Apoorva Goel PGP 34256

Chaitanya Jain PGP 34261

Madhurima Kar PGP 34273
Preetam S Roy PGP 34280
Priyanka Panwar PGP 34281
Yogesh Raj PGP 34297
Table of Contents

Introduction.................................................................................................................................................3
About the Organisations (Who?).................................................................................................................3
About the Deal (What?)...............................................................................................................................4
Strategy Evaluation (Why?).........................................................................................................................5
I. Sources of Superior Profitability...........................................................................................................5
II. Industry Analysis..................................................................................................................................5
PESTLE Analysis (e-commerce in India)................................................................................................5
Porter’s Five Forces Framework..........................................................................................................6
III. Company Analysis...............................................................................................................................7
Balanced scorecard for Walmart.........................................................................................................7
BCG Matrix of both companies............................................................................................................8
Ansoff Matrix (from Walmart’s perspective).......................................................................................9
VRIO Analysis.....................................................................................................................................10
Implementation Plan (How?).....................................................................................................................11
I. Goals and Objective of the Deal.........................................................................................................11
II. How Synergies Created by the Deal will help Walmart......................................................................11
III. Possible Challenges and How to Overcome them............................................................................11
Actual Results (Aftermath)........................................................................................................................12
I. Stock Market Performance.................................................................................................................12
II. Flipkart Valuation (has the deal benefitted Flipkart as well, or just Walmart?).................................13
References.................................................................................................................................................14
Introduction

We have chosen Walmart and its acquisition of Flipkart as the topic of analysis for our project in
Strategic Management – II. Through the course of the project, we will evaluate the various
aspects of the deal, to come up with an idea of whether or not the deal made sense, and
resulted in benefits to the stakeholders involved. Through use of both Strategy, as well as
Mergers and Acquisitions frameworks, we have tried to be as specific as possible in all our
analyses, so as to yield objective insights about the questions at hand.
At the broadest level, major themes covered by us are:
1. Who are the parties involved?
2. What are the specific details (financials, timelines et al) of the deal?
3. Why was the deal made? (Evaluation of industry, resources, synergies, fit, among
others)
4. How was the merger implemented? (business, culture, issues and solutions)
5. Actual results once the deal was made (stock market, valuation, etc)

About the Organisations (Who?)

Walmart Inc. is an American MNC that operates a chain of hypermarkets, discount department
stores, and grocery stores, headquartered in Bentonville, Aksansas, U.S. The company was
founded by Sam Walton in 1962 and incorporated on October 31, 1969.  Walmart has more
than 11000 stores and clubs in more than 25 countries. The company operates under the name
Walmart in the United States and Canada, and as Best Price in India. It has wholly owned
operations in Argentina, Chile, Canada, and South Africa.
According to Fortune Global 500 List, 2019, Walmart is the world's largest company by
revenue, with US $ 514.405 billion.It employs more than 2.2 million across the world. Walmart
has established from the family-owned business with Sam Walton's heirs owning over 50-
percent of Walmart through their holdings in public well as individual enterprises. In 2019,
Walmart was the largest U.S. grocery retailer, and 65-percent of Walmart's US $ 510.329 billion
sales came from U.S. operations.

Flipkart Internet Private Limited is an e-commerce company founded in 2007 by Sachin

Bansal and Binny Bansal, who were both alumni of the IIT-Delhi and formerly worked for
Amazon. Its headquarters are based in Bengaluru, India. The company initially started its online
sales of book, before divulging into other product categories such as electronics, fashion, and
lifestyle products. Flipkart had market share of more than 39% of India’s e-commerce industry
as of 2017. Its major competitors include Amazon (Indian subsidiary) and Snapdeal (domestic
rival). 
Flipkart made a lot of acquisitions since its inception. It acquired the Bangalore-based social
book discovery service weRead from Lulu.com in 2010 and then LetsBuy in 2012. Flipkart made
headlines with its acquisition of Myntra and Jabong.com and becoming a dominant in the
category of apparel industry.
Flipkart’s evolution over the years: (until before the Walmart deal)

About the Deal (What?)

