1. What is economic concentration? Forms of economic concentration.
According to the Report on Economic Concentration (“EC”) Activities by the Viet Nam Competition Commission (“VCC”) in 2022, the Vietnamese market has had many outstanding EC deals with large transaction value, such as the Capital Place deal, an A grade office building located in downtown Hanoi, which was purchased by one of the industry’s leading companies for USD523.4 million. Regarding the Consumer sector, The Sherpa Co., Ltd. – a subsidiary of Masan Group, acquired 65% of Phuc Long Heritage’s capital with a value of USD260.6 million. Additionally, EC activities occurred in various other sectors such as energy, construction, industry, and services, etc . [1]
From economic perspective, the main principle of the market economy is to provide customers with choices to freely purchase a product from any seller. On the other hand, unlimited EC will result in monopolization which reduces the variety of choices in the market and empowers large corporations to threaten the existence of small enterprises. However, in terms of competition leverage, EC transactions can help increase the efficiency of production, strengthening enterprise position in the market, helping local enterprises to compete with foreign corporations on the domestic market[2]. Therefore, the analysis of EC is of great practical and theoretical importance.
Currently, Vietnamese law does not provide a specific definition for the term ‘economic concentration’ but it enumerates four fundamental forms in Article 29 of the 2018 Competition Law: Merger of enterprises, Consolidation of enterprises, Acquisition of enterprises, Joint venture between enterprises. Specifically:
- Merger of enterprises means an act whereby 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.
- Consolidation of enterprises means an act whereby two or more enterprises transfer all of their property, rights, obligations and legitimate interests to form a new enterprise and, at the same time, terminate the existence of the consolidating enterprises.
- Acquisition of enterprises means an act whereby an enterprise acquires the whole or part of property or shares of another enterprise sufficient to control or dominate all or one of the trades of the acquired enterprise.
- Joint venture between enterprises means an act whereby two or more enterprises jointly contribute part of their property, rights, obligations and legitimate interests to the establishment of a new enterprise.
In addition, the Competition Law retained an open clause with other forms of EC that have not yet shown specific behaviors, allowing for further guidance when necessary.
[1] Viet Nam Competition Commission (2022), “Report on Economic Concentration Activities in 2022”, page 11 [2] Romualdas Ginevicius, Stasys Cirba (2007), “Determining Market Concentration”, Journal of Business Economics and Management, Vol VIII, No 1, page 3-10 [https://www.tandfonline.com/doi/pdf/10.1080/16111699.2007.9636147 accessed 15 December 2023]2. M&A transactions from the perspective of competition law
Notably, within the regulations of Competition Law regarding forms of EC, the merger / consolidation / acquisition of enterprises (referred to as “M&A”) stands out as the most common form of EC in the market. M&A transaction will be considered an EC activity if it helps the buying enterprise gain control and influence over the selling enterprise. The thresholds to determine significant control and influence are specified in Article 2 of Decree 35/2020/ND-CP as follows:
- The acquirer receives the ownership interest that makes up more than 50% of the acquiree’s charter capital or more than 50% of the acquiree’s total voting shares.
- The acquirer holds the right to own or use more than 50% of the acquiree’s total assets, out of all or a single business sector or industry of that acquiree.
- The acquirer has one of the following rights: Directly or indirectly making decisions on appointment, dismissal or discharge from office of most or all of members of the Governing Board, president of the Board of Directors, director or general director of the acquire; Making decisions on revision or modification of the acquiree’s corporate charter; Making decisions on the acquiree’s important business matters, including its form of business organization; its business activities, location, approaches; changes in its business size and activities or industries; its forms and methods of mobilization, distribution and investment of its capital[3].
An issue arises when determining whether “passive control” (meaning that the buying enterprise has the right to veto but not the right to impose certain decisions of the selling enterprise) form of control or influence to be regulated under the Competition Law?
There is an opinion that “passive control” seems not to be regulated under the provisions of Decree 35/2020/ND-CP[4]. However, the competition management authority in Vietnam has expressed the view that “In addition to acquiring shares of an enterprise to become a major shareholder/having veto power (as regulated by the Enterprise Law), VCC may consider the EC of an enterprise currently holding shares (major shareholder/having veto power) of another enterprise operating in the same relevant market”[5]. Therefore, the “passive control” is one of the factors to be considered, along with other rights that the buying enterprise will hold after the transaction to determine whether it can establish control or influence over the acquired enterprise.
3. Classification of economic concentration based on business sectors and relevant markets.
Based on the business sectors and main markets of the enterprises involved in EC, it is reasonable to classify EC into three forms: horizontal EC, vertical EC, and conglomerate EC. Accordingly:
a. Horizontal economic concentration
Horizontal EC is transactions between enterprises operating in the same relevant market.
