How Flipkart-Walmart deal aced the CCI test
The traders' associations and retailers may have been opposing the Walmart-Flipkart deal, their concerns did not seem to pass muster with the Competition Commission of India (CCI) as the anti-trust regulator recently approved the Walmart's acquisition of Flipkart, saying the "proposed combination is not likely to have an appreciable adverse effect on competition in India".
Flipkart-Walmart Deal Aces The CCI Test!
The CCI dealt with the question if indeed the Walmart-Flipkart combination was altering the competition both in the horizontal and vertical markets. In competition parlance, a horizontal overlap is a merger between two competitors in similar line of business, while a vertical overlap is a merger between a manufacturer and distributor, who are at different stages of production chain in different markets. Needless to say, the Walmart-Flipkart deal has a horizontal overlap as both the companies are in the wholesale cash and carry of goods (B2B market).
The CCI concluded that Flipkart and Walmart "are neither close competitors in the B2B sales nor have a combined market share that raises competition concern".
According to a submission by the Walmart, the Indian retail market size is estimated at $672 billion, 30-40 percent of which is B2B sales, while the combined market share of the Flipkart and Walmart would remain less than 5 per cent. The submission report further noted that the market share of Walmart in B2B sales in India is less than half a percent and "thus the incremental changes on account of the proposed combination is insignificant."
On more detailed examination of the two companies' markets in the B2B segment, it was found that "Flipkart was relatively strong in mobile and electronics products, where Walmart has insignificant presence. Walmart, on the other hand, is stronger in groceries but Flipkart is absent in this segment. Though both the companies have presence in lifestyle products like skincare, haircare, oral care, baby & feminine hygiene, personal wash, apparel and shoes & accessories, but the combined value of sales of the two in this segment is relatively insignificant compared to the total market size.
The CCI thus concluded that the combination of the two "does not alter the current market structure".
While Walmart's submission is based on the combined (organised and unorganised) B2B segment, CCI contends that even if the organised sector is considered separately, it looks competitive due to presence of players like Reliance Retail, Metro Cash and Carry, Amazon Wholesale etc.
Is There A Vertical Overlap Too?
No, concludes CCI. The regulator maintained that "as the parties have regulatory restriction to engage in B2C sales and are admittedly not engaged in the same, the Commission does not find any vertical overlap between B2B business of Walmart and the online marketplaces of Flipkart."