Competition policy a must for RI to be competitive

By Bob Widyahartono

President B.J. Habibie has initiated the establishment of an Agency for the Empowerment of Indonesian Competitiveness. Such an agency sounds attractive but a thorough analysis of the competitive power of companies' strategic capabilities is required before it can function properly.

JAKARTA (JP): Competition these days is very challenging and is continuously driven by improvements and innovation. For Indonesian companies of whatever scale, their corporate mission or internal environment will determine their ability to respond to the market's competitive demands.

A company's competitive power is seen in its ability to secure a share of the market in the face of other competing firms.

In most Indonesian firms -- from manufacturers and hotels to banks and trading houses -- the views of the shareholders and top management generally carry considerable weight in the determination of their business activities, strategy and policy.

Profits are what count and profit maximization is seen as the best way to improve a company's chances of obtaining more financial rewards and dividends in the future. Such views have been inherited over time or copied from the Western way of doing business.

In their pursuit of success, managers are aware that businesses can succeed by providing goods or services people want at prices they are willing to pay -- prices high enough to produce a profit. If a company's orientation, however, is only directed toward profit, it would be very difficult to maintain customer satisfaction.

Business should not solely be motivated by profit. It should be a form of social activity performed by a group of human beings, even though its purpose is generally complex. Besides making profits, there are, in fact, three other objectives of business activity: company growth, helping society and improving the quality of the employees' work life.

The fourth objective would ensure that workers' day-to-day lives in the workplace are comfortable and pleasant, that relationships with colleagues are friendly, that they grow intellectually and spiritually through their work, and that they are aware of the existence of corporate values and ethical standards.

Companies aware of these four objectives are in a better position to equip themselves to face a competitive market.

Competition is a dynamic process and business players determined to participate with a sense of mission have a better chance of succeeding.

In many business environments, standards for fair competition among businesses are set up through competition policies. Have such policies been put in place in Indonesia, and if not do we need such standards?

Competition policy on the one hand encourages competition so as to ensure as much competition as possible within the economy, while on the other hand the government is required to intervene in economic activities to prevent negative effects of excessive competition.

So the role of the government is like an umpire balancing excessive regulation and a laissez faire system. In case of doubt, the mission of the government should be to introduce more competition, because that is better than very limited competition such as monopolies, oligopolies or cartel practices.

Competition is not solely an economic principle, but it serves as an excellent democratic principle adhering to fairness and ethics in business.

Many countries, developed and developing, do not have extensive competition policy frameworks. Some developing economies question the value of such frameworks during their early stages of growth. Some even consider this issue as a tool to undermine competitive advantages. It has become a matter of feat that business is becoming increasingly global in its vision.

Does Indonesia have and, if so, does it feel the need for a competition policy? Some players in their field see such policies as unnecessary regulatory intervention at a time when their desire is to stimulate commercial activity.

They also consider formal competition policies as bearing high administrative burdens and costs which they cannot afford and prefer to be flexible. This flexibility in approach has become less effective and more inefficient over time, and therefore vulnerable to collusion and corruptive deeds.

At present Indonesia does not have a so-called "antitrust" act to limit and or regulate the conduct of larger firms, so that they do not dominate a market and influence the behavior of smaller firms. And the country also does not have a fair trade act to set rules and regulations for fair trade and competition.

Experts and practitioners contend a "narrow competition policy" as being the dominant policy adhered to by many industrialized economies. Such a policy focuses on four main areas of business activity.

* Horizontal arrangements where competing firms can enter into collusive arrangements.

* Vertical arrangements which restrain competition at different stages of the production process.

* Misuse of market power to prevent or frustrate the entry of potential competitors. * The regulation of mergers and acquisitions.

This narrow approach can have a great risk of regulatory failure, where the consequences of government intervention are greater than the perceived inadequacy of the market place.

Some believe that a formal competition policy can have high administration costs which are not efficient for business. Fair competition has many foes in businesspeople who have been and are always in a favored position, such as holders of monopolies and special treatment from certain government officials who have already have lost their "shame culture."

Nowadays one cannot just mention a trade policy in isolation to investment and competition policies. A competition policy is necessary because a level playing field is important to attract foreign direct investment and avoid a rapid increase in operating costs, although formulating such a policy needs focused attention and extra effort.

While Indonesia is moving toward having better welfare for its society, is a local administration's regulation of not allowing large-scale retailers to set up their outlets close to traditional markets (where small retailers are in operation) one form of competition policy?

In meeting the growing importance of human life, it is important to have a competition policy stipulating clearly the rules of the games for large, medium and small firms as an integrated part of the reform and globalization process. For sure, a competition policy is not an act of reregulation.

Legislators should play their roles in speeding up competition policy as part of their moral obligation toward developing society. Once this policy is enacted, government officials must behave themselves and feel responsible for making the environment more conducive to the adherence of competition policy.

This is the dynamic challenge for Indonesia in a better business and investment environment, particularly in facing free trade arrangements under the ASEAN Free Trade Area (AFTA) agreement and the Asia Pacific Economic Cooperation (APEC) forum.

The writer is a member of the Institute of Economic Studies, Research and Development (LP3E) of the Indonesian Chamber of Commerce and Industry (Kadin).