Wal-Mart in India is either father figure or sugar daddy
Taipei: That hoped-for Snapdeal Flipkart merger may be some time.
Back in July, I discussed how the two Indian e-commerce companies, both burning through cash, should team up to take on Amazon, especially given the US giant’s far deeper pockets.
Enter Wal-Mart with a $1 billion can of kerosene to pour on the fire.
The world’s largest retailer is in advanced discussions to take a minority stake in Flipkart, Bloomberg News reported on Wednesday.
It’s hard not to view that development as bad news for India’s e-commerce war of attrition. Sure it looks great for Flipkart—who wouldn’t want cash from a rich and powerful benefactor? Yet, that money would take total funds raised by Amazon India, Flipkart and Snapdeal beyond $10 billion, according to data from CB Insights and public statements by Amazon.
For Wal-Mart, the deal makes total sense. It’s a brilliant move for a company that’s struggled to catch Amazon in the US online shopping market, forcing it to acquire Jet.com for $3 billion. Buying into India this early in the country’s development would give Wal-Mart a far better shot at tackling Amazon there than it’s managed in America.
There’s a precedent for unprofitable competitors to consolidate despite having plenty of cash. One of the best examples is Didi Chuxing, formed last year after China’s two top ride-hailing companies merged. That deal will go down as one of the most successful in history, paving the way for Apple to buy in and for Uber to be defeated.
The problem is, large wads of cash also tend to make even sane people go a little crazy, and India’s e-commerce players were already charting high on that crazy scale. Nothing tightens the belt like a little hunger in the belly. With this fresh injection of funds, the incentive for Flipkart to come to the negotiating table with Snapdeal is diminished.
It’s possible Wal-Mart is asking Flipkart to explore merger options as part of the US company’s investment, in which case this deal would be great. But given Alibaba’s earlier investment in Snapdeal, each now has a large foreign e-commerce firm behind them. Against that backdrop, it’s hard to imagine Wal-Mart won’t be ready to pony up more money when Flipkart next holds out its hand. And that’s likely to incentivize Alibaba to continue writing checks for Snapdeal.
The question is whether Wal-Mart wants the role of father figure, or sugar daddy. Bloomberg