The UK Government has promised that tens of thousands of UK small and medium-size businesses will get a better deal from the big tech firms who it considers control key online gateways that UK companies now rely on to ensure customers find their business online.
New digital watchdog
The UK Government has outlined plans (in a recent newsletter) to tackle dominance of major firms. A new government watchdog called the Digital Markets Unit (DMU) will enforce new tailored codes of conduct for how tech firms should treat their users and other companies fairly, with tough sanctions for those which ignore the rules: including fines of up to ten per cent of annual global turnover and additional penalties of five per cent of daily global turnover for each day an offence continues.
The DMU will also intervene to tackle the root causes of market dominance. Potential interventions include forcing firms with strategic market status to share more data with smaller competitors to help them overcome the advantages of bigger firms. And, tech firms could need to warn smaller firms about changes to their algorithms which could mean that traffic is steered away from certain sites and businesses which could have a negative effect on their revenue.
State of competition in the UK
The state of competition report (published April 2022) by the Competitions and Market Authority suggests that a lack of competition (where markets are dominated by a small number of powerful suppliers, (who use their position to prevent other businesses from entering the market) is harmful to consumers, businesses and society.
Of the Small and Medium Enterprises (SMEs) surveyed for the report, 61% of respondents who traded locally were more likely to agree that it is harder to compete with larger companies (selling the same products and services) in 2021 than it was in 2016.
1 in 8 (13%) of respondents also believe large businesses are selling at a loss to undercut smaller businesses.
SME survey results
The State of Competition report found that 58% of UK micro business owners, 50% of small business owners and 45% of medium business owners surveyed, were finding it harder to compete with larger companies, (selling the same products and services) in 2021 than 2016.
Small businesses are important to the UK economy. In 2021 5.548 million small businesses (with 0 to 49 employees), equated to 99.2% of the total UK business population. Employment in these small businesses was 12.9 million (48%) and turnover was £1.6 trillion (36%).
The survey contained a free text answer for respondents to state why they thought competition with larger companies was now unfair.
32% of respondents felt that larger companies can:
bend the rules,
have large marketing spend (the UK digital advertising market was worth about £14bn in 2019),
benefit from economies of scale, and
are better supported / looked after.
This was especially reported in the wholesale, retail and transportation sector with 46% of respondents surveyed citing this as the reason why competition was unfair. Around 1 in 7 (15%) of overall survey respondents believe competition had become unfair due to too many unregistered and unprofessional people operating in the market. And, 14% of SMEs believe their market is saturated with too many people competing for the same customer.
Government procurement strategy
The UK Government has previously stated that it wants to open up public procurement to a more diverse supply base, making it easier for new entrants such as small businesses and VCSEs to compete for and win public contracts.
Research published by the FSB in 2021 found that only 1 in 5 SMEs had applied for a UK government and/or public sector contract in the past 3 years.
This was despite the creation of an SME advisory panel by the UK Government in November 2016 targeted with removing barriers for SMEs and increasing the UK Governments spend in goods and services with SMEs.
The SME experience appears to be similar to the findings of the Voluntary, Charitable and Social Enterprises (VCSEs) public contracts awards, commissioned by the UK Government.
Civil Society reported on the findings of the Government commissioned research that in a 4 year period between 2016 and 2020, 56% of VCSEs had only achieved 1 UK Government contract award.
The remaining 41% (which includes 108 VCSEs) achieved a minimum of 10 UK Government contract awards, and 10 VCSEs achieved a minimum of 50 UK Government contract awards.
Is the change to how SMEs perceive competition today (compared to 2016) due to the dominance of tech firms and their algorithms or have other external factors influenced this change in perception? I would love to hear your thoughts in the comments section below.
About the author
Naomi Clews Consultancy are public procurement experts who work with businesses to help them to win more UK Government contracts. Find out more about our procurement services here.
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