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Massmart says imposing procurement targets may lead to job losses

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Competition Tribunal Hearing update

Massmart CEO Grant Pattison has spoken out against some of the conditions that the trade unions and Government Departments seek to have the Competition Tribunal impose on Massmart/Wal-Mart, saying the merged entity would be severely prejudiced and would not be able to compete on an equal footing with its competitors.

One of the most common conditions advanced by the opposing parties is aimed at remedying the concern regarding Wal-Mart’s perceived strategy to source a significant amount of products through imports, by placing a condition on the merged entity that commits it to a minimum specified level of procurement of domestically produced and manufactured goods.

In his witness statement submitted as evidence at the Competition Tribunal Hearings into the merger between Wal-Mart Stores and Massmart Holdings Limited, Pattison said he was strongly of the view that it was simply not possible to impose procurement targets of the nature sought by the opposing parties.

“If Massmart / Wal-Mart tried (or was forced) to do this alone, the likely outcome is that the merged entity will be forced to shed jobs as its competitors gain market share at its expense,” said Pattison.

Commenting on the opposing parties’ demand that Massmart/Walmart commits to procure a certain percentage of goods from SMMEs and HDI owned firms, Pattison said that being forced to buy from particular suppliers would skew negotiations in favour of such suppliers, and normal market forces would no longer determine the outcome of negotiations.

“This will clearly have substantial, unintended competitive consequences. In particular, this will remove the incentive for local suppliers to become more efficient.

“The ultimate effect of such targets will be to raise pricing. Consumers will be forced to fund inefficient suppliers, or buy the products they want from other retailers,” he said.

Put another way, the proportion of goods ultimately sourced from local manufacturing tends to change over time and fluctuates according to market forces outside of Massmart’s control.
“Massmart cannot commit, by itself, to the current levels of procurement from local manufacturers, not because we are not supportive of local manufacturing, but because to do so would fundamentally undermine the functioning of a competitive market.
“On any basis, any such procurement targets can only be effective if they are regulated and legislated by Government and applicable across the entire value chain. In other words such targets must apply equally to all retailers and suppliers,” said Pattison.


Notes to editors

Other conditions listed by the various opposing parties include:
• A commitment by Wal-Mart to honour current union relations as well as refrain from preventing or dissuading workers from forming any new such relations and collective bargaining;
• Those relating to the limitation of the extent of foreign ownership or the form of foreign ownership of South African firms;
• Requiring foreign firms that do invest in South Africa to have a positive global reputation;
• Commitments to the quality of goods supplied (referred to as “consumer protection mechanisms”);
• That the merger does not result in job losses or failed firms;
• That there be no downward variation in terms of employment;
• The requirement that Massmart pays an equivalent or better wage relative to the industry average;
• A commitment to procure a certain percentage of goods from SMMEs and HDI owned firms;
• A commitment to create new jobs;
• Restricting new stores to city outskirts;
• Limiting the scope of expansion, by region, size or acquisition;
• That Massmart provide favourable terms to suppliers;
• Requiring Massmart to ensure overseas suppliers comply with labour laws;
• Preventing the merger for a period of time so that South Africans can have a fully informed debate;
• Limiting the products Massmart can sell;
• Limiting market shares for specific goods and categories of goods;
• Applying something similar to the UK Supermarkets Code of Practice and an ombudsman to oversee the implementation;
• Prohibiting retailers from direct dealings with producers;
• Prohibiting of below-cost selling;
• A requirement that the merged firm accept ”joint–liability” with its suppliers for compliance with labour laws “where the cost of the contract would not allow wages and benefits sufficient to comply” with labour law;
• A commitment by Wal-Mart to the “four core conventions of the ILO”, namely prohibition of child labour, prohibition of forced labour, non-discrimination and freedom of association;
• The suspension of the new performance management systems until there has been an informed and agreed upon discussion;
• A requirement that the merged firm develop programs to allow local suppliers to export through Wal-Mart’s global distribution network.
• Finally, a common condition suggested relates to regular monitoring and enforcement mechanisms, such as requiring Wal-Mart to report to the Competition Commission on a scheduled basis, providing it with all relevant data, supplier locations, breakdowns of domestic procurement etc.
• Issued by Brunswick on behalf of Massmart

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