The_Interface_between_Business_Strategy_and_Competition

The Interface between Business Strategy and Competition Law

CUTS Institute for Regulation & Competition Enhancing Knowledge, Strengthening Capacity

The Interface between Business Strategy & Competition Law

Published by

Enhancing Knowledge, Strengthening Capacity

CUTS Institute for Regulation and Competition R 75, 1st Floor, Greater Kailash I New Delhi- 110048, India Phone: +91-11-2646 3021, Telefax: +91-11-40535921 Email: circ@circ.in Web: www.circ.in

Edited by: Pradeep S. Mehta

Assisted by: Arun Talwar Arvinder Kaur Biranchi N Panda

Printed by: Sai Media Communication

Citation: CIRC (2013), The Interface between Business Strategy & Competition Law, Policy Document and Souvenir, CIRC, New Delhi

Suggested Contributions Rs. 1000/US$50

Table of Contents

Acknowledgements i Foreword ii Editor’s Note iii What is CIRC? vi

THEME-I: Why is Competition Law Important for Business?

1. Business Interests and Competition Law and Policy 01

R. Shyam Khemani Principal, MiCRA (Microeconomics Consulting & Research Associates, Inc) Washington D.C., USA

2. Competition and Competition Policy in a Globalised World 05

Frederic Jenny Professor, Economics Department Director of International Relations at ESSEC Co-Director of the European Center for Law and Economics

3. Competition Law: A Case Study and its Implications 09

Allan Fels Dean, Australia and New Zealand School of Government (formerly Chairman of the Australian Competition and Consumer Commission)

4. The Past, Present, and Future of Merger Control Regime in India 15

K.K. Sharma Chairman, KK Sharma Law Offices, New Delhi, India Former Director General, Competition Commission of India

5. Business Strategies for Competition 19

Harpreet Kaur Professor of Law at National Law University, Delhi

6. Regional Cooperation among Competition Agencies 22

Joseph Wilson Chairman, Competition Commission of Pakistan

7. Competition Law & Business in India 25

Manas Kumar Chaudhuri Advocate, Partner-Competition Law & Policy, Khaitan & Co LLP, New Delhi

8. Competition Law and Nepali Businesses 28

Apurba Khatiwada Advocate, The Supreme Court of Nepal and Subordinate Courts Lecturer, Chakrabarti Habi Education Academy, College of Law

9. Bad Sectors; Bad Companies or Bad People:

Why do Firms Engage in Anti-Competitive Behaviour ? 31 Phil Evans Member, Competition Commission UK, Senior Consultant , FIPRA

10. Portraying Implications of the Competition Law on Business in India 35

Arun Talwar Chief Operating Officer, CUTS Institute for Regulation and Competition

THEME-II: What are the Benefits of Competition Reforms for Business?

11. Benefits of Competition Policy for Business, Development and Corporate Governance 41

S. Chakravarthy Former Member, Monopolies and Restrictive Trade Practices Commission of India

Table of Contents

12. Role of Economics in Competition Assessment 46

M.M. Sharma Head-Competition Law and Policy, Vaish Associates Advocates

13. Benefits of Competition Reforms for Business 49

Seema Gaur, IES Adviser, Capacity Building and International Cooperation, Competition Commission of India

14. Potash as Symbol of What can go Wrong and How to go Right 56

Eleanor M. Fox Walter J. Derenberg Professor of Trade Regulation, New York University, School of Law

15. Governance Constraints to the Effective Implementation of 60

Competition and Regulatory Laws benefitting the Business in Egypt Heba Nassar Professor of Economics, Faculty of Economics and Political Science, Former Vice President, Cairo University

16. Competition Law Compliance: Agenda for CCI 68

Saket Sharma Junior Fellow, CUTS Institute for Regulation and Competition

17. Competition Policy Reforms in the East African Community: 72

What are the Benefits for Business? Denis I Kabbale Technical Assistant, Competition Policy and Law, Directorate of Trade, East African Community Secretariat

18. What are the Benefits of Competition Reforms for Business? 76

Emanuela Matei EU Associate, Institute of Competition Law

19. Competition Boosts Corporate Governance 79

R. Shyam Khemani & Chad Leechor The authors work on private sector development issues in the World Bank Group Washington, DC, USA

THEME-III: What are the Benefits of Competition Reforms for Business?

