Time for Anti-Trust?

“MAPping the Future” Column in INQUIRER – 1 August 2011

Time for Anti-Trust?
by Ronald U. Mendoza

Lee Kwan Yew once quipped that in the Philippines, 99 percent of the population waited for a phone line, while the remaining 1 percent waited for a dial tone. While this jab was directed at our telecoms sector, Lee could have just as easily poked at the rest of our monopolized and highly regulated industries then.

Sweeping market-oriented reforms in the mid-1990s were designed to change this. Deregulation and privatization would get the inefficient and costly government out of key sectors it had no business being in, and instead draw-in competitive, innovative and much more efficient private sector actors who would in turn compete for market share by providing better services at lower prices. Deregulation would enhance competition, in turn promoting the necessary investments to boost innovation and competitiveness. This would ultimately lead to increasing consumer welfare and taxpayers’ benefits, by lowering the number of loss-making and inefficient government owned and controlled corporations.

Are consumers (and taxpayers) really any better off today, well over a decade after this deregulation wave? Did competition and competitiveness really increase? Telecommunications, petroleum, and air travel are three industries that are particularly illustrative of the range of outcomes. There are some gains, but also evidence of emerging challenges to promote competition and safeguard consumer welfare.
 

Table 1. Summary of Selected Industry Information

Telecommunications Petroleum Airlines
Year of Deregulation 1995 1998 1995
Companies before Deregulation PLDT Shell, Petron and Caltex Philippine Airlines (PAL)
Companies after Deregulation PLDT (Smart; Talk N’Text-Piltel; Red Mobile-Cure and Sun-Digitel) and Globeb Shell, Petron, Caltex, SeaOil, Flying V, Total, Jetti, City Oil and UniOil PAL, Cebu Pacific, SEAir, Air Philippines, and ZestAir
Herfindahl-Hirschman Competition Indicatora (Higher values reflect more market concentration; Date or event in parentheses) Mobile Telephony: ·        10000 (1994) ·        4020 (prior to PLDT-Digitel merger)b ·        5800 (after PLDT-Digitel merger)c Landlines: ·        10000 (1994) ·        3253 (prior to PLDT-Digitel merger)b ·        4479 (after PLDT-Digitel merger)c 3427 (1996)d 2846 (2010)d Domestic: ·        10000 (1994) ·        3680 (2010) International: ·        2548 (2010)e

Notes:
a Herfindahl-Hirschman Index prior to and after deregulation, with year in parenthesis. The HHI it is the sum of the squared market shares of the each company in the industry. The index approximates the value zero when the industry has more firms with similar size. A higher value therefore signals potentially weaker competition and more concentration in the industry. For illustration, the US Department of Justice, Federal Trade Commission characterizes an HHI of 1500 and below as “unconcentrated”, 1500-2500 as “moderately concentrated” and 2500 and above as “highly concentrated”.
b Shares prior to PLDT-Digitel merger.
c Assuming PLDT-Digitel merger.
d Data from the Department of Energy.
e Data from the Center for Asia Pacific Aviation (2010); and based on passenger capacity, including international flights.

Telecommunications

The telecommunications industry was deregulated in the early 1990s, but PLDT remained a dominant player due to its control over most landlines. This was further reinforced in 1998, when First Pacific (owner of Smart) bought control of PLDT (also owner of Piltel), and these companies accounted for a combined share of 68 percent of the cellular telephone subscribers and 43 percent of the installed lines. Competition between PLDT-Smart and Globe kept pricing steady for text messaging, so in real terms (i.e. accounting for inflation), the price of text messaging declined over time, even as it was kept at PhP1 per text message. In 2003, Sun Cellular of Digital Telecommunications Philippines Inc. (Digitel) entered the mobile telecommunications market offering product innovations like “unli” (unlimited) calls and text messaging. While initially challenged by the industry incumbents through the National Telecommunications Commission (NTC), the NTC upheld Sun Cellular’s entry and it eventually provoked similar product innovations among the incumbents.

Intense competition among these companies generated a wider array of product options for consumers, with ever more competitive pricing schemes fitting different consumer preferences. Well over 80 percent of the population now has access to mobile telephony—a far cry from the times when it took over a decade to get a landline from PLDT.

However, the recent acquisition of Digitel by PLDT raises questions about the state of market concentration in the industry, and in turn, what this might mean for continued product innovation, competitiveness and consumer welfare. A virtual duopoly will emerge from this deal, with PLDT and its affiliates accounting for about 70 percent of the mobile phone market, and Globe serving the remaining 30 percent. Despite deregulation, barriers to enter the industry, including separate franchise requirements for each telecommunications sector and limits to foreign participation (40 percent cap), prevent further enhanced competition.

Petroleum

Deregulated in 1998, the downstream oil industry was initially comprised of three players: Caltex Philippines (now the marketing and distributing company under Chevron), Pilpinas Shell, and Petron (then jointly owned by the state-owned Philippine National Oil Company and Saudi Aramco). Today there are several more gasoline suppliers, including the original three plus SeaOil, Flying V, Total, Jetti, City Oil and UniOil.

