Tesco deal bodes ill for business

Tesco deal bodes ill for business

Trade commissioners raise objections

Consumers browse goods at a Tesco Lotus hypermarket. (Photo by Varuth Hirunyatheb)
Consumers browse goods at a Tesco Lotus hypermarket. (Photo by Varuth Hirunyatheb)

The controversial acquisition of Tesco by CP Group could leave lasting damage on the economy, several trade commissioners have warned.

The government's competition watchdog approved the Group's US$10.6-billion acquisition of the British supermarket's Thai operations last week. The deal would see CP acquire 86.9% of Tesco's Thai operations and 100% of the UK retailer's Malaysian business, prospects that many say give the company an unfair hold on all segments of retail in Thailand.

Santichai Santawanpas, commissioner of the Office of Trade Competition Commission (OTCC) and the office's spokesman, one of the three members who voted against the CP-Tesco deal, said the merger could affect the economy by allowing for monopolies and economic domination.

The other members who voted against the deal were Sakon Varunyuwatana, chairperson of the Trade Competition, and Aramsri Rupan, commissioner. The remaining members of the TCC are Krisada Piampongsant, Somchart Sroythong, Visanu Vongsinsirikul and Somkiat Tankrittiwat.

According to Mr Santichai, companies like CP that are already manufacturers of raw and processed food have the potential to dominate a market once they venture into both wholesale and retail businesses by allowing them to control a range of distribution channels.

In doing this, there could result greater social and economic disparity, he said.

Mr Santichai said the deal is likely to dissuade new local and foreign players from entering the market due to the perception of unfair competition.

To be competitive, companies will need to come up with a business and marketing strategy that aims to boost efficiency and drive down costs. If they can't do this and adjust, small- and medium-sized companies in particular are in danger of going bust.

Suppliers too, however, will be affected by this and similar deals as they have the potential to disrupt supply chains and the bargaining power of suppliers, Mr Santichai said.

Such deals allow for unfair trade agreements and put suppliers at a disadvantage as they may be pressured into accepting and following tough conditions set by the asking party. This could include being told where they can or can't sell or display their products.

For consumers, with fewer competitors in the market, there might not be much difference in the prices and products available to them in the short term, but further down the line, there choices might become limited.

"That said, I don't offer this warning with the aim of dividing people over the deal," said Mr Santichai.

"We would just would like to express our concerns and point out areas where we do not agree. The ruling is considered final."

The TCC ruled by majority in favour of the transaction, but imposed certain conditions, including a three-year ban on additional acquisitions in the same sector to prevent market dominance by CP Group. CP Group can challenge the TCC's decision within 60 days.

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