Yesterday the government expressed concerns over the merger in a joint statement from the Economic Development Department, the Department of Trade and Industry and the Agriculture Department. In short they are worried that Wal-Mart will increase imports and overwhelm local suppliers:
The sheer scale of Walmart’s international operations made government’s intervention necessary. Walmart’s revenue is estimated to be $408 billion – larger than South Africa’s GDP. In 2004, Walmart, if it was measured as a country, would have been China’s 8th largest trade partner and would have a GDP larger than 75% of countries worldwide. In 1995 no more than 5% of Walmart products were imported; by 2005 this figure had increased exponentially to 60%. Walmart’s procurement division employs 1400 employees sourcing from 6000 factories across the world, though largely from China.
Government believes that given Walmart’s global purchasing power, the merged entity will significantly increase imports and reduce purchases from local suppliers in South Africa.
The Independent Competition Appeal Court will hear pleas to review the deal, which have come from trade unions as well. The government would like to add more restrictive conditions on the merger.
Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product’s appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with lower appeal products do not. For the industry as a whole, the model predicts that the associated market share reallocations, adjustments in innovative effort, and exit patterns increase productivity and the rate of innovation.
Of course many mum & pop stores would differ. Check out 16 facts about Walmart that will blow your mind >
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