Wal-Mart has announced that it's scaling back its bid for full ownership of Massmart, the South African retailer with operations in 14 African nations; Wal-Mart will opt for a controlling stake business model, according to a recent Financial Times report. It has also agreed to allow Massmart to remain listed on the Johannesburg Stock Exchange (JSE.)
South African Unions Original Opposition
In 1991, the Bentonville, Arkansas-based Wal-Mart constructed its first non-US store in the suburbs of Mexico City. In Mexico, it has an 68% stake in Wal-Mart de Mexico (WalMex), a model that is emerging as a negotiating tool with trade unions in South Africa who originally voiced strong opposition to its initial full ownership bid for Massmart.
"COSATU Western Cape is alarmed that we are even considering an offer from Wal-Mart to take over key strategic national companies in South Africa,” said the Congress of South African Trade Unions (COSATU) in a statement that was reported by Forbes. “We will oppose the setting up of any Wal-Mart stores in the Western Cape. These companies are notoriously anti-union and anti-workers rights, and an affront to workers rights wherever they operate around the world."
"We respect and honor pre-existing union relationships and are committed to abiding by South African labour laws," said Doug McMillon, president and CEO of Wal-Mart International, in what appeared to be a public response to COSATU's opposition.
Urbanization and the African Retail Boom
Africa is on the radar of major retailers developing emerging market strategies. South Africa and Nigeria are two examples of a number of African nations faced with rapid urbanization. In Nigeria, an estimated 140 million people have no major domestic retailer to accommodate growing needs in concentrated cities like Lagos. Western investors are taking note.
In June 2010, Actis, an UK-based private equity firm, announced investing $100m to develop shopping malls in Lagos where it has broken ground at its Ikeja City Mall site. Shoprite has also announced plans to develop new shops in Nigeria.
"Wal-Mart tends to play the longer-term game in many regions, but give it a few years and it might be looking to build on the single store in Lagos,” said Bryan Roberts, an analyst at UK-based Planet Retail. “Or the one store in Tanzania or wherever to build up more of a credible regional presence."
Pick-n-Pay is also among the major retailers in South Africa. It has 26 stores in countries outside of South Africa. This was as of July 2010 when it announced its regulatory request to sell units of its Franklins stores in Australia. After learning of Wal-Mart's Massmart bid, Nick Badminton, CEO of Pick-n-Pay, released a statement indicating its own plans for new stores in the Democratic Republic of Congo, Lesotho, Namibia, Malawi, Mauritius and Zambia.
Antitrust and Competition Considerations for African National Market Regulators
The 1,000 pound elephant in the rear view mirror centers around whether the national regulators in the various African countries are prepared to deal with the labor, competition and antitrust market issues that may arise with the introduction of a Wal-Mart.
While trade unions generally develop as a tool within industry to promote fair commercial activity between a firm and its labor force, antitrust and competition laws are governmental controls over what are deemed unfavorable market developments such as cartels, monopolies and trade restraints within markets.
A couple questions national market regulators should be asking themselves are what impact will large market entrants have on existing smaller traders and can this be accommodated to sustain fair competition in these markets?
Labor and Antitrust Issues in Emerging Markets
Wal-Mart is one of many global firms seeking entry into the emerging markets within the various nations on continental Africa. Growing urban centers such as Johannesburg, Laos and Nairobi have created obvious opportunities for retail service providers, both domestically and firms from the U.S., E.U. and Asia.
Wal-Mart's potential entry into the South African market through Massmart fairly raises labor and fair competition issues because of the sheer size of the Wal-Mart firm. These are issues that require trade unions and national regulators to join the dialogue. This ensures that domestic markets are protected from major changes in the relations a large number of workers have with the firm for which it gives labor. It also allows national competition regulators to analyze consumer and fair competition issues that may be more sensitive to smaller market economies faced with these types of international business transactions.
General Disclaimer: This article is for information purposes only and should not be used as a substitute for legal or tax advice.
Vanessa Cross - Vanessa Cross is a freelance writer who writes about international trade, business law and small business development issues.
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