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By offering bargain pricing in a difficult environment, Wal-Mart Stores (NYSE: WMT ) has been gaining a lot of ground here in the U.S. But rather than rest on its laurels, the retailing behemoth has reportedly been enjoying a warm reception from consumers in India, too.
A newly opened Wal-Mart, created in a joint venture with Bharti Group, has been drawing crowds at its location on the historic Grand Trunk Road. The opening follows indications from the country's government that it would welcome more foreign investment, as noted by our Motley Fool CAPS TMF Newsdesk blog.
A Wal-Mart in India might seem a bit out of place. The nation's retail industry is heavily fragmented, with much of its commerce taking place in open-air markets where haggling over prices is common. Much like the megaretailer's U.S. critics, some observers reportedly fear that Wal-Mart will disrupt India's homegrown retail system. Still, other shoppers seem to find it a refreshing change from the norm.
But don't assume the Bentonville Behemoth is doing business in India the same way it does in the States. India’s government is allowing Wal-Mart to sell only to wholesalers, or business owners and their family and friends, a limitation specifically meant to protect smaller merchants. The "membership cards" Wal-Mart's issuing to these customers sound less like its usual stores here, and more like its Sam's Club warehouses, or those of its domestic rival Costco (Nasdaq: COST ) .
While Wal-Mart investors may welcome the move into India, they shouldn't underestimate the risks of opening stores in emerging markets. Ikea recently made a big mistake in trying to operate in Russia, and it’s also called off a plan to invest $1 billion in India. Starbucks (Nasdaq: SBUX ) has experienced its share of troubles entering India, and was forced to close its store in China’s Forbidden City.
India may be no China, but investors do need to realize that international expansion isn’t as easy as plopping down stores and waiting for customers to show up in droves. (Unless you're Yum! Brands (NYSE: YUM ) , apparently, judging from its success in China.) Differences in cultures and politics are serious risks, especially if you're investing in vastly dissimilar places. Investing in India is simply not the same as buying a stake in Canada's PotashCorp (NYSE: POT ) or the U.K.'s Unilever (NYSE: UL ) .
In short, given the relatively slow pace of change in India, Wal-Mart's first store there may not be as huge a growth driver as it first appears.
What do you think about Wal-Mart’s expansion into India? Please share your thoughts in the comment boxes below.