Regulation of Business Competition in UAE
Businesses are among the primary drivers of global economy through employment opportunities that boost the aggregate demand of any nation. The ability of the businesses to contribute to the economic growth and development of a country is dependent on its level of profitability. Businesses that are more profitable are able to employ a lot of people locally and internationally. Any economic or business-related aspect that affects businesses has the potential to enhance or destroy the economy. It is therefore crucial for the factors that affect business operations to be taken into consideration so as to realize the desired level of development. One of the factors that affect success of businesses is the ease with which they are able to penetrate a market. This is determined by a number of factors such as the monopoly power and bad competition in within the business environment.
To enhance the business environment, there is need to regulate the level of competition and monopoly power in the country. This is achieved through implementing government regulations that provide guidelines on formation of companies and other factors that may affect businesses such as unfair competition. By regulating the formation of mergers and acquisitions, the government ensures that the parties involved do not collude to control business resources that would guarantee them monopoly power. The UAE is one of the regions that have embraced the concept of regulation of business competition to stimulate and enhance economic growth and development in the region. The government aims at controlling monopoly power of businesses to allow fair competition in business. It ensures that business units operating within the country do not have too much influence on a particular industry.
This paper discusses the ways in which UAE government enhances economic growth by regulating the level of competition within the business environment. It defines the concept of regulation and provides a historical background of the concept in UAE. The paper also highlights the reasons why the UAE government intervenes in the UAE market and describes the unique features of regulation of competition in the country. The research also provides an analysis of the benefits and demerits of the involvement of UAE government in business. The overall assessment provided helps in developing the most appropriate recommendations that the government can use to contain the situation.
Main issue of the project
Business regulation can have both positive and adverse impacts on performance of business. The contribution of businesses to the economic and social welfare of the people is so significant that a government cannot afford to ignore the factors that affect success of businesses. It is the success in business that enables companies to penetrate new markets and have a global presence thus increasing their profitability. The success of a business unit is not only important to it but the entire economy of the country and the global economy as well. The main aim of businesses is to make high profits year after year and realize its long-term financial goals within the shortest time possible.
In the modern business world, gaining a global presence is among the priorities of many companies. This has intensified the level of competition in the business world where the inefficient companies do not survive in the sector. Companies are willing to take any possible measures to ensure that they benefit most from the businesses. Some of the actions that companies may take in a bid to remain in the market include formation of mergers that control resources thus creating monopoly power. Monopoly power may be manipulated to exploit businesses and consumers. It becomes hard for other firms to enter a monopoly market due to factors such as requirement of heavy capital investments. This works to the advantage of the monopoly company that dictates the supply and demand levels in the market. The consumers may be affected by getting low quality products at high prices. It is important to have competition in a business sector but for the monopolies this is not possible. To protect the interests of individuals and businesses, it is important to regulate the business sector thus ensuring that there is fair competition in the business.
Objectives of the project
The project aims to fulfill the following objectives:
- Provide a clear understanding of the concept of regulation.
- Discuss the history of regulation of competition in UAE.
- Explain the reasons for UAE government’s intervention in the market through competition.
- Describe the features of UAE competition regulation.
- Analyze the advantages and disadvantages UAE competition regulation for the government and the business.
- To make an overall assessment of the state of impact of competition regulation in the country
- To suggest the most suitable factors that may enhance fair competition in business.
Exploratory mixed method research methodology is the most appropriate given the nature of the objectives of the study. The methodology applies both qualitative and quantitative techniques in data collection and analysis. The methodology is suitable for areas of study that do not have many past studies. In the case of competition regulation in the UAE, there is extensive research that has been carried out on general needs for government regulation of business but there is limited study on the impact of the regulation on the government and businesses in the region. In addition, exploratory mixed method research is suitable in collection and analysis of data that is located in different locations. In the study, the data collected will originate from businesses and individuals from the entire country. The main advantage of using the exploratory mixed method research is guarantee of accuracy due to the combination of qualitative and quantitative data collection and analysis methods.
Data collection and analysis
Qualitative data will be collected using interviews that will be conducted on 100 businesses operating in different industries. The interviews will use open-ended questions to enhance the quality of responses provided. These types of questions do not limit the responses provided thus may provide new insights into the problem. The data collected from these interviews will be analyzed through coding. The method is easy to understand thus it is unlikely that the researcher will make any errors. Data showing similar trends will be labeled using different colors and then presented in bar graphs for easy interpretation.