Unleaded gasoline was about PhP12 per liter while diesel gasoline was about PhP8 per liter during the deregulation—these recently reached peaks of about PhP60 and PhP45, respectively. Are these dramatic price increases due to deregulation? Recent analysis by the UAP and SGV suggests that, in fact, local pump prices have not gone up as fast as international indicators for crude oil and its refined products. Further, the stock prices of oil companies such as Petron and Shell do not appear to show any marked improvements during the period of study from 2005-2008, when prices at the pump were on an upward trend.

Our own empirical analysis at AIM also shows that much of the change in gas prices at the pump since the deregulation was accounted for by international price movements. In fact, after correcting for the influence of international prices and a measure of industry competition, gas prices on the margin before and after deregulation are not statistically different. This suggests that while deregulation is not to blame for the dramatic rise in gas prices, it did not seem to change industry pricing either. Indeed, even as they are now also competing in retail, food and shopping options, the three main industry players still dominate—their combined market share still stands at about 77 percent.

Airlines

The civil aviation industry in the Philippines was dominated by PAL until the government finally opened this sector in 1995. Following the entry of new airlines like Cebu Pacific, Air Philippines and Asian Spirit (now ZestAir), PAL’s market share was cut in half, declining from 96 percent in 1995 to about 49 percent in 1999. PAL nevertheless remains a dominant player in the market with about 50 percent market share in recent years, but Cebu Pacific has captured significant ground, accounting for about 30 percent market share.

Deregulation brought about a surge in domestic air travel in the country, thanks to more flights and more competitive pricing. The Manila-Iloilo route alone experienced an 83 percent increase in the number of travelers just two years after deregulation. Passengers from Manila to Davao and from Manila to Cebu also shot up by 45 percent and 34 percent, respectively, during this period.

More attractive pricing clearly played a role in successfully contesting market share from PAL. There is also evidence that PAL restricted output—and this was quickly undone by the entry of more players. A recent empirical study suggests that average airfares are about 10 percent lower after liberalization, and that up to 90 percent of domestic airline passengers benefited from lower fares.

The industry is not without challenges, however. Competition did improve for the most profitable routes, but the less profitable routes (or so-called missionary routes) could be left behind. PAL used to serve these routes through a cross-subsidy between the more profitable and less profitable destinations. However, with the break-up of its monopoly, and the apparent focus of the new entrants on the more profitable routes, up to 11 markets formerly served by PAL have lost airline service.

Airport infrastructure is also still inadequate. In addition, even as new domestic firms have shown their competitiveness relative to the once monopoly incumbent, there are some concerns that these same firms may be hard-pressed to compete at the international level, notably once the country opens up to ASEAN competitors as part of the country’s “open skies” policy. Industry experts already forecast the Philippines could be a key battleground for low cost carriers in the region, including AirAsia (Malaysia) and Tiger Airways (Singapore) once Philippine skies have been opened up.

Promoting Competition and Competitiveness

The preceding examples provide some evidence of consumer gains from deregulation. However, they also flag critical issues, including the possible need to maintain healthy competition levels, and also competitiveness, across Philippine industries. Indeed the indicator of competition used widely by international regulators—the Herfindahl-Hirschman index (HHI) —suggests that the potential for abuse of market power is still present in all three industries examined here (see table 1). Since the HHI for these industries are well above 2500, according to the guidelines of the US Department of Justice and the Federal Trade Commission, they would all be described as “highly concentrated.”

Some market consolidation has also already begun to take place. Indeed, if we were to draw from guidelines on competition policy presently applied in the United States or in the EU, the PLDT-Digitel merger would automatically raise a red flag and trigger closer scrutiny by regulatory authorities, as the worsening of industry concentration indicators could indicate a rise in market power and possibly open the door to anti-competitive behavior.

In addition, pricing behavior and product/service strategies remain largely unexamined. Further market liberalization will also introduce challenges to some industries. Regulatory authorities will need to catch up with these developments, utilizing international good practices, including more robust analytical frameworks and technical analyses to strengthen regulatory oversight over these evolving industries.

Deregulation does not mean that the government should be absent—only that its role be re-focused. Markets can also malfunction, and industries could end up consolidating in ways that undermine competition, innovation and ultimately also competitiveness. It is up to regulatory authorities to facilitate healthy competition and improved competitiveness, in order to safeguard consumer welfare. That in turn requires professional and technically equipped regulatory institutions with true independence and real capacity to exercise their mandate. Given the growing importance of anti-trust issues both nationally and internationally, more effective and coherent competition law and policy will be necessary.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines.  The author is Associate Professor of Economics at the Asian Institute of Management, and Executive Director of the AIM Policy Center. Prior to joining AIM, he was a senior economist with the United Nations in New York. Feedback at map@globelines.com.ph.  For previous articles, please click

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Nestle execs in Manila

"Spiced, not iced tea?"

by Willie Baun

Published 28 June 2011 in STREETLIGHTS, People's Journal

(Original article available online here)

"ALRIGHT, intractable six-cup Nescafe Joe warns, just as long as you don’t dunk bad news in my coffee mug; I say consider the caveat seconded.

