Companies should engage proactively with the requirements of the Competition Act to ensure that they can do business without fear of con-travening the Act. Conservative advice can stifle the way one does business, and this could have significant negative commercial implications, says legal firm Webber Wentzel co-head of competition practice Martin Versfeld.
Each firm occupies a unique position in the market and it follows that a tailored offering is required to ensure that compliance efforts still have a businesscentric focus. In achieving a tailored outcome, firms should consider auditing their businesses to identify both risk areas and unexploited opportunities, he explains.
“Online compliance programmes, in conjunction with focused workshops, is a useful starting point as it serves to ensure that employees have a balanced view of the obligations and opportunities which the Act presents,” he says.
In conjunction with training, a detailed policy document is to the benefit of employees, third parties and, where required, the competition authorities themselves. The document should, for example, engage with what businesses can and cannot do in relation to industry associations, pricing practices and inter- actions with suppliers, custo-mers and competitors, he notes.
It is important that firms understand that most practices under the Act permit a balancing exercise, which involves the assessment of the procompetitive benefits associated with the conduct as well as any potential anticompetitive effects,” explains Versfeld.
“With the exception of the limited category of conduct, which is prohibited outright, a firm needs to treat the risk that it may be found to have infringed the Act like any other business risk. The more compelling the commercial case for engaging in certain conduct, the more aggressively a firm should interrogate its options. In short, the risk should be quantified and, in some cases, assumed,” he explains.
Given the significant penal-ties that have been exacted by the competition authorities, and the associated publicity, many businesses adopt conservative approaches to the Act. However, while the risks of engaging in outright pro- hibited conduct are so significant that they are to be avoided, the key message is to ensure that employees and management have a clear understanding of conduct that cannot be justified and, in doing so, have a better appreciation for what is permitted, he emphasises.
Meanwhile, exclusive arrangements between customers and suppliers are not prohibited outright, and an exclusive arrangement involving a firm that is not dominant is not susceptible to challenge, Versfeld says.
Further, while an exclusive arrangement involving a dominant firm is susceptible to challenge, it does not necessarily follow that the challenge would necessarily be successful.
“Even where one or both of the parties to a proposed arrangement are dominant, if the benefits flowing from the exclusive arrangement are sufficiently commercially significant, the parties should carefully consider whether or not they may be able to justify the exclusive arrangement to the competition authorities,” he notes.
“The competition authorities are not there to protect inefficient competitors against their more efficient and driven competitors,” Versfeld emphasises.
“Many firms have gone to extreme lengths to avoid interacting with their competitors, but there may be compelling reasons to interact where the subject matter of their inter- action is entirely defensible and, in some cases, necessary,” he notes.
For example, a swap arrange- ment that serves to avoid significant transport costs, time delays and related inefficiencies and enables both parties to be more competitive is permitted.
A hypothetical example is where an international tender for the supply of industrial explosives is sought. In such a situation, it could be that no single firm in the South African market has the capacity to meet the volumes required under the tender requirements but if two competing South African firms combined their resources, they could meet the volume requirements. The instinctive reaction is to treat such an arrangement as market sharing between competitors, which is prohibited under the Act, and abandon any notion of pursuing the tender.
“The failure to aggressively consider issues of this nature means that many firms do not appreciate that it is arguable that neither firm is a competitor for the purposes of the explosives tender because neither has the capacity to individually compete for that business,” he explains.
“The examples that have been given serve to illustrate the importance of not hastily assessing what one can or cannot do under the Com-petition Act. Smaller business, in particular, should take heed of the opportunities that the Act provides to improve their position in the market in which they operate,” Versfeld concludes.