Although traditionally associated with multinational and large-scale companies, economic competition can also have a significant impact on small and medium-sized companies in Mexico. Maintaining a level playing field with entry points for companies of all types allows small and medium-sized companies to expand their operations and thus offer all kinds of products and services to their consumers. However, the economic competition landscape in Mexico is changing, as regulations in this area are undergoing significant changes. Therefore, it is essential that entrepreneurs in small and medium-sized companies are aware of the new guidelines in order to take advantage of the opportunities that this reform opens up.
On July 1, the Chamber of Deputies approved a series of reforms to the Federal Economic Competition Law (the "LFCE", by its initials in Spanish). Among the various changes, the most notable is the removal of the Federal Economic Competition Commission ("COFECE"), which will be replaced by the National Antitrust Commission ("CAN"), a new decentralized body that will operate under the Ministry of Economy. Below, we will explain more about economic competition in Mexico, how it can benefit your company, and what changes you need to consider regarding the new reform to the LFCE.
What is economic competition?
The million-dollar question. COFECE once defined economic competition as the "rivalry between companies participating in a specific market". Although it may seem simple, it is a very precise definition, because economic competition consists of those conditions that allow companies and entrepreneurs to actively participate and compete in the market. In short, economic competition prevents large companies from controlling the entire market, allowing small and medium-sized companies to participate and grow, acquiring new customers along the way.
In Mexico, economic competition is protected under the LFCE, which regulates investigations and sanctions of monopolistic practices such as price-fixing agreements, supply manipulations, market divisions, among others. When the LFCE guidelines are respected, a competitive market is promoted, where all businesses, whether large or small, have opportunities to compete for consumers based on the quality of their products or services and their innovation.
How does economic competition impact small and medium-sized companies?
Economic competition can have a major influence on the operations of small and medium-sized companies, as it defines how open and balanced a market can be for them to offer their products and services. When free trade competition is promoted, there are better opportunities for small and medium-sized enterprises to negotiate better terms with their suppliers or to expand their consumer network. In a non-competitive market, the opposite occurs, as when there are obstacles or barriers imposed by larger economic agents with greater market power, the growth of small and medium-sized companies can be limited, even if they offer high-quality products or services.
For example, if a large supplier company sets unfair prices (or outright refuses to offer its products) to certain companies seeking to enter a specific market, it affects their abilities to expand their operations. Another case could be that larger competitors in a determined market agree to fix the prices of their products or services, manipulating them in a way that will exclude new competitors. Even after the reform that we'll explain shortly, the LFCE still continues to punish this type of behavior with heavy penalties, encouraging economic agents to act lawfully.
When properly regulated, competitive markets encourage innovation, improving the quality and prices of products and services, thus opening the door to new consumers. The crux of all these benefits is that, when competition is encouraged and respected, small and medium-sized companies will have more opportunities to grow, diversify and compete against larger economic agents.
What were the most important changes to the Law?
With the recently approved reforms to the LFCE, it is important for entrepreneurs who are part of small and medium-sized enterprises to understand the essential changes to this Law and how they may affect their participation in the markets. Among the most important changes, the following stand out:
- New Competent Authority: COFECE and the Federal Telecommunications Institute will no longer be the competent authorities in matters of economic competition. The new CNA will concentrate the functions of this matter and will be responsible for supervising, investigating and sanctioning practices that go against the LFCE.
- More Severe Sanctions: Fines for monopolistic practices of any kind have increased. For example, absolute monopolistic practices such as illegal exchanges of information between competitors may be penalized by up to 15% of the income of the economic agent that committed the infringement, whereas in the past the maximum amount was 10%. Meanwhile, relative monopolistic practices such as the sale of tied goods may be penalized by up to 10% of the income of the economic agent that committed the infringement, an increase from the previous 8%. These stricter penalties will encourage more competitive markets and seek to prevent larger economic agents from affecting and taking advantage of smaller companies.
- Compliance Programs: Companies will now be able to certify their internal economic competition programs with the new CNA. These certifications will be considered by the authority in the event of a violation, potentially reducing fines. Through these incentives, greater protection for smaller and medium-sized companies is sought, ensuring that their larger competitors comply with the LFCE.
The new reform to the LFCE represents a substantial change to market regulation in Mexico. Although it remains to be seen how it will be applied in practice, there is great potential that this reform could become an opportunity for small and medium-sized companies to compete on a more level playing field with larger companies. It will be important to have adequate legal counseling to fully understand the impact of the new CNA and the reforms, and to also seek new opportunities to innovate and grow your company in a constantly changing market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