With the hot and humid spell of summer blown off by the typhoon season, expect a drought of sorts in the market for soft drinks, juices, halo-halo and, oh yeah, iced tea. 

However, Nestle Philippines, Inc. executives John Miller, Shahab Bachani, and Nandu Nandkishore may well pick up the downer, as it were, while having to drink gallons of iced Nestea to cool off. 

The NPI triumvirate company and personal legal problems that, for sure, somehow dampened the recent celebration of the global Swiss firm’s 100 years in the Philippines. 

Perjury charges have been filed against them in the Makati and Quezon regional trial courts. Complainant in the case is no smalltime outfit that NPI can ignore, let alone mess with.

The plaintiff is Banco de Oro, which just happens to be owned by Forbes Magazine’s top Filipino billionaire – mall magnate Henry Sy, owner of the ubiquitous SM malls.

BdO’s issue with NPI is its alleged failure to divulge prior knowledge of the financial woes of an NPI-favored distributor, who kept getting bank loans on the strength of the endorsements by aforementioned NPI execs. 

Some NPI distributors have also complained to the Department of Trade and Industry and taken legal action against the firm’s bully tactics – alleged instances of predatory pricing that sacrificed their profitability to the goal of booting rival brands out of contention. 

Shouldn’t pouring when it rains be bad enough for NPI? I’m inclined to agree if only for the Nescafe aroma that delights me as I write. But then again there’s simply more! 

This refers to the long-festering labor dispute in the NPI plant in Cabuyao, Laguna where more than 600 employees had gone on strike nine years ago to compel management to the bargaining table and discuss wages and benefits. 

The company purportedly simply turned a deaf ear to the worker’s plaints, allegedly to this date, has all but disregarded the Supreme Court’s decision in 2006, ordering NPI to reinstate the strikers and initiate formal negotiations. 

In the meantime, some of the strikers have reportedly been killed mysteriously, notably union leader Melito Roxas and his successor Diosdado Fortuna. 

Perhaps Mssrs. Miller, Bachani, and Nandkishore would care to share their iced tea with those who feel they’ve been mistreated by their company for the longest time. Or should it be spiced tea to ensure the complainants just grin and bear it?"

BusinessWorld Anti-Trust Commentary - COMPLETE

Published May 25 and 26, 2011 in BusinessWorld

Also available here and here

Proposed antitrust law to level the playing field

"Level playing field"

The Business Mirror Editorial

Published 24 May 2011 in the Business Mirror

(Original article available online here)

"Up for deliberations by the Senate this week is a proposed antitrust law that its chief proponent, Senate President Juan Ponce Enrile, has promised “will bite; it has fangs.”

The need for such a law was emphasized by Enrile himself just a few weeks ago when he responded to a query if the recent megadeal between the leading telco firm and the third largest in the industry violated any law: “We have an anti-trust law in the Revised Penal Code, but it is a dead law. Without a law, there’s no crime committed.”

The Competition Act of 2011, of course, is anchored on solid ground, namely, the Constitution: “The State shall regulate or prohibit monopolies when the public interest so requires and that no combinations in restraint of trade or unfair competition shall be allowed.”

The Enrile bill enumerates three categories of unfair trade practices: cartelization; monopolization; and abuse of monopoly power, which includes predatory behavior toward competitors; price fixing, bid rigging, limitation and control of markets, market allocation, arrangements to share markets or sources of supply and price
discrimination.

Other unfair trade practices under the Enrile bill are the distribution of false or misleading information capable of harming the business interests of another firm, and the unauthorized receipt, use, or dissemination of confidential scientific, technical, production, business or trade information.

Perhaps, what Enrile meant by his bill definitely having “fangs” and not likely to be ignored is the provision on penalties for violations.

The proposed antitrust law, in fact, goes for the jugular, or rather, where it hurts most—the pockets—as it seeks to impose very stiff penalties on violators. Each and every violation shall be punishable by a fine of not less than P10 million but not exceeding P50 million, if a natural person; a fine of not less than P250 million but not exceeding P750 million if a firm; imprisonment not exceeding 10 years, or both, at the discretion of the court.

Businessmen would definitely think twice about losing at the very least P10 million. How much more if the government demands P750 million for unfair trade practices?

Apart from expanding the coverage of unfair trade practices, the Enrile bill also seeks to strengthen the power of regulatory authorities to go after violators, with the Department of Justice (DOJ) and the Department of Trade and Industry (DTI) as its chief enforcers. The DOJ and the DTI can, on their own, initiate preliminary inquiries to enforce the law upon filing of a verified complaint by an interested party.

Enrile is correct in pointing out that “the increased deviousness and complexity of schemes in perpetuating monopolies in the free-market landscape” requires “equally sophisticated legislation” that would protect the public from price manipulation and other unfair trade practices.

By strengthening the government’s hand in dealing with unfair trade practices, the antitrust bill paves the way to a level playing field in Philippine business.

The Senate should, therefore, pass the bill as soon as possible after proper consultations with all stakeholders.

The Competition Act of 2011 will benefit the entire economy because it will encourage fair play. Unfair trade practices, after all, stunt economic growth and discourage new investments.

It should be passed into law because, in the end, Big Business is not necessarily good business."

