Read original article on Forbes.
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.
![Vo Nguyen Giap, considered to be one of the greatest military strategists of the 20th century. The... [+] North Vietnamese military leader beat the superior French military forces at the battle of Dien Bien Phu in 1954 and effectively battled American forces in the Vietnam war. (AP Photo)](https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fspecials-images.forbesimg.com%2Fdam%2Fimageserve%2F92e99ec461e5da11af9f0014c2589dfb%2F960x0.jpg%3Ffit%3Dscale)
Vo Nguyen Giap, considered to be one of the greatest military strategists of the 20th century. The
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.
![Doug McMillon, chief executive officer of Wal-Mart Stores Inc. Like President Lyndon Johnson who... [+] made the call to send U.S. troops to Vietnam, Doug McMillon will be held accountable if Walmart's efforts in India fail. Photographer: Rolf Schulten/Bloomberg](https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fspecials-images.forbesimg.com%2Fdam%2Fimageserve%2F40986726%2F960x0.jpg%3Ffit%3Dscale)
Doug McMillon, chief executive officer of Wal-Mart Stores Inc. Like President Lyndon Johnson who
Marc Lore, founder of Jet.Com, has made a name for himself as a data and e-commerce guru. Lore has convinced McMillon and other executives within Walmart that the way to beat Amazon is by going head-to-head against Amazon in the battle for e-commerce. Lore is a “true believer” who is convinced that not only can Amazon be beaten, Walmart is the company to do it. Robert McNamara was also a true believer.
As the CEO of Walmart International, Judith McKenna is tasked with finding a way for Walmart/Flipkart to succeed. McKenna has no prior experience in India. General Westmoreland tried hard to solve the riddle for how to defeat the North Vietnamese Army and the Viet Cong, but his efforts were never enough. McKenna and other executives at Walmart and Flipkart will learn the same lesson when attempting to beat Amazon in India.
As for Jeff Bezos? He has already kicked off a guerrilla war with Walmart in India beginning with what multiple sources believe was a fake bid to acquire Flipkart. I agree. If Amazon wants to make an acquisition, they will do so. Period.
Amazon making a bid for Flipkart changed the narrative from Walmart and Flipkart to just-imagine-if-Amazon-acquires-Flipkart? Instead of commentators and analysts talking about Walmart, Amazon was the topic of conversation until Walmart and Flipkart made the acquisition official.
Remember when Bezos appeared on 60 Minutes in 2013 proclaiming that drones would be operational and commonplace “probably by 2015 or soon after”?
Bezos knew exactly what he was doing. In a span of three-minutes of video, Bezos changed the entire narrative of how consumers viewed Amazon. The cool and “wow factor” of Amazon went through the roof after the segment on 60 Minutes. More important, Bezos convinced Amazon’s competitors that they had completely failed to invest in a last mile delivery solution sure to change the world.
Note to every retailer not named Amazon that invested in a drone program after watching the 60 Minutes episode: How many deliveries have you made via drone?
![Indian Prime Minister Narendra Modi, second from left presents the Global Leadership Award to Amazon... [+] Founder and CEO Jeff Bezos, during the U.S.-India Business Council 41st Annual Leadership Summit, in Washington. (AP Photo/Alex Brandon)](https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fspecials-images.forbesimg.com%2Fdam%2Fimageserve%2F9484e66b81734b2aaa3b39770b2e4c44%2F960x0.jpg%3Ffit%3Dscale)
Indian Prime Minister Narendra Modi, second from left presents the Global Leadership Award to Amazon
Like General Giap before him, Bezos understands the necessity of deception. As French forces moved into Dien Bien Phu convinced they were soon on the path to victory, Giap knew just the opposite would occur. Why? Giap had shaped the battlefield to convince the French of a reality that didn’t exist and in doing so, the French made decisions that benefited Vietnamese forces more than French troops.
Bezos has done the same thing in India. Walmart is convinced its strategy of containment will work against Amazon in India. It won’t. Walmart is convinced acquiring Flipkart was a strategic masterstroke. It wasn’t.
I have been on the record since 2016 that Amazon’s strategy in India will include physical retail and not just online sales. If the reports coming out of India are true, Amazon is about to acquire a majority stake in one or more grocery chains giving Amazon access to over 1,700 stores throughout India.
Whereas Walmart placed a bet on 1% of the retail market in India by acquiring Flipkart, Amazon is expanding its sphere of influence from a leadership role in e-commerce by going after opportunities that exist in the 99% physical retail market. Amazon is shaping the battlefield to its advantage and creating a new reality.
As a former Amazon executive with intimate knowledge of Amazon’s India operations, I cannot provide more details of what I know Amazon has planned. I can state, however, that Amazon’s leadership team, technology, operations and strategy in India are far superior to that of Flipkart and other competitors.
