comptition law ( local agencies amendment)
Introduction:
Due to increased competition and product diversity, direct sales may benefit consumers, but they also provide producers more negotiating power, which could lead to higher upstream and downstream costs and possibly worse consumer welfare. The majority of the literature makes the assumption that producers cannot sell directly to customers when examining the negotiation of wholesale prices. These kinds of direct sales to customers have increased in recent years.
Numerous recent research examining the competitive impact of manufacturers' direct-to-consumer sales have been spurred by this development. These articles are mainly theoretical in nature. Authorities on competition have simultaneously stressed the value of giving customers the freedom to select between retailers and manufacturers as well as the anticompetitive effects of forbidding manufacturers from selling directly to consumers. However, there are surprisingly few empirical studies examining how welfare is affected by direct-to-consumer sales, as well as how this affects market power and merger evaluation.
The landscape of business is changing dramatically in an era of rapid technological breakthroughs and altering consumer tastes. This study investigates the dynamics of direct-to-consumer (DTC) sales, examining the consequences for competition, market efficiency, and consumer welfare in the setting of Kuwait. As established business models encounter challenges, the rise of direct-to-consumer sales represents a paradigm change that has the potential to reshape how firms interact with customers. This study seeks to uncover the multiple effects of embracing DTC sales, including its potential to encourage healthy competition, foster innovation, and transform market dynamics in Kuwait. By studying both theoretical underpinnings and empirical findings, this research strives to give valuable views for policymakers, industry stakeholders, and enterprises navigating the shifting landscape ofconsumer-direct commerce.
1- An overview of Kuwait's prior legislation governing direct sales to consumers as well as sales through distributors and agencies
The majority of foreign goods are marketed in Kuwait via local distributors or agencies. A representative or agent having access to a distribution network and customer support operations is used by most U.S. corporations, depending on the product kind, location, and after-market assistance needed. In contrast, commission-based representatives and agents make recurring in-person visits to their clients along with their overseas principals to preserve crucial personal relationships. Moreover, selling US goods and services Through an Agent where Companies are subjected to abide by the Law Decree 25/2012, as modified by Law 97/2013, which outlines the regulations for establishing an organization or entering into a commercial partnership in Kuwait. A foreign business entity is prohibited from opening a branch or engaging in any other business activity in the nation by the rules mentioned earlier unless it works with a Kuwaiti partner or agent. On the other hand, an investor may create a fully foreign-owned Kuwaiti company, a licensed branch, or a representative office of a foreign entity under the Law for the Promotion of Direct Investment in the State of Kuwait (PDISK; Law No. 116 of 2013, which superseded the Direct Foreign Capital Investment Law, Law No. 8 of 2011). For further information on this subject, please see the chapter on "Establishing an Office."
For instance, companies from the United States looking to enter the Kuwaiti market can use distributors, service agents, or commercial agents. Commercial agents negotiate, close, and execute transactions on behalf of a principal, as well as market goods and services (within the parameters and authority specified in the contractual agreement). A distributor markets, imports, carries, and distributes the products and services of the principal. According to Article 24 of Commercial Law 68 of 1980, service agents, often known as "sponsors," represent international companies looking to get into contracts with the Kuwaiti government; nevertheless, they typically provide little value added. Certain items can be imported directly by cooperative unions and other food merchants. Kuwait enacted Law No. 13 of 2016 (The Agency Law) in 2016. The elimination of the exclusivity restriction is the largest modification to the statute. Foreign companies are now able to register as many agents as they want to help them market their goods.
And some of the common practices It is recommended by the U.S. Commercial Service in Kuwait that contracts about agents or distributors contain details on the geographical sales or marketing territory that the agent, manufacturer's representative, or distributor would be covering. The products and services that each party will support and oversee during the precise duration of the agreement, the agent/distributor fee and commission structure, the choice of applicable law, any arbitration clauses, milestones, and obligations of both parties should all be specified in the contract.
Termination clauses should also be included. Furthermore, the agreement needs to be written in a way that conforms to both US and Kuwaiti legal requirements. A three-month notice period is typical, even though there is no legal requirement for this. Should an American business fail to formally fire its Kuwaiti representative in the Kuwaiti agent of a U.S. corporation may be entitled to commission from subsequent sales if the agent is not officially terminated in writing. In addition to termination, a U.S. principal should be informed that the local agent might be entitled to payment for the investments made and sincere efforts made to market, sell, and provide service for the principal's goods in Kuwait. A compensation formula can be found in the Kuwaiti Commercial Code; nevertheless, the contract needs to be expertly designed by a Kuwaiti lawyer. It is possible to forego payment in cases where an agent's connection is terminated for cause and they haven't achieved a performance target.