Senate to deliberate on anti-trust bills

"Senate set to deliberate antitrust bill next week"

by Butch Fernandez

Published 18 May 2011 in Business Mirror

(Original article available online here)

"The Senate moved to speed up floor deliberations on a new Anti-Trust Law that its chief proponent, Senate President Juan Ponce Enrile, said would add more “fangs” to existing regulations, penalizing unfair trade and uncompetitive practices, including cartels, monopolies, abuse of dominant position, predatory pricing, bid-rigging and price-fixing.

“This [new Anti-Trust Law] will bite; it has fangs,” Enrile told editors and reporters of the BusinessMirror, the Philippines Graphic and dwIZ in a breakfast press conferences on Wednesday.

Enrile explained that the proposed Competition Act of 2011, embodied in Senate Bill (SB) 1 that he and Senators Ralph Recto and Antonio Trillanes IV co-authored, was meant to plug gaps in the existing Anti-Trust law, which, Enrile noted, was “not as sharp.”

According to Enrile, a consolidated bill, incorporating related proposals filed by other senators, is due to be reported by Sen. Manuel Villar, chairman of the Committee on Trade and Commerce, for floor deliberations next week.

Apart from penalizing unfair trade and anti-competitive practices in restraint of trade, unfair competition and abuse of dominant power, SB 1 also seeks to strengthen the powers of regulatory authorities to go after violators, with the Department of Justice (DOJ) and the Department of Trade and Industry (DTI) as its chief enforcers.

As proposed by Enrile, persons found violating the law face fines ranging from P10 million to P50 million, while erring companies would be fined from P250 million to P750 million, plus 10-year imprisonment.

The proposed legislation also gives regulatory agencies the power to impose fines ranging from a minimum of P100, 000 to P5 million (for a person) and from P5 million to P50 million (for a company) for each violation.

Under the bill, the DOJ and the DTI shall, on their own, initiate preliminary inquiries to enforce the law upon filing of a verified complaint by an interested party.

The bill, however, also sought to protect confidentiality of information submitted in connection with the enforcement of the law, by providing that any document submitted or marked confidential by the DOJ, relevant to an investigation, shall not be disclosed, published, copied or disseminated. It also includes immunity from suit to any firm or person who will cooperate with authorities and give information to the DOJ.

“Our people have been victims to big business. It behooves the Senate to provide protection to our people against price manipulators,” Enrile said in his explanatory note to the bill. “In a volatile economic situation, such as that which we are experiencing now, it is not very difficult to imagine how artificial prices in one or two commodities is able to directly or indirectly raise the prices of related goods and services.”

Enrile cited Article XII, Section 19, of the Constitution, which provides that “the State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.”

“As proof of the importance of this Constitutional mandate, Section 22 of the same article encourages the promulgation of legislation that would impose civil and criminal sanctions against those who circumvent or negate this principle,” the senator said. “Hence, Section 22 of the Constitution provides: “Acts which circumvent or negate any of the provisions of this article shall be considered inimical to the national interest and subject to criminal and civil sanctions, as may be provided by law.”

While previous legislations have been passed pursuant to this Constitutional mandate, Enrile noted “the increased deviousness and complexity of schemes in perpetuating monopolies in the free-market landscape necessitates an equally sophisticated legislation that would effectively address this concern.”

“Generally, this bill penalizes combinations or conspiracies in restraint of trade and all forms of artificial machinations that will injure, destroy or prevent free-market competition,” Enrile added."

PART 2 - BusinessWorld - ANTI-TRUST PROTECTION FOR SMEs

2nd of 2 parts (View part 1 here and here).
Hit the stands on 26 May 2011
Available online on 25 May 2011


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Part 2 - anti-trust in BusinessWorld

"Part 2 - Anti-trust protection for SMEs"
by Atty. Lorna Patajo-Kapunan
BusinessWorld Online, 25 May 2011
(Original article available online here)

View Part 1 here and here

"Part II

It cannot be denied that, despite economic reforms, the Philippines continues to move forward as a country of service providers.

The country is replete with BPOs, retailers, distributors, mom and pop stores, "sari-saris" and all forms of SMEs. We provide support and muscle to the brains -- the multinationals who call the shots, lay down the requirements, and demand the services that we provide.

It is not uncommon to have existing service agreements where there is no equal footing between the two parties; the foreign company will typically have more superior leverage and bargaining power than the Filipino SME.

The result is that the relationship will be that of the Filipino SME being at the beck and call of the multinational. There is no real or adequate protection for the middleman -- and more often than not, it is the Filipino SME which acts as the middleman.

While anti-trust cases are few and far between, the Supreme Court has on occasion ruled that the termination of a multinational of the distributorship agreement of its local distributor was illegal and constituted bad faith. In the said case, the Supreme Court ruled that the Filipino SME had to bear the brunt of distribution and impossible sales quotas set by the multinational, with the latter reneging on its earlier promises of support under the agreement.

Yet these kinds of agreements are not only typical but recurrent. Multinationals, after all, maintain the upper hand -- a Filipino SME constantly faces the underlying threat of having its service agreement terminated by the foreign company.