Full disclosure: I have hands-on work experience throughout India and I continue to provide consulting to multiple clients based in India. India is unlike any other country on earth in terms of the operating environment, nationalistic fervor, and protectionist laws. India is also one of my favorite countries in the world and I cherish every opportunity to visit.
The Wild Card – Alibaba
India’s impending battle between Walmart and Amazon became even more interesting with reports coming out of India that Alibaba may be in discussions with one of India’s leading retail conglomerates, Reliance Industries Limited.
As one of the largest retailers in the world with an ability to invest billions in markets where it competes, Alibaba poses a serious threat to Walmart in India especially if Alibaba and Reliance form a partnership.
I struggle to see how Walmart will succeed in India against Amazon and more than likely, a determined Alibaba. From a strategy perspective, Alibaba should partner with Amazon in India with the intent of crushing Walmart to the point where Walmart has to write off its $20 billion plus investment in Flipkart. It is is the best interest of Alibaba to drive Walmart from India and eventually China.
Alibaba knows that they cannot enter the U.S. retail market and compete against Amazon. However, a weakened Walmart forced to withdraw from India and China after losing billions of dollars would make an enticing target for Alibaba. I wrote about the possibility of Alibaba entering the U.S. market in this article.
Walmart Can Win Battles And Lose The War
An interesting fact from the Vietnam war is that the United States is credited with winning the majority of battles it engaged in with enemy forces in Vietnam. Why then did the U.S. lose the war?
Primary among the reasons given by historians is the shift in support of the war by the American people.
Inundated with reports of mounting casualties on the nightly news and a failure by government officials to make a coherent argument as to why South Vietnam was strategic to the U.S., support for the war decreased drastically by 1968. President Lyndon Johnson was so unpopular due to his handling of the war that he chose to not to seek reelection.
Once again, I see parallels between the Vietnam war and Walmart’s decision to acquire Flipkart in an attempt to beat and contain Amazon in India. Just like President Johnson, Doug McMillon will be held to task for his decisions related to India.
If retail industry analysts and strategy consultants I spoke with are correct, over the next three to five years, Walmart India will show signs of winning only to suffer losses in revenue. First the losses will be small and then will become massive. To paraphrase the literary character from Hemingway’s masterpiece The Sun Also Rises, when asked by Bill how he went bankrupt, Mike replied “Two ways. Gradually and then suddenly.” So it will happen for Walmart in India.
In order to win, Walmart/Flipkart will have to invest more in India. The danger to Walmart and Amazon, however, is that Reliance Industries and the Indian government will fight to block Walmart and Amazon from controlling such a large percentage of retail. I am convinced that India’s government and business leaders will demand that India implement rules to favor Indian retailers over Amazon and Walmart. If India implements regulations as restrictive as I believe they plan to, Walmart and Amazon will be at a severe disadvantage and will lose billions.
Walmart/Flipkart will attempt to win the “hearts and minds” of Indian consumers by creating the perception that Amazon is the outsider. Like the Chinese in Africa who are investing billions in building cities and investing in infrastructure projects to gain favor in the countries where they mine precious metals, Walmart will want to invest capital to build roads, schools, clinics and housing while making sure the Flipkart brand is as visible as possible during the process. I don’t think it will work if India’s government enacts rules putting Walmart/Flipkart at a disadvantage.
And Walmart will continue to invest in price. Note: Investing in prices is nothing more than a more respectable way to state prices are being cut with the hope that consumers will be attracted to the lower prices. Price wars will become common in India.
In a country like India where 21.9% of the population lives below the poverty line and the average annual income was $1,670 U.S. dollars based on 2016 data, cutting prices isn’t a sustainable strategy.
For a publicly traded company like Walmart, the real damage will come from shareholders and Wall Street analysts who will argue that the losses incurred by Walmart in India are wreaking havoc on the stock price, jeopardizing Walmart’s financial stability and damaging Walmart’s reputation. The advantage for Amazon is that Wall Street is much more forgiving of losses incurred by Amazon resulting in Amazon to avoid an outcry from shareholders.
Just like in Vietnam, the greater the losses incurred in India, the louder will be the voices demanding that Walmart withdraw. An argument will be made that Walmart’s war against Amazon in India is unwinnable and a ghost from the past will return creating a new reality – India has turned out to be Walmart’s Vietnam.
As for Jeff Bezos, he understands that Amazon must focus on playing an infinite game where the goal is to outlast the competition and to keep the game going forever. If Walmart eventually departs India as many analysts expect, Bezos won’t smile or gloat. Bezos understands that a new competitor, somewhere, is rising.
