JR Neethling (Roan)

Studente nr: 23990384

Econ 221

Wal-Mart and Massmart: A monopolistic approach to the Economy

Lecturer: Dr. A Mellet

19 August 2013

Table of content:

1 Introduction………………………………………………………………………………… 1

2 Microeconomics: A brief history………………………………………………………. 1

2.1 Nicholas Bernoulli (extensive theory)………………………………………… 12.2 Adam Smith (the main principle: Self-interest)………………………………. 22.3 Alfred Marshall (Consumer Utility)…………………………………………… 2

2.3.1 Elasticity ………………………………………………………………. 22.4 John Maynard Keynes: (Macroeconomics: tools for Microeconomics)

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3 Theory ……………………………………………………………………………………. 3

3.1 Micro-economics……………………………………………………………….. 33.1.1 Micro-Economics and Macroeconomics are integrated…………… 3

3.2 The extend of the Market………………………………………………………. 3

3.3 Imperfect information…………………………………………………………… 43.4 The modes of operation………………………………………………………... 43.5 Competitive markets, producers and consumers…………………………… 53.6 The idea of Market power: Monopoly and Monopolistic competition……… 6

4 Who are Wal-Mart and/or Massmart?..................................................................... 8

4.1 Wal-Mart………………………………………………………………………… 84.2 Massmart……………………………………………………………………… 8

5 Pros and cons of Wal-Mart emerging with Massmart……………………………. 9

6 Court Case……………………………………………………………………………….. 11

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7 The financial risks inherited in international trade, togetherwith the effect that this merger will have on the South-African consumer and local producers…….. 12

7.1 The impact on the South-African Consumer and local suppliers. (The inflowof funds and increased competitiveness)………………………………………….. 12

7.2 The effect on the South-African retail sector……………………………….. 13

8 The financial risks inherited in the international trade transactions………….. 13

8.1 Bank risk………………………………………………………………………. 135.2 Country risk…………………………………………………………………….. 148.3 Exchange risk………………………………………………………………….. 14

9 The effect that this merger has on the Economy as a whole:…………………… 15

9.1 Stability of output and employment levels:…………………………………. 159.2 Economic development and poverty reduction…………………………….. 16

10 Conclusion………………………………………………………………………………. 17

Reference list…………………………………………………………………………………. 18

Source: http:www.google.co.za/images/walmart/massmart/20110502

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1 Introduction

When we look at a perfectly competitive market, we may be lookingat a large number of buyers and sellers of goods that can be ensured that no single buyer or seller can affect its price of that good. But what if something happens? Let say for an example that Wal-Mart integrates with Massmart by buying 51% shares, whatwill the effect be on the South African economy? And this will most probably lead to globalisation which has become an integral part of economics and the society.

The whole idea that Wal-Mart and Massmart will be integrating, immediately invokes certain questions not only under the citizensof South Africa, but also under economists and other people all around the world who bought shares at Massmart. Some of these questions that might be asked is for example: What impact will this merger have on the competition of South-African firms? And what impact will this have on the South-African consumer and their behaviour towards these companies?

The importance of pricing and promotion of the product the consumer buys. The risks involved in these trades that will takeplace, but more importantly: What impact will this merger have onthe macro economy as a whole?

Thus is it important for us as individuals to have a clear perception of the market and its boundaries. By analyse the microeconomic factors will help us to understand what the impact of this merger will be on the economy as a whole. To understand this impact we must understand the history about the macroeconomics. By knowing the history, we can look at the theorybehind macroeconomics and what it consist of.

Then we will be looking at who Wal-Mart and Massmart is. By knowing that, we can determine the pros and cons that are held

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within the fact that Wal-Mart merged with Massmart. But to make it possible for Wal-Mart to merge with Massmart, without disturbing the community and without having negative effects, we would be looking at the court case.

2 Microeconomics: A brief history.

2.1 Nicholas Bernoulli (extensive theory)As early as the 18th century, economics were studying the decision-making process of consumers, a principal concern of microeconomics. Swiss mathematician Nicholas Bernoulli (1695-1726) proposed an extensive theory of how consumers act to certain prices and the behaviour of the consumer. Consumers are assumed to be rational thinkers (keeping the costs, features and distribution in mind) who are able to forecast with reasonable accuracy the hopefully satisfactory consequences of what they buy.

