The debate over unbundling is once again heating up, reports Aspasia Karras
Unbundling has, to a large extent, been viewed as one of the panaceas of the South African economic environment. The Reconstruction and Development Programme considered unbundling as a major solution to the question of competition and black business empowerment, arguing that if the hold on the majority of South Africa’s private enterprises by the small number of conglomerates was broken, then the dreams of a developmental and internationally competitive economy would be well on their way to fulfilment. But the halycon days of high idealism are over. the highly publicised `competition’ debate between Anglo American Corporation and Minister of Trade and Industry Pallo Jordan, which is back on the policy drawing board, has highlighted the problems faced by the state in its attempt to intervene in the private sector. But unbundling has become an issue beyond just the political arena. the international trend has become almost a universal quick fix solution to operational problems and the rising costs of centralised control. The debate is positioned in two camps, one for `lean is mean’, and the other for `big is beautiful’. The success at both ends of the spectrum resolves itself in the arguments of economist Professor John Sender, whose basic premise is that size is a question of positioning in each sector. Thus, what may work extremely well in Korea may not work for the United States in terms of either size or capacity. This is a point that Barlow’s chairman Warren Clewlow makes, `There is no formula for unbundling, you cannot pick up a file labeled U, and find the ultimate solution.’ When he rationalises the groups’ decision to unbundle in 1993, he is surprisingly frank about the fact that neither the issue of competition, nor the question of black empowerment, came into the picture. ‘At that point South Africa had announced that it was embarking on transformation but had not begun to implement it yet. we were faced with the prospect of a completely different playing field. We had to be in a state of fitness to take the opportunities that would be presenting themselves.’ He further elaborates on the fears that predominated. `Alternatively, if the transformation was not successful, there was an equal need to embark on defensive management, in which case our companies needed to be lean and focused.’ This certainly cannot be what African National Congress economists had in mind when they initially argued for this kind of intervention, and as a result their approach has become far more sophisticated. Andrew Feinstein, who chairs the Gauteng Legislature Standing Committee for Finance, makes the point, `The ANC policy is to introduce competition policy, this does not neccessarily mean introducing unbundling measures; our approach is not that big is bad, but that structures need to be investigated as they may not neccessarily be competitive.’ The argument is clear: `While some groups have unbundled independently, their actions have in no way addressed the issue of competition in specific sectors.’
Describing the process that Barlows underwent is illustrative of Clewlow’s sharp business focus. For him, the shareholders interest is the dominant concern. He points out that `by the late eighties the `glamour stock’ image of the diversified stock which had been so succesful in the sixties and seventies had waned, the nineties shareholders were revisiting their rights, and sharpening their focus.’ He elaborates saying that `while the companies were holding their own, we were becalmed, there was no growth.’ The decision to split Barlow Rand into 11 groups divided along sectors, at the expense of some centralised control, (Barlows Limited has a strong centralised relationship, in terms of financing, trade, insurance and support services) has proved effective, the Barlow Share price has grown by 32%, and shows an all share index growth of 90%. `It was a lonely decision, not popular with the executives,’ says Clewlow, but in his characteristically bon vivant style, explains that unbundling is like going to a dance `You enjoy it most if you choose one girl and dance with her all night.’ Like most change management guru’s will confirm, you need to have a like-minded team of leaders, and Clewlow’s approach bears the theory out. `I created a new team of top executives, who were all much younger and filled with fresh enthusiasm.’ Still under observation, it appears that old ways die hard. Clewlow was unclear about precisely how many trading units Barlows Limited still controlled, even if indirectly, placing the figure somewhere between 500 and 750. The climate of political correctness also seems inconsequential, as he glibly points out that `I have no interest in colour or gender, we treat everyone the same, based on talent and ability’. His pragmatic approach, which is borne out in his conviction that `we are only going to be able to make good on our chances if our people are there to take them’, also extends to the question of state intervention. `The final barrier is exchange control. we have to be careful as it is a pendulum that could swing the wrong way. we do need some protection, we have to be careful that we do not destroy jobs, we need to be cleverer.’ Michael Spicer of Anglo American, says: `There are no rules on mountain tablets about diversity or unbundling. there is no universal edict, one is judged against the market. we all have to realise that the market is no longer small and perennial, we face the hard international market.’
Anglo American is on record as saying that it is not prepared to accept any suggestions of unbundling. Spicer follows Feinstein’s argument by saying that the issues of competition and unbundling are not synonymous, rather the distinction is one of corporate structure and governance. However, he maintains that `It is not the role of the government to pass decrees on the structure of the private sector.’ Anglo American’s position on competition is that it will not work through the structural intervention of the state. Spicer adds, `We are a small country, we need to look at models that relate to ourselves and not at international best practice. South Africa can only sustain three steel mills, competition legislation will not work by saying let’s have six.’ He clarifies the point by arguing that competition will only work through `liberalisation, lower tariffs and foreign competition, not through artificial measures.’ It appears then that the unbundling debate takes its place as one of the aspects of the broader competition question, with the final word from Anglo being, `We believe in diversity’.