This article first appeared in Forum, The Edge Malaysia Weekly on May 6, 2024 - May 12, 2024

The Competition Act 2010 prohibits anti-competitive agreements between businesses that could prevent, restrict, or distort competition in any market for goods or services. This includes anti-competitive agreements related to price fixing, market sharing, bid rigging and attempts to restrict or control market access, among other practices.

However, there is a prevailing misconception among businesses regarding the Competition Act 2010, suggesting that its sole purpose is to prevent anti-competitive practices between organisations.

Contrary to this notion, antitrust/competition principles, particularly embodied in our Competition Act 2010, offer more than a mere regulatory compliance framework.

It stands out as a unique legal domain that ensures not only adherence to the law but it also provides strategic commercial advantages, allowing businesses to maximise revenue while operating within legal boundaries.

While a robust internal compliance programme acts as a shield, effectively combating anti-competitive practices and potential regulatory fines, a comprehensive grasp of the Competition Act 2010 functions as a sword, empowering organisations to strategically generate additional profit.

This dual approach not only protects against falling victim to anti-competitive practices but also paves the way for enhanced profitability in the long run.

This article delves briefly into the multifaceted benefits that the Competition Act 2010 brings to organisations, extending beyond mere compliance to unlock strategic advantages in the competitive landscape.

It accomplishes this by aiding organisations in generating additional commercial opportunities, maintaining market competitiveness through vigilant observation, and, critically, mitigating the risk of falling prey to anti-competitive practices.

A common misconception surrounding the Act is the belief that it prohibits agreements between competitors altogether. However, this notion is inaccurate.

The restriction specifically targets agreements between businesses that are anti-competitive. This means there is a spectrum of agreements permissible with competitors, provided they foster healthy competition.

Take joint purchasing agreements, for instance. These arrangements empower businesses to pool their purchases, enhancing bargaining power and yielding benefits such as volume discounts or shared delivery costs.

But the benefits extend beyond immediate savings.

Imagine collaborating on bulk purchases of eco-friendly packaging instead of relying on traditional, environmentally harmful alternatives.

This collective action not only strengthens your green credentials and aligns with your environmental, social and governance (ESG) goals, but also sends a powerful message to consumers about your commitment to sustainability.

Lack of understanding of competition law principles might cause businesses to hesitate on such collaborations, fearing legal repercussions.

However, rest assured, these agreements can be structured with precautions, such as protecting sensitive information or ring-fencing it.

This minimises negative competition effects arising from commercially sensitive data being shared among competitors, like details about individual businesses’ required inputs that could indicate capacity or limitations.

Therefore, grasping the principles of competition law and incorporating them into your commercial agreements is crucial. This understanding empowers your organisation to achieve efficiencies without running afoul of the law.

Many organisations understandably prioritise profit as a justifiable objective in their operations, and there is no harm in pursuing such a goal.

However, to ensure long-term profit sustainability, organisations need to adopt a forward-thinking approach when scrutinising commercial deals. It is crucial to ensure that the benefits derived from such deals are not merely short-term gains.

Consider a scenario where a dominant supplier provides financial incentives or discounts in return for exclusivity or a significant portion of your purchasing needs. Organisations frequently welcome such opportunities, enticed by the promise of immediate financial savings.

However, understanding the principles of competition law is crucial to determine the permissibility of such agreements, as they might potentially eliminate competition for the supplier’s rivals.

If the competitors of the supplier are marginalised for an extended period, the market may eventually have fewer suppliers. This diminished competition could subsequently empower the remaining suppliers to dictate purchase prices, placing your organisation at a significant disadvantage.

Moreover, a reduced number of suppliers in the market creates an ideal environment for potential collusion, exposing your organisation to the risk of inflated prices that could have a detrimental impact on your profit margins.

This scenario underscores the point that despite the immediate benefits derived from such incentives or discounts, these gains are short-term and may pose long-term concerns for your organisation.

Therefore, understanding how to address such issues becomes vital in maintaining a competitive market, ensuring long-term profit sustainability for your organisation.

The depreciation of the ringgit, escalating expenses and inflation are commonly cited factors prompting suppliers to increase their prices.

While one doesn’t need to be an economics expert to comprehend the impact of inflation and rising raw material costs, it is still vital to discern whether the costs for products or services supplied to your organisation are genuinely justified or artificially inflated.

Consider this: When was the last time you conducted a thorough assessment of your supplier’s or its competitor’s pricing?

Certain signs, such as suppliers operating in an oligopolistic market, increase the risk of them colluding to manipulate prices. An oligopoly is a market structure characterised by a small number of large firms or sellers dominating the industry.

Due to the limited competition in such markets, suppliers may have the opportunity to provide goods or services at elevated costs.

If you find yourself dealing with suppliers, all of whom are imposing high selling prices without clear justification, collusion to restrict competition may be in play, posing potential harm to your organisation.

Nevertheless, it is crucial to emphasise that these indicators alone do not serve as conclusive evidence of collusion. Organisations should actively take steps to assess whether quoted prices are authentic or inflated.

For instance, collaborating with competitors within the confines of the Act to share aggregated historical statistical data, market research and general industry studies can assist in this process, as empirical data tends to be more reliable than claims made by suppliers.

This, in turn, empowers your organisation to reinforce its purchasing power and improve procurement processes.

These processes should extend beyond obtaining the best purchase price; they must encompass proactive measures to safeguard your organisation from becoming a victim of anti-competitive practices.

This can be achieved through initiatives like comprehensive staff training, thorough data studies, a profound understanding of the product market and a firm insistence on transparent cost structures, among other factors.

While these steps may not produce positive outcomes for your organisation overnight, one thing is clear: failing to implement a robust procurement process carries the risk of paying unnecessarily high costs for products or services, potentially placing your organisation at a competitive disadvantage.

While a sturdy compliance programme serves as a shield, protecting your organisation from the risks of anti-competitive practices and looming regulatory fines, understanding the principles of competition laws adds a strategic dimension when viewed through a commercial lens.

To fortify your organisation’s defences, it is essential to invest in the knowledge of competition laws among your members, spanning from top management to staff. This investment proves worthwhile, promising substantial “dividends” compared to other legal domains.

Unlike the perplexing storyline of Godzilla vs Kong, understanding competition law doesn’t call for navigating convoluted twists and turns. Instead, it simply requires an unyielding dedication to continuous learning and hands-on application.

This investment in knowledge not only safeguards against legal pitfalls but also acts as a catalyst for reaping substantial benefits, positioning your organisation for success in a fiercely competitive marketplace.

Suren Rajah is a practising lawyer, and was senior assistant director (Enforcement) at the Malaysia Competition Commission (MyCC).

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