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The page was created and is operated by the Competition Culture Centre of the hungarian Competition Authority (GVH VKK)

Compliance

The term compliance is referred to at increasing frequency in business. In its original economic and legal context, the original English expression refers to what extent a particular undertaking tries to follow the legal regulations and proceed in conformity with them during its operation. Within the context of legal regulations applicable to economic/market competition, it is called compliance under the competition law.

The purpose of this website and the information available on it is to enable economic operators to understand more of competition regulations in order to perform better in competition and simultaneously to comply better with the provisions of the competition law. If more entities compete fairly, it will bring benefits not only to all undertakings, but also to the whole Hungarian economy. Fair competition = clean profit.

Compliance - with what?

The competition law is based not only on fair enforcement of clearly understood economic interests, but also on the following of generally accepted ethical norms. Consequently, in terms of compliance with the competition law we refer to acting in conformity with legal and closely related ethical norms.

Thus compliance with the competition law reflects an approach: it means the transposition into, and following of, the laws and norms regulating economic competition in the practices of an undertaking. It requires not only ad hoc campaign type actions, but also a systemic and strategic approach to run a company in compliance with the written legal and unwritten ethical rules of competition.

Why is competition a good thing?

Competition is useful for both the economy and society, as market operators and the citizens of the country both benefit from it. Any restriction or even exclusion of competition reduces that benefit. Even though one or more undertakings may obtain short-term gains at the cost of their other competitors, it causes obvious and quantifiable damage to the economy, the country and its citizens. If competition reduces, the overall benefit will also be lower: the economic welfare will be lower. Consequently, free competition in a transparent, clear, legislative framework is beneficial for the whole society. One needs to compete in order to win. If therefore the majority of undertakings compete fairly, honestly and transparently, the unethical and unfair undertakings will cause smaller damage to them and to the economy.

When does an undertaking comply with the provisions of the competition law?

The simple answer to the above question is that when applicable legal regulations and when its business operation and market conduct do not violate them. Naturally, it will not bring us closer to the real issue of what needs to be done for that in reality. The practical approach is more complex, which is partly the result of the nature of the market competition.

In market competition the economic operators use all justified and legitimate ways to enforce the interests of their own and their shareholders against other market operators: all strive for greater profit and for economic advantages against others. Those efforts may be accompanied by development and increased efficiency. However, it is real open competition that encourages undertakings to produce better quality goods and services at more favourable prices. In other words, it is an incentive for effective competition: to produce goods and services at the lowest cost and in the most economic manner. In total this process facilitates progress for the economy and drives industrial and technology development.

The real issue is the instruments undertakings apply to achieve a better result, i.e. whether they act fairly and respect the rules applicable to everyone under open conditions, or they proceed by avoiding and ignoring the rules, causing damage to others and the economy, i.e. to the country.

Similarly to sports, where it is expected that everyone can compete under equal conditions (which is one of the reasons why doping is prohibited), the same needs to be achieved also in economic competition. In that spirit an undertaking complies best with the rules of the competition law, if they compete fairly and lawfully in their daily operation and strive for greater profit and better results not decreasing but, on the contrary, by increasing the benefits of also community. Fair competition = clean profit.

What undertakings does compliance with the competition law apply to?

Essentially compliance with the competition law applies to all undertakings and private contractors pursuing economic activities, irrespective whether they operate in the market as a seller/supplier or as a customer/purchaser. Indirectly, it affects all actors of the economy and also all people.

Many may think that compliance with the competition law applies mainly to greater undertakings. However, the issue of avoiding competition or complying withcompetition occurs not only in large undertakings. There is no doubt that based on their social impacts, a good or bad decision of a large company or multinational firm has a much greater impact on the whole country and economy. However, considering the share of small and medium-sized enterprises and the ratio of the value generated by them in the Hungarian economy, or the fact that they employ nearly 70 percent of the employees, the practice applied by the undertakings while competing is an essential factor.

Many may come across issues concerning competition on many occasions. There is no need for public procurement for anyone to distort competition. It is enough to think of a simple request for a proposal. It is advisable and, under the ISO regulations obligatory, to request three proposals for one procurement not only because you may better understand the prices and obtain market information, but also because the bidders are also aware of that practice, which is reflected in the pricing, and in the content and quality of the bids. Bidders try to offer more in better quality at more favourable prices. If you ask for one proposal only, or discuss the proposed prices or contents or manipulate them in concerted activities with others, it will infringe real competition and clear profit.

The same applies also to larger companies and public procurement. If there are no competitors, or there are some, but not all compete under the same conditions, then a higher price may be requested for the same product or service, or lower quality may be provided at a lower price. The stakeholders can gain short-term benefits from both solutions, but both distort competition, as a result of which not only the contracting authority will lose out and have a lower profit, but also the whole country, i.e. all of us. Equal conditions of competition and compliance with the competition rules are of at least such importance for the small and medium-sized enterprises. It is partly because as a principal, having access to better quality products and services at a lower price could be an even more important aspect for them than for larger companies and partly because, as a supplier or contractor, they need even and fair competition conditions to achieve clean profit and development.

Consequently, any undertaking may face competition restriction and distortion. And therefore each undertaking may also do something about it.