Wal-Mart (WMT) is looking to invest in Flipkart Ltd, India’s largest online retail according to sources familiar with the situation. Upon a successful merger, Wal-Mart will join other giants like Alibaba (BABA), SoftBank Group Corp and Foxconn that have also entered the Indian online market.

Technology has been at the center of most mergers and acquisitions this year and for the most part of the last decade. This is because it is probably easier to merge and exploit operational synergies in the computing cloud than it is for manufacturing and industrial products.

In addition, the ease of entry to the online marketplace means that several businesses may have to merge or be acquired by the bigger players. Cloud collaborations have played a huge part in mergers and acquisitions for online-based businesses and the same benefits can be applied to companies operating in the e-commerce industry. This is why the likes of Alibaba, Wal-Mart, and SoftBank among others have sought to play this card in the emerging markets.

According to one of the sources, Wal-Mart hinted that it would put a stake of up to $1 billion into the Asian startup. However, the overall amount would depend on the total valuation of the company and the agreement between the two organizations after talks.

A successful deal will not only be a cornerstone for the American retailer entry into the Asian market but will also be a stepping stone for Flipkart to rival against Amazon.

While Wal-Mart controls 21 wholesale stores in India, it’s been unable to set up physical shops under the trademark due to constitution limits. The 51 percent limit to foreign brands remains a setback when establishing chains in a country as big as India.

Flipkart would benefit highly from this venture especially after its reported issues with funding from other investors who have had problems with valuations in the country.

It’s not long since Wal-Mart made headlines in a similar venture. The retailer recently acquired Jet.com Inc. for $3.3 billion making it one of the most expensive purchases for a startup. It also concluded another deal in China after selling its Chinese e-commerce store to JD.com in exchange for a 5% stake in the company.

Wal-Mart’s e-commerce sales at the close of 2015 were $14 billion, which is an estimated 3% of $482 billion, the company’s total revenue.

How will investment in Flipkart play out for Wal-Mart?

Flipkart is an online trade center whose history dates back ten years. The organization was formed by two former colleagues of Amazon (AMZN) in 2007. At the time, the company sold items ranging from cell phones, cosmetics, and suitcases.

Key players in the market that have also acquired stakes in the company include Accel Partners and Tiger Global Management.

A merger with Wal-Mart gives Flipkart the leeway to openly compete against Amazon whose interests to expand into the Indian market have not been put off.

Amazon chief executive confirmed in June that the online retailer had executed plans to invest $3 billion in India. The organization has already secured its membership as a prime investor in the Asian country by putting in $2 billion. According to Bank of America, by 2019, its market share is estimated to increase from 31% to 37%.

Wal-Mart’s stake in Flipkart would boost the local player’s market share in the country, which currently stands at 44%.

Competition between leading online retailers is raising concerns over profit margins especially with most of them looking to explore other growth strategies such as putting up warehouses on major markets.

Wal-Mart’s decision to acquire a 5% stake in JD.com Inc. is also seen as a strategic move especially after Alibaba, JD.com bitter rival, secured its Indian position by investing on Snapdeal.

Conclusion

Following Wal-Mart’s investment, Flipkart will now likely retain its position as the market leader in online retail in India for the foreseeable future regardless of the threat posed by Snapdeal after its merger with Alibaba.

The purchase would also help Wal-Mart bypass strict foreign investment regulations that have hindered the retailer from selling directly to customers through the chain of stores under its control in the country.