2.2 Adam Smith (the main principle: Self-interest)Around the 1720’s, the dominant economic theory was Adam’s Smithslaissez – faire (French for “leave alone”) approach to the economy, which advocated a government hands-off policy regarding free markets and the machinery of capitalism. The argument is that the economy function will best perform when the “invisible hand” or self-interest is allowed to operate freely, without government intervention.

2.3 Alfred Marshall (Consumer Utility)Alfred Marshall (1842 – 1924) London born economist had a major impact on economic thought. Marshall proposed a new idea as well– the study of specific, individual markets and firms, as a meansof understanding the dynamics of economics. Marshall also formulated the concepts of consumer utility, price elasticity of demand and thedemand curve.

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2.3.1 Elasticity

Source:www.waterstone.com/waterstonesweb/products/dr+robert+herbert/louis+rukeyser/alfred+marshall+26+neoclassicism+28.

(Alfred Marshall’s formula of elasticity showed that people are more sensitive towards certain products and services than others as a result of numerous factors like: availability cost of product and substitution of the product.

Price elasticity for demand:

2.4 John Maynard Keynes: (Macroeconomics: tools for Microeconomics)John Maynard Keynes (1883-1946) was the most influential economist of the 20th century. The setting of key interest rates, government spending to stimulate the economy, support of private enterprises, tax policy and government borrowing through Treasury bonds, bills and notes have been influenced by the revolutionary ideas of Keynes. Thus was the born of macroeconomics (the big view of the economy), but these tools that are used are also appropriate in understanding the microeconomics.

3 Theory

3.1 Micro-economics Micro-economics deals with the behaviour of individual economic units – any individual entity that plays a role in the economy

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example: the firms :( Wal-Mart and Massmart are individual organisations), consumers, workers, and the investors. Micro-economics gives us a clear understanding of these entities that are involved and how their choices (the choice for Wal-Mart and Massmart to integrate) will affect the changes in pricing, and even how much workers they should employ.

3.1.1 Micro-Economics and Macroeconomics are integrated. The choices that these individual units/entities make can affect the population as a whole, such as the level of growth rate, inflation and unemployment. If Wal-Mart would decide to buy someshares in the South-African markets, they will exert a certain amount of power in the South-African economy (like the retrenching of workers will cause unemployment and inflation changes).

3.2 The extend of the MarketThe market is an interaction between the buyers and the sellers in a particular market, but before Wal-Mart can decides that it should emerge with Massmart, they should identify the boundaries:*Geographically and the *Range of products. Wal-Mart and Massmart are both highly sophisticated organisations with less limited geographical boundaries i.e. there is a Game in every city and province, they also have a large range of productswithin the organisation.

(Market structure comparisons)

Type Nr offirms

Market Power

Elasticity of demand

Productdifferentiation

Excessprofits

Profit maximisation condition

Pricing power

Perfect competition

Infinite

None Perfect elastic

None No P=MR=MC Price taker

Monopolist Many Low High elastic

High Yes/No (Short/

MR=MC Price setter.

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ic competition

(long-run)

Long)

Monopoly One High Relativeinelastic

Absolute(across industries

Yes MR=MC Price setter.

3.3 Imperfect information

3.3.1 Perfect competitionA theoretical market structure that features no barriers to entry, an unlimited number of producers and consumers, and perfectly elastic demand curve.

3.3.2 MonopolyWhere there is only one provider of a product or service.

3.3.3 Natural monopolyIt is an economy where economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any other combination of two or more smaller, more specialized firms.

3.3.4 Monopolistic competitionIs also called the competitive market, where there are a large number of firms, each having a small proportion of the market share and slightly differentiated products.

3.4 The modes of operation

It is assumed that all firms follow rational decision making, andproduce at profit maximising output. A firm’s profits falls intofour categories (in order to understand the production and the costs involved together with profit, is a way of analysing the

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market structures and the ways that they calculate costs and profit.)

3.4.1 Economic profitThe firms total average costs is less than the price of each additional product at the profit-maximizing output. Thus: Economic profit = Quantity Output * (ATC (average total costs – price)

3.4.2 Normal ProfitThe firm’s economic profits are equal to 0. Thus occurs when ATCequals the price at the profit maximising output.

