Wal-Mart and Bharti Enterprises call off India JV

Reuters

* Wal-Mart to take over existing wholesale business in India

* Wal-Mart will need new local partner to open retail stores

* Wal-Mart can focus on supply chain for eventual retailentry

By Nandita Bose

MUMBAI, Oct 9 (Reuters) - Wal-Mart Stores Inc andBharti Enterprises are breaking up their Indian joint venture,leaving the world's biggest retailer to go it alone in a countrywhere it has struggled to build a bigger presence.

Bentonville, Arkansas-based Wal-Mart, the world's largestretailer, will take over its Indian partner's 50 percent stakein Bharti Wal-Mart Pvt Ltd, which runs 20 wholesale stores underthe Best Price Modern Wholesale brand.

However, if Wal-Mart wants to set up its own retail storesin Asia's third-largest economy, it will need to find anotherlocal partner to own 49 percent of the business under foreigninvestment rules that were eased last year.

Wal-Mart tied up with Bharti in 2007 and had been the mostvocal proponent of prying open India's restrictive retail marketto foreign supermarket operators.

But its growth in India has been hindered by still-evolvingrules on foreign investment, an internal bribery probe, and,more recently, the faltering partnership with New Delhi-basedBharti, which Reuters reported in July.

Wal-Mart has not opened a wholesale, or cash-and-carry,store in India for about a year, despite earlier plans to openeight in 2013.

"Wal-Mart can now focus on getting its act clean in Indiaand start afresh," Saloni Nangia, president for retail atTechnopak Consultants.

Late last year, the company's Indian joint venture suspendedemployees, including the chief financial officer, as part of aninternal investigation into bribery allegations in India andsubsequently brought in a team of lawyers from a U.S. firm tostrengthen compliance.

Focusing on the wholesale business for now will enableWal-Mart to build up its supply chain to support future retailstores, analysts said.

"Wal-Mart can now take over the wholesale business, grow itat its own pace with the investment it sees fit and it could nowget aggressive in the market," said Devangshu Dutta, who headsBangalore-based retail consultancy, Third Eyesight.

For Bharti, which is also the parent company of BhartiAirtel, India's biggest mobile phone carrier, thebreak-up with Wal-Mart means it loses a deep-pocketed partner tosupport its retail expansion. Bharti operates the 212-storeeasyday chain and said it will continue to invest in and growthe business.

BIG POTENTIAL, BIG CHALLENGE

India last year allowed foreign supermarket companies to ownup to 51 percent of their local operations, but no company hasapplied to enter Asia's third-largest economy under the rule.

Despite the vast opportunities - roughly 90 percent of the$500 billion retail market is done at one-off mom-and-pop shops- expensive real estate, underdeveloped supply chains and fierceprice competition mean margins are razor-thin and most bigsupermarket operators lose money.

Some officials at global retailers have said privately theyare waiting for the outcome of national elections due by Maybefore applying to operate in India in case the controversialrule allowing foreign direct investment in supermarkets isoverturned by a new government.

Wal-Mart said on Wednesday it will work with the governmentto create conditions that enable foreign direct investment inthe country's supermarket sector.

"Given the circumstances, our decision to operateindependently will be beneficial to both parties," Scott Price,president and chief executive of Wal-Mart Asia, said in astatement. "Wal-Mart is committed to businesses that serve ourmembers and provide good returns for our shareholders and wewill continue to advocate for investment conditions that allowFDI multi-brand retail in India," he said.

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