Competition Regulation and the SME
Sector: Some Implications For All
Regulators
Dr Michael Schaper, Deputy Chairman
Australian Competition and Consumer Commission
michael.schaper@accc.gov.au
“SME Regulation: Building Better Policy” policy symposium
Massey University, Wellington, New Zealand
Thursday 20 September 2012
Overview
1. SMEs and Regulation
- Growing demands
- Different worldviews
2. Competition Regulation and Small Firms
- What it is and why we do it
- SME specific issues
- Micro impact
- Macro-level impact
3. Some Reflections and Observations
- Key issues
- Some future research directions
1. SMEs Face A Growing Array of Different
Types of Regulation
These can be both generic…
• Occupational health & safety (OHS)
• Labour laws
• Environmental
• Corporation laws/corporate governance
• Zoning & planning
• Taxation
• Competition
...+ their own industry-specific rules:
• Specific Acts and statutory rules
• Industry codes of conduct (voluntary/mandatory)
...and the volume of regulation also grows
NSW
Vic
Qld
SA
WA
Tas
NT
ACT
Acts
32,700 44,200 49,400 16,500 40,700 13,200 17,000 21,800
Statutory
Rules
7,700
Total
40,400 56,800 65,000 25,000 63,500 25,200 21,000 29,600
12,600 15,600 8,500
22,800 12,000 4,000
7,800
Number of regulatory pages across Australian states/territories in 2007
Source: Productivity Commission, Australia (2008:32)
The Different Worlds Of Regulators And
Entrepreneurs
Regulator
SME Owner-Manager
Education
Law, economics,
public administration
Highly variable
Accountability
Public
Private & personal
Work background
Public administration
Private sector
Industry experience
None or minimal
Extensive
Knowledge of laws
Extensive
Ad-hoc
Reward basis
Ensuring full
compliance
Penalty avoidance
Cost of regulation
Nil
Usually total
Regulatory focus
Narrow; specific
Whole of business
Timeframes
Lengthy
Short
Problems For Regulators Dealing With The
SME Sector
Small firms:
• Limited membership of industry associations
• Subject to high levels of churn
• Lack specialist regulatory compliance skills
• Suffer from information asymmetry
• Hard to detect breaches and non-compliance
• Court-based legal processes: their strengths and weaknesses
• The need for alternate dispute/grievance resolution mechanisms
Internally within the regulatory agency:
• Lack of practical industry experience
• Excessive legalism/conservatism in external liaison
• Over-focus on responsibilities; little mention of rights
Regulators need to emphasise rights as well as responsibilities
2. Competition Regulation
The range of laws, policies, institutions and procedures
enacted to produce particular market outcomes in a
society
Varies from nation to nation, but usually covers:
• Merger & acquisition approvals
• Policing of anti-competitive behaviour (cartels, pricefixing, market collusion, third-line forcing)
• Supervision of regulated industries/natural monopolies
(telecomms, postage, transport, infrastructure)
• Consumer protection (misleading & deceptive conduct,
pyramid selling, bait advertising, product safety)
• Pricing, warranties rules
Does Competition Regulation Help or Hinder
SMEs?
In theory:
• Free and fair competition central to
entrepreneurial success
• Allows new, dynamic firms to access markets
• Allow new innovations to market
• Give consumers greater choice
• Culls ineffective firms
…all part of Schumpeter’s notion of creative
destruction
...But SMEs Often Have Unique Problems
•
•
•
•
•
•
•
•
Geographically limited
Possess a limited product and service range
Limited market share
Subject to high levels of churn
Suffer from information asymmetry
Less likely to access established suppliers
Usually unincorporated
Limited access to skilled advice
Competition regulation therefore has an impact at both the
micro and macro-level
Source: M.T. Schaper (2012) “Competition Regulation, Open Markets and Small Business” European Competition Law Review, No.8, pp.333-338.
A Key Issue...
Should competition regulation seek to provide a
“level playing field” (everyone has an equal
chance)
or…
Assume that SMEs are at a disadvantage, and
give them special protection?
Do we protect competition, or the competitors?
Micro-Level Impact of Regulation:
How Do SMEs Respond To Competition Law?
UK evidence:
• 1/3 of firms are aware of anti-competitive
practices
• Most likely response is to “get on with it”
• SMEs prefer to compete or ignore threats,
rather than report to regulators
• Larger firms more likely to work with
regulators than small, micro-sized ones
Source: Storey, D.J. (2010) “The Competitive Experience of UK SMEs: Fair and Unfair” Small Enterprise Research Vol.17
No.1, pp.19-29.
It can be tough out there…
The Australian Experience
• Approx. 2 million trading SMEs
• The ACCC receives about 5,500 queries from SMEs per annum –
40% are just queries/request for more info and 60% complaints.
• We also get about 2,000 complaints by consumers against SMEs
each year.
• Common issues of concern for SMEs:
– Contractual disputes
– False & misleading claims by other businesses
– Queries about consumer guarantees and refunds
– Advertising and pricing issues
– Possible business scams
– Complaints manufacturers or distributors have refused supply
Do SMEs Exercise Their Legal Rights?
• SMEs often unaware of their rights & obligations
• Most firms don’t want formal legal redress – just
an effective resolution of their problems
• Often unable/unwilling to collect necessary
evidence
• Litigation is time consuming…
• …and expensive
• Informal settlements & undertakings often
more effective
• Often unaware of alternate dispute resolution
mechanisms available (i.e. mediation)
Macro-Level Impact of Competition Regulation:
Is It A Common Good Or A Detriment?
The common assumption:
…when regulators force markets to open up
and industry protection is removed, SMEs
will be squeezed out of existence by
bigger, more aggressive competitors
Is this true?
Extending Competition Regulation: The
Australian Example
1974-1995: Australian competition laws did not
apply to most SMEs: sole traders, partnerships
and the professions were exempt
Most of these were micro-firms
1995: Australian laws harmonised to extend
coverage to all these groups
…A giant laboratory experiment
So, what happened to them?
Competition Regulation Changes
Lead To Growing Business Numbers
2,500,000
2,000,000
Small
Medium
Large
1,500,000
1,000,000
500,000
0
1983
1999
2007
So, What Happened?
Total number of SMEs grows substantially:
1995: 930,000 SMEs in Australia
2005: 2 million SMEs
Proportion of micro-businesses also grows:
1995: 80% of all firms
2005: 84%
Open market regulation lead to growing
numbers of small businesses
3. General Observations
• Overall level of regulation is growing
• Regulators and SMEs often do live in different
worlds
• Need to consider both micro-level and macrolevel impacts of regulation:
– Individual firms often just manage “as best
they can”
– ...or laws may just be irrelevant to many
– But can also help the sector as a whole
From SME Advocate To Regulator:
Some Personal Reflections
• SMEs are not big firms – tailor your approach
• Need to explain both rights and responsibilities
• Outreach & education must be on-going and tailored to
needs of SMEs
• Enforcement must be appropriate & proportional
• Still need to do more evaluation of our effectiveness
• Need more SME champions on regulatory decisionmaking bodies
• Regulators need more practical industry experience
Possible Areas of Useful Future Research
Perceptions and knowledge:
• What opinions and preconceptions do regulators have
about SMEs?
• How much do SMEs know about their regulatory
responsibilities (“regulatory literacy”)?
• How do we effectively disseminate info to them?
Influence of third parties:
• What impact do industry groups (and others) have on
the ability of SMEs to comply with regulation?
Regulatory compliance:
• What is the real level of burden & impact of increased
compliance?
• How frequently do SMEs really comply with the law, or
just ignore it?
www.accc.gov.au