3.4.3 Loss-minimising conditionThe firm’s product price is between ATC and AVC (Average VariableCosts) at the profit maximising output. The firm should still continue to produce. However, since its loss would be larger if stopped producing, continue production offset its variable costs and at least part of its fixed costs

3.4.4 ShutdownThe price is below AVC and the profit maximising output, and the firm should shut down. Losses are minimized by not producing at all, since any production does not generate returns sufficient tooffset fixed costs, and part of the variable costs.

3.5 Competitive markets, producers and consumers

It is important to understand that organisations like Wall-Mart/Massmart are not perfectly competitive, because if theywere all the other participants would have influenced the markets, and they would have been a “price taker”.

3.5.1 Assumptions of perfectly competitive market Infinite buyers and sellers : An infinite number or buyers and sellers with the willingness and the ability to buy the

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product at a certain price, and infinite number of producers with the willingness and ability to supply at a certain price. Zero entrance and exit barriers : the lack of entrance and exit barriers makes it extremely easy to enter or exit perfectlycompetitive markets. Profit maximisation : Firms are assumed to sell where marginal costs meet marginal revenue, where the most profit is generated. Non-increasing returns to scale : The lack of increasing returns to scale (economies of scale) ensures that there will always be a number of firms in the industry)

3.5.2 Competitive Markets: Short run.

In the short run, the individual firm areable to make an economic profit. This situation is shown where the price of average revenue (P) is above the average cost denoted by C. In other words they are able to set prices according to their

own marginal revenue because information about the firm is less.

3.5.3 Competitive markets: Long runHowever, in the long period, economic profit cannot be sustained. The arrival of new firms or expansion of existing firms in the market causes the (horizontal) demand curve of each individual firm to shift downward, bringing down at the same price (P), the

average revenue (AR) and marginal revenue (MR). Source :( 3.5.2&3.5.3) www.boundless.com/economics-perfectcompetition

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3.6 The idea of Market power: Monopoly and Monopolistic competition

Monopolistic competition is where there are a large number of firms, each having a small proportion of the market share and slightly differentiated products, and they with this proportionalpower they can influence the prices in the market.

Trying to move away from perfectly competitive markets, the integration of Wal-Mart and Massmart will enable them to have a certain degree of monopolistic power over the market, because they can influence the production cost of certain suppliers in the market. These firms have monopoly power and the amount of monopoly power wielded by firms depends on its success in differentiating its products from those of other firms, but also the pricing of these products.

3.6.1 The factors of the merger between Wal-Mart and Mass-mart in an Economicsense:

3.6.1.1 Economies of scale

The integration between wall-mart and Massmart will be characterized by decreasing costs for a relatively large range ofproduction. Decreasing costs coupled with large initial costs will give both these companies an advantage over would-be competitors.

3.6.1.2 Capital requirements

The production that requires a large investment in capital, or large research and development costs limit the number of companies in an industry.

3.6.1.3 Technology superiority

The integration will allow them to acquire, integrate and use thebest possible technology in the production of goods while

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entrance (or current companies) won’t have the size or finance touse the best available technology.

**The costs inherited in these companies will decrease over time because of the market power they possess over competitive companies** Large companies require large investments; the level of investments will increase and enable them to expand production) ** In the Solow model (a method of measuring growth), the only way to actually improve growth is by new technology methods that will (in the long term) improve substantial growth in the economy, and with the USA as currently being one of the most innovative countries into. Technology, it will only benefit Massmart in SA.

3.6.2 Monopolistic Competition: Short-runShort run: The firm maximize its profits and produces a quantity

where the firm’s marginal revenue (MR)is equal to its marginal costs (MC). The firm is able to collect a price based on the average revenue (AR) curve. The difference between the firms average revenue and average costs, * by the Quantity sold (Qs), gives the total profit.

3.6.3 Monopolistic competition: Long run.Long-run: Long run equilibrium of thefirm under monopolistic competition. The firm still produces where marginalcost and marginal revenue are equal;

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however, the demand curve (and AR) has shifted as other firms entered the market and increased competition. The firm no longersells its goods above average cost and can no-longer claim an economic profit.

