Wal-Mart is the world's second-largest company after ExxonMobil. With sales exceeding $400 billion it is six times larger than Procter & Gamble, the largest consumer products company. Its revenues are more than the GDP of at least 144 nations.

When a company is this big, the people running it are difficult to please and equally difficult to impress. But one July morning this year the CEO of Wal-Mart's international operation, Doug McMillon, was mighty pleased. He was visiting his newest baby--a large, month-old store on the fabled Grand Trunk Road just outside Amritsar in Punjab.

Set up in a joint venture with Sunil Mittal's Bharti Group and called Best Price Modern Wholesale, they had signed on close to 35,000 members in the first couple of weeks (a number that has since ballooned to 70,000), bean counters at the store told him. They included small shop owners, hotels, restaurants, schools, colleges, the police force and even the Indian Army. Sales, they told him, exceeded expectations by almost 70%. Their only concern was whether stocks could cope with demand.

After 18 years at Wal-Mart McMillon knew the company is the best when it comes to retailing. But it had never attempted a pure wholesale format anywhere in the world, including in the U.S. If anything, it has only played with hybrid models like Sam's Club, which caters to both bulk buyers and retail shoppers. The closest it had come to making a format like this work was something called Maxi in Mexico. But that wasn't a pure business-to-business model. Even homemakers could shop there.

Shortly after he concluded his visit to the store, an effusive McMillon told CNBC-TV18, "Our investments in India are really not constrained from a financial perspective. The constraint is more about how many cash-and-carry units can you get to open from a real estate perspective."

What he really meant was that Wal-Mart is ready with a $5 billion-plus war chest for its international business. And that if the Indian team, headed by Raj Jain, can find enough land to set up more stores of the kind operating in Amritsar, he can double the stakes. "We will roll it out rapidly," says Jain. The plan is to set up at least 15 such stores across the country in the next two years.

Serendipity

Some would say that Wal-Mart is late to latch on to the great Indian dream. Homegrown businesses like the Future Group have more than a decade's head start. Others like Reliance and A.V. Birla have learned from their mistakes and are now looking to regroup their strategies.

But that is missing the trees for the forest. All of them cater to a $20 billion organized retail opportunity. The cash-and-carry opportunity is much larger--$400 billion, now dominated by the unorganized wholesalers who supply to local stores (known as kiranas). The only one that tried was Germany's Metro--the world's largest wholesale operation. But it never quite figured out India.

It isn't that Wal-Mart was clueless of the India opportunity. After China, this is the only country where it sees enough potential to plant at least 1,000 stores. But there are regulatory issues. Indian law prevents foreign retailers from selling directly to consumers. If they intend to take the wholesale route, though, they're welcome to open shop. But Wal-Mart had a lot of thinking to do before it took the plunge.

Two decades after stepping out of the U.S., it remains a quintessential U.S. company. It understands American consumers well but is ill at ease in most emerging markets. Professor Anil Gupta, who has tracked Wal-Mart's progress around the world and teaches strategy at the University of Michigan, says, "I spoke with senior executives from Wal-Mart a couple of years ago, wanting to find out how global the company's mind-set is. I had an instrument to do this. They said, 'Don't give it to us. Our global mind-set is below zero--we are a U.S. company doing business abroad, not a global company.'"

But under its current CEO Mike Duke, Wal-Mart has made big strides: In 2007 more than 50% of Wal-Mart's assets were abroad. "Wal-Mart's future is clearly outside the U.S.," says Gupta.

Its experience in other parts of the world has been patchy. In Mexico, when it started out in 1991, it set up a huge American-style parking lot outside its discount store. Unfortunately customers came in buses, not cars. Management also realized that there are no takers for golf balls in a low-income country. In time, though, they recovered and are now very successful there.

There were hiccups in Brazil as well, where they had to deal with tough competitors like Ahold and Carrefour. Eventually Wal-Mart bought out Ahold. In Argentina, it operates on the fringes with barely 4% of market share. Its push into Central America--Costa Rica, Guatemala, Honduras and Nicaragua--came through an acquisition in 2007. But these markets are too small to matter. In Germany Wal-Mart couldn't match up to entrenched players like Metro and Aldi. It finally took a billion-dollar hit, sold to Metro and got out.

Its first foray into Asia was in Hong Kong. But it was unlucky with its partner. Eventually Wal-Mart pulled out. Next stop: Indonesia, during Suharto's time. To do business there, there was no way other than to tap into his network. A little later riots broke out, Suharto was deposed and Wal-Mart's stores burned down. The foray into South Korea was doomed from the beginning. Seven years after trying to gain scale, it sold its businesses there and abandoned the hunt.

Wal-Mart cut its teeth in China in 1997. Several mistakes later--like attempting to sell frozen foods to a nation obsessed with fresh vegetables, meat and fish--it has managed to hang on there. More than ten years down the line it lags French retail chain Carrefour, which, unlike Wal-Mart, gives greater autonomy to local store managers.

To be fair to Wal-Mart, it's learned its lessons well. "Our model revolves around scale ... and offering good quality products at prices lower than others," says Raj Jain. "If we can't have that scale for whatever reasons--legal, financial or anything else--by and large we don't succeed in those markets. So let's be clear about this: If we enter India, we have a vision to be big."

