Tuesday, February 8, 2011

Need for new anti-trust law to protect Filipino SMEs from predatory pricing!!!

Predatory pricing seeks to eliminate competition. It is unfair and illegal. It hampers free and fair competition because sale of products at low prices causes a loss, with the only possible rational for such low prices is the elimination of the company’s competitor in the long run and the capture of market share.

One wonders why this should matter when the loss is perceived to be borne by the company which set the low price rates to begin with. In actual practice here in the Philippines, this loss is never borne by the company (i.e. the multinational) but by its distributors and retailers (i.e. the Filipino SMEs). Multinationals such as Nestle Philippines sets a low price without considering previous price bulletins it has imposed on the Filipino SMEs (supposedly their “partners” in “growth” and “profit”), and, more importantly, without considering average total costs of distribution. These distributors/retailers have to eke out whatever minimal profit they can get from these arrangements, and it is not uncommon for these Filipino SMEs to operate at a loss.

Really, the most alarming aspect in the spread of vertical price fixing agreements in the Philippines is its impact on local SMEs. The common scenario is that you have a large multinational such as Nestle Philippines who has a distributorship or retail agreement with a Filipino SME. When this kind of company makes use of vertical price fixing agreements, the Filipino SME has no choice but to sell the Nestle products, for instance, to consumers at low prices – with complete disregard as to the actual costs borne by the SME to actually get or distribute these products to the market.

This is out and out bullying. As a country, we will never be able to move beyond providing distributorship and BPO support to these multinationals unless there is greater protection for the Filipino SMEs!!!

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