Walmart Inc. will pick up a 77% stake in India’s largest online retailer Flipkart for $16 billion,
after negotiations and talks going on for more than 20 months, in what will be the country’s
largest acquisition and the world’s biggest purchase of an ecommerce company. The deal also
includes $2 billion of fresh investment in Flipkart. This deal has pegged the post-money value of
Flipkart at $22 billion, including the $2 billion fresh investment.

Private equity and venture capital investors will get a huge exit, as they look to earn a collective
$14 billion by selling shares to Walmart.
This $16 billion transaction puts Walmart-Flipkart ahead of the $14.6-billion Bharti-Indus Towers
merger and the $12.9-billion Essar Oil-Rosneft transaction. Only the Vodafone-Idea merger was
valued higher at $23 billion.
Flipkart cofounder Sachin Bansal exits while the other cofounder Binny Bansal remains invested
in the company.
The Flipkart brand will remain separate even after the merger, as this was not the intention of
Walmart. In a press conference, Walmart CEO Doug McMillon said that they plan to use
Flipkart’s expertise to expand globally and assured Flipkart employees that its startup ethos will
be nurtured and strengthened. “We hope we learn from you how to build an ecosystem, more
about innovation and payments — we will help with sourcing, supply chain expertise”.

Strategy Evaluation (Why?)

I. Sources of Superior Profitability

As per Robert Grant (2013), strategy is essentially a combination of two factors which result in a
company achieving superior profitability. These are corporate, as well as business level strategy
decisions. With respect to Walmart and its acquisition of Flipkart, both of these are beneficial for
Walmart.

The Indian ecommerce industry is currently favorable due to many economic, social and other
factors (as we will see in the next section). So, an investment in the country’s market will only
yield benefits and cash for Walmart.

At the business level also, we know that Walmart, since inception, has followed the strategy of
cost leadership, by optimizing and minimizing its internal and supply chain costs, and thereby
being able to provide its customers the cheapest prices on a daily basis. From this regard as
well, acquiring Flipkart makes sense for Walmart, as it can harness Flipkart’s resources and
capabilities in the online marketplace channel to further cement its place in the retail category.

II. Industry Analysis

PESTLE Analysis (e-commerce in India)

To understand the current scenario in Indian Ecommerce industry, first the PESTLE framework
has been used. 
 a. Political Factors: 
 Intellectual property rights for e-retailers are not well protected in India
 Taxation guidelines are not very clear. E.g. E-bay treats each of the transactions as
private auctions and doesn’t include tax.
 Local and International firms with Foreign investment are not allowed to sell through
ecommerce in India.
b. Economic Factors:
 Initial capital investment is still very high, thus not very easy to compete with the
already established e commerce giants.
 Huge number of IT professionals is a good source of human capital required for this
industry.
 Infrastructure inadequacies are still a concern for more efficient supply chain
performance
c. Socio-cultural Factors:
 Cultural diversity of India makes it difficult for the companies to curate their offerings
as per the cultural context. At the same time, different festivals generate highest
amount of revenue for the ecommerce companies
 Indian consumers used to offline shopping has been slow to adapt to the trends of
online shopping. The ‘touch and feel’ factor acts as a hindrance towards further
adoption of online shopping
d. Technological Factors:
 Ecommerce industry is highly technology dependent, thus the high number of IT
companies and working professionals aids the growth of the industry in India
e. Legal Factors:
 Data protection laws like GDPR could pose a threat to the ecommerce industry as
these firms use consumer data for product recommendations. 
f. Environmental Factors:
 Although direct environmental impact of the ecommerce industry is very less,
sustainable packaging, use of renewable energies have garnered positive interest
from the ecommerce players.

