It has been reported that the six-year-long association between Bharti and Walmart has ended, with both companies saying they will now independently own and operate separate business formats in India. Walmart intends to buy out Bharti's stake in the "Best Price Modern Wholesale" back-end cash-and-carry business - something it can now do, given changes to the rules governing foreign direct investment (FDI). Walmart is still interested in setting up consumer-facing stores in India, if the stringent conditions set by the government on such stores' domestic sourcing and infrastructure are relaxed. But it appears that even before it could set up a multi-brand retail chain in India, it has dispensed with its domestic partner.
In doing so, Walmart joins a long line of foreign businesses that have, at the first opportunity, junked their Indian partners. The automotive sector has been particularly prone to this. Joint ventures that have not lasted include TVS-Suzuki and Yamaha-Escorts. The Japanese car maker Honda had particular trouble, setting up and then exiting partnerships such as Hero Honda, Kinetic Honda and Shriram Honda. Nor are other sectors, where an "Indian" touch might be considered more important, exempt from this trend. International hotel chains, for example, have frequently exited partnerships with domestic hotels once constraints such as real estate have been solved for them. The British group InterContinental, which once operated through the Oberois, then Taj Hotels, and then Lalit Suri, now plans almost 50 new hotels in India, most of them built on its own. In fact, Lalit Suri's flagship Delhi hotel went through three foreign partners in the 1990s. At the other end of the hospitality business, McDonald's is acrimoniously attempting to buy out its partner in north and east India, Vikram Bakshi. In electronics, partnerships between B K Modi and Xerox and between Tata and IBM were both dissolved in 1999. Even when there are no major partners, foreign firms have not seen the virtue in ceding even small amounts of power to domestic investors - both GlaxoSmithKline and Unilever have raised their stakes in their Indian subsidiaries, and this newspaper reported on Wednesday that Vodafone is investing $2 billion (Rs 12,360 crore) to increase control of its Indian arm.
On the one hand, this suggests that for multinational business, India operations are not perhaps the complete morass that they have the general reputation of being. It seems that, at the first opportunity, foreign companies dispense with the hand-holding and "navigation" through the shoals of domestic regulation and politics that local partners are supposed to provide. On the other hand, this often-repeated trend - one being emphasised now, as India gets ever more open - should be a wake-up call for Indian business. It seems they bring less and less to the table; foreign companies do not see virtue in domestic capital's knowledge of the market unless they are forced to recognise that through government regulation. The foreign partner receives little from the partnership, and finds eventually that its growth is constrained. The government, too, should learn a lesson: mandating joint ventures amounted to little more than allowing Indian business to capture regulatory-enforced rents, at the price of efficiency that would have benefited consumers. The quicker that FDI levels across sectors are rationalised to reflect this basic reality, the better.