And why not? First, there is no law or policy protecting these Filipino middlemen. Second, a local company providing BPO services to a multinational is just one of many Filipino SMES eagerly lining up to do business with the big foreign company.

If the Filipino SME falls behind a quota set by the foreign "partner," then the latter can just promptly pull the plug -- after all, there are dozens of other small, practically interchangeable, Filipino companies waiting in the wings.

In the scenario mentioned earlier, what is often overlooked is that when a foreign company pulls the plug by deciding to illegally terminate its service contract with a local company, the Filipino SME loses not just a contract, but loses its entire business.

This means people losing their jobs, Filipino entrepreneurs losing everything they put up to start the business. You have cases wherein hundreds of employees are suddenly laid off before Christmas because a multinational decided to terminate its service agreement with its local Filipino distributorship.

There is no real leverage, no equal protection, to ensure that the small Filipino business is treated as a real partner by the foreign company or multinational. This is why there is an urgent need for a comprehensive anti-trust law, and a regulatory agency with teeth.

We are also being encouraged to all collectively be watchdogs for anti-trust acts committed around us -- by the companies we work for, the companies we deal with, and even the companies which provide our basic household needs."

BusinessWorld - ANTI-TRUST PROTECTION FOR SMEs

Hit the stands on 25 May 2011
Available online 24 May 2011

(Click on image to enlarge)

BusinessWorld: Atty. Lorna Kapunan on Anti-Trust

"Anti-trust protection for SMEs" (1st of 2 parts)
by Atty. Lorna Patajo-Kapunan
Published in BusinessWorld Online Edition on 24 May 2011
(Original article available here).

"Part I

The recent PLDT-Smart buy-out of Sun Cellular emphasized once again the need for a more comprehensive anti-trust law in the country. Public awareness of the lack of a determinative anti-trust policy has heightened. While the National Telecommunications Commission (NTC) has been tasked with investigating any anti-trust policies in the Sun Cellular sale, there continues to be much criticism for the lack of an anti-trust law with "teeth."

And while the NTC may be called forth to investigate possible anti-trust violations in the telecommunications sector, the question remains as to who will "police" similar violations in other industries, such as consumer goods, manufacturing, food, retail, and distribution.

The current business climate in the Philippines highlights the need not only for a comprehensive anti-trust policy but a regulatory body with teeth. Apart from NTC, there is the Department of Trade and Industry (DTI) tasked by law to implement and monitor compliance with trade and industry laws. But then, when an issue like predatory pricing or vertical price restraint comes up, DTI itself claims it has no jurisdiction. There is thus much confusion as to which and what agency has the expertise to regulate trade and industry laws. Who monitors and who metes out the punishment? Are the penalties even sufficient to prevent anti-trust violations in the Philippines?

Admittedly, "anti-trust" remains a somewhat vague concept in our country, especially to the general public. Lawyers and businessmen may understand the general idea, but would themselves be hard-pressed to define, much less abide with, perimeters surrounding anti-trust violations, precisely because of a lack of a comprehensive anti-trust law that provides such guidelines. What it all boils down to is the prevention of monopoly and the promotion of free competition. Why is this important to the common tao? The answer is because, when there are no clear-cut rules and regulations, foreign companies, multinationals, and large local companies, will continue doing anti-trust practices which ultimately affect not only the consumer but the Filipino worker, employee, and entrepreneur. And they will continue to do such prohibited acts precisely because they can get away with it here in our country.

While there are existing provisions on anti-trust in Philippine law, these provisions are scattered across different codes and republic acts. There are no implementing rules and regulations. The various and existing anti-trust provisions do not provide clear-cut guidelines, elements/requisites, and quantum of evidence required to determine whether an act constitutes unfair competition, monopolistic behavior, or restraint of trade. The penalties meted out alone by certain provisions are dismally insufficient as preventive measures.

These are the issues that the Philippine Senate hopes to address in various proposed anti-trust bills. During the Senate "Understanding Anti-Trust" public forums held last February 2011, facilitated by Senators Manny Villar, Juan Ponce Enrile, and Sergio R. Osmeña III, the following proposed anti-trust bills were presented to the public and extensively discussed: Senate Bill No. 1, authored by Senatore Juan Ponce Enrile; Senate Bill No. 125, authored by Senator Sergio R. Osmeña III, Senate Bill No. 175, authored by Senator Antonio F. Trillanes IV, and Senate Bill No. 1838, authored by Senator Miriam Defensor Santiago. While the Senate can be lauded for recognizing the need to strengthen our anti-trust laws, with the intention of providing greater protection to the consumers, Filipino small-to-medium enterprises (SMEs), and middlemen, these proposed bills have yet to be approved.

The absence of rules and regulations implementing anti-trust laws also translates to less anti-trust cases filed in and ruled on by the Philippine courts. In fact, in the Senate’s "Understanding Anti-Trust" Forum, it was reported that right now there is only just ONE anti-trust case filed before the Department of Justice. In the same Senate public forums, Senator Manny Villar called for the need for greater protection for the middlemen -- the Filipino SMES who provide retail, distribution, and other BPO services to multinationals and other foreign companies. There is an urgent need to provide for a level playing field and for penalties that will actually deter corporations from committing anti-trust and other prohibited acts.

