THE BLOG

Argentina to South Africa: Beware of Wal-Mart!

05/10/2011 06:28 pm ET | Updated Jul 10, 2011

South Africa has been warned.

A global coalition of organized labor converged this week on Pretoria, South Africa -- where a government office known as the Competition Tribunal is considering a mega-acquisition of MassMart by Wal-Mart that will reboot the retail landscape of an entire continent. MassMart owns roughly 290 stores in 13 African nations, and has been described as "the perfect African entry vehicle" for Wal-Mart.

Queued up against the plan is the Congress of South African Trade Unions (COSATU), in alliance with the UNI Global Union, a worldwide umbrella union representing 20 million workers. They are all part of an Anti-Wal-Mart Coalition which includes the South African Commercial, Catering and Allied Workers' Union (Saccawu), and the South African Clothing and Textile Workers' Union (Sactwu).

One of the most stark statements before the tribunal was presented by Sofia Scasserra, an economic advisor to the Argentine Federation of Commerce and Service Workers (FAECYS). According to Scasserra, Wal-Mart's worst impact was not on wages -- but on the nation's supply chain -- resulting in "a detrimental effect on the business middle class."

Instead of buying products, Wal-Mart de Argentina offers a "sale spot" to suppliers -- who bear the cost of unsold merchandise. "In the event the product sells," Scasserra explained, "the supplier gets paid, but if the product does not sell, then it was deemed never to be Wal-Mart's to begin with, and therefore the supplier bears the full adverse effect of the unsold stock... Wal-Mart does not take ownership of the goods until the product is sold." Scasserra said many companies were forced to close, especially in the food sector, where products are perishable. Some merchants were forced to sell on consignment, putting "immense pressure" on the supplier if goods don't sell.

Wal-Mart also forces supplies to wait at least three months to get paid, and to make matters worse, Wal-Mart uses a trade agreement between China and Brazil to import Asian goods, and then imports the merchandise from Brazil into Argentina protected from tariffs.

All these strategies, said Scasserra, "makes local producers unable to compete." Local apparel makers in Argentina watched as shirts, jeans and underwear poured in from China to Brazil, and then into Argentina through the tariff reduction agreement.

Even when Wal-Mart uses local vendors, "the suppliers are victims of constant pressure to lower the price of their products," Scasserra noted, "with the threat that the company will be better prices by bringing the merchandise from Buenos Aires."

In the case of home appliances, Wal-Mart would force its suppliers to give the retailer discounted and free merchandise, "and it advertises 'unbeatable deals', with the cost of these deals being forcibly absorbed by their suppliers."

Scasserra cited one case where Wal-Mart offered a discount on air conditioners -- without even consulting the supplier. "The first notification that the supplier receives is when they receive a check for less money than they were expecting," she told the Tribunal.

All these anti-supplier policies mean that "small producers are often left out of the equation," Scasserra explained. Wal-Mart cannot be counted on to support "a local sustainable supply chain," she concluded.

Labor relations with many of Argentine's unions were described as "troubled." In one case, Wal-Mart began outsourcing its union workers by laying them off, and hiring new workers from subcontract agencies.

Scasserra advised the South African Tribunal to force Wal-Mart stores to locate in "the outskirts of the city" to protect the "small neighborhood traders and their jobs." She also advised that "group collective bargaining be imposed as a condition," a sort of "centralized table" where workers could bargain with the huge retailer, rather than face fragmented negotiations.

Finally, Scasserra recommended that the policy of allowing a merchant to force the producer to be responsible for unsold products should be banned. Wal-Mart should be obligated to purchase the goods up front, and be limited to 30 days credit.

The American experience with Wal-Mart was also heard in Pretoria. "We have witnessed the devastating effect that the Wal-Mart model has upon small businesses, suppliers, and communities," said Michael Bride of the United Food and Commercial Workers International Union (UFCW). Bride urged the tribunal to "place the needs of South Africa's citizens at the center of its deliberations and ensure that if Wal-Mart does enter the country, that it does so on a basis that will promote economic development rather than destroy it."

For all its high-toned statements about sustainability, Wal-Mart's backroom practices in Argentina should be vivid enough to scare away any nation tempted by the "live better" motto. It shouldn't be too difficult for a 'Competition Tribunal' in South Africa to recognize the MassMart/Wal-Mart merger is the beginning of the end of retailing competition on the African continent.

At least no one can say they were not warned.


Al Norman is the founder of Sprawl-Busters, and the author of The Case Against Wal-Mart.