Competition promotes dynamism-The Star Online

Saturday April 23, 2011

Competition promotes dynamism

By CECILIA KOK
cecilia@thestar.com.my

ACCORDING to the Asian Development Bank, there are more than 100 systems of competition law in the world today, applied mainly in the world’s most developed economies such as the United States, Japan and the European Union.

It is argued that these economies have much earlier on recognised the need to promote healthy competition as a means to achieve greater dynamism in the marketplace and encourage sustainable economic growth, compared with the rest of the world. And having been in the lead in terms of implementing a formal framework that encourages healthy competition in their economies, it is not surprising that business environments in developed countries are generally perceived to be among the most dynamic and competitive in the world today.

Theoretically speaking, healthy competition will compel businesses to intensify research and development (R&D) and innovation to develop new and better products and services as well as to achieve greater cost and production efficiency to remain in the game.

Consumers, on the other hand, will benefit in the process through lower prices, better quality and the availability of a wider range of goods and services in the market.

Healthy competition will compel businesses to intensify R&D and innovation to develop new and better products and services.

 

Ironing out distortions

Malaysia, in general, lacks a system that promotes healthy competition in its economy. The small open economy, like many other developing countries in which monopolistic and oligopolistic structures are quite entrenched, does not really have a formal and coherent framework yet to regulate and promote competition in its system. In fact, what’s prevalent is the existence of protectionist measures for certain industries such as automotive to safeguard local interests.

However, things are expected to change next year, with the Competition Act 2010 coming into force by January 2012. With the hope of joining the class of developed nations by the end of this decade, Malaysia has become increasingly sensitive to the need of having a formal and comprehensive system in place to promote healthy competition that’s in line with its economic transformation plan.

Consumer Research and Resource Centre chief executive officer Datuk Paul Selva Raj, in applauding the introduction of the Competition Act 2010, says: “There are a lot of market distortions in our system now, and these need to be sorted out to create a level playing field in the economy.”

“But for the Act to work, all stakeholders must play a part,” he adds.

The implementation of the Competition Act 2010 will be overseen by the recently established Competition Commission. Headed by former Chief Judge of Malaya and Universiti Malaya pro-chancellor Tan Sri Siti Norma Yaakob, the Competition Commission has been empowered to conduct market reviews and investigations to carry out its duties in ensuring the enforcement of the Act.

“We can’t leave the job to the Commission alone. Consumers need to understand and be aware of the ongoing anti-competitive acts of businesses, and then file the report. And then, the Commission needs to take proper action, and all findings have to be made transparent,” Selva Raj opines.

Widespread benefits

According to the Domestic Trade, Cooperatives and Consumerism Ministry, the Competition Act 2010 will provide a comprehensive law at national level and will involve all economic sectors. It applies to all commercial activities undertaken in and outside the country, which have effects on competition in the local market. But exception applies for those anti-competitive practices that are currently regulated under the Communications and Multimedia Commission Act 1998 and Energy Commission Act 2001.

It is envisaged that the implementation of the Competition Act 2010 would “promote economic development by promoting and protecting the process of competition in the Malaysian market to maximise consumer welfare. This is achieved through the prohibition of anti-competitive practices such as price fixing or discrimination, excessive or predatory pricing, limiting or controlling of production and market access to maximise profit, imposing unfair trading terms and bid rigging.”

In general, all stakeholders in the economy will benefit much from the implementation of the Competition Act next year. With a proper framework identifying and restraining anti-competitive practices, all industry players will benefit with a level playing field, and businesses, especially the smaller ones, will be safeguarded from unfair practices that could drive them out of business.

There will be lower barriers of entry and this could promote entrepreneurship and growth of small and medium-sized enterprises (SMEs). Companies in Malaysia will also be pressured to innovate and invest in R&D to find develop new products and more efficient processes, which is in line with the nation’s ambition to move up the value chain. Inefficient enterprises, which do not change will eventually be forced out of the game.

SMI Association of Malaysia president Chua Tiam Wee, however, confesses that many SMEs have yet to react much on the planned implementation of the Act due to the somewhat lack of awareness of the provisions of the Competition Act 2010 among the players.

“Nevertheless, we do reckon that the Act would be beneficial to SMEs as we can now compete at a more level playing field with big corporations… although the law apply to every business entity, we believe the bigger and more dominant ones would be more affected than SMEs, which are generally too small to be in a position to fix prices, dictate trading terms or practice predatory pricing,” Chua explains, adding that the SMEs feel that the Government too should be included in the law.

“We hope the Government will set an example by ensuring competition in Government procurement and provision of goods and services to promote growth of the industry,” he says.

Deterrent factor

Violation of the Act will prove to be a heavy price for businesses and individuals alike. For instance, first-time offenders will be imposed a fine not exceeding RM5mil for companies and RM1mil for individuals. Individual offenders may also be subject to imprisonment of not more than five years in lieu of or in addition to payment of a fine.

“The penalties seem harsh enough; they could be deterrents to anti-competitive behaviour. Nevertheless, it is important for authorities ensure that offenders are punished, otherwise, it will be meaningless,” Selva Raj says.

Chua concurs, saying: “The law, if effectively, enforced will certainly change the way big and small enterprises conduct their businesses since the penalties for offences are severe.”

With an effective Competition Act 2010, a more competitive, efficient and regulated marketplace can be created in the country, and the benefits of it will ultimately flow down to the rakyat. And for this, there are reasons to cheer.

Related Stories:
The Competition Act and Anti-Profiteering Act to change the way business is conducted
How legislations will be implemented
Move against excessive profiteering
Commission needs to establish independence in a landmark first case


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