Antimonopoly law will open businesses to all

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.