(To be continued)"

Following Nandu's promotion: Nestle Philippines' troubles continue

"It's all about population control"
By Emil Jurado, TO THE POINT, Manila Standard Today, 19 May 2011
(Original article available online here)

"I recently came across published reports about a product recall being done by Nestle Philippines Inc.

I know that Nestle has recalled many of its products for various reasons—the most noteworthy being 100g glass jars of Nescafe. In this case of contaminated coffee, people were instructed to keep the lids as proof of purchase for a refund, but to “dispose of contents immediately and not to bring the coffee back to the stores where they were bought.”

A variant of Lean Cuisine frozen dinners were recalled as well when consumers reported finding pieces of hard plastic in their food.

Locally, the most recently was the recall of Maggi beef and chicken noodles after traces of salmonella were found in two batches of the beef variant.

Having to take these items off the shelves is just one of the many problems besetting NPI. I believe that the string of cases against the company regarding its dealings with its local partners is, or should be, a major concern. My gulay, it seems that the multinational has made it a habit to squeeze distributors to the point that doing business is no longer profitable. Then, when cases are filed against the company on that very same issue, it tries to squeeze itself out of legal proceedings.

***

I have written at length about a Filipino company that distributes Nestle products and has been on the receiving end of the multinational’s bullying tactics. Nestle created price caps for its goods and simultaneously shortened the time of payment collection for distributed products. The local company took issue with that and filed formal complaints with the Trade and Industry Department as well as with the Regional Trial Court. This has caught the attention of some lawmakers, who are now working on strengthening anti-trust measures.

In the meantime, Nestle seems to be taking matters in stride as it even failed to give a rejoinder to the Filipino distributor’s claims within 15 days as it was ordered by the court. Santa Banana, is this company that confident about its position, or connections, that it can afford to be complacent?

All these developments come on the heels of news that Nandu Nandkishore is to be promoted Executive Vice President for Asia, Oceania, Africa and the Middle East. Nandkishore was CEO of NPI, who was promptly shipped to the mother company to assume another position when the cases were filed by the Filipino distributor. With his new designation, I presume he is ready to finally face the music."

Nandu vs. Cory

"Nandu Nandkishore: The Nestle Executive Who Disrespected Cory Aquino!"

by The EQualizer Post, 15 April 2011
Full and original article appears here.


Image from The EQualizer Post

Frits van Dijk, head of Nestle’s business in Asia, Oceania, Africa and the Middle East, will retire in September. Nandu Nandkishore, who became head of Nestle’s nutrition unit last year, will replace him.

We do not believe that it is morally acceptable for Nestle to promote senior executives even if they cheat during their overseas assignments, deceive and cover-up serious misdeeds, treating shareholders and the public as gullible fools.
Are cherished Nestle values not important anymore? Are controversial executives just "kicked upstairs" in Nestle? If so, this would be a great insult to all the honest and competent executives in Nestle worldwide!

Some companies are not content with just being monopolies.

They have to be bullies and hypocrites.

Take the case of a multinational that espouses “trust, integrity and honesty.”

Alas, their behavior is the exact opposite.

A curious case involves one distributor who discovered a sexual affair between their top officer and the sales manager in charge of their account.

Instead of addressing the blatant conflict of interest, guess what the multinational did when this was brought to the officers’ attention?

They illegally terminated the distributor’s contract, and threatened him so he would remain silent.

It’s enough to make you spit in your coffee and throw it at their faces. Ramon Tulfo (Philippine Daily Inquirer)

My friends at the Philippine branch of a multinational coffee-dairy maker must fix the stink about their sales manager and a distributor. The story is going around town. The food giant’s female sales boss not only is having an affair with their distributor’s married general manager, but also has caused the latter to abscond with company funds. The distributor’s owners are scandalized that the multinational has chosen to treat the affair as one of consenting adults, instead of a conflict of interest. That’s bad, since the multinational’s vaunted primary corporate policies are honesty, integrity and fairness. Jarius Bondoc (Philippine Star)

Several months ago, I wrote about this food multinational corporation that was bullying one of its Filipino distributors. Considered the world’s largest food and drink company, this multinational had terminated its contract with a distributor and had threatened to do the same with another distributor. The reason stated was conflict of interest.
The alleged conflict of interest was based on Distributor 1’s shareholders’ discovery that one of its executives, a married man, was having an affair with a sales executive of the multinational. The relationship led to double the amount of discounts on the multinational’s goods given to retailers (such as groceries) by the executive. This led to brisk sales, but at a loss to the distributor.

The multinational made money all right because it sold its brands, and their executive got recognition and financial incentives because of her performance. However, all these were at the distributor’s expense. Even more disturbing, an independent audit showed that there were “phantom deliveries” of products to the distributor, non-existent goods, but still paid for because of the connivance between the parties to the illicit affair.
* * *
When the distributor brought up the illicit relationship to the multinational executive’s superiors, they shrugged it off as an affair between two consenting adults. This was despite the company’s Corporate Code of Ethics that enjoins its management and employees to “avoid even the appearance of impropriety in its business relationships on behalf of the company.” In the code, there is also a provison that says “sanctions will be applied in the event of misconduct or abuse of established corporate standards.”

