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What the Flipkart-Walmart deal means for e-commerce in India (Relevant for GS Prelims, GS Mains Paper III; Economics)

The world’s largest retailer Walmart Inc. finally announced on Wednesday that it had agreed to buy 77% of Flipkart for $16 billion, valuing India’s biggest Internet start-up at a whopping $21 billion—as was widely anticipated and reported by several media publications, including Mint, over the past few weeks and months.

For the Indian start-up and venture-capital (VC) ecosystem, this deal is its most triumphant moment, marking a remarkable victory for an Internet start-up that was launched a decade ago in a country that has for the longest time been starved of major start-up exits. This deal also has massive ramifications for several stakeholders across the board.

Why is the Flipkart-Walmart deal so important?
The deal completely redraws the e-commerce landscape in India and escalates Walmart’s global battle against Amazon.com Inc., its biggest rival in the US. Several tens of billions of dollars are at stake on both the sides. While this has been a positive outcome for Flipkart and all its stakeholders, the e-commerce landscape in India now is essentially going to be dominated by two American giants.

What does the deal mean for Walmart?
Arguably, the Flipkart deal is the most significant acquisition in the history of Walmart and one that was pushed by its chairman Greg Penner, heir to the multi-billion-dollar Walton family fortune. For Walmart, this deal represents a fight for everything it has built over the past five decades and a massive bet on the future of retail. Flipkart will be the centrepiece of Walmart’s global e-commerce ambitions, given India’s standing of being one of the world’s last remaining major Internet economies.

What does the deal mean for Amazon?
While Amazon has missed out on an opportunity to buy out Flipkart, it will be business as usual for the world’s largest online retailer. Company insiders at Amazon say that they had long anticipated a situation where they might have to fight Walmart in India. Moreover, from Amazon’s perspective, its domination as the global online retailer has forced its biggest American rival, Walmart, to fork out $16 billion for what is easily one of the most expensive acquisitions ever—a clear acknowledgement that Walmart is trying hard to make up for lost time by not investing more aggressively on e-commerce earlier. In fact, the acquisition of Flipkart spooked Walmart’s investors and wiped away more than $10 billion of the American retail giant’s market value, while Amazon’s shares actually closed up 1% on Wednesday.

Who has benefitted from the deal?
All its stakeholders—including investors, founders and employees. A number of current employees have turned dollar-millionaires overnight, while early investors such as Accel Partners and Tiger Global Management, and even late-stage investor, Japan’s SoftBank Group, have made a killing—Accel, Tiger and Softbank put together have raked in an exit of over $8 billion.

How does the Flipkart buyout help the Indian start-up ecosystem?
This deal should catch the eye of a number of large, foreign strategic investors who have been eyeing India for a long time. Broader start-up funding is expected to go up, while the number of ventures starting out is also expected to rise, after witnessing two consecutive years of decline. The VC ecosystem has also received a tremendous boost from this deal and this exit is expected to power the venture-capital business in India for another decade at least.

What does it mean for Indian e-commerce?
Indian e-commerce has been both a winner and loser because of this deal. While Flipkart’s buyout marks the biggest victory ever for an Indian Internet start-up, it also means that for the foreseeable future, the online retail business in India will be controlled firmly by two large American companies—Walmart and Amazon. It will be a bruising battle for supremacy.

(Adapted from Livemint)

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