20. Why do Big Businesses Dislike Competition Law? 87

Thula Kaira CEO, Competition Authority Botswana

21. Why is Business Afraid of Competition Reforms? 89

Shankaran Nambiar Assistant Director and Senior Research Fellow, Malaysian Institute of Economic Research

22. Monopolistic Competition as the Right Benchmark for Competition Assessment

and Its Implications to Business 92 Hariprasad C G Senior Economist, Competition Commission, South Africa

23. Why is Business Afraid of Competition Reforms? 94

Vipul Puri Deputy Director (FA), Competition Commission of India

24. Licensing of IP: Business Strategy & Competition Regime 96

Raman Mittal Associate Professor, Faculty of Law, University of Delhi

25. Competition Law and Intellectual Property Rights 98

Surbhi Mehta Head-Competition Law and IP, APJ-SLG Law Offices

Acknowledgements

During the compilation of the Policy Document and Souvenir, significant contributions were also made by CUTS/CIRC staff. It may be difficult to list all of them but some need special mention.

Coordination

Pradeep S Mehta Udai Mehta Arun Talwar Arvinder Kaur Ashwini K Swain Saket Sharma Biranchi N. Panda Wilson Tharakan Sandeep Kumar

The publication contains copyrighted material some of whose use has not been specifically authorised by the copyright owners. CIRC is making these articles available in our efforts to advance understanding of competition law. We believe that this constitutes a 'fair use' of the copyrighted material as provided for in Article 10 of the Berne Convention for the Protection of Literacy and Artistic Works (Paris Text 1971) and in section 107 of the US Copyright Law. If anybody wishes to use materials from this publication for purpose that go beyond 'fair use', she/he must obtain permission from the copyright owner. CIRC will not draw any profit from this publication, since it is solely for informative and educational purposes. Suggested contribution has been sought from the public for printing and postage costs only.

Contributors

R. Shyam Khemani Frederic Jenny Allan Fels K.K. Sharma Harpreet Kaur Joseph Wilson Manas Chauduri Apurba Khatiwada Phil Evans Arun Talwar S. Chakravarthy M.M. Sharma Seema Gaur Eleanor Fox Heba Nassar Saket Sharma Denis Kabbale Emanuela Matei Thula Kaira Shankaran Nambiar Hari Prasad Vipul Puri Raman Mittal Surbhi Mehta

Foreword

Nitin Desai

Competition is necessary to achieve economic efficiency and is one of the essential conditions of a market economy. In a globalising and liberalising world economy, the developing countries recognised that the benefits of market-oriented reforms were likely to be fully realised only if enterprises acted under the spur of competition, to create a level playing field by reducing barriers to entry which originate from anti-competitive practices. In a broad sense, competition policy can be said to refer to policies directly aimed at enhancing the scope for competition between firms. The Competition Act, enacted in December 2002, is a landmark legislation that aims at promoting competition through prohibition of anti- competitive practices, abuse of dominance and regulation of combinations. The introduction of India's competition law has sparked great debate and analysis. May 19, 2009, the day the enforcement of the Competition Act, changed the paradigm of doing business in India. It is necessary to study the law in an effort to understand how it may affect business operations. It is vital for businesses to understand the intricacies of competition law while assessing the commercial practices so as not to be caught for non-compliance.

Since the notification, the Competition Commission of India (CCI) has passed final orders in more than 273 cases under anti-competitive agreements such as cartels, bid rigging or abuse of dominance and more than 134 cases under combinations. These orders cover businesses as diverse as infrastructure, finance, entertainment, IT, telecom, civil aviation, energy, insurance, travel, automobile manufacturing, real estate and pharmaceuticals. In some cases, CCI has imposed heavy penalties, for example, in case cement cartel, CCI has imposed a penalty of Rs. 6300 crores (63 billion) on 11 cement firms. It is instilling fear of penalties among companies that flout the competition law, and becoming embroiled in regulatory turf wars. Many business houses, rightly or wrongly, consider it yet another form of government intervention in the market place. However, an effective competition law and policy, being an instrument of public governance for competition protection, protects and promotes consumer welfare, which includes individuals but also businesses. So, in the changed paradigm, it is important for businesses not only to obtain relief from anti-competitive problems but also ensure a better compliance to avoid punitive actions. Such revised strategy can help businesses to get rid of artificial barriers to do business efficiently.