Source: (3.6.2&3.6.3) www.boundless.com/economics-monopolisticcompetition

By speculating the cost-profit curve above: If Wal-Mart and Massmart were to integrate their profits will be maximized in theshort term, due to less competing firms to determine the price. In the long term however: more competing firms will enter the market to determine the price and the demand curve will be more elastic.

4 Who are Wal-Mart and/or Massmart?

4.1 Wal-Mart

Wal-Mart Stores Inc. or the well-known branded as Wal-Mart is currently the third largest public corporation in the word according to the Fortune Global 500 list in 2012 and is the biggest retail group in the world. Currently Wal-Mart has a net income of US$ 16.999 billion and has about 2.2 million employees.According to the UNI Global Union (2012:7), Wal-Mart revenue in 2010 was 3.5 times more than the next-largest competitor.

Thus, Wal-Mart is an American retailer corp. that runs chains of large discount stores and warehouses, providing its products in various kinds of ways such as: Apparel/footwear speciality, Cash

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& Carry/warehouse club, Discount Store, Hypermarket/supercentre/superstore and Supermarket.

Over 15 countries, Wal-Mart has 8 500 stores across the world, dealing under a various names. The founder of Wal-Mart was Sam Walton, who incorporated Wal-Mart on October 31 1969, working hisway up to publically trade on the New York Stock Exchange. Since the beginning of this company, Wal-Mart has grown to other countries in the word, such as United Kingdom, Brazil, Japan, India, China, etcetera and lately in June 2011 Wal-Mart accepted Massmart’s takeover bid of R 16,5bn for owing 51% of Massmart.

4.2 Massmart

According to the financial statement for the 26 weeks ended 23 December 2012, Massmart is the “second largest distributor of consumer goods in Africa, the leading retailer of general merchandise, liquor and home improvement equipment and supplies, and the leading wholesaler of basic foods.”

Massmart can be divided into four divisions, each focused on high-volume, low-margin and low-cost of known consumer goods, spread into 12 countries, having 331 stores in South Africa and 28 stores in sub- Saharan Africa.

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General Map of the location of Massmart’s retailers is South Africa: FinancialHighlights Massmart, 2012.

The divisions of Massmart is Massdiscounters; Masswarehouse, Massbuild and Masscash. Massdiscounters is the general merchandise discounter and food retailer for the Massmart holdings which is the general group strategy. Masswarehouse is the warehouse club which comprises 18 Macro-stores trading in food, general merchandise and liquor. Massbuild is the home improvement retailer and building materials supplier which comprises 85 stores who trades in: Home improvement and Builders Hardware, DTY, Builders Warehouse, Builders trade Depot Brands and Builders Express. Lastly it is Masscash which comprises 79 stores of Wholesale Cash and Carry stores and 44 Retail Cash and Carry stores.

5 Pros and cons of Wal-Mart emerging with Massmart

According to Naidu et al. (2011), the main fact that Wal-Mart now owns 51% of Massmart is actually good, not only for the South

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African economy, but also for the consumers. By looking at the long term in terms of pricing and quality of products, they came to the conclusion that “[Wal-Mart’s] transactions has again put South-Africa on the map and is likely to bring benefits to both the local economy, and more importantly the consumer”.

They further argued that the reason for this is because a new competitor in the South African business-world would lead to an increase in the competition. This meaning that national businesses (and smaller retailers) now must compete against an international retailer that has significant economies of scale. Wal-Mart strives to have the lower prices of their competitions.

From 23 December 2012 ‘till 17 February 2013, the total sales of Massmart increased by 11.4%. Thus, as can see, there are various positive points circulating Massmart’s environment on financial statements. But, let us take a look at the negative effects that Wal-Mart have on the countries such as India, America, etc. In the report by the UNI Global Union on March 2012, not only does Wal-Mart have a record of violating laws protecting workers rights, but Wal-Mart also have a strategy to drive other suppliers and corporations out of business, taking the lead as the biggest retailer group in the world.

In studies done by the United States, it has been shown that there is a negative impact on retail workers’ wages and total retail employments. According to the affidavit, presented by Kenneth Jacobs to the Competition Tribunal of South Africa, it stated that the University of California have found that “Wal-Mart workers earn an estimated 12.4% less than retail workers as whole, and 14.5% less than workers in large retail[errs] in general”.

