Q&A: U-M expert discusses Walmart-Flipkart deal

M.S. Krishnan. Photo credit: Ross School of Business

What does Walmart’s agreement to take a controlling stake in e-commerce giant Flipkart, a leading online shopping site mean for the company and for Indian consumers.

M.S. Krishnan is the Accenture Professor of Computer Information Systems and Professor of Technology and Operations and associate dean for executive programs at the Ross School of Business. His explains why multiple challenges remain going forward.

Q: Why is buying an Indian e-commerce giant seen as an important step for Walmart?

Krishnan: India is one of the fastest growing markets with near 8 percent growth projected in the next few years. So, all of the global retailers, both physical and online, would want a piece of this market. Walmart does not have a significance presence in India and their prior attempts to open physical stores has been met with limited success. Flipkart has built phenomenal scale as an online business, working logistics and last-mile delivery in this market.

This is a play by Walmart to get ready access to these capabilities so that they can effectively compete with Amazon in this market.

Q: What are some of the key challenges for Walmart going forward?

Krishnan: The challenges for Walmart going forward are significant. They can be seen as social challenges and business challenges.

On the social side, many see Walmart’s stake into India retail space as a back-door entry. People are concerned that Walmart with deeper pockets and investments will hurt the smaller traders. Walmart has to calm some of those fears.

On the business side, Flipkart gives Walmart a digital market platform, built-in logistics in the Indian market along with last mile delivery services. However, Flipkart’s operations are not profitable. While Flipkart’s business model looks like Amazon at a high level as an online retailer, there are several differences.

A significant portion of Amazon’s profit in the recent years is generated from its AWS cloud platform business for hosting data and intelligent software based analytical services. It is not clear to what extent Flipkart’s business capabilities match with Amazon in these services.  To compete with Amazon, Walmart has to be efficient and turn Flipkart into a profit-making acquisition.

The outcome of this will all depend on the successful execution by Walmart post-acquisition.