This Policy document and Souvenir on “The Interface between Business Strategy & Competition Law” contains insightful articles written by eminent experts of the subject based in India and abroad focusing on the scope of competition policy and its implications for business. This policy document provides an overview of range, natures and types of issues that exist between the Business Strategy & Competition Law. The purpose of this Policy Document and Souvenir is to provide a safe mechanism for everyone and raise concerns with different issues existed in this area. This Policy document also provides guidance to competition authorities, stake holders, researchers and policy makers.

Through this policy Souvenir, CIRC envisages to provide inputs for the better competition policy & law and to generate resources for development of short and long term professional courses on competition law suiting different stake holders and students.

This Policy document & Souvenir focuses on number of important areas such as why the competition law is important for business, why business is afraid of competition reforms and what the benefits of competition reforms are for business. The articles will be accessible to all central and state government officials, competition authorities, academicians, policy makers, lawyers and consultants etc.

Nitin Desai President, Governing Council CUTS Institute for Regulation & Competition

Pradeep S Mehta

Editor's Note

Pradeep S Mehta

This is the third Policy Document and Souvenir brought out by CIRC. This Policy Document and Souvenir offers the readers a thorough, comprehensive and candid analysis of Competition Policy and Law in different sectors and how it affects business; and covers some of the key areas, starting with concepts, which are fundamental to the understanding of a Competition Law; and elaborate on facets of business strategies expected to be impacted and/or not impacted. This Document will impart high-quality knowledge to the academia and think-thanks, consumer groups, businesses, legal bodies, media and parliamentarians, and will be useful and crucial for sustainable economic development.

Every country's economic performance can be improved by increased competition, opening business opportunities to its citizens and reduction in cost of goods and services. But numerous laws and regulations restrict competition in the marketplace. A good competition law and policy is a concomitant requirement for any market-based reforms. In as much as reforms are brought about to rein in unnecessary command and control measures, a competition law ensures the promotion of a sound market, which is not exploited by dominant businesses. A competition law promotes competition, whereby it buttresses consumer welfare and economic efficiency. Many countries have to go further than necessary to achieve their policy objectives.

This Document is a compilation of essays authored by eminent experts in competition law and policy based in India and abroad and offers the readers comprehensive and candid analysis of the interface between business strategy and competition law. The articles touch upon the mentioned agenda from different angles. The Document is classified into three themes: 1. Why is competition law important for business? 2. What are the benefits of competition reforms for business?,and 3. Why is business afraid of competition reforms?

R S Khemani starts with the importance of 'good business environment' for better operation of business firms and competitiveness. Then he explains about the importance of effective competition law and policy to promote the process of competition and prevent anticompetitive and unfair business practices such as price fixing, market allocation, bid- rigging and other forms of cartels, monopolisation by large firms with market power, and against the government interventions.

Frederic Jenny states that the number of compétition law and policy development across the globe has shed light on important issues that arise in this area of the law. Further he explains about the trade and competition policy, especially with developing countries perspective. In addition, the fact that the focus of competition law enforcement in developed countries shifted to enforcement against international cartels helped focus the attention of policy makers on the importance of the costs which such cartels can impose on developing countries.

Allan Fels highlights major characteristics of competition law and in the second part draws attention on the competition law core elements with some case studies. On the basic elements of competition law, he stresses on the role of competition law and courts for effective business environment. Intellectual property is an important element in defining business strategy of the businesses.

K.K Sharma's article focuses on the merger control regime in India. This article broadly covers the procedural and jurisdictional aspects of the new merger regimes. Further, this article highlights the amendments that took place in 2012 and 2013 in India's competition law and the slow progress of merger enforcement.