Not only does Wal-Mart pay their employees far less, but they also pay woman less than men. This can be seen at the largest class-action lawsuit in U.S history, and it can also been seen at

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the difference between the average wages. On average, women employees earned $5200 less than men in the year 2001.

To top this off, Wal-Mart repeatedly didn’t allow employees to file accident word reports. They either failed to respond to the claims, or they made unreasonable delays in payments. But it doesnot stop there, in China, Wal-Mart found a way to give wages lower than the legal limit by supplying the workers with a bonus and housing subsidy.

According to a study of the retail sector between 1976 and 2005 in the U.S., by the United States Census Bureau, it has been found that “the entry and growth of Big-Box (hypermarkets) has a substantial negative impact on employment growth … of … smaller chain stores that operate in the same detailed industry as the Big-Box…” which will in lead to closing doors.

Now, based on the above mentioned facts, can’t we then look at the future of South Africa in the eyes of Massmart? If Wal-Mart has such a negative impact (although there are some positive facts) on the employees and also on the smaller businesses, is itstill good that Wal-Mart must own 51% of Massmart? Although some of these facts can lead to long-term problems, the Competition Appeal Court of South Africa held that there must be a fund and it must comply with certain requirements.

6 Court Case

On the 9th of October 2012 the Competition Appeal Court of South Africa gave their judgement on the matter between SACCAWY (applicant) and Massmart Holdings Limited (Target firm).

Based on the facts brought before the Competition Tribunal, the merged entity prepared an “investment remedy”. Meaning that the merged entity (Massmart which is merged with Wal-Mart) committed to spend R100 million, over a period of three years, “through the

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establishment of local suppliers, including small, micro and medium sized enterprises”. Thus, the purpose of this report was directed by the court.

For the court to resolve the debate on hand, which was about the purpose and scope of the enquiry, they must have looked at section 12 A(3) of the Competition Act 89 of 1998, which stated that:

(3) When determining where a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on

(a) a particular industrial sector or region;

(b) Employment;

(c) the ability of small businesses or firms controlled orowned by historically disadvantaged persons, to becomecompetitive; and

(d) the ability of national industries to compete in international markets.

Through the evidence given to the court, the court came to a conclusion that a greater gain in lower prices can be gained by agreater import, but this will lead to more potential harm in terms of the local producers.

Thus, to solve this matter, the court proposed a fund, which objective is to “ensure sustainable supply development, which … would incentivise Massmart to internalise its supply development by changing its procurement behaviour”.

Therefore the court’s order was that the merged entity must establish a fund that must comply with some requirements. The requirements were divided into six sections namely the fund; the

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purpose of the fund; the fund board; Massmart contributions; advising board and the fund projects.

The fund must be established with an overall purpose to minimize “the risk to micro, small and medium sized producers of South African products caused or … may be caused by Massmart’s merger with Wal-Mart.”

The fund board must therefore vest in the merged entity. But Massmart have to make some contributions. These contributions include a maximum amount of R200 million that must be paid to thefund for five years.

The projects of the fund must be used for different purposes. Firstly, Massmart must design and propose projects. Secondly, these designs will be used to achieve the purpose of the fund. There is also some considerations that must be taken into accountfor the design of the projects. The first consideration is that the producer’s prospect must change in becoming long-term suppliers to Massmart and/or Wal-Mart, or remain the same. In thedesign, the labour-intensity of the producers of South African operations, must also be in consideration. It must also be considered whether or not the producer is a small-, micro – or medium sized enterprise, end if the producer(s) is owned by historically disadvantaged persons.

7 The financial risks inherited in international trade, together with the effect that this merger will have on the South-African consumer and local producers

The world’s largest retailer (Wal-Mart) definitely showed confidence in South Africa with its R16, 5bn takeover bid and clearly was looking for more emerging market exposure and growth from the African continent.

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7.1 The impact on the South-African Consumer and local suppliers. (The inflow of funds and increased competitiveness).

Firstly, despite the concerns from public interest groups, the dealhighlights the attractiveness of South Africa as an internationalinvestment destination.

