Walmart makes a $16 billion bet on India’s booming economy

Flipkart is India’s largest e-commerce group on the basis of sales but has been fighting off a huge challenge from Amazon. (AFP)
Updated 09 May 2018
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Walmart makes a $16 billion bet on India’s booming economy

  • Wallmart is set to take control of the online retailer Flipkart that’s known for its ubiquitous delivery drivers on their motorcycles with oversized backpacks
  • The $16 billion controlling stake is the largest acquisition yet by the world’s largest retailer.

NEW YORK: Walmart will soon reach shoppers in India’s massive consumer market directly, as it takes control of the online retailer Flipkart that’s known for its ubiquitous delivery drivers on their motorcycles with oversized backpacks.
The $16 billion controlling stake, announced Wednesday, is the largest acquisition yet by the world’s largest retailer.
Retail sales are being fueled by a hot economy in India, and both Walmart and Amazon have pushed hard to catch up to Flipkart and become the first major US retailer to establish a substantial foothold in the country.
The move, like Walmart’s decision last month to sell its British unit, Asda, reflects the company’s focus on areas with the potential to grow as it tries to narrow the online gap between itself and Amazon.
Online buying in India has exploded in recent years, and Flipkart had net sales of $4.6 billion in its latest fiscal year, That’s a fraction of Walmart’s latest annual revenue of $485.8 billion, but the company sees big long-term potential. Walmart believes India, which has 1.3 billion people, could be the world’s top five-e-commerce markets within the next five years.
“We are actively working to shape the portfolio of geographies and businesses we’re in, in order to set the company up for success for another generation,” Walmart CEO Doug McMillon said in a conference call Wednesday.
Flipkart is, in some ways, an echo of Amazon. Founded in 2007 by two college friends and former Amazon employees, Flipkart began life as an online bookseller.
In a country where many still see paying online with credit or debit cards as risky, Flipkart earned millions of customers in its early years by allowing buyers to pay cash on delivery. It now allows for a variety of payments, from credit cards to gift cards to direct bank transfers.
Flipkart also focused early on mobile phone users, and in 2016 became the first app in India to reach 50 million users.
The Bangalore-based company has acquired a string of other companies in recent years, from fashion e-commerce company Myntra to mobile payment firm PhonePe. Flipkart now has over 100 million registered users and more than 100,000 registered sellers. Flipkart’s supply chain arm, eKart, is established more than 800 cities and makes 500,000 deliveries daily.
Flipkart’s success and Indian law that puts limits on foreign retailers made it an attractive target, and rumors swirled about Amazon also circling Flipkart long after it was reported to be in talks with Walmart.
Foreign retailers, including Walmart, have faced years of political resistance to opening brick-and-mortar outlets in India, where mom-and-pop store owners wield enormous influence.
Walmart’s business in India was previously focused on small businesses. Its Best Price stores, owned and operated by its India division, are only open to members that are all licensed businesses.
Whether the Flipkart deal signals a change remains unclear, but the Flipkart purchase gives Walmart far more influence in India — both politically and economically — and positions it to shift quicker into retail outlets if the regulatory landscape changes.
Walmart will now own about 77 percent of Flipkart, with the rest held by some existing shareholders, including co-founder Binny Bansal, Tencent Holdings, Tiger Global Management and Microsoft Corp. The acquisition surpasses Walmart’s $10.8 billion deal to buy Britain’s Asda in 1999 and its acquisition two years ago of online retailer Jet.com for more than $3 billion.
The deal hasn’t gone down well with the tens of millions of small traders who for years used political muscle to slow the arrival of international retailers.
It is “a clear attempt to control and dominate the retail trade of India by Walmart,” the Confederation of All India Traders said, adding that it would encourage predatory pricing, hurt Indian businesses and create an uneven playing field. The group says it represents some 60 million businesses.
Meanwhile, Amazon is also still fighting hard in India, with founder Jeff Bezos crowing last month that Amazon.in had the most-downloaded shopping app in India for 2017.
“Amazon.in is the fastest growing marketplace in India, and the most visited site on both desktop and mobile,” Bezos said in a letter to shareholders.
The global stakes for both Amazon and Walmart are high. Walmart, which operates stores under various banners in 27 countries outside the US, has faced strong headwinds in its outward expansion.
In China, where more than 700 million people are online, it has struggled to compete with homegrown online giants like Alibaba Group Holding Ltd. and local retail chains like Sun Art Retail Group Ltd. Walmart opened its first store in China in 1996 and has just over 400 stores now. It also has a strategic alliance with Alibaba’s rival, JD.com. Amazon also faces stiff competition in China from Alibaba and JD.com.
Walmart closed 60 stores in Brazil, or 10 percent of its outlets two years ago as it tries to restructure its business.
For the opportunity in India, Walmart will absorb some short-term pain. It expects earnings for the current fiscal year to be hurt by 25 to 30 cents per share. “This is clearly an investment for the future,” said Charlie O’Shea, Moody’s lead retail analyst in a note.
Shares of Walmart Inc. dropped more than 3 percent in trading Wednesday.