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Harpreet Kaur in her article highlights the importance of business strategy for the better competition. According to her, companies should adopt different strategies and also revise these strategies to increase sales, counter competitors and retain customers in market. Further, she explains about the importance of competition law for improved healthy competition that serves public interest.

Joseph Wilson in his article examines the rationale for cooperation among competition agencies both in the case of cross-border cartels and mergers. Considering the pace at which regional economic integration is taking place in many regions, he emphasises the need for a regional network of competition agencies to act as a forum to address competition issues specific to that region.

Manas Kumar Chaudhuri through his article gives an overview of the law and how it poses some opportunities and challenges to businesses in India. Explaining about the barriers, it states that some are natural while others are artificial. The natural barriers can be removed by regulatory legal mechanisms but the artificial barriers can possibly be removed by enforcing competition law.

Apurba Khatiwada highlights the reasons for prevailing anti-competitive practices by Nepali businesses. In this article, he explains about the traditionally anti-competitive behaviour by private businesses which restricts the entry of competitors into Nepali market, and how the extensive training and campaigning in the field of competition law can improve the competency and efficiency of the businesses.

Phil Evans's article focuses on the cultural dominance within a firm and within an industry. Industry and firm 'norms' are incredibly important in allowing individuals who engage in anti-competitive behavior. According to him there are two approaches by which firms engage in anti-competitive behaviour - nature in the competition community. Further, he suggests two areas of analysis which may help bridge the gap between the structural models of anti- competitive behaviour.

S. Chakravarthy focuses on the need for good corporate governance in a competitive milieu to serve the interests of consumers and the society. Further, his article explains that for buttressing domestic competition, every country needs to have a sound competition policy and an appropriate competition law to enforce the policy.

According to him competition, corporate governance and development are interlinked and any break of the link is only at the peril of the society.

M.M. Sharma's article states that competition law is essentially concerned with the study of markets. According to him, applying competition law involves identifying markets and assessing whether or not competition is working well in those markets. Further he analyses the role of economics in competition assessment.

Eleanor M Fox describes briefly about the state of the competition in the world and desire for a better and fairer business. She has used the potash cartel as a symbol for observing forces that deflect competition on the merits and for contemplating on what can be done.

Heba Nassar discusses about the government-controlled regime and how competition law evolved in Egypt. She narrates that competition authorities in Egypt must have an advocacy role to ensure both the enforcement of the law and the implementation of a whole competitive process in the market.

Saket Sharma highlights the pivotal role Competition Commission of India needs to play for promoting competition law compliance in India. The author concludes that CCI currently follows a unilateral approach of limited awareness generation for competition law. Citing international illustrations, the article sets an agenda for CCI to pursue a multipronged approach for building culture of competition in India.

Denis I. Kabbale analyses how the competition policy reforms in the East African countries have benefitted the businesses. He stresses the need for capacity building of those countries which are in the initial stages of building their competition regime.

Emanuela Matei in her article emphasises that the main pursuit of the competition policy is not the protection of competitors, but the protection of competition as an instrument of public governance. She further gives examples of how the private actors can benefit from competition law enforcement.

Thula Kaira deals with the sensitive issue of big businesses disliking competition laws. He argues that competition law safeguards the greater public interest in the market place against the sectarian interests of big business. He concludes that the lack of effective implementation of competition policy is one of the causes of market failure.

Shankaran Nambiar dealing with the same topic says that firms, if left to their own devices, would attempt to take advantage of their power and reap profits through unfair practices. It is, therefore, the responsibility of governments to lay down rules to ensure that business does not violate the principles of competition.

Hari Prasad C.G. has been technical in dealing with the subject of monopolistic competition as the right benchmark for competition assessment and its implications to business.

Vipul Puri through his article attempts to bring out the uncertainty and consequent fear of changes in external environment resulting from competition reforms. Further, he suggests that competition laws in some way or the other may hinder the 'business strategies' that might have been planned or operationalised by the firms.

Raman Mittal notes that IP licensing has become a major tool and businesses enter varied agreements to use and exploit their IP. Further, his article underlines the regulating role competition law plays during IP licensing transactions to check anti-competitive practices.

