Purchasing is key to Wal-Mart takeover plan

20 October 2010

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20 October 2010 | Nick Martindale

Wal-Mart is likely to deploy its renowned cost-cutting approach to procurement to deliver economies of scale in southern Africa if its proposed takeover of Massmart is successful, analysts have said.

Dianna Games, chief executive of the consultancy Africa@Work, said she would expect the global retail giant to continue its tactics towards suppliers, including sourcing from low-cost countries.

“I expect it would do the same in South Africa but the key issue is whether it would respect the business imperative of getting local buy-in by sourcing some products locally, even if the local suppliers could not deliver more cheaply than elsewhere,” she said.

She added that any move into the southern African market by the Wal-Mart corporation (the proposal applies to 14 countries) could prompt other retailers to examine their own procurement set-up. But it also might result in a nationalistic backlash, where consumer campaigns such Proudly South African could be used to promote local sourcing, she said.

Andrew Muhimbise, a consultant at Octopus Procurement and member of the online community Procurement Initiatives Africa, said: “We could see sourcing activity shift to the Far East, even for commodities that are available in Africa. This would stifle existing Africa-based suppliers currently doing business with Massmart.”

The Congress of South African Trade Unions (COSATU) has already voiced its opposition to the proposed takeover, with Wal-Mart’s supply chain practices singled out for criticism.

A statement by the union body said: “Wal-Mart has become so powerful that it dictates to suppliers at what price they are prepared to buy goods.”

Wal-Mart announced a R32 billion (£2.9 billion) proposal to acquire the Johannesburg-based retailer, which includes nine wholesale and retail chains across 14 sub-Saharan African countries including Botswana, Lesotho, Mozambique, Namibia, Swaziland, and Zimbabwe, at the end of September.

A spokesperson for Wal-Mart said the company had announced “a non-binding proposal to Massmart that could lead to an offer, subject to a number of conditions”.

He added that the retailer respected and abided by the law in each country in which it operates, and honoured existing union relationships and contracts within acquired companies.

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