Wal-Mart Stores Inc and India's Bharti Enterprises have agreed 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, signed on Monday in India, may help the US company eventually gain a foothold in India's booming, but much protected, retail business, which is 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 backend support to Indian retailers. Indian companies are also allowed to operate stores selling foreign brands under franchise from their producers.
Bentonville, Arkansas-based Wal-Mart and Bharti Enterprises appeared to have worked around these rules, hoping to get the US retail giant an entry into the massive Indian market.
The companies signed two separate agreements, which Bharti's managing director Rajan 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 backend 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 imports about US$600 million in goods from India, a fraction of what its buys from China for its stores worldwide.
A separate franchise agreement signed on Monday would allow Wal-Mart to share its technology and expertise with 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 agreement faces political opposition and scrutiny from the government.
Wal-Mart is not the only company eyeing India's retail market. 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 to open their own stores and forced companies like Wal-Mart to explore alternatives.