2- Partnerships and Licensing
Several advantages, including a partial exemption from Kuwaiti corporation taxes, are provided to foreign companies looking to form joint ventures with Kuwaiti companies. 2008 saw a 15% decrease in the foreign company tax rate. Since all government contracts must be fulfilled by Kuwaiti nationals or businesses, joint ventures can be a successful business strategy and a means of sustaining a long-term presence, particularly for organizations that provide after-sale services and/or engage in frequent client communication. When two or more natural or legal people enter into a joint venture, a JV business is created in Kuwait. This type of enterprise does not have a legal existence and is not required to be listed in the Ministry of Commerce and Industry's registry. The objective of the JV's goal is stated clearly in the agreement. It is typical for multiple international engineering firms and contractors working on large-scale public projects to get together and create a consortium or joint venture.
In the event that the JV involves a foreign partner, the company may be carried out under the Kuwaiti national's trade license. The Kuwaiti partner will have 51% of the business's shares if the partners want to form a local company, which will be formed in accordance with Kuwaiti Commercial Law.
3- Towards a competitive, inventive, and sustainable market: the interaction of competition, resource allocation, innovation, and cost pressures
The majority of the literature on wholesale price negotiating assumes that producers are unable to sell directly to consumers. Direct sales to customers have become more common in recent years. This growth has prompted a number of recent research on the competitive consequences of manufacturers' direct-to-consumer sales. The majority of these articles are theoretical. Competition authorities emphasize the need of allowing consumers to select between manufacturers and retailers, while forbidding direct-to-consumer sales by manufacturers can have an anticompetitive consequence. Few empirical studies have examined the influence of direct-to-consumer sales on welfare, market power, and merger assessment. Therefore, Competition law seeks to foster fair competition, deter anticompetitive behavior, and safeguard consumer welfare. Moreover, The Federal Trade Commission (FTC) and the Department of Justice (DOJ) have urged legislators not to prevent manufacturers from selling directly to consumers. The FTC's Office of Policy Planning argued that there is no evidence to support the superiority of independent dealerships over direct sales to consumers by auto manufacturers, including Tesla Motors. Consumers have the ability to choose their preferred car and purchasing method. (Federal Trade Commission, Press Release 2014). According to the DOJ website, Dell's distribution approach in the personal sector has also changed.
Allowing manufacturers to sell directly to consumers presents a trade-off between possible benefits for consumers from more competition and costs for retailers due to manufacturers' bargaining power. These two routes have conflicting effects on consumer costs.
Direct sales by manufacturers boost competition and lower end product prices for customers. Direct sales also increase product choice for customers. Differentiating items can improve consumer welfare by allowing for greater segmentation, according to research. Direct sales provide producers more negotiation power with retailers. This effect increases merchants' expenses by raising wholesale prices, putting upward pressure on Wholesale costs rise, putting pressure on consumer pricing. Studies have demonstrated that the effect on consumer pricing is uncertain. Therefore, developing an Estimate structural model is crucial for determining the extent of these impacts.
Kuwait should design a structural equilibrium model for a vertical sector in which firms have a dual route to the consumer. Direct sales and manufacturer-retailer bargaining are examples of supply-side activities. Manufacturers and merchants use negotiation to determine wholesale prices.
The necessity to incorporate direct sales into the workhorse bargaining paradigm for applied jobs. moreover, A manufacturers outside option improves with direct sales: if discussions fail, direct sales are better than no sales. Based on a study, they have produced a feature where the key difference between the model done by Javier D. Donna. Pedro Pereira Yun Pu André Trindade Renan C. Yoshida and others are involved in the application of literature. is in the application of bargaining literature. The final prices to consumers are established by Bertrand competition. The demand side follows a basic discrete choice model for distinct products. Consumers have idiosyncratic preferences for prices and distribution channels; thus, we account for unobserved heterogeneity in the form of random coefficients for the price paid by consumers and whether the product is offered directly by a manufacturer or through a retailer.
Research presents a nuanced model that includes the dynamics of direct-to-consumer sales into the traditional supply model, with a particular emphasis on the negotiation process between producers and retailers over wholesale prices. The study identifies two separate effects of direct sales on welfare. To begin, the introduction of direct sales has the potential to benefit consumers, largely through improved downstream competition and a wider selection of items. This means that consumers may have more options and possibly reduced pricing as a result of manufacturers engaging in direct sales.
However, the second consequence offers a counterbalancing factor: direct sales increase producers' bargaining leverage. This improved bargaining power leads in a 4% increase in negotiated wholesale prices, which then impacts final costs for consumers and diminishes overall Consumer welfare. The model's empirical application makes use of a dataset from the outdoor advertising business, which is characterized by frequent direct sales. The model's adaptability is demonstrated by its capacity to simulate multiple scenarios and evaluate the impact of direct sales on prices and welfare.
the empirical data show that direct-to-consumer sales have a twofold influence on the outdoor advertising business. While consumers may benefit from increased competition and product diversity, producers' improved bargaining strength has a negative impact, resulting in higher wholesale prices and a reduction in consumer welfare. This intricate interplay emphasizes the significance of comprehending both the positive and negative aspects of direct sales within the larger economic landscape. As a result of the assessment, the study underlines the importance of taking a balanced approach when considering the ramifications of direct sales. The potential benefits of more competition and product variety must be balanced against the disadvantages of greater bargaining power and higher prices. The study also emphasizes the industry-specific character of these effects, underlining the importance of taking into account the proportion of direct sales in determining the magnitude of these impacts. Furthermore, the study's findings apply to talks concerning vertical mergers, emphasizing the necessity of a flexible supply model for estimating the additional negotiating leverage generated by such mergers. Overall, the study provides useful information for industry stakeholders, policymakers, and scholars assessing the impact of direct-to-consumer sales on market dynamics and welfare and improving Kuwait’s new laws of allowing direct to consumer sales rather than the dependency on local agencies.
