Collaborating with competitors during times of adversity

June 24, 2020
Mohammed Alnashri
Mohammed Alnashri

By Mohammed Alnashri

The ongoing COVID-19 pandemic has caused major disruption to the global supply chain with many countries closing down their borders and imposing austere restrictions on the movement of people and goods.

Large industrial countries like China have witnessed a 17% drop in their total exports during the months of January and February, compared to the same period last year as reported by the World Economic Forum.

This was mainly due to extreme precautionary measures taken by governments around the world to contain the spread of the virus, forcing many businesses to seek alternative solutions to ensure operational continuity, and maintain uninterrupted flow of food and medical supplies.

Among these solutions is horizontal collaboration, which refers to an arrangement where two or more competing companies form an alliance, and work jointly to co-create value and achieve a mutually beneficial outcome. Many studies have shown that such partnership has proven effective in reducing cost, and increasing operational efficiency through resource sharing.

Thus, businesses were encouraged by governments, through the temporary easing of competition laws, to collaborate with their competitors in order to prevent any possible shortage of supplies, for instance; large supermarket chains in the UK were permitted to share some information, facilities, staff, as well as transportation fleet with their competitors to meet the rapidly increasing demand for food and other essential items.

Similarly, companies operating in the healthcare industry were allowed to coordinate production activities, and exchange information that would facilitate more accurate demand projections and inventory planning of essential items.

It is important to note that most of the aforementioned activities were prohibited under the European Union competition law prior to the COVID-19 pandemic due to the catastrophic impact such actions would have on fair trade, where big players could potentially dominate the market and create barriers that prevent small businesses from having a fair chance to compete.

Therefore, the EU competition commission created a comprehensive guideline, following the relaxation of some of the competition laws, to mitigate any confusion that might lead to unethical exploitation of this crisis by businesses.

According to this guideline, competitors are allowed under the current circumstances to improve their products and services through joint research and development, which was very limited before under the competition law.

In addition, companies are now allowed to coordinate distribution and logistics activities of essential items, like food and medical supplies. However, all parties involved in the collaboration must refrain from sharing any business-related sensitive information between them.

Moreover, the joint purchase of essential items is also temporarily permitted to allow companies to achieve economies of scale, and significant cost savings on transportation.

Finally, regulations pertaining to lobbying various government agencies were eased in order to enable the development of a more coordinated response to this health crisis between the government, and the private sector.

However, engaging in any of these activities is restricted to situations where it is very necessary in ensuring efficient production and supply of essential items during these challenging times.

In order to ensure regulatory compliance, competition authorities around the world are closely monitoring the market for any infringements of competition laws, for instance; authorities in Brazil are launching an investigation into a number of pharmaceutical companies for increasing the prices of some essential medical and hygiene supplies, such as hand sanitizers and masks.

Similarly, Russia is investigating a number of distributors involved in a price cartel on some essential protective equipment. Furthermore, in Kenya, authorities are going so far as to order some retailers to issue refunds to customers for charging above the normal prices on certain hygiene products.

Therefore, businesses planning to engage in a horizontal collaboration must behave in a responsible manner, and refrain from monetarily exploiting the crisis at the expense of consumers and small businesses.

Additionally, they are advised to ensure a thorough documentation, and justification, of the reasons behind choosing to collaborate on any of the aforementioned activities, in order to avoid facing any legal repercussions as a result of violating competition laws.

— Mohammed Alnashri is a business management lecturer at the University of Jeddah. He is currently undertaking a PhD in logistics and supply chain management at the University of Sussex in the United Kingdom. Twitter: @MohAlnashri90

June 24, 2020
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