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Corporate Jun 27, 2013

Walmart India head quits amid bribery probe: All you need to know

By Firstbiz Staff

Wal-Mart on Wednesday announced the departure of its India head Raj Jain from the company after six years at the helm.

The world's biggest retailer did not give any reason in a statement Wednesday as it disclosed that Raj Jain "is no longer with the company." The company named Ramnik Narsey, senior vice-president for Walmart International, as interim head for Bharti Walmart, its joint venture with India's Bharti Enterprises. His appointment is effective immediately. Narsey, who joined Walmart a month ago, was previously associated with another retail giant, Woolworth, as the CEO of its Indian operations.

The development assumes significance as the company's India entry has been riddled with controversies, with various government agencies conducting probes.

Here are a few things you need to know about Jain's exit and likely circumstances that lead to it:

• Jain joined Walmart in 2006 as President of Emerging Markets in Shanghai, China and spearheaded Walmart's entry into India in 2007 with a wholesale retailing JV. But despite Jain's efforts to set up Walmart's wholesale cash-and-carry business, back-end services and consulting businesses during his stint, the Indian operations have moved from one controversy to another.

AFP

AFP

• Jain is the third chief executive to leave the company since 2011 under Wal-Mart's Asia chief executive Scott Price's watch. Wal-Mart's chief executives in China and Japan also left the company in 2011 and 2012, respectively.

• According to media reports, speculation is rife that Jain was under pressure to quit ever since a global internal investigation was launched to find out whether Wal-Mart units, including in India, paid bribes as part of their business operations. The investigation was triggered after cases of bribery surfaced from its Mexico subsidiary that spent millions of dollars to bribe government officials there to expand faster.

• The probe put brakes on the Indian venture's aggressive expansion plans. Last September, Bharti Wal-Mart had suspended its chief finance officer and the entire legal team as part of this investigation. A company source told the Business Standard that the investigation might have been completed now, but many more heads might roll as part of a clean-up act.

Even the Indian government has set up an enquiry committee to probe if the company made lobbying-related payments in India, whose report is yet to be made public.

• Another case that has hogged the limelight is the Enforcement Directorate's probe into Wal-Mart's Indian investments. The agency is investigating the alleged violations of foreign direct investment norms by the company. The company had invested Rs 455.8 crore in Cedar Support Services, a subsidiary of Bharti Ventures and the holding company for Bharti Retail, which runs the front-end Easyday stores. The investment was made allegedly before the government put in place the law regarding FDI in the multi-brand retail. The investment was termed illegal because it went against FDI rules under the Foreign Exchange Management Act and the Prevention of Money Laundering Act.

• A report in Business Today also points out that Jain was under pressure as Wal-Mart's cash and carry joint venture with Bharti Enterprises has not been doing well. The accumulated losses of Bharti Wal-Mart as of last year were over Rs 700 crore.

• Quoting industry experts, the Economic Times said Jain's ouster was in line with the company's strategy to finally get things going in India.

"Business should have moved on. Walmart is falling short from the business perspective and there have been governance issues. Much of the news about Walmart in the past 12 months has been India-specific both in terms of corruption related to real estate side or the lobbying issue. Both got negative PR for Walmart in India... If you are heading an organisation, the people you report to would put the responsibility squarely on you," ET said, quoting a retail analyst, who did not wish to be identified.

However, another expert told theMint that since Wal-Mart's entry into India was seen as an acid test for other global retailers, it is being subject to the "first-mover disadvantage".

"You take a lot of flak because you are the first," said the Mint, quoting a trade expert.

• For nearly six years,Wal-Mart, which has been running wholesale stores in India since 2009, lobbied with the government to change the rules in order to gain access to a lucrative $350 billionretail market. Bharti Enterprises is the company's local joint venture partner. The retail chain has not opened a single new wholesale store in the country since October last year despite announcing plans to open eight this year. It has 20 such stores in India. And even as the Union Cabinet permitted up to 51 percent FDI in multi-brand retail last September, Wal-Mart is yet to make a proposal to the government for setting up retail stores in the country.

by Firstbiz Staff

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