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What Walmart-Flipkart Deal Reveals About The Indian Startup Ecosystem

| Published on May 14, 2018

It is official that Flipkart’s 77 percent stakes are now owned by American retail giant Walmart. This deal has been creating buzz for several reasons, one of them being the amount of money involved($16 billion). A question that arises is why Walmart is ready to pay such a big amount for the Indian market? There can be several reasons for this including the growth Indian e-commerce market has seen in last few years plus, Amazon is treating Walmart with its expansion in India.

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Successful entrepreneurs are giving mixed opinions about this. Some believe that it is good for the market, while others see this as a defeat of another Indian startup due to the lucrative offers foreign companies pay for expanding their business in our country. Most of the developed nations have homegrown startups that are now ruling international market and Indians were in hope of seeing Flipkart doing the same for our country. Sadly, this will not be possible now as Walmart will control most of the operations in Flipkart and someone else will have to build an empire that makes Indians feel proud.

What entrepreneurs feel about the startup space in India

It is not that Indian entrepreneurs don’t feel like doing this, but there are so many hurdles in our country that the passion and energy decrease after reaching big heights. Business operations are becoming complex in India. Yes, the government has introduced some schemes for promoting entrepreneurship, but its output is not coming as expected. This can be due to the reason that traders are finding it difficult to gain proper knowledge about government policies and how they can be used for business expansion.

Also Read: Here’s How Startup Founders Are Reacting To Walmart-Flipkart Deal

Let’s know about the Walmart-Flipkart deal in detail so that we can learn how Indian startup ecosystem works.

Money has gone to foreign investors

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First of all, most of us are thinking that this deal has brought a lot of money in India if you are also one of those to believe this, sorry to tell you that a minor stake of this money will come to Indians as most of the part of Flipkart was owned by foreign investors. The remaining part will be exposed to heavy taxes and the final outcome will be almost negligible if we compare the hype this deal is creating.

Registering firm in Singapore

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This didn’t stop here, Sachin and Binny knew that expansion is not that easy with Indian rules so they registered the whole business as a Singapore firm named Flipkart Pvt Ltd. This is mainly due to the difference of tax rates in India and Singapore, India has a corporate tax rate of around 34%, whereas Singapore has a rate of only 17%. Like foreign companies, if Flipkart had tried investing money in companies operating in other countries, surely a lot of problems would have slowed the growth of the company.

The reason for launching WS Retail

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Because Flipkart is registered as a foreign company, it can only carry business in 2 ways: either by creating a Joint Venture with an Indian company or running a completely Indian subsidiary. For this, Flipkart owners came up with the idea of its retail and warehouse arm WS Retail as an independent entity. Originally, WS Retail is owned by Flipkart. Flipkart isn’t its own products to buyers but 75 percent of its inventory has products of WS Retail. The website helped them to work as a technology firm and WS Retail worked as the offline seller.

Opening 8 different companies

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Due to the changing rules in India, Flipkart had to open 8 different entities that include the payment gateway service named Ekart Logistics and electronics brand DigiFlip. The government didn’t stop here, a new law got passed according to which e-commerce companies were banned from selling their own products. This rule is still applicable and online marketplaces can only launch their own cell phones, wallets, and shoe brands.

We hope this would have given you some idea why entrepreneurs in other nations grow so quickly and people here in India are always worried about the business policies. The government should take lessons from other countries and provide some support to the business tycoons so that, they can focus more on their work instead of wasting o much time in managing their capital according to changing the rules.

We are not against any government policy or scheme, all we are trying is to make our audience more aware about the reasons why Indians sell their dreams to multinational companies.

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