Verdict
Overall, despite certain political issues, the Indian ecommerce industry seems attractive based
on India’s human and IT capital in addition to the consumer pull of a huge demographic.

Next, Porter’s five forces framework is analyzed for Indian ecommerce industry

Porter’s Five Forces Framework

 Bargaining Power of Suppliers – Low

High number of vendors have reduced the bargaining power of the suppliers. Ecommerce giants
are able to leverage the position to structure better deals for themselves.

 Bargaining Power of Buyers – High

Price sensitivity of consumers and low switching cost has ensured high bargaining power of the
consumers. They can easily go to any other online portal in a jiffy, if one platform fails to satisfy
their exact needs or wants.
  Threat of Substitutes – Low
Rise of specialized e-retailers poses a threat to general purpose e-commerce giants like Flipkart
and Amazon. However, these are few in number, and small in size currently.
 Threat of New Entrants – Low
Although there is relatively low cost involved in setting up e-commerce site, the complex supply
chain and scale remains a big hindrance for the new entrants to directly challenge the
incumbents

 Competitive Rivalry – High

Price sensitive consumers, low switching cost has ensured high competition among the existing
players, with intense competition on factors such as superior customer service, price, speed etc.

Verdict
Overall, though the power of buyers and the competitive rivalry is high, the other forces are very
favorable, and especially keeping Flipkart (one of the biggest players) in mind, it makes total
sense for Walmart to enter the market.

III. Company Analysis

As part of the company analysis, we have tried to use the frameworks taught to us in class. In
addition to the frameworks taught in SM-II, we have also, where applicable, used the
frameworks of SM-I to analyse the companies and specifically, whether or not the acquisition of
Flipkart made sense for Walmart (in terms of resources, synergies, strategic positioning, etc)

For this, we have looked at the following aspects for the company level analysis:
1. Balanced Scorecard
2. BCG Matrix
3. Ansoff Matrix
4. VRIO Analysis

Balanced scorecard for Walmart

·   Financial Perspective

Objective Measure

 To achieve growth in earnings per  EPS (Earning per share) over a period of
share time

 To achieve growth in terms of retail  Number of retail outlets and total sales
outlets

 To increase productivity and reduce  Asset utilization rate, productivity of

cost employees

 To increase profit margins  ROE, ROCE

·
 Customer Centric Perspective

Objective Measure

 To reduce the number of customer  Change in customer complaints over

complaints time

 To increase the customer base  Average customer size

 To increase customer satisfaction  Customer rating

 
·   Internal Business Perspective

Objective Measure

 Reduce lead time in the  Supply chain cycle time

supply chain process

 Reduce waste in supply  EOQ (Economic Order Quantity), Average daily use of
chain inventory compared to total inventory

 Reduce waiting time for  Customer order cycle time

customers
 
·   Learning and growth perspective

Objective Measure

 Reduce employee attrition rate  Employee attrition rate

 Increase the number of  Training modules, average number of training hours

training hours per employee

BCG Matrix of both companies

To chart the positions of Flipkart and Walmart, we have taken the data of 2018 as the deal was
announced in 2018, to find the truer picture of the companies during the deal. As per our
findings:
 Indian ecommerce market, as per NASSCOM, had a growth rate of ~17% in FY 17-18
 Flipkart accounted for 39.5% of online retail sales in India in FY 17-18, while the 2 nd
biggest player accounted for 31% of sales. Therefore, relative market share of Flipkart is
1.
 Walmart had 25% market share in USA, which is almost double the share of its closest
competitor.
  The US retail market grew by 3.9% in 2017 as per National Retail Federation US data.
From the above data the following BCG matrix can be formed:

20%
High
17%
Market Growth
Rate

10%

3.9%

Low 0%
1 0.5 0
High Relative Market Share Low

Wal-Mart, as per the BCG matrix, is a cash cow in a mature, slow growth market, and hence its
merger with a star such as Flipkart is a good strategic decision. The organisation as a whole
can benefit from transferring excess cash produced from the mature business to fuel growth and
market share, and profit capturing in the fast growing business.

