Wal-Mart, the world’s largest retailer, has received two pieces of good news in its bid to continue its expansion into the world’s emerging markets.
Today (31 May), after months of debate, fierce local opposition and a competition inquiry, Wal-Mart got the green light to buy a majority stake in South African retailer Massmart.
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South Africa’s Competition Tribunal has approved Wal-Mart’s acquisition of a 51% stake in Massmart, eight months after the US retail giant first announced plans to buy the business. At first, Wal-Mart wanted to buy the whole company but, after talks with Massmart’s shareholders, scaled back its plans and settled on just over half the business.
However, even that deal looked in jeopardy when unions in South Africa announced their opposition – and when parts of the South African government criticised Wal-Mart and Massmart for not making binding commitments on issues like procurement, safeguards for small business and black economic empowerment.
Nevertheless, the deal has won official backing subject to certain conditions, including the stipulation that no jobs are cut over the next two years and, notably, that Wal-Mart and Massmart must set up a ZAR100m (US$14.6m) fund to support local suppliers.
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Wal-Mart, meanwhile, would also have received a fillip from fresh signs in India that there is rising political support for more foreign investment into the country’s retail sector. At present, overseas retailers can own wholesale cash-and-carry chains outright but can only hold a 51% stake in single-brand outlets – like Nike stores. In a bid to protect local shop owners in India, foreign retailers cannot own multi-brand stores.
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By GlobalDataThere has been almost constant speculation in recent years that India will relax its regulations but the rumours and counter-rumours – and the fierce opposition from some political parties, as well as local store holders – has left industry watchers rather sceptical about whether change really will occur.
However, late last week, came news that change could really be on its way. On Friday, a government panel on inflation, headed by India’s chief economic advisor, published a report recommending that India eases its restrictions on investment into the country’s retail market. India’s junior trade minister told Bloomberg that new rules could be announced by next April.
Indian retailers have again announced their opposition but the latest recommendation is seen as notable, not least because opening up the country’s retail sector is seen as a possible solution to soaring food prices in India. Of course, we are far from the point where the Indian government has drawn up definitive policy – and from the point where a law easing those restrictions has been passed and is in place.
But, the development, alongside the news from South Africa, would have made Wal-Mart’s HQ in Bentonville a happy workplace this morning after the extended Memorial Day public holiday.