The inflow of funds will have a positive impact but the question is what benefits will there be in the long term in terms of pricing and quality of products.

Despite the fact that South Africa is at the southernmost tip of Africa and on the assumption that this, to an extent, does have anegative impact on the pricing of imported goods, it is in our opinion that the deal should still result in increased local competition.

This should then translate into lower prices as competitors will nowbe competing with an international retailer that has significant economies of scale and advanced procurement processes. There may be a “price war” or competitors will need to find other ways to lure consumers onto the shop floor. It is also likely that Wal-Mart will introduce additional merchandise categories which will compete further with existing businesses.

Competitors in the South African retail market will have no otherchoice but to respond to the competitive pressure by matching prices, introducing new products or increasing service levels (the customer experiences) in order to attract consumers. This means that Wal-Mart will become a South African retail market mover with its competitors trying to predict its next move in order to maintain market share.

Example: Let’s say that we want to buy a MacBook Pro 15” 2.2GHz laptop. What will this laptop cost in South Africa, and how it compares with the cost to the United States and United Kingdom? The exchange rate:$/R=6.837£/R=10.954

Source of item Price Country

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Kalahari.net R19 999 South Africa

Amazon.com $2 074.88 + $18.09 (delivery fee) * 6.837= R14 309.64

United States (US)

Amazon.co.uk £1 654 * 10.954= R18 117.92 United Kingdom (UK)

Source:http://deloitteblog.co.za/2011/07/21/will-walmart%E2%80%99s-acquisition-of-51-of-massmart-benefit-ordinary-south-africans/

7.2 The effect on the South-African retail sector.

The merger will shake up the South African retail sector as the global retail powerhouse enters the region looking to grow its business. Local retailers will no longer be able to rest on theirlaurels as they now face international competition in the domestic retail space. Despite the public interest concerns the Wal-Mart transaction has again put South Africa on the map and islikely to bring benefits to both the local economy, and more importantly the consumer.

8 The financial risks inherited in the international trade transactions.

8.1 Bank risk

The payment and transfer of funds internationally could be threatened if certain banks in the importing company are unstable. Recent years have seen a number of banks close their doors in countries such as USA, Japan and the UK, while banks have met their demise in South-Africa include New Republic Bank, FBC Fidelity Bank, The Business Bank and Saambou.

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5.2 Country risk

Countries’ (like companies’ and individuals’) fortunes change – sometimes dramatically and unexpectedly – and both these companies should be wise to supplement their vague or general impressions about that market with information which is as reliable and up to date as possible.

Political upheavals in a country –E.g. there is an intentional strike within the SA government parties that orders local banks to disregard any instructions to transferfunds abroad.

On the economic front, one of the reasons for the governmentof a country delaying or preventing the transfer of funds insettlement of an international transaction is if the countryis short of foreign exchange

Instability in both of these factors can have huge financial implications on the position of Wal-Mart, but South-Africa is an emerging market with huge profit potential.

8.3 Exchange risk

The possibility that the financial outcome of a transaction may ultimately differ from the initial expectation as a result of an exchange rate alteration in the period between the start and the completion of a transaction.

E.g. On 9 August 2013, Mass warehouse (Makro SA) concludes a contract with Wal-Mart clothing for the purchase of consignment of ladies and men’s casual wear valued at $30 000.In a view of fluctuating currency values, the value of the rand is likely to either strengthen or weaken against the Dollar.

If the rand were to weaken against the Dollar, e.g. move from $1 = R10.6618 to $1 = R11.2497, Makro SA would have to pay more

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Rands than they originally anticipated and this could have serious consequences for their cash flow and competitive position. However, if the rand were to strengthen against the USDollar move from S10.6618 to $1 = R9.9497, Makro SA would have topay fewer Rands than they originally anticipated and this would be to their advantage.

The smallest change in an exchange rate can cause serious financial implications on an organisation and profitability in a market.

The US Dollar Spot rate relative to the Rand

Source: PDF: Combined Web AR (Analytic approach to the Merger)

As a result of this merger between Wal-Mart and Massmart it is safe to say that exchange risks will be less, because of the hugeinvestments in the SA market, and that South-Africa has various exchange control regulations in order to remove the exchange risk.