Ansoff Matrix (from Walmart’s perspective)

From Walmart’s perspective, acquisition of Flipkart can also be classified into one of the 4
expansion strategies as per Ansoff. Although Walmart has offline retail presence, still the
product categories are comparable with that of Flipkart. Thus, this acquisition is more of
geographic diversification in nature, so can be considered as Market Development.

New Product Existing Product

Buy Flipkart

New Market Diversification Market

Development

Existing Market Product Market

Development Penetration
 VRIO Analysis
(*SCA= Sustainable Competitive Advantage, TCA= Temporary Competitive Advantage)

Flipkart

Resources Valuable Rare Inimitable Exploited Advantage?

Patents Yes Yes Yes No TCA

Distribution Network Yes Yes Yes Yes SCA

Employees Yes Yes No Yes TCA

Financial Resources Yes Yes No Yes TCA

Wal-Mart

Resources Valuable Rare Inimitable Exploited Advantage?

Global Presence Yes Yes Yes Yes SCA

Customer Loyalty Yes Yes Yes Yes SCA

Supply Chain Management Yes Yes Yes Yes SCA

Procurement Process Yes No Yes Yes TCA

 Flipkart being one of the leading e-retailer in India has many patents to its name which
are valuable and rare to get and are highly inimitable in the industry. Still patents are not
being exploited properly by Flipkart. It’s an opportunity for Walmart to utilise these
patents properly to get sustained competitive advantage.
 Currently Flipkart, through E-kart serves 800 cities and makes around 500,000 deliveries
daily. Flipkart has a huge network of distribution which is valuable to it. This size of
network is hard to imitate and hence rare. Walmart, with his acquisition of 77% stake in
Flipkart can leverage on that with its excellent supply chain management, which will
create sustained competitive advantage.
 Flipkart being a unicorn has valuable financial resources to grow its business. Walmart
being a cash cow has no shortage to the cash required to invest therefore this resource
of Flipkart is not much valuable to Walmart.
Walmart has global presence and its business is exposed to many cultures. Walmart has 21
Best Price cash-and-carry stores and one fulfilment centers in 19 cities across nine states in
India, with more than 95 percent of sourcing coming from India, aiding suppliers, creating skilled
jobs and contributing to local economies across the country. Walmart with Flipkart will be able to
serve its customers better.
Implementation Plan (How?)
I. Goals and Objective of the Deal
Through this deal Walmart gained important foothold in the growing Indian economy. At the
same time, the retail giant expects to gain technical expertise of Flipkart in the virtual space.
After this deal, Flipkart has set an objective to achieve $17.6 billion (Bn) in gross merchandise
value by 2020-21. The e-commerce giant expects 45% ($7.4 Bn) from Mobiles, closely followed
by large appliances and fashion. Flipkart is currently the market leader with a market share of
31.9%, though closely followed by Amazon at 31.1%. Indian ecommerce space is expected to
reach a size of $200 Bn by 2026, thus capturing the majority of this market share would be the
key battle between the e commerce giants.

II. How Synergies Created by the Deal will help Walmart

Operational synergies
 Knowledge Transfers – Walmart can learn from Flipkart how to make an ecosystem in
terms of technology transfer as "Flipkart has a good team of engineers and strong
footing in analytics that can be utilized by Walmart in its cash and carry business" (said
by Walmart India CEO Krish Iyer). Flipkart can learn from Walmart regarding
merchandising supply chain management.

 Economies of scale - Flipkart and Walmart have scope of operational synergies in

logistics and warehouse space, as the principle business and a majority of the products
are the same, if looked at the Indian market.
Financial synergies
Flipkart now has access to Walmart’s capital, Walmart may pump $1.2 billion in Flipkart which
will help Flipkart to sustain its discounting based model to gain a greater share of the market
share of the Indian e-commerce market and enable it to compete with the likes of Amazon etc.

