Before discussing Walmart, a history lesson is required.
After the Second World War, the Soviet Union (USSR) emerged as a superpower with strong influence over Eastern Europe, including Bulgaria and East Germany, and parts of Asia, including China and Korea. The U.S. and its Western allies considered communism in the form of the USSR as the greatest rival and post-war threat to their democracy and capitalism.
The turning point in Asia came in 1949 when China became a communist country after Chinese communist rebels, led by Mao Zedong, won the civil war and took control of mainland China. Communist China became a threat.
Vietnam was a French colony from the mid-19th century until 1954 when the French were defeated at the decisive battle of Dien Bien Phu. With France defeated, communist forces in Vietnam were free to march on other countries within Southeast Asia. North Vietnam became communist and a threat.
President Dwight Eisenhower feared the whole of Southeast Asia including South Vietnam, Laos, Cambodia and Thailand would fall to communism in a domino effect similar to what had happened in Eastern Europe (Domino theory).
Therefore, the U.S. intervened in Vietnam to try and keep the South Vietnamese “domino” from falling. In short, the Vietnam War started as a result of the U.S.’s strategy of containment during the Cold War, which aimed to prevent the spread of communism throughout the world.
America’s involvement in Vietnam ended in failure as the leaders of North Vietnam and the military were prepared to outlast the Americans and not attempt to defeat U.S. forces on the battlefield. America, however, wanted a victory and when it became apparent that the war could drag on for years, the U.S. withdrew combat forces from Vietnam on March 29, 1973.
History Repeats Itself
As a student of history and a consultant focused on business strategy, I find interesting parallels between America’s involvement in the Vietnam war and what I’ve witnessed take place in retail over the last 10 years. This is especially true when it comes to the challenge retailers face when competing against Amazon.
The best analogy I can use to describe what’s it like for retailers who face Amazon is this: Competing against Amazon is like fighting the battle of Dien Bien Phu 24/7 365 days per year. Think being in a valley while artillery shells rain down from enemy positions on top of a mountain ridge and that gives you an overview of the battle.
No matter what retailers do to try and gain an advantage over Amazon, Amazon always proves it has the best strategy and the best leaders. The latter point is key. Amazon always finds a way to rain down artillery shells that retailers can’t avoid or defeat.
As Amazon expands globally, a retail version of the Domino Theory has become a reality. In order to prevent Amazon from becoming the leading retailer in country after country, Amazon’s biggest competitor, Walmart, has made the decision to take a stand and declare war on Amazon. The chosen battlefield? India.
I find this fact striking:
Distance from the Washington, DC to Vietnam = 8,634 miles.
Distance from Bentonville, AR to Bengaluru, India = 8,996 miles
What could possibly go wrong for Walmart in India?
The strategy Walmart plans to utilize in India is to leverage its recent acquisition of Indian online retailer, Flipkart, to generate revenue and provide Walmart with a foundation for growth. With sales of only $3.1 billion in 2017, Walmart paid over six times revenue for a retailer that has thus far lost money and has proved incapable of beating Amazon.
Flipkart is ranked as one of the worst managed and least capable retailers globally according to industry analysts I have spoken with in the past. Full disclosure: Flipkart has tried to recruit me on three different occasions. Walmart will greatly improve Flipkart as a company.
To make matters worse for Walmart, online retail in India makes up less than 1% of total retail sales.
K Vaitheeswaran, author of Failing to Succeed, argues that Walmart participating in the Indian retail market is a positive sign but he suggests that Walmart should focus on offline which is its strength and not online. His contention is that for a country where e-commerce is less than 1% of the Indian retail market, half of it has already gone to Amazon, leaving 0.5% to Walmart-Flipkart.
According to Vaitheeswaran “When you can target the 99%, which is your strength, why would you spend so much for 0.5% of the market. The arithmetic beats me,” he adds.
Most retail and strategy analysts I spoke with for this article were in agreement that Walmart’s decision to invest more than $20 billion in Flipkart was unwise. In fact, several Wall Street analysts expressed their confidence that Walmart would gain nothing from its investment in Flipkart.
Jeff Bezos And A Trap For The Ages
No discussion of India would be complete without discussing the advantage Amazon has over Walmart in terms of leadership. A failure in leadership was directly responsible for the inability of the U.S. to secure a victory in Vietnam.
In order to set the stage for the rest of this article, I must introduce individuals who played key roles in the U.S. involvement in Vietnam and I have assigned them a modern-day counterpart:
- Jeff Bezos, founder and CEO of Amazon is General Vo Nguyen Giap, leader of the North Vietnamese Army
- Doug McMillon, President and CEO of Walmart, is President Lyndon Johnson who ordered troops to Vietnam in March 1965 to stop the spread of communism
- Marc Lore, President and CEO of Walmart eCommerce, is Robert McNamara, Secretary of Defense for President’s Kennedy and Johnson
- Judith McKenna, CEO of Walmart International, is General William Westmoreland, Commander of U.S. Forces, Vietnam
President’s Kennedy and Johnson were confident that they were surrounded by individuals worthy of being proclaimed “the best and the brightest.” I’m sure there is no shortage of confidence at Walmart that its executive team is up for the challenge in India.
Regardless of public comments by Walmart giving the appearance that Flipkart’s management team will be free to run Flipkart as they see fit, let me be clear: Walmart’s executive team based at Walmart’s headquarters in Bentonville, AR will call the shots regarding Walmart’s strategy in India.
In an attempt to “contain” Amazon as well as take advantage of retail opportunities in a country of nearly 1.3 billion people, Doug McMillon has placed a $20 billion bet that Walmart can enter a country (India) where it currently controls less than 1/10th of 1% of the retail market; join forces with an established yet operationally weak retailer, Flipkart; and successfully battle Amazon.
In 1965, President Lyndon Johnson and the U.S. Congress were convinced that the U.S. could send troops to South Vietnam; join forces with the established yet weak South Vietnamese Army; and successfully defeat the better led and more capable Army of North Vietnam.
In researching this article for Forbes, I was shocked at the similarities between the reasoning and decisions made by the U.S. government to enter Vietnam and the decision-making of Walmart executives to expand in India. Comments made by President Johnson’s inner circle related to Vietnam are eerily similar to comments made by the Walmart executives I named above when discussing why Walmart should enter India and acquire Flipkart.