Antimonopoly law will open businesses to all

By Ronald Nangoi

JAKARTA (JP): The planned introduction of an antimonopoly law in the near future is likely to satisfy demands for measures against business monopolies and oligopolies in Indonesia.

When the planned law is enacted, more people will have fair access to do business and the currently high level of industrial concentration will be reduced.

The law could also ensure the application of business ethics; unethical business practices are to be blamed for the current socioeconomic disarray.

An antimonopoly law is desperately needed, since monopoly and oligopoly, along with the growth of conglomerates, have been widespread.

In the absence of an antimonopoly law, some conglomerates with close ties to the authorities have been protected to maintain and develop their dominance over the country's businesses. They have brought the Indonesian industry to a high level of concentration, causing inefficiency and uncompetitiveness, which in turn have inhibited domestic industrial firms from entering the global market.

Controversy has long surrounded the introduction of an antimonopoly or antitrust law. Despite the clear disadvantages of monopoly, several conglomerates have a vested interest in opposing the introduction of such a law. They have profited from the opportunity to grow big and gain profits by applying diversification and integration strategies even in unrelated sectors.

Yuri Sato's study in The Developing Economics (December 1993) on Salim Group, known as a prominent conglomerate not only domestically but also in Southeast Asia, is a good illustration. Sato pointed out the reason for the group's rise to preeminence in Southeast Asia was the high degree of business diversification and the monopolistic and oligopolistic positions it held in so many businesses.

But it is true that an antimonopoly law, as strictly practiced in the United States, is not aimed at attacking conglomeration but upholding fair business practices.

Big firms have argued that enlarging the sizes of companies is necessary for pursuing the economies of scale for a competitive edge.

Although it may be incompatible with the antitrust legislation, mergers aimed at enlarging a company's size are common in developed countries, including the United States and Europe, such as entered into by Boeing and McDonnell Douglas as well as Daimler-Benz and Chrysler.

Besides expansion, the application of competitive technology and marketing is among the efforts of major firms to gain economies of scale as the main source of their competitive advantage and reach a dominant position.

The idea behind the BCG matrix as a business portfolio measurement, for instance, suggests the importance of a dominant position in business. Maintaining its "star" or "cash cow" position implies that a company should have the largest market share. It is follows as a natural instinct for businesses to pursue a dominant power, especially in the absence of an antimonopoly law.

While it is not proven that absence of an antimonopoly law is unrelated to the growth of conglomeration in Indonesia, it is obvious most Indonesian conglomerates have striven to enlarge the size of their companies through business diversification.

Some even practiced interlocking directorates and cartels, which are incompatible with antitrust principles. Of course, it is irrelevant to blame them but question their business ethics considering there is no legal restriction, such as an antimonopoly law.

Practices of conglomeration in countries, regardless of whether they have an antitrust law, are not alike. The first might be based on pure competition, encouraging companies to rely on technological, management and marketing strengths.

They allow a few (American) firms to dominate the market and also serve as a springboard for entering foreign markets (Thomas Horst, 1978). But the latter is founded on government protection and tends to foster business in a monopolistic market.

Hence, it is common that most domestic conglomerates are best at home, and just a few of them are expanding their businesses in foreign markets. This has limited their ability to gain economies of scale for a competitive edge, as Michael Porter viewed that "economies of scale are best gained through selling globally, not through dominating the home market". Today's economic crisis may prove the uncompetitiveness of domestic firms.

The introduction of an antimonopoly law, although not the only panacea for the economic crisis, could promise the strengthening of domestic businesses. To survive or grow, domestic companies should better increase their competitive edge rather than rely on the government's protection.

By having such a law, they tend to be posed with legal- oriented questions, not necessarily those on ethics. They will be constrained from expanding in illegal and unethical ways.

On the contrary, they are enforced to build good corporate governance, ensuring the betterment of business, as stated by Porter: "A strong antitrust policy, especially in the area of horizontal mergers, alliances and collusive behavior, is essential to the rate of upgrading in an economy."

Thus, domestic firms have a chance to enhance their competitiveness so they have easier access to the global market. The planned antimonopoly law would enable the unprotected Indonesian business society to be more accepted in the international community so they are displeased with any forms of business protection.

It is worth noting that in the era of trade liberalization, prospects for the Indonesian economy rely on the successful integration of domestic businesses into the global economy.

The writer is a lecturer at Tarumanagara University in Jakarta.