A guide to competitive collaboration

The Competition Commission (Commission) recently published its draft guidelines on collaboration between competitors and local initiatives (the Guidelines) to give further effect to the South African government’s Economic Reconstruction and Recovery Plan (ERRP) which aims to increase local production and procurement of products/goods and, in doing so, stimulate economic growth. Interested stakeholders are invited to comment on the Guidelines by 27 September 2021.

The Commission recognised that collaboration amongst competitors may be required to advance the localisation initiatives of the ERRP and therefore developed the Guidelines to guide business and government on how collaboration can take place in a manner that does not fall foul of section 4 of the Competition Act, which prohibits cartel conduct and any agreement between competitors which has the effect of substantially preventing or lessening competition. The Guidelines do not, however, permit the exchange of competitively sensitive information (such as prices, customer lists, production costs, sales volumes, capacities, business plans, etc.) amongst competitors and provides that an independent facilitator (a person or firm (including government) with no direct or indirect commercial links with the industry or firms involved) play a central role in facilitating collaboration and ensuring that section 4 of the Competition Act is not contravened.

The Guidelines do not provide for an authorisation process in terms of which the Commission authorises collaboration in terms of the Guidelines. The Guidelines therefore do not envisage the Commission playing a central role in the enforcement of the Guidelines and the Commission’s involvement appears to be focused on playing an advocacy and oversight role. This is a welcome development as business would therefore be able to self-assess whether it complies with the Guidelines which is likely to result in a more efficient process and outcomes. However, the Guidelines require that the Commission must within a reasonable time be informed of collective discussions on localisation initiatives and minutes of all discussions must be kept and made available to the Commission upon request.

The Guidelines record that collaboration relating to localisation initiatives may involve the following:

• the identification of opportunities for localisation initiatives;
• the process of setting industry local procurement targets;
• the process of setting individual firm local procurement targets; and
• demand forecasting.

1. The identification of opportunities for localisation initiatives

The scope for localisation of an identified product may necessitate collaboration between competitors which discussion must be facilitated by the independent facilitator. The independent facilitator must determine the aggregate level of localisation across the industry and the scope for increasing it. In order to achieve this, the facilitator can arrange for the exchange of aggregated information on volumes, but no firm specific competitively sensitive information (e.g. prices, procurement or business plans) may be exchanged.

If there are prospects to increase localisation of a particular product, then the setting of industry localisation targets may be agreed on.

2. The process of setting industry localisation targets

The setting of industry localisation targets must be led by the facilitator who must also determine the industry target. In order to do so, the facilitator can arrange for the exchange of aggregated data amongst competitors and can collate competitively sensitive information from each individual firm, but may not share the competitively sensitive information amongst competitors.

3. The process of setting individual firm local procurement targets

The setting of an individual firm’s localisation target in implementation of a localisation initiative must be conducted on a bilateral and confidential basis between the facilitator and the individual firm. In doing so, the facilitator may collate competitively sensitive information from individual firms, but may not share the competitively sensitive information amongst competitors. Progress reports on the achievement of the individual firm’s localisation plan must be submitted to the facilitator on a bilateral and confidential basis, whereafter the facilitator may aggregate the information for dissemination.

4. Demand forecasting

Suppliers may also be provided with demand forecasting guidance in the form of aggregated information to facilitate industry planning against the availability of the input and supply commitments. Although not expressly mentioned by the Guidelines, the facilitator will play a central role in collating the relevant information and circulating same to suppliers.

Please let us know if you have any questions.