In the market economy, when competition between businesses is an effective lever to promote socio-economic development, businesses that want to survive in the market require potential along with the right business strategy. Therefore, besides improving competitiveness through endogenous growth (technology development, improving management organization, etc.), enterprises also maximize their economic potential through exogenous growth. Specifically, exogenous growth is realized in the form of economic concentration. It can be said that economic concentration is an inevitable thing in the market economy, because businesses want to meet the needs of technology, finance or capital, etc. but beyond their capacity. At this time, economic concentration is a suitable solution. However, besides the positive effects, economic concentration will sometimes bring negative effects on the market structure and may appear dominant enterprises in the market. Therefore, the competition law corridor in our country also has specific regulations to control the economic concentration of enterprises. Within the scope of this article, we only focus on exploiting the legal issues surrounding economic concentration in the legal regulation of competition law in Vietnam.
1. What are the legal characteristics of economic concentration?
Under the definition by the Organization for Economic Cooperation and Development (OECD), an economic concentration is a situation when a small number of firms or enterprises account for a large proportion of economic activity such as total sales, assets or employment (Glossary of Statistical Terms: https://stats.oecd.org/glossary/detail.asp?ID=3165). The Competition Law of Vietnam does not provide a specific definition of economic concentration, but it also provides the forms of economic concentration specified in Article 29 of the 2018 Competition Law, including:
(i) Merger of enterprises;
(ii) Consolidation of enterprises;
(iii) Acquisition of enterprises;
(iv) Joint venture between/among enterprises;
(v) Other categories of economic concentration as per the law.
Thus, it can be seen that the approach of the Competition Law 2018 on economic concentration is quite similar to the understanding of the OECD. From there, we have the following basic legal analysis of competitive concentration:
Firstly, the subjects conducting economic concentration activities are enterprises. Businesses must exist independently and operate in the same or not the same industry. According to Article 2 of the Competition Law 2018, business organizations and individuals are subjects of economic concentration. However, according to the current Law on Enterprises and Law on Cooperatives, the form of merger or consolidation can only be carried out when the subject is a limited liability company, joint stock company, partnership or other contracts. cooperative. The subject of economic concentration must be enterprises, from which it is possible to distinguish economic concentration activities of enterprises from investment activities in many enterprises by individuals. The fact that individuals contribute capital to many enterprises and are the owners of many business establishments is considered a form of investment and not an act of economic concentration.
Secondly, economic concentration is implemented in the following forms: merger of enterprises, consolidation of enterprises, acquisition of enterprises, and joint ventures between enterprises. It can be seen that the nature of the form of consolidation and merger of enterprises is the reorganization of enterprises, whereby businesses that already exist separately in the market will transfer all assets, labor, and technology,.. to form a unified enterprise in order to promote the economic/competitive capacity of the enterprise after the implementation of economic concentration. Meanwhile, the form of acquisition or joint venture is applied to link ownership. Accordingly, one of the entities participates with the purpose of owning the whole of another enterprise or owning a part sufficient to control and dominate the operation of one or the entire industry of the acquired enterprise or joint venture.
Thirdly, the results of economic concentration contribute to promoting economic potential and affirming the competitive position of enterprises in the market. However, besides the positive impact on the market, economic concentration can lead to market dominance of some enterprises when those enterprises hold a very large market share. The market suddenly appeared large businesses and corporations that will change the market structure.
Fourthly, the economic concentration control of the State is a necessary activity. As analyzed above, the impact of economic concentration on the market is very large. Enterprises have the right to freely exercise economic concentration but must not exceed the limit allowed by law. However, for the purpose of profit, many businesses have broken the legal limit to hold a dominant position in the market and cause an imbalance in the economic market. Therefore, the State will exercise control of economic concentration when there are signs of market domination by a certain enterprise. The Competition Law 2018 of Vietnam has set out specific criteria to consider implementing economic concentration control without infringing on the freedom of business of enterprises, specifically in Article 31:
(i) Combined market share of enterprises engaging in the economic concentration on the relevant market;
(ii) The degree of concentration on the relevant market before and after the economic concentration;
(iii) The relationship of the parties engaging in the economic concentration in the production, distribution or supply chain for a certain kind of goods/service or the business lines of the parties engaging in the economic concentration which are inputs of or complementary to one another;
(iv) Competitive advantage brought about by economic concentration in the relevant market;
(v) The ability of enterprises after the economic concentration for increasing significantly their prices or return on sales;
(vi) The ability of enterprises after the economic concentration for removing or preventing other enterprises from market entry or expansion;
(vii) Particular factors in the sectors and domains where enterprises are engaging in economic concentration
2. Characteristics of forms of economic concentration and some typical deals in Vietnam:
a. Merger of enterprises
Under Clause 2 Article 29 of Competition Law 2018, merger of enterprises means is when one or several enterprises transfer all of its/their property, rights, obligations and legitimate interests to another enterprise, and at the same time terminate the existence of the merged enterprises. Accordingly, the merged enterprise will no longer exist and its name will be deleted from the Business Register. The received merger enterprise will receive and transfer all legal assets, rights, obligations and interests of the merged enterprise.
b. Consolidation of enterprises
Consolidation of enterprises is specified in Clause 3 Article 29 of the Law on Competition, specifically, two or more enterprises transfer all of their property, rights, obligations and legitimate interests to form a new enterprise, at the same time the business and existence of the consolidated enterprises will be terminated. Accordingly, the consolidated enterprises will cease to exist immediately upon enterprise registration. Enterprises established after consolidation will receive all the lawful rights and interests of the consolidated enterprises.
c. Acquisition of enterprises
Pursuant to Clause 4 Article 29 of Law on Competition, acquisition of enterprises is the acquirement of the whole or part of property, shares of another enterprise sufficient to control or dominate all or one of the trades of the acquired enterprise. From the provisions of the law above, it can be seen that the acquisition of an enterprise includes (i) the whole acquirement; (ii) the partial acquirement. The nature of the whole enterprise acquisition is an enterprise merger, where the buyer becomes the owner of the enterprise as well as the enterprise assets. At this point, the acquired business terminates or continues to operate, depending on the will of the acquiring enterprise. If the acquired enterprise ceases to operate, the economic concentration between the enterprises is a merger, otherwise, if the activities of the acquired enterprise still take place normally, such enterprise will become a subsidiary of the acquiring enterprise.
d. Joint venture between/among enterprises
Under Clause 5 Article 29 of Law on Competition, joint venture between enterprises is when two or more enterprises jointly contribute part of their property, rights, obligations and legitimate interests to the establishment of a new enterprise. Accordingly, the joint venture may be conducted between Vietnamese enterprises or between Vietnamese enterprises and foreign enterprises, provided that there is a purpose of establishing a new enterprise.
ADK Vietnam Lawyers Law Firm