Quantitative data will be collected using survey that will be based on close-ended questions. The study will be carried out on 100 businesses from various sectors that are regulated by the government. The main advantage of this data collection tool is the fact that the researchers will be able to determine the perceptions of the respondents towards government’s action of regulating competition in the country. This will most importantly be helpful in identifying the advantages and disadvantages of the regulation on businesses and the government. The data collected from survey will be analyzed using statistical software called SPSS that helps in identifying the regularities of the data. Unlike in qualitative data where the results will be non-numerical, quantitative data results will be numbers thus making it possible to use the SPSS. The method uses factor analysis that will be helpful in determining the reasons for government interventions in market through regulation of competition.
The level of correlation will determine the significance of the statistics thus enhancing the accuracy of data interpretation. The study will evaluate factors that may affect the reliability and validity of data such as the nature of the respondents in relation to government regulation and the consistency of test results. The study will also consider the ethical aspects that involve human respondents. The survey and interviews will only be conducted after the researchers get permit from the business owners or managers. Confidentiality of information gathered will also be guaranteed.
A suitable business environment is one that has a high level of fair competition with a few or no companies having monopoly power. Fair competition implies that companies practice the normal business activities and let the market forces drive trends such as demand and supply. It is a business environment where the supply and demand of commodities are not manipulated by a few firms at the expense of economic development in the region. There are various reasons that lead to regulation of the business sector. Among these reasons is the need to end the monopoly power that can lead to exploitation of other businesses and consumers. A few companies may merge and create a monopoly where they control various aspects of the business such as distribution channels thus affecting the profitability of other businesses.
The other reason that may lead to regulation of a business is the need to control the economy or market failure through appropriate monetary and fiscal policies. Regulation may also be meant to enhance collective effort in supply of public goods in the economy. Regulation also enhances the conduct of business in a given region as it promotes professionalism in the business sector. In some cases, regulation is meant to enhance equality among the employees by reducing the level of social subordination of some groups such as women and the youth.
Regulation of competition entails implementing measures that reduce the freedom of companies in their operations. Regulations may entail monitoring of the available business rules, creation of new rules, and limit of business privileges and allocation of responsibilities. The form of regulation used depends on the desired outcome of the government, for example, the government may create guidelines pertaining to the amount of products that a particular company can supply to the market a way of controlling monopoly power.
There are various types of business regulations that a government can use to enhance fairness and stimulate competition in the economy. Legal restriction by government authority is one type of regulation that requires businesses in a particular sector to adhere to the restriction in question. The restrictions may include the number of branches that a company can have within a given industry. Contractual obligations are other types of regulations that bind tow parties. The activities of the two parties are governed by the agreement, as they are not supposed to breach the contract. Self-regulation by an industry is the other way through which regulation can be achieved. Some of the aspects of self-regulation include certification, trade union agreements, and social regulations. The government can use various forms of regulation to influence the level of competition in the country. Among these regulations is the control of market entries to ensure that there are no sectors that restrict entry of other firms. The other aspects that the government has power to regulate include wages, prices, and pollution levels.
Historical background of competition regulation in the UAE
The competition regulations in the UAE are applicable to the domestic and foreign companies operating in the region whereby they are expected to fully comply. The regulations were enacted in 2012 after the government realized that there were an increasing number of companies that abused the anti-trust regulations in the country. The competition regulations were signed into law in 2013 and all the companies supplying or sourcing products from the country were expected to comply. The regulations are in form of government restrictions that control market concentration, abuse of dominant positions and restrictive contracts.
Rationale for competition regulation in UAE
The competition law was aimed at stimulating the economic status of the country. The attractiveness of a business environment is based on the level of competition in the environment. By regulating the business sector, the UAE government aims to attract foreign and domestic investors into various industries and this is set to enhance economic growth and development. Competition regulation is also aimed at improving the quality of goods and services that the consumers get from businesses (Steyn, 2013). Regulation of the market entry restrictions ensures that there are no industries where monopoly power reigns. The regulations are also aimed at enhancing sustainable developments in the country through economic growth and development. Regulations in the UAE are also aimed at reducing the number of firms that do not respect the dominant positions they hold. Such companies may exploit other businesses and consumers thus making the country an unattractive place for investors. The regulations also enhance the performance of businesses by restrictive market agreements that may threaten the freedom of other businesses in their operations. The guidelines on mergers and acquisitions are meant to reduce the impact of economic concentration. When a particular company gains a large controlling power in the industry, it is likely to abuse the power at the expense of consumer and other businesses.
