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Unedited version of my column in yesterday’s Business Report: link to published version
Thinking about how South African companies compete in the marketplace, two conversations come to mind: one with a private equity veteran and another with a business science student. Over a cup of coffee, I remind Antony Ball of a talk that he gave a few years ago at Deloitte Consulting where he lamented the lack of competition in South African industry. He describes some of the behaviour that he saw in his career as a ‘small mining town culture’; where the prevailing impulse is to undermine one’s competitor, cut off their supply lines, tie up customers, and generally make it difficult for them to function. Competition becomes about how to handicap the competitor in tactics that do not add much value, not how to improve one’s own offering to serve the customer better.
Soon after hearing Antony Ball’s speech, I joined the Competition Commission. The case load of the competition authorities is a dispiriting catalogue of the many ways in which South African businesses shun merit-based competition. Some companies simply refuse to compete at all and form cartels. The bread and construction cases are well-known examples. Other companies seek to gain market share by engaging in behaviour that robs rivals of the opportunity to compete on a level playing field and ultimately deny customers the benefits of competition. Notable prosecutions for abuse of dominance include those against Telkom and South African Airways.
South African analysts pay disproportionate attention to labour market rigidities relative to those in product markets. It is often international institutions, like the OECD and the IMF, that consistently point to the high cost base that results from concentrated markets lacking competitive dynamism. This is not an issue of business versus government. Financing business, including start-ups, in such an environment, becomes a very risky proposition. It’s not only consumers that suffer, but investors too, who have to draw their returns from a limited pool of companies in a stagnant economy.
This brings me to the business science student. She asks me to set aside my ‘enforcement’ hat for a moment and don my ‘MBA’ hat. Do I ever encounter instances where I am moved to admire the strategic brilliance of a company’s conduct despite its illegality, she asks.
It is not a surprising question given how we are socialised to think of the business sphere as an amoral space where ‘anything goes’. But my answer is no.
The quiet life of the monopolist stunts the business mind. Breakthrough innovation is rare, but in an environment permeated by what is termed ‘handicap’ competition in the anti-trust literature, it’s almost impossible. To give an example, if the best response that managers in an airline business can conjure up to counter new entrants is to induce travel agents not to sell rivals’ tickets, what can we expect from them when the internet takes over as a sales channel? Certainly not brilliance; unused as such executives are to real competition.
Handicap competition involves improving the relative position of a company through under-handed means, without meaningful contribution to the economy. Competition on the merits, is in theory, what is being taught in business schools. This is the kind of striving that concentrates the mind on how to improve performance through providing better goods and services, lower prices or innovation.
Exclusionary and exploitative business practices will never be as good as those that seek to win on merit. Managers focus on their ‘territories’ and on policing cartels as opposed to becoming future-oriented. Diversity and transformation suffer because insiders have something to hide. It becomes difficult to integrate women into a ‘boy’s club’ that fixes prices on fishing trips on the Zambezi.
Yet it seems that introspection is taking place in some South African boardrooms. The financial and reputational costs of engaging in practices that break the law weigh heavily on the minds of business leaders. The question is whether this is enough to root out a mind-set of handicap competition.
Trudi Makhaya, a former management consultant and executive at the Competition Commission, writes in her personal capacity.
Part 3/3 of remarks made at UCT Young Women Professionals Dinner
I have touched briefly on the Rhodes Scholarship to Oxford. It continues to be one of the most prestigious scholarships in the world. About a week ago, we were in Oxford celebrating the 110th anniversary of the Rhodes Trust. Some of you may be aware of the criteria that the Rhodes Trust uses in selecting Rhodes Scholars. I went through that process twice so I have had to think hard about those criteria.
In crafting his will, Rhodes came up with an interesting framework for evaluating potential, and in a way, success. I find myself coming back to his formulation even as I think of my life now.