Well, sanctions were applied all right, but to the wrong party—my gulay, to the distributor!
Eventually, the multinational had a dialog with the distributor to settle their differences. Nothing came out of it.
As it turned out, this was not an isolated case. Another sales employee of the multinational coerced five Filipino distributors of the company in Central Luzon to pass on goods to Metro Manila wholesalers at 8 to 10 percent discount.
Manila distributors like Distributor 2 could not compete with such low prices, but because the multinational forced it to “hit targets at all costs,” it had no choice. In the process, it lost money.
* * *
My gulay, the distributors later found out that the customer offering preferential discounts was the executive’s husband. They discovered this when the checks they were given by the customer bounced. Upon investigation, the checks were traced to the executive’s account. And the distributors were not the only ones left holding the bag. Just when the couple’s scam was discovered, the executive’s husband got cash advances from the Metro Manila wholesalers for goods they never got. One of them even lost P22 million.
When the distributor approached the multinational for redress, the company did not accept any responsibility and instead offered to help only as far as paying for the distributors’ legal expense to sue. However, independent lawyers say the executive, by her verbal or written orders, some in documents with the multinational’s letterhead, bound the company to take responsibility by virtue of the doctrine of “apparent authority.”

What do you do with a bully who runs roughshod over its distributors? You take him to court!
Emil Jurado (Manila Standard)"

Philippines Graphic responds to Nestle

"Nestle response has no legal basis - NPI distributors"

by Joel Pablo Salud

Published in Business Mirror and Philippines Graphic on 21 April 2011

(Original article available online here)

"Nestlé Philippines, Inc.’s (NPI’s) response to accusations of predatory pricing appears to be based on unfounded generalizations than what is actually founded on law.

Atty. Lorna Kapunan, counsel for Nestlé’s distributors, said what Nestlé has is a “vertical price agreement,” which is a competition restriction between firms that governs products made by NPI. This agreement “is still considered predatory pricing.”

Nestlé’s distributors have accused the biggest food conglomerate of predatory pricing, and ending distributorship agreements without so much as fundamental basis based on Philippine laws.

“The practice of vertical restraints are closely monitored by international courts, with many of the agreements being ruled as unlawful per se. NPI currently engages in the practice of setting a minimum price by which its Filipino distributors are required to sell their products. This does not take into consideration the operational costs shouldered by Filipino Small and Medium Enterprises to distribute the products. Decent profit margins are therefore very difficult to attain, considering capital outlay and the lack of marketing and promotional support from NPI.”

Counsel added that non-compliance with the low prices results in NPI threatening to end the distributorship agreement. Thus, small- and medium-scale entrepreneurs (SMEs) like FDI2 find themselves scrambling to reach break-even status by trying to honor the terms of agreement.

Nestlé Philippines’ head of Corporate Affairs Edith de Leon acknowledged in the reply that Nestlé products are not the cheapest in the market and that competition among lower-priced products remains intense. De Leon’s statement allegedly avoids the issue of vertical price agreements with its Filipino partners.

De Leon also stated that Nestlé complies with the country’s laws and standard trade practices, a statement Atty. Kapunan quickly puts in context. Kapunan stressed that NPI knows there are no standards on vertical price agreements in the Philippines.

The Senate is now in the thick of addressing this matter and other issues regarding antitrust through the promulgation of various bills in the Upper House.

According to Atty. Kapunan, by Swiss standards, NPI’s distributorship model is patently illegal. The standards laid down by the Swiss Competition Council in Switzerland would make NPI’s existing distributorship agreement here restrictive of trade, thus subject to penalties.

Similarly, she mentioned, that the case mentioned by de Leon filed with the Department of Trade and Industry (DTI) was dismissed, not for lack of merit as she previously stated, but for lack of jurisdiction on the part of the DTI.

“While FDI2 has filed a motion for reconsideration of DTI’s decision, the case itself is public domain and anyone may see that DTI did not even delve into the merits of the case. To date, no case against NPI, with the exception of the one filed by FDI2 in DTI, has been dismissed,” Kapunan explained.

Moreover, accusations made against Nestlé by its distributors may not be quite as unfounded as the company would have the public believe.

In the case of “Nestlé Philippines, Inc. vs. FY Sons, Inc.” (05 May 2006, G.R. No. 150780), the Supreme Court ruled that FY Sons, also a Nestlé distributor, was lured to invest huge sums of money, time and effort in order “to abide by such distributorship agreement, and to develop market areas for [Nestlé’s] products.

Thereafter, Nestlé breached the distributorship agreement by committing various acts of bad faith such as, but not limited to, failing to provide promotional support, and concocting falsified charges to cause the termination of the distributorship agreement without just cause.”

These incidents are not new, Kapunan explained, as NPI executives John Miller, Shahab Bachani and Doreswamy Nandkishore have been charged with “perjury for issuing conflicting statements in their affidavits with respect to the policies of Nestlé in agreements with their distributors and other Filipino partner firms.”

