential since the suppliers cannot afford purchasing the services. They would instead opt for compromising on the quality of the goods produced.
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Engage in Socially Responsible Activities
The company should engage in corporate social responsibility activities such as supporting children homes and local teams, and using green technologies. This move would reduce the resistance the company faces from local groups. Engagement in socially responsible activities would provide benefits for both the company and the citizens. The environment would also be protected.
The company should introduce a home delivery option ensuring that products are delivered to the customer’s home. This will be achieved through obtaining the address of customers during the purchasing process. This option will help the company meet the requirements of local groups that are concerned about pollution from too many cars on the road.
Advantages of Alternative Solutions
Involvement of small-scale retailers would be a win-win situation for both the company and the retailers in the country. It would enhance trade activities in the country thereby increasing the growth rate. The introduction of cold chain supply would improve the quality of the products and also ensure that the majority of goods from suppliers reach the customers in optimal condition. Engaging in social responsibilities would directly benefit the given community.
Disadvantages of Alternative Solutions
Involvement of the small scale retailers will entail numerous bureaucratic processes that may slow down the activities of the company. The farmers may use the refrigeration facilities inappropriately or for irrelevant purposes, which would compromise the quality of the final products. The funds provided to local teams may be misappropriated and thus benefit greedy individuals.
Recommendation and Justification
Engaging in socially responsible activities would be the most viable option for the company. Currently, the firm faces stiff resistance from the local civil groups. This resistance results in bad publicity that may make people across the country refuse to purchase products from the joint venture set up by Bharti and Wal-Mart. The resistance is caused by the fact that the company is not socially responsible. Thus, engaging in socially responsible activities will help shed off the negative energy faced by the company.
For instance, supporting local teams and children’s homes would make the social groups change their perception of the enterprise. Many people are fond of sports. Therefore, supporting a local team would make numerous people happy with the business and would even make them buy products from the company as a sign of appreciation. This scenario represents a case of product promotion that is highly effective in today’s business world.
Socially responsible activities ensure that the operations of a foreign firm benefit the citizens of the host country. The profits are used to provide essential services like maintenance of recreation parks among others. Furthermore, the use of green technologies would ensure that the pollution level in the country is low and citizens do not suffer from associated health conditions.
The government would obtain a sufficient amount of revenue from the company in the form of taxes. When the company receives more income from its operations, the government would in turn obtain higher taxes and could use this additional income for the development of the adequate infrastructure of the country.
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The joint venture amid the two companies has a great potential for achieving their mutual goals. This is because of the huge retail market available in the country. Nevertheless, Wal-Mart needs to establish mechanisms that will address the immediate challenges including the resistance from local groups, inadequate infrastructure, and the inadequate socially responsible activities. The company could involve small-scale retailers in the business activities. This move would help reduce the resistance on behalf of the local groups. The introduction of cold chain supply chains would ensure that customers get only high quality food products. Involvement in corporate social responsibilities will also reduce the resistance faced by the company while at the same time benefit the local clients.