Given the prevailing global economic circumstances, businesses sometimes operate in markets where cartels exert significant influence. This was accentuated by the richest black man in the world, Aliko Dangote, at the 31st Afreximbank Annual Meetings (AAM) and the third edition of the AfriCaribbean Trade and Investment Forum (ACTIF) held in the Bahamas. He expressed his view on how cartels can impact business. While cartels are illegal in many jurisdictions, their impact can still be felt in certain industries and regions.
In a cartel-influenced market, normal competitive forces are distorted. Prices may be artificially inflated, supply might be constrained, and new entrants may face significant barriers. For companies not part of the cartel, this creates a hostile business environment and safety concerns that require careful navigation.
They must answer these key questions to develop strategies for survival: Does the cartel exert influence over the entire industry or a specific segment? Do they manipulate prices, employ threats, or engage in sophisticated market distortions? Are weak law enforcement structures allowing cartels to operate with relative impunity?
No doubt, board members are constantly tethered to an ethical tightrope. Engaging with a cartel can offer short-term financial gains, but it also carries significant risks. Cartel activity is often proscribed by law, and board members risk criminal prosecution for collusion. Staying abreast of relevant anti-cartel legislation and potential penalties is crucial.
Also, being associated with a cartel can irreparably tarnish a company's brand and attract negative publicity. Worst of all is the erosion of trust. Employees, investors, and customers lose faith in a company perceived as unethical.
The first consideration for any board operating in a cartel-influenced market is strict adherence to legal and ethical standards. In Nigeria, for instance, the Companies and Allied Matters Act (CAMA) 2020 governs and regulates businesses while the Federal Competition and Consumer Protection Act, 2018 regulates competition. Contravening any provisions of these laws can result in fines and imprisonment for executives.
This behooves that boards establish and enforce robust strategic approaches to manage a business environment rife with cartels. One effective strategy is to focus on differentiation. When businesses offer unique products or services that stand apart from the cartel's offerings, they can create their market niche. This approach requires significant investment in research and development, but it can yield substantial rewards.
Consider market diversification by reducing dependence on cartel-controlled markets by exploring alternative suppliers, customers, and geographic locations. Spreading business interests across multiple markets lessens vulnerability to a single cartel's influence.
Develop a robust risk management framework. A comprehensive risk management plan can identify, assess, and mitigate potential threats posed by cartels. This may include robust security measures to protect employees and assets, as well as contingency plans to address disruptions caused by cartel activity.
Board members can call for collective action by collaborating with industry peers to advocate for stricter anti-cartel legislation and enhanced enforcement by regulatory bodies. A united front from industry leaders can put pressure on authorities to take action.
Also, establish clear whistleblower channels for employees to report suspected cartel activity without fear of retaliation. A confidential reporting system empowers employees to be the company's eyes and ears, providing valuable intelligence on potential cartel involvement.
Furthermore, engaging constructively with regulators and policymakers can be an important strategy. Boards can advocate for stronger anti-cartel enforcement, inform authorities about suspected cartel activities, and support policies promoting fair competition.
Develop adaptive pricing strategies. In cartel-influenced markets, traditional pricing models may not be effective. Boards should consider more flexible and adaptive pricing strategies that can respond quickly to market changes and exploit any gaps in the cartel's pricing structure.
Above all, have customer loyalty programs. Building strong customer relationships can provide a buffer against cartel influence. Loyalty programs, long-term contracts, and superior customer service can help retain customers even in the face of pricing pressures or supply constraints imposed by cartels.
Surviving and thriving in a cartel-influenced market is undoubtedly challenging, but it's not impossible. By combining ethical practices with strategic thinking and operational excellence, boards can guide their companies through these treacherous waters.
The key lies in adaptability and resilience. Markets evolve, and even powerful cartels can weaken over time. Companies that can weather the storm while positioning themselves for future opportunities will be best placed to succeed in the long run.
While the presence of cartels creates significant market distortions, it also opens up opportunities for innovative and well-managed companies to differentiate themselves and create value. When a board stays true to its ethical principles and thinks creatively about strategy, boards can turn these challenges into a source of competitive advantage.
Research & Advocacy Department,
Chartered Institute of Directors (CIoD), Nigeria
28, Cameron Road, Ikoyi, Lagos