Wal-Mart attempts to gain stronghold in African market

Wal-Mart Stores Inc. declared its intention to acquire South Africa–based retailer Massmart last Wednesday in what a Maryland professor believes is a strategic step into one of the world's fastest-growing markets.

Dr. Sandor Boyson, co-director of the Supply Chain Management Center and professor of two courses on supply chain management in the Smith School of Business, called a potential Walmart purchase of the African company a "beachhead" in sub–Saharan Africa.            

"[Many company executives] I've talked to said they saw South Africa as a launching pad for the continent," said Boyson. "I think [Walmart executives] want to get in early, because the market is very fast-growing.

Walmart was late in establishing a strong presence in China, the largest national market by number of potential consumers in the world. France–based rival Carrefour opened its first Chinese store in 1995, a year before Walmarts started opening in China. Boyson suggested the Bentonville, Ark.–based retailer shouldn't waste any time in capitalizing on the African market.

"I think that Walmart's strategy is to try to establish a beachhead," said Boyson. "China has taken a very, very aggressive posture in [expanding into] Africa," providing both a model and an early competitor for Walmart.

Boyson, whose new book "X-SCM: The New Science of X-treme Supply Chain Management" was released last month, said he recently visited Botswana, South Africa, Zambia and Zimbabwe with several colleagues.

"We heard 30,000 vendors had been sent out from China to establish beachheads in Africa," said Boyson. "Some of the retailers we saw in small towns in Africa were Chinese vendors."

Massmart, based in the Johannesburg suburb of Sunninghill, operates in 13 African countries and operates 290 stores, most of them in South Africa. According to the company's Web site, it has opened 30 new units this year.

If Walmart makes a formal bid for Mallmart and the company accepts, it would enter Africa with the formidable assets of the continent's third-largest retailer.

"I can't imagine why it wouldn't happen," said Boyson of the potential acquisition. "It seems like it's strategic for [Walmart], considering the number of locations Massmart already has."

Boyson said he does not see a Walmart penetration of Africa as a fundamental game-changer, but echoed Massmart CEO Grant Pattison, who called Walmart's proposal "a vote of confidence in South Africa" in a press release last Wednesday.

"I think it says … emerging markets are developing rapidly," said Boyson, who compared South Africa's economic "dynamism" to growth he observed in a recent trip to Peru. "The former hinterlands are now becoming strong emerging markets."