Walmart-Flipkart revisited, Alibaba buys Daraz

Walmart-Flipkart revisited

Ben Thompson while writing about Walmart-Flipkart deal (paywall):

The problem with Walmart investing, though, is that I struggle to see what exactly the company can add: there was basically zero discussion of how Walmart will make it more likely Flipkart will succeed in its battle with Amazon. Walmart’s executives tried to argue that the benefit would go the other way — Walmart would learn from Flipkart — but wasn’t that the point of acquiring Jet.com?

This is what happens when your writing is focused on nuanced markets like India and Pakistan. The deal is a great news for Indian tech ecosystem in general and Flipkart’s team in particular. So I got caught in the moment which resulted in my analysis containing a massive oversight. Ben’s piece made me realize what I missed. And I think he is right. The deal is problematic in the sense that there is nothing about Walmart, and its massive retail chest, that can help Flipkart in the long run.

Indian government does not allow companies with major foreign company shares to open multi-branded retail stores in the country. Though you can open single branded e.g. Ikea. And the rumored Apple’s. Both Amazon (because of its US origin) and Flipkart (because of major outside shareholders) can’t open retail stories. They get around to that problem by investing in their suppliers and by opening companies under different corporate structures. But Indian government recently cracked down on it and no individual supplier can fulfill more than 25% of orders from the website. Which means both Amazon and Flipkart are and will remain, pure Internet companies with no physical foothold. And that’s something Walmart is yet to figure out for itself let alone helping someone else.

As for as offline retail goes, Walmart can’t open a retail store in India because of same regulation that prevents Amazon and Flipkart. And they won’t be able to serve more than 25% of Flipkart orders because of the aforementioned crackdown. Which makes their wholesale operations of little to no value for Flipkart. One gets the feeling that an investment from a local company might have served Flipkart better. At least that would have allowed Flipkart to open retail stores. And offline retail is where the meat of Indian commerce is right now. To conclude the deal does not harm Amazon as much as you might think. The lever to Amazon’s success is Amazon Prime. And that remains the same regardless of the operating country.

The deal is especially problematic for Walmart. Ben Thompson concludes his update:

Indeed, as far as I can tell, the only potential benefit to Walmart and its investors is that Walmart’s backing potentially makes Amazon’s fight for India more expensive. Even that, though, is likely to prove to Amazon’s benefit in the long run: Jeff Bezos’ company will almost certainly have a longer leash with investors than will Walmart; if the company wants to truly concern itself with Amazon the money would have been far better spent at home.

Despite the longterm threat Amazon poses for Walmart. As of now it only has a single digit market share of US retail (offline + online combined).

Alibaba Acquires Daraz

From Pro Pakistani:

Daraz Group, a leading e-commerce company in Pakistan, Bangladesh, Sri Lanka, Myanmar and Nepal today announced that the company was fully acquired by Alibaba to become a member of Alibaba Group.

With the acquisition, Daraz will be able to leverage Alibaba’s leadership and experience in technology, online commerce, mobile payment and logistics to drive further growth in the five South Asian markets that have a combined population of over 460 million, 60% of which are under the age of 35.

I pretty much stand by my analysis from last month. Except the fact that I now think Alibaba is not rushing into this. They are probably going to take some time before dipping their toes fully. By that, I mean integrating an online payment to the tunes of AliPay. Their major stakes in Tameer Bank, the bank behind Easypaisa, are going to be handy. I can’t wait for Telenor to start touting about it as their innovative new product for Alibaba.