Competition is necessary to foster efficiency and innovation, as well as provide people with better alternatives, quality, and prices. The Hong Kong Competition Ordinance is a measure introduced to make sure that companies are competing on an even playing field and aren’t trying to eliminate their competition. This ordinance is a new piece of legislation set to come in on 14 December 2015. There are four arrangements that businesses, including SMEs, shall never do so with their competitors.
4 Practices that SMEs should Prevent
#1 No Price Fixing
The no price fixing agreement also includes the creation of a formula that will calculate prices, or things that affect price such as discounts, rebates, promotions, and credit.
#2 No Restricting Output
This includes restricting the amount or the types of a particular good or service to make sure everyone has everything available to them.
#3 No Sharing of Markets
This includes allocating customers based on the products they buy or where they live, agreeing to not compete for each other customers, and also agreeing to not encroach upon the territory of another business.
#4 No Rigging of Bids
This includes agreeing on who should win a bid and supporting the winner by not bidding. It also includes the withdrawal of a bid and entering a bid that has a higher price or terms deemed unacceptable. SMEs also need to be on the lookout for other practices that and arrangements that can harm competition including:
3 Arrangements that SMEs should Watch out
#1 Sharing of Information
Businesses will often share information and it is a completely legitimate business practice. However some information, such as commercial secrets, shouldn’t be shared as it can damage competition. Commercial secrets include things like future prices and customer data.
#2 Doing a Joint Venture
A joint venture is when two or more groups work together to deliver something that they wouldn’t be able to do on their own. It’s a good business practice, especially for an SME. However when you do a joint venture your competition learns a lot about you and can use this information unfairly. This is especially true of commercial secrets and other information that shouldn’t be passed between two companies.
#3 Making Agreements with Customers and Suppliers
SMEs commonly make agreements with their customers or their suppliers. These agreements are known as vertical agreements and aren’t that harmful to competition. However a vertical agreement that restricts a business’ ability to compete, such as one that restricts their pricing options, can damage competition. An agreement made between a supplier and customers can also damage competition, especially in a case where one of them has market power.
If you’d like more information about how you and your company can comply with the new Competition Ordinance you can refer to a publication put out by the Competition Commission in Hong Kong. While it is true that SMEs stand to benefit from the new Competition Ordinance they must also adhere to the regulations set out by it and avoid practices that can harm competition. If an SME feels that a large business is hindering their ability to compete, such as with anti-competitive conduct and restricting their ability to innovate, then they can raise a complaint with the Competition Commission.