Surbhi Mehta's article highlights the interface of IPR and competition law. Further, she explains the requirement of balance between the monopoly privilege granted to the IP holder and the public interest, including consumer welfare, the competition from other producers, and national development prospects.

I am sure, this Policy Document and Souvenir containing some relevant articles written by eminent experts based in India and abroad, would offer the readers a critical appreciation of competition policy and law and how it affects the process of business strategy. With the introduction of competition law in most countries of the world, which include all major economies, it becomes necessary for business to understand various provisions of competition law so that they are never on the wrong side of the law. The thought provoking articles in this publication will certainly be helpful for academicians, government officials, practitioners, business persons and competition experts to enhance their understanding on the subject and will lead to better compliance.

I take this opportunity to thank eminent writers of different articles who have contributed their work in this souvenir. I also thank all the advertisers as without their contribution, such noble work could not have been accomplished.

Pradeep S. Mehta Chairman, Managing Committee CUTS Institute for Regulation & Competition

What is CIRC ?

The Scenario Regulatory reforms are gaining pace in the developing world, with an increasing number of countries enacting competition and sectoral regulatory laws. For example, the Indian Competition Act, 2002 and miscellaneous sector regulatory laws, such as covering electricity, fuel, ports, airports, telecom & broadcasting, establishes a completely new set of rules unfamiliar to most companies doing business in India and to the regulatory staff themselves and stakeholders.

These have called for professionals in the field with relevant knowledge and good understanding of competition and regulatory affairs with practical knowledge. Also, economic regulations and commercial market dynamics are undergoing rapid, significant changes. It is increasingly becoming difficult to keep pace with the changes and understand the complexities of these regulations. There is a severe shortage of institutional capacity to both implement the reforms and facilitate the spread of knowledge on regulatory matters in developing countries.

With this backdrop, CUTS International, a 30-year young international nongovernmental, non-profit research and advocacy group working out of Jaipur, Delhi, Kolkata in India, and in Geneva, Hanoi, Lusaka, Nairobi and Accra, has conceptualised the CUTS Institute for Regulation and Competition (CIRC) which aims to fill in the prevailing gaps and enhance knowledge on regulatory issues in the developing world.

CIRC - An Overview CUTS Institute for Regulation and Competition(CIRC) is a befitting response to the need of the community in the area of law and economics. The Institute has an in- house team of converging professional skills, which include competition law, regulation, economics, political science and business management, and consumer affairs.

CIRC Core Activities The Institute's activities are divided into two programme areas: Economic Regulation and Competition Policy & Law. The unique feature of CIRC is that the quality of educational and training programmes is at par with the developed countries. CIRC is also offering various online courses. With a robust research base on competition and regulatory laws, CIRC is uniquely positioned in providing capacity building programmes, consultancy and relevant advisory to the clients across industries and professions within India as well as in Asia and Africa.

The Perspective CIRC has been incubated as a High Performing Knowledge Institute (HPKI) in the area of consumer protection, competition policy and law, and economic regulation. The eventual goal of CIRC is to become a world class institution addressing the breadth and depth of capacity building needs in the infrastructure space. With the right measures consistent with the

goals and values, it would be possible to become a multi-locational institute of international repute and serve an international need (particularly in the developing world) that remains inadequately addressed at present.

Sometimes, practitioners face and answer difficult questions about practical matters. They need thorough understanding of global practices so that they can seek solutions to some of the biggest challenges facing their agencies today. CIRC would take upon itself the responsibility to provide international knowledge and experience to such practitioners.

CIRC also aims to introduce courses on Competition Law to familiarise the participants with nitty-gritty of the law with recent legal developments and to establish a clear link between the new theories and the day to day work of practitioners.

Regulatory requirements and market undercurrents create interesting dynamics in emerging markets where resources and skills can be scarce. To fill this gap, CIRC is also launching a number of short-term and on-line courses. These will include courses on Public Procurement, Business Ethics & CSR, Regulatory Impact Assessment, Water Regulations, and Energy Regulations etc. These courses will be very beneficial for those wishing to gain leadership and career progression within the regulatory realm.