Small but significant
By Atty. Macario R. De Claro Jr., CPA
March 4, 2020

 

A country’s development is often depicted as an improvement in the quality and diversity of products and services, from consumer goods to health care and infrastructure, that are available to average citizens. In a market economy, it’s easy to imagine these innovations being carried out by large firms, perhaps conglomerates, that have the capital resources and expertise to bring the good life to the masses. But what happens when large businesses enter a new market? How do they change the competitive landscape in that market, particularly in relation to small- and medium-sized incumbents? Will the relationship be symbiotic, predatory or parasitic?

Considering that a vast majority of Philippine businesses are micro, small- and medium-sized enterprises, and that they employ two-thirds of the country’s labor force, the MSME sector is crucial in enhancing and protecting market competition. MSMEs play an important role in the economy. Many producers of raw materials, like agricultural products, are small-scale farmers or entrepreneurs. Some serve as agents and facilitate trade that opens up far-flung and isolated markets. In manufacturing and services, MSMEs fill in crucial gaps in the supply chain by being agile, active, and responsive to small- and medium-scale, or
niche and specialized, client needs.

The Philippine Entrepreneurship Report shows that Filipinos are very entrepreneurial, either out of necessity or because they can spot good business opportunities. However, MSMEs in the Philippines tend to falter when faced with roadblocks related to financing, access to human talent, use of modern technology and access to markets. These barriers stifle the sustainability and growth potential of MSMEs, with only a few making it past the 3.5-year mark to become stable and established businesses. Those that survive often remain very small, as they find difficulty in expanding in terms of sales and employment. Meaning, these significant barriers still prevail.

While MSMEs play crucial roles in the economy, they often find themselves vulnerable and subject to entry and access barriers, external shocks, and the will of large and dominant players. The Philippine Competition Commission (PCC) endeavors to level the playing field such that market interactions are competitive and fair. Removing anticompetitive barriers in the markets for financing, labor, technology, and product distribution allows MSMEs to easily transact with suppliers when sourcing raw materials, and with clients or distributors when trying to attain a broad consumer base.

A competitive environment that provides realistic prospects for growth and sustainable success does not only allow but also encourages MSMEs to constantly improve their products, services and internal processes. When clients become accustomed to the best the market has to offer, they further fuel demand for quality products and services, creating a virtuous cycle of innovation and value creation.

Under the Philippine Competition Act, MSMEs are explicitly protected against abusive conduct. Section 15(g) of the PCA prohibits a dominant player from abusing its dominant position by “directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, MSMEs and other marginalized service providers and producers.” Establishing dominance before prosecuting potentially anticompetitive behavior ensures that MSMEs and other marginalized producers are protected while being given the freedom to conduct their business pro-competitively.

The expansion and frequent disruption of some traditional markets due to rapid emergence of digital technology can also bring new business opportunities and challenges for MSMEs. MSMEs benefit from broader market access but are also threatened by the tipping of some markets in favor of dominant players. Issues related to intellectual property rights, privacy, and data management are becoming important and concerning not just for big businesses but also for MSMEs. These developments pose challenges for competition authorities the world over, and the PCC, along with other government agencies, is exploring modes of cooperation and innovative regulation that are in keeping with the times, to be effective and relevant.

With the protection of MSMEs from abuse by dominant players and promotion of competitive market conditions enshrined in the PCA as part of the national competition policy, the PCC considers MSMEs as allies not only in fostering a culture of competition but also in ensuring the promised benefits of competition law and policy, resulting in a good life for all in terms of low prices and improved quality of products and services.

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Commissioner de Claro Jr. is a CPA lawyer who has worked in companies in the fields of manufacturing, mining, telecommunications, real estate, and banking and finance prior to his appointment to the Philippine Competition Commission. A litigation and corporate lawyer, he once served as legal consultant to the Department of Environment and Natural Resources. He graduated from the De La Salle College with a BS in Commerce, Major in Accounting and earned a Bachelor of Laws degree from the Ateneo de Davao Law School.  

 

(Originally published on Business Mirror’s Competition Matters column on March 4, 2020 here.)