Business integration squeezes out SMMEs
As business integration and competition dialogue deepens on the local economy, divergent views are popping up on the issue. This comes at the backdrop of Competition Authority (CA)’s governing Act allowing both horizontal and vertical integration. However, some quarters of the business community fear that virtual integration is swallowing emerging and existing small micro medium enterprises (SMMEs) at the expense of creating efficiency and sustainable businesses.
The death of general dealers across the country is one of the examples that has been cited, as a negative outcome of integration, where most Fast-Moving Consumer Goods (FMCG) have backward and forward integration within their system. For example, a retailer competes with general dealer entrepreneurs yet the established store also owns either a wholesale or manufacturing plants for certain brands.
The SMME community is pinning hope on policymakers to make a move on the seemingly anti-competitive practice in the economy. On the other hand, CA believes vertical integration is a business strategy that allows competitive prices, encourages innovation, improves quality and would give local products exposure to international markets, though aware of the negative that the approach carries. “Virtual integration has been studied by economist over the years and found to be somewhat a double edged sword,” said Enerst Bagopi, Manager, Investigations and Research Analysis
Bagopi says currently the law only prohibits resale price maintenance in any virtual integration arrangement. “Every business should have the prerogative to set own price, only a recommended resale price can be set,” said Bagopi who acknowledges that CA is aware that virtual integration can also promote foreclosure and margin squeeze.
Bagopi said though virtual business integration has both negative and positive effects, the local economy should find ways to embrace it. “Though virtual integration may be good for the economy; it may also be bad. It is here to stay and we need to work around how it can benefit us. “Therefore it is important for the economy to have strong structures in place in order to deal with business strategies of this nature and find how they can benefit the economy at large,” said Bagopi.
He said businesses are ever on the lookout for ways to minimise costs, ensure consistency quality of inputs and always doing the best to ensure that there is consistence of supply.“It is important to embrace these realities,” emphasized Bagope. Botswana Millers Association Chairperson, Nkosi Mwaba believes that though integration is a good business strategy, SMMEs should also be given an opportunity to survive and thrive on the local market. He said SMMEs play an important role on socio-economic development of the country. “SMMEs are very critical to our economy, but dominant businesses are not doing enough for the SMMEs, as an industry. “We are empowering South African SMMEs than our own. Our strategies are not geared to support our own SMMEs,” bemoaned Mwaba.
He warned that the dominant forces have the money to integrate and squeeze out SMMEs, creating a lot of work opportunities but not opportunities for SMMEs to grow and perfect their craft,” said Mwaba. He reiterated that if the nation is looking for socio-economic development it cannot leave out SMMEs.
Economist Senye Obuseng at Speck Dynamics said making an informed decision on the impact of virtual integration on the local market needs much more empirical evidence. “We cannot come out and say it is good or bad, we need to understand what motivates companies to integrate. There may be gaps that require one to integrate either forward or backwards,” said Obuseng.
Obuseng further said if the country’s concern is SMME development, competition policy should not be burdened with the responsibility of achieving some of the fundamentals that the nation wants to deal with such as market failure.