Saturday, August 17, 2013

Corporates use predatory tacts to crash rivals

Corporates use predatory tacts to crash rivals

Updated Saturday, August 17th 2013 at 22:07 GMT +3
By Jackson Okoth
It is not unusual to find a company or a close-knit clique of firms with their wings spread all over the market place, blocking out all the forms of competition or rivalry.

This colossus breed can be found in virtually all segments of the economy from banking, dairy industry to automobile, pay TV, airlines and telecommunications business.
For instance, the recent acquisition of DT Dobie by Toyota Kenya gives the Japanese carmaker a 60 per cent dominance of Kenya’s new saloon car segment.
A glance at Kenya’s banking industry reveals a market tightly controlled by the big boys who include UK-based Barclays Bank of Kenya and Standard Chartered Bank, Equity Group, Kenya Commercial Bank (KCB), South Africa’s CFC Stanbic and Co-operative Bank.
Collectively, these few players dominate the retail and corporate business in a market of more than 40 players.
If Parliament has its way, it could soon be the end of a monopoly status enjoyed by electricity distributor Kenya Power. Not only is cost of connectivity prohibitive but only 15 per cent of the Kenya population has access to electricity. This is blamed on dominance of Kenya Power in the electricity distribution business; something that could change once this business is opened up to competition.
While the competition authority was formed by an Act of Parliament to promote and safeguard competition in the national economy and to protect consumers, it has yet to crack the whip on any corporate wielding its weight and using size and dominance to abuse its position.
“If our investigations is able to establish that there is an abuse of dominance, that person can be jailed for five years or fined a maximum of up to Sh10 million. We have ongoing (advanced stage) investigations, especially in the telecoms, milk, auto, pay TV and banking sectors in a long list,” said Wang’ombe Kariuki, Chief Executive- Competition Authority of Kenya. He added that dominance is allowed and that the authority only steps in if there is a case of abuse.
“Dominance per se is not prohibited anywhere in the world. What the competition agency focuses on is abuse of dominance, where and when it exists,” said Wang’ombe.
In the meantime, consumers are left at the mercy of inefficient and lethargic state enterprises or equally uncompetitive private players.
“It is difficult to make any money in this business where 80 per cent of the voice market and 90 per cent of the mobile cash transfer business is dominated by one player,” said Telkom Kenya Chief Executive Officer, Michael Ghossein in a recent briefing.

Wealth generation
However, critics supporting the big players argue that market dominance by some of these giant firms help generate wealth and bring in advance technologies that systemically reduce the cost of starting new ventures over time. They reckon that this, in turn, increases the competitive pressures on larger firms and reduces the likelihood of monopoly.

They further argue that it would be unfair to make blanket condemnation of a big firm that has simply done well and earned its plum position in the market.
“Obtaining a monopoly through offering of more superior and innovative products or services is legal; however, the same result achieved by exclusionary or predatory acts may raise antitrust concerns,” argued a company official who declined to be named.
He notes that exclusionary or predatory acts may include such things as exclusive supply or purchase agreements; predatory pricing; or refusal to deal, which is hardly applied by most of these big players.
It is also argued that monopolist firms may have a legitimate business justification for behaving in a way that prevents other firms from succeeding in the marketplace.
For instance, a monopolist may be competing on merit, in a way that benefits consumers through greater efficiency or a unique set of products or services. In the end, a monopolist’s success could be due to “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”
According to industry insiders, there are cases where a monopoly is potentially a blessing, able to produce amounts of the good demanded at a lower cost than what multiple competing firms would.
Therefore, a decision to break such a dominant undertaking up into smaller firms in order to enlarge competition in an industry may actually diminish consumer welfare. This is if the capabilities developed in the dominant undertaking cannot be transferred to the smaller undertakings that such actions would create. In Kenya’s oil retail business, fuel prices are still high and competition low despite attempts by the Energy Regulatory Commission(ERC) to regulate pump prices.
It is worth noting that equating dominance with significant market power is beginning to be adopted explicitly by some European competition authorities.
In the airline business, the national carrier Kenya Airways is the only viable outfit that appears to be surviving. All low-cost carriers that have attempted to end its monopoly end up shutting down or are limping if not struggling to stay above the raging waters of competition.

In the dairy industry, one cannot help but notice the growing power and dominance of Brookside Dairies Limited. This outfit has in a short time bought out all its main rivals in the business and is slowly edging out state-owned New KCC, the only survivor left on its path, from the fresh milk business.
The same situation is in the stock brokerage industry where transaction and advisory fees arising from all the big mergers, listings or acquisitions are gobbled up by a small clique of stockbrokers and investment banks. The big boys dominating business at the Nairobi Securities Exchange include Standard Investment Bank, Dyer and Blair and Faida.

South African based MultiChoice has been a dominant player in the pay-TV market, shutting out competition from Zuku, run by Wananchi online. Star Times, a low-end digital TV channel has not been able to dislodge DStv from Kenyan living rooms. It is now wobbling after a bitter dispute with free-to-air TV channels who have withdrawn their content from its bouquet. GTV is the latest to leave the Kenyan market after a bruising battle with DStv, leaving thousands of subscribers with worthless decorder.
When South Africa’s Castle Breweries Limited set up a plant in Kenya, what followed was an ugly battle with East African Breweries Limited. What was initially a war of billboards quickly deteriorated to corporate espionage and poaching of staff before EABL finally bought out the competitor.
Until now, there is no record or instances where this authority has taken action against anti-competitive practices, such as price-fixing. It has not also not blocked any anti-competitive business mergers and does not also bother to inform businesses and the wider public about competition issues.
There is a feeling that the competition authority is not doing enough to stop rising dominance by one player or a clique. It does not help to wait until someone is hurt before the authority can step in.
“We need to have time set aside for the authority to give regular reports to both houses of parliament on what it does. This way, the public and business community is involved,” said Kariithi Murimi, a risk consultant.
Competition helps to keep prices down, improves choice and quality, encourages innovation and supports economic growth.

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