India may soon have stores displaying the Wal-Mart brand despite government rules that prevent foreign companies from operating multi-product retail chains here.
The world's largest retailer has teamed up with India's Bharti Enterprises Ltd. — a business conglomerate focused mostly on telecommunications — to set up hundreds of stores across the country, Sunil Bharti Mittal, chairman and CEO of the Indian company, said Monday.
"We have signed an MoU (memorandum of understanding) for a joint venture and a franchise agreement," Mittal told reporters on the sidelines of an international business summit in New Delhi.
He declined to divulge the financial terms of the deal, but said it "will be a partnership of equals."
It wasn't immediately clear if Wal-Mart Stores Inc. had given up on plans to set up its own stores in India, where resistance from political groups and domestic businesses has prevented the government from allowing foreign companies to operate multi-product retail chains.
"Wal-Mart was keen to get into India. I think they have chosen the right partner," said Mittal, whose group company Bharti Airtel Ltd. is the country's largest cellular phone service provider.
"It is going to be a large investment ... We are going to be a big player in this market."
The deal marks Bharti Enterprises' first foray into the broader retail market and signals its desire to diversify. Bharti already is a popular brand in India, offering mobile phone services to more than 30 million users. It also has interests in agribusiness and insurance.
Mittal said his group hopes to learn from Wal-Mart how to operate in the retail market.
It would take several months before the first of the stores opens its doors.
"My own wish is August next year," Mittal said. Eventually there will be "several hundred stores across the country (that) will probably carry both brand names."
India's booming retail market, estimated at more than $200 billion, is currently dominated by more than 12 million mom-and-pop shops. Large air-conditioned stores remain a rarity. Sales through company-owned network stores currently total about $8 billion, or less than 5 percent of the market.
Rising middle class incomes and an increase in demand for branded products, however, make India a compelling destination for global retail companies.
In recent years, several large Indian companies have diversified into retail business.
Reliance Industries Ltd., one of India's top business groups, has already lined up billion of dollars to invest in a retail chain that would also showcase large superstores like Wal-Mart. The company opened its first retail outlet in the southern Indian city of Hyderabad earlier this month.
Reliance Chairman Mukesh Ambani, who also was attending the business summit in New Delhi, welcomed the deal between Bharti and Wal-Mart, saying it will strengthen competition in the market.
"There is (enough space) for six to eight large players in this market," Ambani told reporters.
Bharti's Mittal said the deal complies with existing government rules.
Although India does not allow foreign companies to open multi-product retail stores, they can still make wholesale purchases to support their global supply chains.
Wal-Mart already operates a procurement center in the southern Indian city of Bangalore. The company is expected to source products worth nearly $2 billion from India for Wal-Mart stores worldwide this year. However, the figure is small compared with the $18 billion worth of goods the company exports from China.
Mittal said the alliance will help the U.S. company scale up its procurement from India.