‘Fuel of the future’ comes of age as Aramco opens first hydrogen filling station

Updated 17 June 2019
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‘Fuel of the future’ comes of age as Aramco opens first hydrogen filling station

  • Fatih Birol’s comments were a deliberate poke at those experts who think that the sheer logistics of hydrogen make it always an unlikely solution to global energy challenges
  • Birol’s article was followed by a report from the IEA that put some meat on the bones of the argument that hydrogen is key to solving problems such as global warming

DUBAI: Fatih Birol, executive director of the International Energy Agency, cracked a joke in the Financial Times a couple of weeks ago.
“Hydrogen is the fuel of the future, and it always will be,” he wrote about the fuel that many experts agree could hold the key to the world’s energy problems.
It was a deliberate poke at those experts who think that the sheer logistics of hydrogen — generation, storage, and transportation — make it always an unlikely solution to global energy challenges.
Birol’s article was followed by a report from the IEA that put some meat on the bones of the argument that hydrogen is key to solving such problems as global warming and environmental degradation.
“The world has an important opportunity to tap into hydrogen’s vast potential to become a critical part of a more sustainable and secure energy future … The world should not miss this unique chance to make hydrogen an important part of our clean and secure energy future,” the report said.
That argument will get a critical boost today, when Saudi Aramco, the biggest oil company in the world, opens its first hydrogen fueling station in Dhahran Techno Valley, in the heart of the Kingdom’s oil producing region.
Aramco has partnered with Air Products, a US company that has been a pioneer in the use of industrial gases, to produce a filling station for hydrogen-fueled vehicles.

 

It is very much a test. “The collected data during this pilot phase of the project will provide valuable information for the assessment of future applications of this emerging transport technology in the local environment,” Aramco said when the project was first announced.
But it is something Aramco has been investigating for a long time. Ahmed Al-Khowaiter, Aramco’s chef technology officer, said: “The use of hydrogen derived from oil or gas to power fuel cell electric vehicles represents an exciting opportunity to expand the use of oil in clean transport.”
Hydrogen — essentially what is left when you take the oxygen out of water — has been recognized as a potential fuel source for many decades. Motor manufacturers developed a hydrogen motor engine 50 years ago, but the ease and accessibility of hydrocarbon fuels — oil, gas and coal — made it uneconomic to develop this technology beyond the prototype stage.
Now, as the debate over the role of hydrocarbons in the global environmental balance has become ever more intense, some experts, including Birol and other influential parts of the thought-leadership establishment, believe hydrogen is the next Big Thing in global energy trends.
The World Economic Forum (WEF) said recently that “green” hydrogen offers a solution to the world energy challenge, and that is the problem the theoreticians are struggling with: Hydrogen is released naturally in the process of burning hydrocarbons, but it is self-defeating, in an environmental sense. if you have to burn oil, gas or coal to produce it.
On the other hand, renewable sources, like sun, wind and water, do not produce enough hydrogen to be practically or commercially viable, and not at the right times, when people actually need it.
But, as the WEF noted recently “low-cost green hydrogen is coming”, as technology advances mean the cost of renewable energy falls dramatically each year. The Middle East already has a very big and very cost-efficient program for solar energy generation.
The other challenges lay in how to store and transport hydrogen. It can be loaded onto a tanker like LNG, or pushed through pipelines, but it would require a huge investment to change current logistics systems — essentially designed for oil and LNG — to handle hydrogen.
Many countries, including Saudi Arabia, already have the infrastructure associated with oil and gas refining and petrochemicals production to be able to equip “hydrogen hubs,” as long as there is government will and commercial incentive to do so.
For the Kingdom, it looks like a no-brainer for the future. As Birol said: “So, hydrogen offers tantalising promises of cleaner industry and emissions-free power. Turning it into energy produces only water, not greenhouse gases. It’s also the most abundant element in the universe. What’s not to like?”

FACTOID

Technological advances mean low-cost ‘green’ hydrogen offers a solution to the world energy challenge, according to the World Economic Forum.