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June 28, 2018

Flipkart-Walmart Acquisition A Lesson for Startups?

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The biggest merger and acquisition deal in e-commerce space until now has brought in a lot of speculations and is likely to bring in a lot of repercussions for start-ups and entrepreneurs. The Flipkart and Walmart acquisition can be the most significant e-commerce merger, but does it reflect a threat to the young start-ups? Do the young entrepreneurs need to be prepared for the loss before stepping into their business? Well, we have answers to all your problems, but, let’s first understand what this acquisition is all about.

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After this acquisition, Walmart gets 77% stake in Flipkart for around $16 billion and around $2 billion of fresh capital investment. This deal is undoubtedly going to bring a strong foothold to Walmart and Flipkart in the e-commerce space. India is one of the quickest and highest expanding retail markets offers immense potential for Walmart to function in the Indian space. The foreign direct investment policy never wanted intervention of foreign retail giants in India space but now after this merger Walmart, Amazon and Alibaba all three foreign giants are likely to rule the Indian e-commerce space. Flipkart is one of the biggest and well-established start-ups of our country and Walmart is world’s biggest retail giant so now after their collaboration they are surely going to rule Indian market like a king.

With this acquisition, Flipkart would get rid of its start-up status and will now be a part of the global retail giant. Flipkart would also gain access to other markets also now which Walmart has already tapped, and this would be a big chance to expand their business. The consumer base is also likely to increase now as they would be offered the number of products and services. Employees are also expected to experience career growth. Far along with all the advantages that this merger seems to be suggesting there is also a set of repercussions that the e-commerce sector is likely to face. One of the most famous ones is the possible effect on e-commerce space.

The newly merged entity after this acquisition is going to acquire almost 90% of the market space in the e-commerce space. Walmart would also bring in its private label brands to India for flooding the online shoppers with a plethora of product ranges. This has created a huge fear among small sellers and retailers, and they also approached CCI with the plea of FDI regulations being breaking with this deal. However, the plea was rejected by CCI. Amazon India also sees the acquisition as a major threat and they in fact even approached Flipkart for a counter deal. Amazon India has recently tied hands with shopper’s stop to gain the market edge and is looking at acquiring Reliance Retail as well. Well if reports are to believe in coming years, the online retail space competition is going to get divided only between Amazon and Flipkart-Walmart, and there will be no space left for local sellers.

As per Suchi Mukherjee, who is the founder and CEO of limeroad.com, this deal surely has a lot of learning for the budding entrepreneurs and start-ups. Such believes that this deal also indicates a new category of strategic investors who are global players are choosing the buy over build model. She further continues and states “The deal has brought in a new wave of strategic exit options for the worldwide investing players who would plan to invest in India yet pick purchases to overbuild.

Well, the merger also indicates that the e-commerce expansion is increasing in India. As per Rahul, whose from SVP believes that foreign investors are very keen on investing in the Indian market. Also, some of this investment money which goes to employees that will come back in the form of angel investment and will return to start-ups ecosystem also. This deal is also going to inspire more entrepreneurs to come up, and more private capitals would be invested in start-ups.
It might be difficult to bring up another entity in India out powering Flipkart, but if a company comes up with some unique value proposition, they might reach up to the levels on which Flipkart is right now. Also, India is already on the path of growth in e-commerce segment, with around 200 million Indian customers currently and is like to increase even more in upcoming years. The immense growth potential is attracting more and more investors. Homegrown companies, however, always have an edge and usually benefit in the long run. Customers are also more comfortable shopping online with such companies as they get a feeling of trust.

Until now only B2C market space has benefitted a lot and attracted money, but now B2B has also started attracting investors. The emerging tech start-ups in fields like healthcare, biotech and AI will also start receiving more funding now. These deals will also encourage investments in consumer businesses now. Indian corporate have also started working more and more with start-ups which show they are a path to growth.

E-commerce sector has faced a lot of challenges in the country due to strict FDI regulations. Although FDI rules for multi-brand and single brand retail are slightly more relaxed, the FDI policies for start-ups remains very stringent. Flipkart itself is registered in Singapore since the country’s norms are more natural India should also start focusing on making more relaxed tax regimes for start-ups. Just as Flipkart chose Walmart for an exit, the start-ups should also look towards such kind of consolidations in future. This will also create significant momentum for the budding entrepreneurs and start-ups are likely to flourish.

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