Defending Flipkart’s Case in the Negotiation with Walmart Concerning an Acquisition Deal

International Business Negotiation
Defending Flipkart’s Case in the Negotiation with Walmart Concerning an Acquisition Deal
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International Business Negotiations
1.0. Background of the Deal
Walmart, a leading US-based chain of retail stores, entered into a deal with Flipkart, an Indian e-commerce giant, in 2018. As per the deal, Walmart acquired a 77% stake in Flipkart for $16 billion (Rajan, 2021). The purpose of the deal was to pool the resources together and complement each other. Walmart is a giant retailer aimed to gain its foothold in India, considering it a fast-growing economy. However, it was overwhelmed by the geographic and cultural distance. The acquisition of Flipkart will allow it to leverage the market knowledge of Flipkart while also tapping into the potential of online retailing. At the same time, Flipkart saw its association with Walmart as a remarkable boost to its brand reputation and equity. The deal is now in its fourth year and has been considerably successful (Rajan, 2021). Flipkart's top management commissions me to help them improve the deal under the realization that Flipkart has not optimally tapped into its bargaining power. Flipkart is looking to get Walmart to add up to $5 billion to its consideration, making it $21 billion. According to Flipkart’s point of view, Walmart is the more significant beneficiary of the deal since Flipkart is an established eCommerce platform. Walmart is undergoing a downward slide in profitability, market share, and several other aspects. However, it was also clarified upon the condition of confidentiality that Flipkart also holds the deal in high regard and wants to ensure the continuity of its long-term relationship with Walmart. Flipkart’s management clarified that $21 is not the bottom line, and I should feel free to use alternative proposals of almost the same worth, if appropriate. This report aims to assess prospects for Flipkart to gain more advantages from the said deal and lay out the strategic recommendations in the light of negotiation theories and concepts.
2.0. Insights Shared by My Friend
To explore different possibilities, I called one of my close friends to take his advice after explaining the above case. His recommendations unfold as follows:
* Threatening Walmart of withdrawing from the deal if it does not raise the value
* Asking Walmart’s management to consider the growth of Flipkart
* Reminding Walmart of its failure in China to give an amplified view of its current deal with Flipkart
While sharing his insight, my friend was particularly interested to see both parties' contrasting growth trajectories. He advised me to adopt a strict competitive style of negotiation, which involves using the bargaining edge to force the counterparty to accept a deal (Warner, 2002). When I told him that Flipkart also wants to keep the deal irrespective of Walmart's response to the negotiation process, he took the time to brainstorm. Then, he advised me to adopt a mix of soft and hard approaches while leaning towards the harder side since Flipkart was in a position to convince Walmart. He also advised me not to hesitate to walk away if Walmart’s representatives remain adamant. He advised me to remain confident since Walmart would go to any extent to save the deal. His idea was fixated upon an oversimplified view of Walmart’s decline and shift of bargaining power from Walmart to Flipkart. In a nutshell, my friend was confident that I could adopt a strict view and go into the deal with a purely non-accommodative approach.
The discussion with the friend has been enlightening as a starting point, and I considered borrowing a few takeaways from his suggestions while outlining the set of my recommendations.
3.0. Improving the Deal
3.1. Pre-Negotiation Assessment
To improve the deal, it is vital to conduct a prenegotiation assessment. It enables the negotiator to overview different possibilities, develop contingency plans, and go into the deal with comparatively better confidence (Balliu & Spahiu, 2020). Stein (1999) shares a real-world example of the Israel and Palestine conflict to highlight the importance of prenegotiation. The author shows how initiating a formal negotiation process has always been challenging. However, prenegotiation has enabled both parties to test each other and assess the likelihood of a deal. Hence, prenegotiation is an important role player in the success or failure of a process. Despite its sheer importance, Zartman (2007) argues that prenegotiation has been surrounded by confusion. The negotiators are divided in their views about whether to consider it a formal part of the negotiation or merely a prelude. From Stein's point of view, it is evident that prenegotiation is an important part of negotiation since it enables each part to assess its position and draw its strategic approach accordingly. The focal point of the assessment is to construct the rationale for persuading Walmart to raise the consideration.
Firstly, it is encouraging to note that Flipkart has undergone a remarkable increase in its revenue since the start of the deal. In 2021 alone, Flipkart has posted an increase in its revenue by 25% (Rajan, 2021). It shows that the e-commerce player has a lucrative outlook that adds to its bargaining edge.
Secondly, Walmart is undergoing a downtrend in its net income and market share in the global market. The net income of Walmart declined by 1.7% in 2020 and 9.8% in 2021. At the same time, Walmart is losing its market share to its competitors mainly due to failing to keep pace with the trends (Corkery, 2022). This point also adds up to the bargaining power of Flipkart.
Furthermore, Flipkart is knowledgeable about the Indian market thanks to its experience, thereby bridging Walmart's geographic and cultural distance from the Indian market. It is another strong point to consider.
The above findings suggest that Flipkart has a clear bargaining edge over Walmart. Hence, during the prenegotiation assessment, it appears evident that Flipkart is positioned to anchor the negotiation and get Walmart to agree to the desired benefits. It is in line with Weiss (2020)'s idea, which argues that prenegotiation is an important starting point since it gives a clear view of a party's position relative to the counterparty, thereby allowing it to tune its behaviour, attitude, tone, and style according to the degree of the bargaining edge.
An important part of the prenegotiation plan is determining the best alternative to a negotiated agreement (BANTA) (Sotak & Abraham, 2020). For Flipkart, BANTA is to convince Walmart to increase its share in profit if Walmart does not agree to increase the total consideration.
3.2. Recommended Strategies and Tactics to Maximize the Flipkart’s Bargaining Power
To improve its bargaining power, Flipkart has advised the following considerations:
3.2.1. Leverage the Potential of Ecommerce in Post-pandemic Scenario
As assessed, Flipkart has been remarkably successful in the past few years. The revenue increase is largely attributable to the pursuit of convenience combined with the impact of the current pandemic (Rajan, 2021). The relative share of online retail sales is trending up (Rajan, 2021). During negotiation, Flipkart can use these advantages within the external environment to boost its bargaining power.
This type of advantage allows Flipkart to apply the door-in-the-face technique, which involves making an unreasonable initial request and then getting it down to a reasonable one without disclosing the plan (Pienaar & Spoelstra, 1999). Flipkart’s Plan A is to get the consideration raised by $5 billion. By applying the door-in-the-face technique, the company can bid for an increase equivalent to $10 to begin. Even though the request is unlikely to sound realistic since the total consideration stands at $16 billion, Flipkart may feel fearless due to its greater bargaining power thanks to the rise of eCommerce in the post-pandemic scenario. It is based on the assumption that Walmart is eager to retain Flipkart, considering its positive growth outlook. However, if Walmart does not agree, Flipkart may gradually come down to $5, which is the bottom line of Plan A.
3.2.2. Exploit Walmart’s Negative Outlook
It is vital to draw Walmart's attention to its negative outlook. It will make Walmart's delegates realize the importance of the deal. Flipkart should table the statistics which clearly show how Walmart has declined over the years in terms of market share, revenue, and other aspects. This decline, contrasted with Flipkart's positive outlook, will give the client a fair bargaining edge.
This approach aligns with the opponent model proposed by Hindriks et al. (2009). According to the opponent model, a negotiation can be made more transparent and efficient if an opponent's preferences are identified and outlined beforehand. The following important consideration is to exploit those preferences contrary to the commonly proposed accommodative or compromise-based negotiation models. This strategy can be applied to the case of Walmart since Flipkart knows beforehand that the company aims to restore its image as a growing retail chain. It is a...