Foreign multinationals in the Philippines, such as Nestle Philippines, which are in the habit of setting minimum prices for their products to be sold by local distributors and retailers, without factoring actual distribution costs, actually threaten to short-change consumers.
When the multinational sets a low price, the local distributor and retailer has to work harder to erase that market impression that a cheap product is of inferior quality. The Filipino SME, which is typically the distributor or retailer for such giants like Nestle, are pressured to more aggressively market the goods so that consumers will associate those goods with a high level of service and high quality.
In the end, unfortunately, only the manufacturer benefits from such vertical arrangements. On the part of the distributor, profit margins remain at a minimum as they have to pour in more for marketing and promotional initiatives – in addition to the distribution and operational costs. Bearing costs for these aspects also means that the distributor may no longer have the means, manpower, and capabilities to actually provide the high level of service associated with how the products are marketed. The Filipino end user, or consumer, ends up paying more for goods because of aggressive marketing, only to receive lower quality service simply because the distributor is not equipped to provide anything better in the first place.
These vertical agreements, most commonly executed through the practice of vertical price restraint, are prejudicial to all parties concerned – except for the manufacturer. Otherwise, such arrangements will just result in productive inefficiency. Productive inefficiency occurs when there is higher production costs incurred, with no competitive forces to reduce costs to the lowest possible level. This is precisely why there is such a strong and urgent need to pass a stronger and tougher anti-trust law to monitor and safeguard against such vertical arrangements.
"IT’S good to know that not everyone in the Senate is taken up by the investigation into the corruption in the military. While that is also important, the reality is that this investigation may just eventually peter out and, as a lot of other legislative investigations "in aid of legislation" have gone, this one could still go the way of a lot of similar investigations that never even merited an official report in the files of the Senate or the House, much less any attempt at legislation that could cure what was investigated.
Hopefully, these will lead to a time when we will be proud of an uncorrupt military, police and government. For that to happen, however, we would need five of six presidents whose holy grail is the "daang tuwid."
In the event that the one after P’Noy is not committed to taking to the straight and narrow, there goes the PH!
Thus, it is good that the Senate has not placed all of its eggs in that one basket ad that Sen. Manny Villar is trying to pass an anti-trust law through the Committee on Trade and Commerce, which he heads.
This is certainly a welcome development, as the Philippines does not have any comprehensive anti-trust law to protect business owners or consumers.
The Department of Trade and Industry (DTI), the line agency that is tasked to look after trade and business operations, as well as consumer welfare, does not have the legal ammunition to fight unfair trade practices.
This is precisely why the DTI or relevant government agencies have been ineffective in dealing with or prosecuting blatant price fixing by players in certain industries.
The Competition Act of 2010 was proposed by Senate President Juan Ponce Enrile, and co-authored by Senators Ralph Recto and Antonio Trillanes.
The public forum also focused on related bills, namely, SB 123 authored by Sen. Sergio Osmeña III, SB 1838 filed by Sen. Miriam Defensor Santiago and Senate-Proposed Resolution No. 123 by Villar urging the holding of an inquiry on cartels and monopolies. These long overdue proposed antitrust measures seek to penalize unfair trade, anti-competitive practices and the abuse of dominant power by certain institutions – a.k.a. monopolies, cartels and some big, bad MNCs.
During the forum, Atty. Lorna Kapunan, a friend and one of the champions of this issue, presented a critique on existing legislation on anti-trust. She explained that while there are some existing laws that touch on anti-trust, the provisions do not provide clear-cut guidelines or evidence to determine whether an act constitutes unfair competition, monopolistic behavior or restraint of trade.
Speaking from experience, she shared with legislators the fact that some multinational giants often act like bullies and take advantage of the leniency present in the Philippines in order to get away with violations like predatory pricing.
Kapunan bared the ugly truth that it is very hard to do business in the Philippines if you are a Filipino. Given this bitter reality, it is high time we protect the interests of local entrepreneurs simply because SMEs are the backbone of our economy.
Let’s pass stricter laws that will protect the weak – the Pinoy dealers --from the double dealing and bullying multi-nationals that this column has been writing about for the last several years."
If it is has been established (here and here) that vertical price agreements in the Philippines are obviously huge burdens on Filipino distributors and retailers, then why do these guys stick it out with the multinational corporations (MNCs) to begin with?
Well, in the case of Nestle, its distributorship agreements usually promise market support to its local distributors/retailers. Armed with these promises, the SMEs pour in hundreds and thousands of pesos in setting up their operations, and in fulfilling their end of the distributorship agreement. Having infused so much capital to get their operations underway, it is often difficult for these Filipino SMEs to stop midway, call foul, and just back out of the whole thing. Not only would there be breach of contract involved, but these SMEs, naturally, hang on in the hope of turning a profit, and to avoid any further loss of investment. In short, their hands are tied. Plus, there is always the threat of having the multinational pre-terminating or refusing to renew the distributorship before the SME recovers from its investment.
Such vertical agreements also have an impact on consumers. From the point of view of the SMEs, once Nestle, for instance, sets a minimum price, the Filipino retailer/distributor generally has to market the goods more vigorously and creatively since lower prices are usually associated with lower quality. This is especially problematic when marketing and promotional support from the manufacture wanes throughout the existence of the distributorship agreement. So the Filipino SME, like a martyred spouse, sticks it out with the abusive other half.
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