Which is why, when faced with two options--wait for the law of the land to change before setting up shop or gamble on the wholesale opportunity--it chose the latter. In spite of having the option to come in on its own, Wal-Mart chose to partner with Bharti Enterprises for the cash-and-carry wholesale business. It wasn't willing to repeat mistakes it had made in other parts of the world because it couldn't figure out local nuances early enough.

It helped. As Sunil Mittal told FORBES INDIA a few weeks ago, "I went to Amritsar and they showed me some stores. I thought there was too much breakfast cereal stacked there. I told them, it's the wrong thing in the wrong place. These are things you learn when you're in a country. It isn't a fight."

Bharti gained as well from the relationship. The technology to build Bharti's network of retail stores, Easyday, is licensed from Wal-Mart. The back-end logistics of the operation are also managed by the Wal-Mart.

Incredible India

Among the first things Wal-Mart did was to pick seasoned managers who understood India well. Leading the pack was Raj Jain, who had been a senior executive at Unilever in India before he moved to Whirlpool, where he eventually rose to head its Asia operations.

The company also brought in expats who knew the Wal-Mart system well. Craig Wimsatt was designated chief operating officer (he is now relocating back to headquarters on a new assignment). With him was Arvind Mediratta, a veteran Procter & Gamble executive who knew the Indian market. Mediratta was the business head for the wholesale cash-and-carry business.

Wimsatt and Mediratta tried to understand why their German rival Metro didn't do well. It didn't take them long to figure it out. Their store design, for instance. Metro spent a huge sum of money on buildings with roofs that can withstand 6 inches of snow--in Bangalore, a city that hasn't seen snow ever. Store sizes for Metro were too big, more in line with the German wholesale club format it was based on. Its expat managers refused to stock products like that uniquely Indian creation, a jharoo (broom), because it didn't fit into how the company defined products back home. They've mended their ways since, but the damage was done.

The pros next focused their attention on small kirana stores: Where do they buy from? What do they buy and how? They repeated this exercise across all the segments they intended to target. "Best prices, reliability in terms of availability and quality was one thing all of them demanded," says Mediratta.

When it comes to fast-moving branded products, quality was not an issue. That is what traditional wholesalers in India have focused on, working with very thin operating margins in the region of 1% to 1.5%.

But when it comes to groceries, rice, pulses and meat--it was a huge problem. Restaurant owners, for instance, told them their customers are used to a certain kind of paneer (cottage cheese) or fish. So they stuck to the same supplier to ensure consistency. Mediratta recalls a caterer telling him of the time he attempted to change his fish supplier. The next day customers complained the taste wasn't quite the same. That's when they figured there is a supply chain at work here. Not the most efficient perhaps, but it works, somehow. The people Wal-Mart intended to target were dealing with as many as 100 suppliers each. Not just that, the market was hopelessly price sensitive.

Fundamentally a one-stop shop could make life easier for these folks. But delivering on the proposition of lower prices and better quality was the tough part. Most suppliers had to agree to new terms of trade.

The team did their homework well. They figured, for instance, that the arbitrage available from the time a farmer grows something to the time the retailer sells it is two rupees per kilogram. Conventional wisdom claims organized retail usually works when the supply chain is owned by the retailer. "If you want to make everything work at two rupees per kilo, it would suicidal to invest in a megasupply chain," says Raj Jain.

To get around the problem, Wal-Mart focused on sourcing from farmers, small mandis (farmers' wholesale markets) that others hadn't looked at yet, and larger ones as well for the retail stores. Produce is sent to an aggregation center, sorted out, graded and supplied to the store twice a day. However, to keep costs even lower for the cash-and-carry model Wal-Mart chose not to route supplies through distribution centers but to take delivery directly at the store. "It is an interim solution but a practical one," explains Jain. "I think people failed in India because they went from almost nothing to very sophisticated systems. The cost of infrastructure they developed is so huge that it is not possible to sustain it on a margin of two rupees."

The team went on an aggressive customer acquisition program, signing up 35,000 members (including add on members), even before the store was opened. The key accounts were getting parts of the Indian Army.

Simultaneously the store planning was progressing well. A tight assortment of 5,500 stock-keeping units (skus) was identified. Discipline was critical to the wholesale business. In most Indian stores the ability to quickly replenish items was below par. This is referred to in industry parlance as fill rate. In Wal-Mart's book, a lot of the time stores lost sales because they were unable to quickly restock items that had been sold. Fill rates were traditionally in the region of 60% to 65% in most organized retail stores in the country. Wal-Mart aimed for 90%.

Wal-Mart improved the replenishment rate by creating an Internet-based system, which allowed suppliers to log in and track the purchase orders on a regular basis and supply as per the requirements.

Most important, Wal-Mart pared costs down to the bone. For instance, finding large enough parcels of land is tough. But the India team made a call not to open stores unless rentals were pegged to a certain percentage of their total costs. That also meant settling for locations on the outskirts of the city they operate in. "We have skylights at the store so we don't need to switch on lights during the day. Racking is simple. It is self-service, so you don't have to deploy too many people to help members," says Mediratta.

That perhaps explains why large institutional customers like MK Hotels, a leading hotel in Amritsar, which used to source supplies from the wholesale markets of Delhi, have shifted loyalties to Best Price. Jasdev Singh, an assistant manager at the hotel, says the prices are about 5% to 10% cheaper.The best thing, says Mediratta, is that Wal-Mart never forced a model on the local team. Best Price is perhaps the best evidence that Wal-Mart is quickly learning the rules of globalization.