Competition policy a must for RI to be competitive

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).