III. Possible Challenges and How to Overcome them

Though there are a lot of common aspects and business elements between Flipkart and
Walmart, still there are certain challenges they might face as part of post-merger integration.
These include:
1. Culture mismatch and employee conflicts
There will be a lot of instances of employees from both companies coming at a standstill
because they disagree on decisions, as they have been trained to think differently.
Flipkart has been an agile, start-up environment, while Walmart has been a traditional
brick and mortar retailer
 How to Overcome- Top management needs to send out communication from time
to time about the culture they seek to project going forward. This way employees will
always have a document to refer to and follow in case of any uncertainties.
 2. Flipkart model not replicable for Walmart abroad
Walmart has clearly said that it intends to learn the online channel and market practices
of Flipkart, so as to deploy a similar model in its primarily USA operations. However, the
markets, consumer profiles, and other attributes of India might be starkly different from
the markets in which Walmart is looking to replicate it.
 How to Overcome- Walmart should create a distinct change management
committee which looks into this matter, studies the foreign market, and ensures that
sufficient changes/adjustments are made to Indian model for it to easily adapt to the
markets they want to replicate it in.

3. Shareholder Resentment
Due to the deal being made at a record valuation and huge money being paid out by
Walmart for acquiring Flipkart, if in the near future shareholders do not see sufficient
financial returns coming out of it, they might start selling off shares and thereby lead to
Walmart’s stock falling sharply.
 How to Overcome- Walmart should publish timely and accurate statements sharing
the record of the financial results, and specifically the gains coming out due to the
Flipkart deal. This will ensure that shareholders can see the benefit accruing out of
the huge cost paid out of their money.

Actual Results (Aftermath)

I. Stock Market Performance
Immediately after the deal was said to have been finalized, the Walmart stock (WMT) sank
drastically, by about ~3.1% in a single day. Investors saw the long term benefits and the value
from acquiring Flipkart. It was a bold move from the CEO which would ensure instant scale
increase for Walmart, and also gave it a big play in the exponentially growing Indian e-
commerce market.
However, Wall Street sentiment was that, despite the value add, the price paid was too huge. It
might be years before Walmart can recover the hefty price tag paid for Flipkart. And seeing
that a majority of investors are intra-day traders, the stock fell as it would lead to negative
returns over the first 1-2 years after the deal.

II. Flipkart Valuation (has the deal benefitted Flipkart as well, or just Walmart?)
In July 2014, Flipkart had made headlines when it raised $1 billion in fresh capital from
Singapore’s sovereign wealth fund, GIC and existing investors. It was the single largest
funding raised by any Indian internet company and also was the single largest funding raised in
the e-commerce arena globally. The funding had put Flipkart in the league of companies such
as Facebook and Uber. The valuation at that time had been around $7 billion.
Walmart acquired a 77% controlling stake in Flipkart for US$16 billion, valuing it at $20 billion,
in August 2018. This means that Walmart instantly ballooned the valuation of Flipkart overnight.
References

https://www.forbes.com/sites/saritharai/2014/07/29/indias-flipkart-raises-1-billion-among-the-
largest-in-single-funding-round-in-global-e-commerce/#61c5e7fd170d
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https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/walmart-acquires-flipkart-for-
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https://www.mbauniverse.com/group-discussion/topic/business-economy/walmart-and-flipkart-
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https://www.businesstoday.in/current/corporate/mega-walmart-flipkart-deal-is-official-now-here-
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https://www.bbc.co.uk/news/world-asia-india-44064337

https://www.business-standard.com/article/companies/walmart-flipkart-work-on-synergies-
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https://yourstory.com/2018/04/walmart-flipkart-alliance-just-taking-amazon-india

https://www.cnbctv18.com/retail/walmart-offers-first-clues-on-building-synergies-with-flipkart-
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https://wap.business-standard.com/article-amp/companies/one-year-on-flipkart-s-acquisition-
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