4- Application
If Kuwait were to remove the requirement for a local agent and allow manufacturers to engage in direct-to-consumer (DTC) sales, it could potentially promote healthy competition in the market. Here are some potential positive impacts:
Direct-to-consumer sales frequently reduce the need for intermediaries, resulting in lower distribution costs. Manufacturers may pass on these savings to consumers, resulting in cheaper costs. Furthermore, increased rivalry can encourage manufacturers to offer competitive pricing in order to acquire a bigger consumer base and manufacturers may choose to improve product quality in order to compete effectively in a direct-to-consumer approach. With a direct feedback loop from consumers, producers may better understand preferences and engage in product enhancements, which leads to superior overall product quality.
Direct sales allow manufacturers to communicate directly with their customers, gaining vital insights for product development. This direct feedback loop can drive innovation as businesses attempt to differentiate themselves and provide unique features or solutions to fulfill consumer wants. therefore, Direct-to-consumer methods allow producers to provide tailored marketing and responsive customer care. This customer-centric strategy can improve the overall shopping experience, increase brand loyalty, and establish long-term relationships with customers. andEliminates intermediaries streamlines the distribution process, making it more efficient. Manufacturers can adjust quickly to market developments and consumer preferences, shortening lead times and ensuring that products reach customers faster.
Allowing manufacturers to sell directly to customers creates a radical shift in the business landscape, with significant benefits and risks. On the bright side, this model frequently results in cheaper pricing because manufacturers skip intermediaries, allowing cost savings to be passed on to customers. Furthermore, the direct-to-consumer method encourages manufacturers to prioritize product quality, drive innovation, and develop customer-centric tactics that rely on direct feedback from consumers. This not only improves the entire purchasing experience, but it also promotes brand loyalty.
However, traditional retailers face new issues as consumers increasingly opt for direct purchases, which has an influence on the existing retail ecosystem. Furthermore, managing the intricacies of the supply chain, educating consumers about the new model, and navigating increased market rivalry are all key factors. To summarize, while direct-to-consumer sales have substantial advantages, a systematic approach is required to solve problems and ensure a smooth and competitive transition in the changing economy.
Direct-to-consumer (DTC) sales would be introduced in Kuwait to encourage healthy competition through a variety of means, including price competition, product differentiation, increased consumer choice, improved customer service, efficiency and innovation boosts, opening up the market to new players, and increased transparency. This change gives customers more power, pushes companies to succeed, and produces a vibrant market with a wide range of products, all of which help to strengthen the economy.
By promoting competitive pricing, product innovation, consumer-centric methods, efficiency, market inclusivity for new entrants, transparency, and adaptable business structures, direct-to-consumer (DTC) sales encourage healthy competition among firms. This creates a vibrant market where businesses compete to provide distinctive offerings and greater value, ultimately benefiting customers with a wider range of options and better services. Adopting direct-to-consumer (DTC) sales creates a competitive environment in which businesses fight for consumer attention with aggressive pricing, cutting-edge items, customer-centric tactics, streamlined operations, and open access to the market for new entrants. This environment fosters adaptation and continual improvement in addition to transparency and adaptable business structures. As a result, a vibrant market is created for the advantage of customers, offering a multitude of options and improved services that stimulate total innovation and value creation within the business ecosystem.
Conclusion
The research paper regarding direct-to-consumer sales in Kuwait indicates a complex interaction of elements that have a substantial impact on the competitive environment and customer welfare. As mentioned throughout this study, the possible benefits of direct-to-consumer sales include increased competition, improved market efficiency, and more consumer options. However, problems such as the impact on traditional retail, supply chain complications, and the need for customer education highlight the significance of taking a balanced, strategic approach. The findings highlight the importance for Kuwaiti enterprises and authorities to carefully assess the implications of adopting DTC sales, balancing both the benefits and potential drawbacks. Finally, the insights gained from this research add to the ongoing discourse regarding the growth of commerce in Kuwait and provide a framework for educated decision-making in the dynamic realm of consumer-direct transactions.
References:
Please check (Donna et al., Direct-to-consumer sales by manufacturers and bargaining 2021)https://mpra.ub.uni-muenchen.de/117163/1/Direct-Sales-Bargaining-Power-2023-04-19-JDD.pdf for all figures and diagrams done to implement and examine direct to consumer sales by manufacturers and bargaining.