Cases against Nestlé are now pending in the courts of Quezon City and Makati City. G"

Pagbabalatkayo ng Nestle

"Pagbabalatkayo ng Nestle"
by Horacio Paredes, ABANTE, 14 April 2011
(Original article available online here)

"Kumpirmado umanong dalawang mataas na opisyal ng dambuhalang Swiss multinational company, Nestle Philippines Inc. (NPI), ang palihim na pumuslit palabas ng bansa matapos silang sampahan ng mga kasong kriminal ng dalawang Pinoy distributor.

Ang bigating duo ay sina dating NPI chairman at CEO Doreswamy Nandkishore at ex-Chief Finance Officer Peter Nozcek. Sa puntong ito, malinaw na naisahan tayo ng mga Swiso. Hindi kaya dapat panagutin din ang mga NPI officials na nagsabwatan upang makaeskapo ang dalawa?

Umano, si Nandkishore ay hinila pabalik sa Nestle, Switzerland samantalang si Nozcek ay nire-assign sa Amerika. Kasama sila sa mga criminal case na inihain laban sa higanteng food and beverage company na kailan lamang ay nagdiwang ng kanilang 100th year sa ating bansa. Sa mga press release, ipinagmamalaki ng kumpanya ang pagiging bahagi ng tahanang Pilipino sa loob ng 100 taon sa pamamagitan ng mga de-kalidad na produkto at magagandang serbisyo sa ating mga pamilya.

Subalit tila iba ang ipinapakita nila sa publiko at ang kanilang pakikitungo sa mga lokal nilang ka-partner sa negosyo tulad ng Forefront II Trading Corp. (FDI 2) at Service Edge Distributor Inc. (SEDI) na matagal na umano nilang iniisahan. Ito ang pinag-ugatan ng problema na nauwi sa demanda.

Isa sa mga patung-patong na hinaing ng grupong Pinoy ay ang pakikipagsabwatan at pakikipagrelasyon ng babaeng area sales manager (ASM) ng NPI sa dating presidente ng FDI 2. Ang relasyon ng dalawa ang sinasabing naging dahilan ng pagkalugi ng Forefront. Upang umano sumikat ang babae at lumaki rin ang kanyang komisyon, walang puknat na order ng mga produktong Nestle ang ginawa ng naturang FDI 2 president na humantong pa sa pagiging Distributor of the Year ng kumpanya sa dalawang magkasunod na taon - 2005 at 2006.

Ang malungkot at kagulat-gulat nito ay nang busisiin ang mga libro ng kumpanya, lumabas na ang laki ng lugi nito dahil ibinibenta pala sa presyong palugi ang mga paninda. Inireklamo nila sa NPI ang immoral conduct ng ASM dahil ang pagpasok niya sa relasyon sa pinuno ng FDI 2 ay salungat sa Code of Ethics ng Nestle. Ang masakit nito, ang reklamo nila ay hindi inaksyunan ng Nestle hanggang tuluyan nang nabangkarote ang FDI 2. Ang dahilang binigay ng NPI ay ang relasyon ng dalawa ay walang kinalaman sa kumpanya at pawang gawain lamang ng consenting adults.

Ang isa pang reklamo ng mga Pinoy partner ay ang hindi pagbabalik sa kanila ng milyun-milyong pisong dapat nilang matanggap tulad ng kanilang mga paluwal sa pag-promote ng mga produkto ng Nestle, withholding tax, pasahod sa mga extra personnel at iba pang mga bayarin. Imbes umanong tulungan, bagkus ay ini­pit pa ang Forefront at pinayuhan pang i-resign na lang nito ang pagiging distributor ng Nestle.

Binantaan pa umano sila na pati ang kontrata ng sister company nitong SEDI ay babawiin din kung hindi sila susunod sa kagustuhan ng multinational. Dahil kapit sa patalim at nalulugi nga ay napilitan silang pumayag. Para naman may masabing consuelo de bobo, binayaran umano sila ng kaunti subalit pinapirma naman sila ng isang quit claim na nagsasaad na tapos na ang pananagutan sa kanila ng NPI, na hindi naman totoo.

Dagdag pa ng grupo, minamandohan din daw sila ng NPI na ibenta ang mga produkto kahit sa presyong palugi para patayin daw ang kumpetisyon, bagay na lalo nilang ikinalugi sa dahilang hindi nila kinayang mabawi ang mga gastusin nila para sa gasolina, trucking, taxes at loan interest. Ang direktibang ‘yun ng NPI ay ang tinataguriang predatory pricing.

Dahil sa mga demandang isinampa sa kanila, mukha yatang mahuhubaran ng maskara ang tila doble-karang multinational. Balatkayo at pakitang-tao lamang ang lahat ng sinasabi nilang corporate social responsibility o pagtulong sa mga komunidad na panay ang labas sa media. Nahaharap sila ngayon sa kasong unfair trade practices, perjury, offering false testimony in evidence at predatory pricing sa Makati at Quezon City. Bantayan din sana ang kasalukuyang CEO ng NPI na si John Miller at baka makaalpas din ito tulad nina Nandkishore at Nozcek.

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Basahin ang aking mga kolum sa www.duckyparedes.com/blogs. Mag-email sa duckyparedes@yahoo.com."