Distinctive features of competition regulations in the UAE
The characteristics of competition regulation in different countries vary with their economic needs. The competition regulations in UAE do not apply to all the sectors within the economy. This implies that there are areas that are not regulated because they do not pose any danger to the economic success of the country (Steyn, 2013). The financial sector for instance is one area that the government does not regulate because it has given authority to a single entity to deal with issues of issuing currency to the financial institutions in the country. Firms that deal with activities such as garbage disposal and other environmental concerns are not regulated because the sector is not threatened by competition since it is not very profitable. Telecommunications is the other sector that the government opts not to regulate as the services are provided by a few companies. Oil and gas as well as cultural activities are other sectors that are not subject to the competition regulations. Land, air and water transport are sectors that are also excluded from the competition regulations.
The competition regulations do not allow any restrictive agreements that prevent or reduce competition. The law prohibits any actions that limit the prices of commodities with regard to sales or purchases. Companies that try to limit the conditions of performance or quality of products or terms of sale and purchases are penalized in accordance with the competition regulation. Collusion in tenders and other supply-related activities is not allowed as the tendering process must be transparent. The regulations also prohibit any activities of companies to collude against buying products from a particular business. Companies are also not allowed to segment their markets based on geographical areas. The competition regulations prohibit any actions by a business to restrict a new establishment into the market.
Benefits of the competition regulations for customers, businesses and governments
Customers are among the parties that benefit massively from competition regulations. The fact that the regulations prohibit companies from abusing their dominant positions ensures that monopoly power is under control. Due to the regulations, more companies are able to operate in the business environment, increasing the level of competition. The less efficient companies cannot survive in a highly competitive market thus to enhance efficiency, the companies embark on marketing strategies that improve the sales volume such as improving the quality of the products and offering the same at an affordable rate. Businesses also benefit from the competition regulations as they are able to enter the market without any restrictions. The fact that the regulations prohibit anti-competitive practices makes it easier for businesses to operate profitably. The government also benefits from the competition regulations in that it is able to provide public goods and services to the people without financial constraints. The success of businesses implies generation of more government revenue through taxes and the same revenue is used in provision of public goods and services.
Drawbacks of the regulation on consumers, businesses and governments
The regulations may scare away potential investors due to factors such as high cost of licensing and stern punitive measures for companies that do not comply. This may result in reduced number of companies operating in the country thus reducing the level of competition. A business environment where the level of competition is low does not guarantee high quality products to the customers. The low level of competition may also lead to reduced business profits due to reduced rate of economic growth and development that affects the aggregate demand in an economy. The government may not be in a position to provide public goods and services needed to enhance the welfare of the citizens, thus failing on one of primary goals.
The effectiveness of competition regulations in the UAE is affected by the fact that there are some unclear guidelines such as those relating to family businesses. Such businesses may merger without following the regulations on mergers and guidelines. The number of sectors regulated by the government is small compared to the country’s economy. To compete effectively with the GCC countries, there is need to increase the number of sectors under regulations. Although the regulations have some disadvantages, the advantages outdo the demerits thus it is likely that the country’s economic growth and development will increase with time.
To achieve maximum gains from the competition regulations, it is important for the UAE government to include more sectors. The regulations need to be revised to include aspects that are non-existent such as acquisition of family businesses. The government also needs to revise some of the restrictions imposed such as trading licenses to avoid scaring away potential investors.
Regulation of competition is an important aspect in determining success of a business. Companies may exploit the customers, other businesses, and the government by engaging in anti-competitive behaviors. Among these behaviors is a company’s abuse of a dominant position it holds in the market thus influencing features such as quality, price, supply and demand. Competition regulations in UAE have helped enhance the productivity of businesses by ensuring that there are no barriers to entry for companies in the regulated sectors. In addition, the regulations have made the country a desirable place for investors as it does not allow unfair competition. The issue of market concentration is not a problem in the country because the competition regulations provide a clear guide on business formation. The existence of these regulations does not imply success in business unless they are fully implemented. It is therefore the duty of the responsible authorities to ensure that the laws are implemented.
Steyn, W. (2013, December 1). New Competition Law in the UAE – Al Tamimi & Company. Retrieved from http://www.tamimi.com/en/magazine/law-update/section-5/january-2/new-competition-law-in-the-uae.html