Wal Mart Retail Shop

NEW DELHI: Scott Price, the Asia head for Walmart Stores, has said that it is “not tenable” to convert the current franchisee agreement with Bharti Retail into a joint venture form. Both companies, Price said, are looking for the best way to move forward on the alliance.

“We created a franchise in retail with Bharti in the hopes that there could be a potential freeing up (of foreign direct investment) that would allow it to potentially be the base of the business. But frankly, the FDI has passed,” Walmart Asia chief executive Price said on Sunday on the sidelines of the APEC conference in Bali, Indonesia. “That means the existing franchise to Bharti is not tenable as the base. What we are talking about with Bharti is what we do with that business,” he added, referring to Bharti Retail’s Easyday chain that runs more than 200 stores nationwide.

This is the second such statement from top Bharti and Walmart officials in less than a week, illustrating the uncertainty that surrounds the business relations between the two companies. Bharti-Walmart operates a chain of 20 Best Price wholesale stores. Further, the world’s largest retailer provides technical expertise and supplies merchandise to Bharti Retail, which sells to consumers.

On October 2, Bharti Enterprises CEO Sunil Mittal had told ET that Walmart will decide by the end of the month about its “vision for India.” Bharti will take a call on the fate of its retail ambitions after Walmart makes up its mind. “We are awaiting Walmart’s final response to Indian retail and then we will evaluate our options. Within October, I would say, Walmart should have taken a decision on their vision for India and Bharti could have taken a decision whether it matches our aspirations,” Mittal had told ET on Wednesday.

In an interview with Reuters, Price cited stiff entry barriers, including a 30% mandatory sourcing from local small enterprises, as stumbling blocks for foreign retailers to enter India. “I don’t see how any foreign retailer can comply and quite honestly no domestic retailer is complying either,” Price said.

ET had already reported that Walmart is toying with various options for India. These include whether to stick to the cash-and-carry business or even exit the country altogether.

Earlier Walmart had been widely expected to convert its franchisee agreement into a joint venture since India, in September 2012, allowed foreign supermarket operators like Walmart to own up to 51% stake in local ventures. Shortly after the government announcement last year on opening the retail sector to foreign direct investment, both Bharti and Walmart had said that they were “natural” allies to form a joint venture to take advantage of the new FDI rules.

However, relations between the two partners soured in the past year, primarily because of Walmart’s decision to stall the expansion of Best Price wholesale store, as well as the Bharti Retail network.

The freeze in expansion was result of an ongoing internal probe by Walmart into its local unit to check if it has violated US anti-bribery laws in India. The ongoing probe into potential violations of US Foreign Corrupt Practices Act — the American 1977 law that forbids its nationals and US-listed corporations from bribing government officials in foreign lands – has led to the departure of Bharti Walmart’s CEO Raj Jain, CFO Pankaj Madan and several other top executives.