In term of the contract there should also be a forward exchange contract, whereby the fluctuations of foreign exchange should be eliminated to clear any uncertainties.

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9 The effect that this merger has on the Economy as a whole:There are certain, broader factors that influence the whole economy, in micro-economy we analyse these causes and try to finda plan to attain the objectives:

9.1 Stability of output and employment levels:

Unemployment arises when someone wishes to work cannot find employment (excluding children, retired, students) in the economically active population.

The risk involved in this merger is a large part due to the potential job losses which would result from the transaction. Further concerns included the possibility that Massmart's existing trade union relationships would be negatively affected, and that local procurement practices would be significantly reduced.

After the lengthy debate of these challenges:

* There must be no retrenchments as a result of the merger for two years; those workers who have been retrenched must be reemployed as and when possible within the merged entity

*Wal-Mart must honour any existing union agreements, and Wal-Martmust establish a programme aimed exclusively at the development of local suppliers to ensure that some procurement continues at alocal level.

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Source: Adsorb presentation: cgca_conference_-_labour_broking_10.2010.pptx from website: http://www.cgcsa.co.za/index.php?option=com_jdownloads&Itemid=88&view=summary

9.2 Economic development and poverty reduction

In order to maintain continuous growth, an increased focus is needed on sustainable development, both in the context of these natural resources and other agricultural projects.

Wal-Mart is poised now to combine both investing in the consumer market with contributing to the development of effective and durable agricultural models through contract farming schemes.

While Wal-Mart has acknowledged that their success in Africa willbe measured not only by their commercial achievements but also bytheir socio-economic impact, the corporation should not underestimate the commercial advantages to be found in developingthe local supply chain. Protecting it should not simply be a gesture which demonstrates sympathy with public interest concerns. If proactively managed, the local supply chain may alsobe of genuine commercial benefit to Wal-Mart, as well as a solid foundation for the domestic and wider economy to increase the attractiveness of Africa to further investment and success.

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Wal-Mart should take the opportunity it has now to embrace the local supplier initiative, realise its potential and reap the long-term rewards. The wider investment market should observe their progress closely.

10 Conclusion

After analysing the effect that this merger will have on the Economy, it is clear that globalisation is more sophisticated than ever before: with increase economies of scale, increase of capital and more competitiveness within the market. For us thereare more positives that negatives.

At first we thought this merger will have serious consequences onthe South-African economy, and that South-Africa’s resources willbe scarcer than ever before. Yet this isn’t the case, because this allowed us to integrate the different resources used betweenthe two countries. There will be more products for the differentsegments of the market.

Competition within the South-African retail sector will be more than ever before, and this will allow the domestic workers to improve their skills and abilities. This integration will allow for more foreign exchange within the country that will have a positive effect on the Balance of Payments.

After studying the Monopolistic environment in which these companies will perform, it is clear that they will attain a certain degree of power over the market in the short run, howeverit is important for them to realise that more competitive firms will realise their production methods, and in the long run they will have an effect on their market share.

It is interesting to analyse that the basis of microeconomics areintegrating with the macro economy, factors like employment levels will increase due to the expansion of the market and

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sustainable development of more natural resources and agricultural programmes.

This merger definitely has a positive impact on the consumer and the market, without this merger the South-African economy will beat a certain level of growth without any improvements.

Reference listActs see South Africa

Anon. 2012. Wal-Mart’s global track record and the implicationsfor FDI in Multi-Brand Retail in India. UNI Global Union, 7-19.

Financial Highlights: Massmart. http://www.massmart.co.za Date ofaccess: 23 July 2013.

Fourie, CvN& Burger. 2011. How to think and reason in Macroeconomics. 3rded. Claremont, M. Nxawe.

Kleynhans, E.P.J. 2011. Basic Micro- and Macro Economics. Potchefstroom: NWU, Potchefstroom Campus. (Study guide ECON 121)

Massmart Financial Report. 9 July 2013. http://www.massmart.co.za/invest_profile/sens_display.asp?iq_link=http%3A%2F%2Fwww.jsedata.com%2Fwebsens%2Fsensarticle.aspx%3FreNumber%3D201307090031A Date of access: 23 July 2013.

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