In his will, Rhodes made it clear that his scholarship was not meant for ‘bookworms’; he wanted all-rounders. The qualities he sought in a potential scholar were: 1) literary and scholastic attainment; 2) fondness and success in manly outdoor sports (I think of this as a symbol for vitality and teamwork), 3) qualities of manhood, truth, courage, devotion to duty, sympathy for and protection of the weak etc. and 4) moral force of character, an instinct to lead and likely to esteem to performance of public duties. In modern and general terms, one can think of these as academic and later professional success, vitality and teamwork, compassion and leadership skills. In approaching any stage of life, I think these are important axes to plot one’s life against.
I implore you to ask yourselves these questions as you conduct your lives: am I achieving as much I can? And am I achieving it through respectable methods, in community with others, and taking care of my health and wellness? Am I taking the honest and courageous path? Am I compassionate? Am I exercising the leadership that is required of me, and also beyond that?
Rhodes Scholars are encouraged to fight the world’s fight. As talented women, I urge you to do the same.
I also implore you to equip yourself psychologically and spiritually for your career. We often approach our careers with a very academic model in our minds. You work hard, you are acknowledged, you get your gold stars and move on to the next level on the hierarchy. No-one talks about screaming matches in boardrooms, protests and manifestos, failed projects and constant daily struggle to get things done. For example, unless you are an industrial relations major, there is little in a conventional education that can prepare you for the type of discourse and emotion that has seeped into our industrial relations even in professional settings. You have to be resilient whichever side of the placard you find yourself on.
I would now like to address the future entrepreneurs in the room. We are told that feminine qualities are becoming highly valued in the business world, and that this will be the woman’s century. I hope that’s true. But however welcoming the climate, as an innovator, as a risk taker, you will start off as a David amidst Goliaths. Speaking as a competition practitioner, I will caution that in many industries, you will need to be prepared to blow stuff up, as Cindy Gallop, a phenomenal US-based entrepreneur often says. Blow stuff up. She uses a more colourful word for stuff of course.
Because in South Africa, and in many other emerging markets on the continent and elsewhere, you will quite likely confront many barriers to entry. Never mind gender and race. You will find supply chains tied up by former state monopolies. You will find menacing cartels that either shut you out completely or try to co-opt you, sometimes using the threat of force. You will also find those seeking to acquire your business, not to develop it, but to take out a maverick.
Nine months into 2013, the Competition Commission has scored some crucial successes in its endeavour to achieve the ideal of fair and efficient markets. We concluded a ground-breaking industry-wide settlement in the construction industry, which saw 15 companies come forward to disclose and settle cases related to bid-rigging in that industry. Bid-rigging distorts competition as companies create the illusion of rivalry, whilst dividing contracts amongst themselves behind the scenes. Instead of the best company winning a contract, a sham process has already occurred and the client is none the wiser. Projects that were rigged ranged from World Cup stadia to roads, shopping malls, industrial plants and apartment blocks. This behaviour hurts the government department that is seeking to develop infrastructure for a community or the entrepreneur trying to build a factory.
We also settled a long-running case with Telkom. This was a case of abuse of dominance as Telkom’s behaviour excluded value added network service providers from competing in the market. This R200m settlement, which also came with some pricing and behavioural commitments, followed a R449m penalty imposed on the company last year, for similar behaviour spanning a different time period.
Finally, I would like to remind us all that public service is something worth aspiring to. It’s not all gloom and doom. According to the World Economic Forum (WEF) Global Competitiveness Report of 2013-2014, South Africa is ranked 8 out of 148 countries for the effectiveness of its anti-monopoly policy.
South Africa’s competitiveness was ranked 53 overall. Commissioner Shan Ramburuth has remarked that this is an acknowledgement of the enforcement record of the competition authorities.
The Global Competition Review (GCR) 12th annual survey of the world’s competition authorities rates the Commission at three stars, in the same league as Switzerland, Norway, Ireland and Russia amongst other countries. Our institutions need talented individuals to take them forward.
We cannot claim that we have rid the economy of anti-competitive behaviour. But I would like to think that the work of the competition authorities, modest as it might be in the face of the challenge, has opened up fields for you to cultivate.