- 09
- JUN
- 2011
How will Wal-Mart takeover impact on South African suppliers?
Author: Jordan Early - Categories: CSR & Green, Supplier Relationship Management, Economy & Current Affairs
What's best for the country? Promoting foreign investment and giving citizens access to cheap groceries and retail goods or ensuring that local jobs don't get sent overseas? This is the question that South African politicians, industry heads and employment unions have been debating fervently over the past few weeks.
The blaze was further stoked last week when Wal-Mart, the world's largest retailer, jumped the final hurdle (the South African Competition Tribunal) in its takeover bid for South African retail organisation Massmart, giving the organisation its first presence on the continent.
Wal-Mart's African takeover bid had met strong opposition in South Africa on two fronts. The first was over a concern that Massmart jobs would be shed as Wal-Mart carried out an efficiency drive to bring the new African subsidiary in line with Wal-Mart's operating model. The second concern was for the welfare of those organisations and employees currently working in the supply chain for Massmart.
Union representatives and company spokespeople have expressed concern that Wal-Mart will follow the example of some of its global supply chain and begin to replace local suppliers with cheaper, overseas alternatives. This procurement practice is central to Wal-Mart's business model, as it allows the retailer to source low-cost goods, which in turn enables it to drop in-store prices and compete more effectively with established local providers.
While Wal-Mart made some concessions at the tribunal in order to appease government officials (i.e., agreeing not to fire any Massmart employees for the next two years), the concerns around local procurement practices appear to have been overlooked. A number of government and union officials were hoping to see local procurement clauses written into the buyout proposal. Such clauses would ensure that not only are Massmart's employees' jobs safe after the takeover, but also that suppliers in the organisation's domestic procurement chain feel an element of security in the relationship with the new ownership.
The hearing before the tribunal was essentially a test case for foreign direct investment into South Africa. Government officials and labour unions need to consider the best interests of employees, both internally and within the nation's supply chain. By implementing local procurement clauses, essentially governing the way in which foreign investors run their organisations in the nation, the government runs the risk of making South Africa a far less attractive destination for foreign investment.
What are your thoughts on this matter? Should governments have the power to stipulate the way in which organisations carry out there procurement practices? Would a ruling against Wal-Mart at the competition tribunal negatively impact South Africa's ability to attract DFI?
Comments
Ioannis
Fri 10 Jun 2011 15:12
Surely it is a question of letting the market decide. If less efficient more high cost producers are allowed to survive in South Africa in the longer term the country's international competitivness will be effected. Of course the consumer also needs protecting. The cost of living in SA with regards to groceries has really spiraled the last number of years. And in the same breath it has been a very high margin business for the retailers..... There needs to be more and better competetion amongst the retailers in South Africa as without this the person on the street will be sqeezed ever more so.
sandy
Fri 10 Jun 2011 20:12
Just take a look at what happened to employment, local businesses, and supply chain in the USA. While not the sole contributor to the decline of "Made in the USA", Wal Mart has certainly played a major role in jobs leaving the country and goods produced and procured in foreign countries. I would hope that the SA government stand firm and not allow corporations to negatively alter the business landscape. Your unemployment rate is ~23% now - let Wal Mart do as they please and other corporations are sure to follow; my guess is that rate would increase significantly. Not a good prospect for a country that is actually seeing a bit of a decline in the unemployment rate...
Brian
Mon 13 Jun 2011 18:43
Allowing “Market Forces” to decide is a bit shortsighted and ignores the reality of the multinational corporation. Unlike the past, where so much of our economic theory is based, multinationals have no reason to pay attention to local interests. They can use market clout to bulldoze small local entities and the profits do not remain in the country where they are earned. It is a modern version of colonialism. So asking countries to step aside in favor of market forces ignores the current reality of a global marketplace. National Governments have a duty to work in the best interests of their population, it is their job! They need to ask what is more important, cheaper goods or people that can afford goods because they have jobs!
Tue 14 Jun 2011 01:46
Thanks for the responses above guys.
I have to agree with the concerns raised around Wal-Mart's competitive strategy. There have been numerous casualties in the company's rise to become the world largest retailer. I would envision that the purchasing strategies that have brought the company its current level of success are likely to continue into the future.
However, is it possible that despite potential job losses, the inclusion of Wal-Mart into South Africa's competitive landscape could in fact be of benefit to the nation? With unemployment around 23% and roughly half of the nation's populations living below the poverty line, surely access to cheaper groceries and consumer goods holds some potential benefits for South Africans?