• by Thom Forbes  @tforbes, May 10, 2018

In forking over $16 billion yesterday for the controlling interest in the Indian e-commerce site Flipkart, Walmart says it is investing in one of the the “most attractive retail markets in the world.”

It will have an initial 77% stake in the company; $2 billion of the investment will be new equity funding to “help Flipkart accelerate growth.” The other shareholders include Flipkart co-founder Binny Bansal, Tencent Holding, Tiger Global Management and Microsoft. 

“Walmart supports Flipkart’s ambition to transition into a publicly listed, majority-owned subsidiary in the future,” it says in the news release announcing the deal, and it says additional investors may join the round.

“Walmart executives cast the largest acquisition in its history as a long-term play in a market with a rising middle class and plenty of room for growth in mobile adoption, e-commerce and retail overall. Only about 15% of India’s 1.3 billion people shop online, according to research firm Gartner,” Sarah Nassauer and Corinne Abrams write for the Wall Street Journal.

However it may want to portray the purchase, writes Bloomberg Opinion columnist Mihir Sharma, “the truth is that the deal represents a second-best outcome —  if that — for Walmart as well as for Indian consumers and farmers. In the 11 years that Walmart has operated in India, it’s signally failed to build up its own business. That’s not entirely the company’s fault. In fact, it’s a reminder that India remains, in some ways, as inhospitable to foreign businesses as the People’s Republic of China.”

The transaction has been 19 months in the making and is “the worst-kept secret in Indian business,” writes Vindu Goel for the New York Times. It “will plunge America’s largest operator of physical retail stores into direct competition with Amazon. While Flipkart is currently the market leader, Amazon’s relatively new India site is quickly closing the gap.

“And the benefits to Walmart are not certain,” Goel posits. 

“Although India’s population is rapidly coming online, the number of people with enough income to shop online is still tiny. In announcing the deal, Walmart warned its shareholders that the purchase would reduce its net income by at least $750 million this year and by more than double that amount next year.”

But the transaction is not about next year, or even the year after that.

“If we were looking at this company with say a three-to-five-year horizon we would invest in the U.S. and protect the core and maybe consider not doing other things,” Walmart CEO Doug McMillon said on an analyst call after the deal announcement, Ananya Bhattacharya reports for Quartz India.

And it’s not just about India, either, some say.

“The overall experience of Walmart in the U.S. relies a lot on their physical retail presence. Merging this experience with a pure digital player like Flipkart will be challenging but very important to cement Walmart's ability to land in more regions in the future,” says Globant VP of Technology Nicolás Avila in an email. “This acquisition should not only help keep Amazon in check, but it will be interesting to see how much of Flipkart’s buying experience is incorporated to Walmart worldwide and vice versa.”

And that world is, indeed, transforming.

“In the developed world, the number of people with middle-class buying power has remained relatively stagnant and, in some cases, has even declined. However, in many emerging economies the opposite is true. By 2025, the middle class is expected to have increased by 153% around the world, with the greatest increases coming from countries in the Asia-Pacific region,” Miller Heiman Group President and CEO Byron Matthews and CSO Insights Research Director Tamara Schenk point out in Sales Enablement.  

Add that to the fact that Walmart “expects India's e-commerce market to grow at four times the rate of the overall retail industry,” as CNBC’s Ryan Browne reports, and one sees what the folks in Bentonville are betting on.