Typically, horizontal EC tends to reduce competitive pressure in the market and may significantly increase the likelihood of abusing the dominant position of the participating enterprises. For instance, consider a merger between company A and company B, both engaged in fertilizer production. Before the EC, company A raises prices and revenue may decline as consumers shift to purchasing products from company B. However, this pressure is eliminated following the completion of the EC between companies A and B. Additionally, the larger the market share increase after the EC, the higher the potential for creating significant market power. Consequently, the enterprise may wield market power and misuse it to raise prices above competitive levels, impacting consumers or creating barriers for other enterprises entering the market.
A prominent example of an M&A deal in the beer industry between ThaiBev and Sabeco: In 2017, ThaiBev approved its subsidiary Vietnam F&B Alliance Investment., Jcs, completed the acquisition, indirectly owning 51% of the shares of the SaiGon Beer Alcohol and Beverage Joint Stock Corporation (Sabeco). Sabeco not only held up to a 41% market share in the Vietnamese beer market but also had a history of over 140 years with well-known brands such as Saigon Beer and 333 Beer. This transaction was expected to pose challenges for some smaller domestic beer businesses. With Sabeco’s existing distribution channels and market share, ThaiBev could gradually introduce its Thai brands to replace Vietnamese products.
However, the deal was executed based on the evaluation of Sabeco’s potential to expand its market overseas. Moreover, introducing Thai products for consumption could diversify consumer choices, and stimulate competition. On the other hand, the Vietnamese Government had also signaled a direction to reduce alcohol and beer consumption among the Vietnamese population through the issuance of Decree 100/2019/ND-CP shortly thereafter.
Furthermore, in the related market, enterprises not involved in EC can also benefit from the reduction in competitive pressure. When enterprises participating in EC increase prices, consumer demand may shift to competing enterprises. Therefore, other competing enterprises may gain additional profits by also increasing prices. Hence, competition laws closely regulate horizontal EC activities.
b. Vertical economic concentration
Vertical EC is transactions between enterprises operating in markets where products and services are inputs or complement each other.
Vertical EC can pose a risk where participating enterprises may eliminate or hinder other enterprise’s access to input sources, customer access, or distribution networks, thereby reducing the competitiveness of rival enterprises. This elimination or hindrance can occur in various forms, such as when company A (business in the manufacturing sector) acquires company B (business in the distribution sector). After the EC, A and B may decide to stop distributing the products of company C (a rival of company A) or reduce the distribution volume, imposing unfavorable trading conditions on company C. Implementing such strategies can increase the cost of accessing the customer base for competing companies and, in some cases, prevent rival companies from reaching customers.
Regarding the vertical EC, the deal between Masan and Vingroup serves as an example. On December 3, 2019, Masan and Vingroup announced a swap deal involving the VCM Services and Trading Development Joint Stock Company (VCM), the entity owning Vincommerce and VinEco, with Masan Consumer Holding (MCH), a company owned by Masan. To facilitate this merger, Masan established The Crown X to hold the capital of both VCM and MCH. Following the transaction, The CrownX will directly own 85.71% of the capital at MHC, the company managing Masan’s entire consumer goods production and business, and 83.74% of the shares of VCM, the company owning the Vinmart, Vinmart+, and VinEco systems[6]. This deal marks a significant step in Masan’s development strategy in the consumer and retail sector. The CrownX not only controls the production and processing but also manages the distribution and retail processes. Acquiring the entire VinMart and VinMart+ convenience store system from Vingroup helps Masan expand its retail network in the daily consumer market.
[6]http://www.vcca.gov.vn/default.aspx?page=news&do=detail&id=3d9ed551-bceb-4daa-bb01-0aaad5ea1ebe accessed 15 December 2023 
c. Conglomerate economic concentration
Conglomerate EC transactions between enterprises operating in different relevant markets. Example: Acquisition deal between a steel manufacturing company and a beverage production company.
Engaging in conglomerate EC transactions is less likely to impose restrictions on competition in related markets. However, in some cases, conglomerate EC can raise concerns about competition due to the overall increased abilities of the enterprise group participating in the transaction, such as enhanced abilities in purchasing raw materials, technology, advertising, access to capital, and brand reputation. For example, acquiring a clothes company by a jewelry company, even though the products of the two companies are different, can create a corporate profile in the fashion industry for the legal entity after conducting business research in the clothes and jewelry sector.
Conclusion: In the market economy, EC transactions among enterprises are considered as methods of arrangement and restructuring aimed at rationalizing production to ensure the efficiency of resource utilization in production and business. Fundamentally, EC is a positive activity and is encouraged in a market economy. However, there are cases where EC reduces competitive pressure in the market and can significantly increase the likelihood of abusing the dominant position of the enterprises. Therefore, state authorities increasingly emphasize and tighten the control of EC activities. Consequently, enterprises need to be attentive and fully comply with legal regulations to avoid legal issues and ensure transparency in the implementation of these economic transactions.
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