Procurement in Sub-Saharan Africa – Walmart’s Success with Massmart (Part 3)
Local supplier development is a foundational part of Walmart's efforts in South Africa and neighboring countries. Part of the retailer's rationale for this is to maintain Massmart's already stellar B-BBEE (Broad-Based Black Economic Empowerment, aka "triple-B-double-E") rating, but also because certain items, like produce, simply has to be sourced locally for optimal freshness and availability. Under their new owners, Massmart has established a program to help develop small-scale black-owned farms, aka disadvantaged farms, and get their goods to market. This program – the Direct Farm Program – is already successfully implemented by Walmart in Costa Rica and India. In SA, the program is not only supporting B-BBEE activities, but also typical SMWBE activities such as woman-owned businesses.
For example, Massmart has started buying entire harvests in advance from local farms. Don mentioned a case of a 70-year-old woman who has a tomato farm (in the Limpopo province of SA) where Massmart did just this. Massmart plans to expand this program to cover as many as 1,500 small-scale farms. The primary reason is to secure fresh produce. In addition, such activity further boosts their B-BBEE rating. Interestingly, Walmart is competing actively against both other retailers and export markets in these areas – so there is an active marketplace with local purchasing power even without their added presence. Don noted that their forward buying and supplier management activities complement a healthy marketplace for produce.
When I questioned Don about local politics during our interview, he became a bit more guarded in his answers. This should come as no surprise based on the business and political climate in the region. As background, the Walmart acquisition of Massmart was a contentious issue, with the national SA labor union federation COSATU (SA version of the AFL-CIO) and the South African Commercial, Catering and Allied Workers Union (SACCAWU), similar to the UFCW in the USA, and their close allies in the ruling party (ANC) trying to block the transaction, as well as attaching various riders to the deal that would have hamstrung Walmart. Understandably, Walmart might prefer a more quiet public stance in these areas, and so far it has been a fairly smooth ride for Massmart, but COSATU has issued policy statements that are rather aggressive:
"Imperialist domination has deepened over the past 18 years and --- the entry of Walmart will change the picture on foreign ownership. Even before Walmart's entry, Massmart was 60% foreign-owned --- these companies are white, private, capitalist-owned and they are increasingly being foreign-owned. The Second Transition will be a hollow slogan if it does not address these fundamental patterns in favour of the revolutionary class forces." tweet
Given statements like this from those wielding political influence, it is quite understandable that Don and his team are doing their best to stay on SACCAWU's and COSATU's good side, even if the SA Competition Appeal Court ruled in Walmart's favor of the acquisition and the operation covenants. At Spend Matters, we believe that Massmart's success lets all labor organizations in SA see that free markets bring both wealth and prosperity to all South Africans.
Fortunately, the invisible hand is also waging its own successful PR campaign so far in the South African market in defense of the free trade of commerce. As one success example, Walmart is bringing the SA supplier Oceanfresh Seafoods to their overseas operations, including the USA, where their products are sold in Sam's Club. Similarly, heaters from Econo-Heat, another SA company, are also sold through Walmart in the USA and Canada. Over time, these efforts should help address the 25% average unemployment level currently holding SA back.
Many outside the SA region associate crime and added security requirements as part of the daily routine of those living in Sub-Saharan Africa. Undoubtedly security – both business and personal – is probably something that many Spend Matters readers are concerned with. Somewhat to our surprise, Don is not concerned. He drives his own (regular, not armored) car all over the area, and so do his fellow executives. Other expats working at Massmart have brought their families to SA and Don observes that this behavior is the norm.
That said, he adds that "there are places where you shouldn't be after certain hours," but that's not all that different from here in Atlanta. Actually, Don turned into quite the SA tourist board promoter when I asked him about his life there – he gushed about the quality of life in general, the fantastic nature there, and how "from now on I can't visit any zoos ever again" because the real deal is so spectacular. Don does acknowledge that although parts of the country are completely urban there are other areas that are still just emerging from an underdeveloped level – some local knowledge is needed.
Up next: Exploring supply chain challenges in the local South Africa market environment.