Malaysia offers an innovative and dynamic business environment and competition is regarded as beneficial to business and economic development. If you are interested in doing business in Malaysia, you can rest assured that competition in the business environment is thoroughly regulated.
The Malaysian Competition Act of 2010 and the Competition Commission Act of 2010 regulate and control anti-competitive conduct by businesses and protects consumers and businesses against monopolies and dominant market players.
The Act focuses on two main areas:
It should be noted that the Act does not apply to commercial activities that fall under the Communications and Multimedia Act 1998 and the Energy Commission Act 2001.
Section 4(1) of the Act prohibits vertical and horizontal agreements between businesses with the object or effect of significantly preventing, restricting, or distorting competition in any market for goods or services. In simple terms, the Act prohibits anti-competitive agreements.
“Agreement” in the Act refers to both written and oral agreements.
Horizontal agreements refer to agreements between two businesses that operate on the same level in the business chain. It could be between manufacturers, wholesalers, or retailers.
The Act lists a few specific examples of horizontal agreements that are deemed to be illegal.
Examples include two retailers agreeing that they would sell the same product at the same price to consumers. So instead of competing and giving consumers a choice, they fix the price. Or two shopping mall owners agreeing with each other to only let space to specific clothing retailers whilst excluding others, or new entrants to the market.
Vertical agreements are between businesses that are at different levels in the business chain. For example, a wholesaler agrees with a retailer that the retailer will only sell their products, or the wholesaler will not supply any other retailers in the area. The latter is called an exclusive distribution agreement. All such agreements could be considered anti-competitive; the effect is that retailers are not competing with other retailers, and consumers are limited for choice.
According to the Act, such agreements are only prohibited if they significantly prevent, restrict, or distort competition.
The Act does not tell us what “significant” means, but it is generally interpreted as “more than trivial”. Guidelines from the Malaysian Competition Commission indicate that an agreement is not significant if the combined market share of the competitors in that market is not bigger than 20% of the relevant market. So, if two small café owners agree to not sell their oranges for more than a few ringgit each, it won’t have a significant effect on the market if the local consumers can go to other suppliers in the area to buy oranges at whatever price. The small café owners do not make up more than 20% of the market. Their agreement is insignificant in the relevant market.
Yes, a party to an illegal agreement may be exempt from liability if the party can show that:
Parties can also approach the Malaysian Competition Commission to exempt an agreement from the prohibition under section 4 of the Competition Act.
Section 10(1) of the Act prohibits any business from engaging (independently or collectively) in any conduct that amounts to the abuse of a dominant position in any market for goods or service.
A business or businesses are in a dominant position if they have significant power in a market to adjust prices, outputs, or trading terms, without any effective “push-back” from competitors or potential competitors.
The Malaysian Competition Commission issued guidelines stating that a market share of 60% could indicate a dominant position. The Act, however, specifically states that market share in itself is not conclusive of whether the business is in a dominant position or not.
The Act lists specific conduct that will amount to an abuse of the dominant position. The list is not exhaustive. Examples of abuse of dominant position include:
An example of abuse of dominant position would be where ABC Technologies is the sole manufacturer of a specific part used by downstream businesses to manufacture specialised equipment. You are one of these downstream manufacturers. ABC Technologies owns another company, XYZ Machinery, which competes with you as a downstream manufacturer of the same equipment. ABC then refuses to supply the specific part to you, which puts you at a disadvantage to XYZ. You would have a strong case that ABC Technologies engaged in abuse of dominant position in the market.
Yes, the Act provides that if a business can justify its conduct on the basis that it is a reasonable commercial response to a competitor’s conduct in the market, the conduct is unlikely to be considered an abuse of dominant position.
When dealing with competitors, don’t enter into agreements with them concerning prices, manufacturing or marketing.
When dealing with customers, don’t engage in any discussions that could be regarded as an abuse of your position. Don’t discuss resale prices, impose restrictions, or conditions on purchasing any products, or attempt to limit your customer’s freedom to do business with others. Treat all customers the same.
When dealing with suppliers, don’t discuss your resale price with them. Don’t enter into any agreement that limits their right to sell to others, or your right to buy from others. Don’t accept a “special” price that could harm your competitors.
Failing to do business legally and competitively can be very costly to both you and your business. The Act authorises the Malaysian Competition Commission to impose severe penalties.
Although an infringement is not a criminal offence, the financial impact can be significant. If you are found guilty of an infringement, you may face a fine of up to 10% of the worldwide turnover of your business throughout the infringement. The exact amount will depend on many factors, including the seriousness, duration, and impact the infringement had on the competition and the market.
Although an infringement of the Competition Act is not a criminal offence, any interference with any investigation by the Commission, any tip-offs or threats against anyone involved, is a criminal offence that carries severe penalties.
Yes, the Act governs any conduct within Malaysia, plus any commercial activity outside of Malaysia if it affects competition in any market inside Malaysia.
So, if you are doing business in Malaysia or considering opening a business in Malaysia, you should make sure that you know the rules and regulations regarding anti-competitive behaviour. Whilst you have the assurance that your business will be protected against any anti-competitive behaviour by others or dominant players in the market, it is also essential that you do not engage in any conduct that could be seen as anti-competitive. The consequences of an infringement could be significant to you and your business.
If you are unsure or find yourself accused of anti-competitive behaviour, you should speak to a lawyer with experience in this field as soon as possible.