Report: Walmart Should Spend More to Help Local Suppliers Acclimate to Massmart Merger

Posted on June 13, 2012 by jway

Per the Wall Street Journal, a report produced by Nobel laureate Joseph Stiglitz says Walmart and South African retailer Massmart Holdings should pay more to help local suppliers remain competitive in the wake of the companies’ merger.

In 2011, South Africa’s competition authorities approved Walmart’s $2.4 billion bid to a buy a majority stake in Massmart, the leading African retailer of general merchandise, home improvement equipment and supplies. As of December 2011, Massmart operated 302 stores throughout 12 countries in Sub-Saharan Africa. The company is headquartered in Johannesburg, South Africa and has over 28,000 associates.

Though the merger closed last year, three government bodies and the Catering and Allied Workers Union appealed the decision by the Competition Tribunal to approve the $2.4 billion deal. The opposing parties argued that Walmart’s entry into the market would lead to an increase in cheap Chinese imports, which could harm local suppliers’ ability to compete and potentially lead to job losses. In other words, they voiced the same concerns about Walmart’s impact on existing businesses put forth by governments, labor organizations and community advocates around the world.

As a condition of the merger, the companies agreed to invest 100 million rand in a supply-chain program to improve the competitiveness of local industry. However, in March of this year, the competition appeals court ordered a three-person panel with representatives from the merged companies, the government and the union to determine the amount of the fund and how it should be run.

The Stiglitz report, which was co-authored by economist James Hodge of Genesis Analytics, calls for a sum that far exceeds the Walmart and Massmart initial offering. Stiglitz and Hodge recommend that the merged entity pay up to 2 billion rand to enhance local suppliers’ capacity and job creation.

The report recommendations could be yet another costly blow for Walmart, which had at one time projected that the terms of the Massmart merger would be finalized in early 2011.

This post was written by Kurt Scott.

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