Image: Mike Duke
Rajesh Nirgude  /  AP file
Wal-Mart Vice Chairman Mike Duke, right, takes reporters' questions with Bharti Enterprise Joint Managing Director Rajan Mittal in Mumbai, India, in February. The two companies will set up a wholesale supply business for smaller retailers.
updated 8/6/2007 6:40:16 PM ET 2007-08-06T22:40:16

Wal-Mart Stores Inc. and India’s Bharti Enterprises signed a deal Monday to jointly build wholesale outlets that will buy goods from farmers and small manufacturers and sell to retailers through a nationwide supply chain.

The deal may help the U.S. company eventually gain a foothold in India’s booming, but much protected, retail business, which is currently dominated by an estimated 12 million mom and pop shops.

Indian laws do not allow multi-brand foreign retailers to sell directly to consumers, but they can run wholesale operations and provide back-end support to Indian retailers. Indian companies are also allowed to operate stores selling foreign brands under franchise from their producers.

Bentonville, Ark.-based Wal-Mart and Bharti Enterprises appeared to have worked around these rules, hoping to get the U.S. retail giant an entry into the massive Indian market.

The companies signed two separate agreements, which Bharti’s Managing Director Rajan B Mittal said conform to existing rules and regulations.

Under the first agreement, the two companies will set up “a 50-50 venture for wholesale cash-and-carry and back-end supply chain management operation in India,” a joint statement said.

The joint venture “will help drive efficiencies across the supply chain and work toward the betterment of India’s farmers, manufacturers and retailers,” the statement quoted Wal-Mart Vice Chairman Mike Duke as saying.

Wal-Mart currently imports about $600 million worth goods from India, a fraction of what its buys from China for its stores worldwide.

A separate franchise agreement signed Monday would allow Wal-Mart to share its technology and expertise with for a chain of retail stores that Bharti plans to build through its fully-owned subsidiary — Bharti Retail Ltd. It is not yet clear if Bharti’s retail would also be able to display the Wal-Mart brand.

The deal faces political opposition and scrutiny from the government.

Wal-Mart is not the only company eyeing India’s retail market, which is estimated to be worth more than $250 billion and growing at 20 percent every year.

Global retailers like Carrefour SA of France, Tesco PlC of Britain and Metro AG of Germany have lobbied the Indian government to liberalize retail trade. Opposition from powerful leftist allies has, however, prevented the Indian government from allowing foreign retailers open their own stores here and forced companies like Wal-Mart to explore alternatives.

If cleared, the deal with Bharti would mark Wal-Mart’s first entry into a large country in a decade — the last one was China, said Raj Jain, head of Wal-Mart’s India operations.

The first wholesale cash-and-carry facility is targeted to open by the end of next year. Over the next seven years, the venture is expected to open 10 to 15 such facilities and employ about 5,000 people.

Both companies declined to comment on financial details.

A typical wholesale facility will stand between 50,000 and 100,000 square feet and sell a range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items, said Jain.

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