Economic concentration can be understood as follows: Business acquisition, business merger, joint venture between enterprises, business consolidation. Other forms of economic concentration as prescribed by law. When preparing an economic concentration dossier, the following should be noted:

1. Identification the control or domination factor of an enterprise or its business line to determine economic concentration in the form of enterprise acquisition.

Under Clause 1, Article 2 of Decree No. 35/2020/ND-CP, controlling or dominating an enterprise or a business line of another enterprise is one of the following cases:

Case 1: The acquiring enterprise has the right of ownership of over 50% of charter capital or more than 50% of voting shares of the acquired enterprise;

Case 2: The acquiring enterprise has the right of ownership or the right to use over 50% of the assets of the acquired enterprise in all or some business lines of such acquired enterprise;

Case 3: The acquiring enterprise has one of the following rights:

– Directly or indirectly Deciding to appoint,  relieve of duty or remove from office a majority or all members of the Management Board, Chairman of the Members’ Council, Director or General Director of the acquired enterprise;

– Deciding on the amendment and supplement of the charter of the acquired enterprise;

– Deciding on important issues in the business activity of the acquired enterprise, including the choice of the business organization form ; the selection of business lines, location and business form ; the choice of adjusting scale and business lines ; the choice of form and method of mobilizing, allocating and using business capital of that enterprise.

2. Methods of identifying relevant markets

Under Clause 1, Article 9 of the Competition Law, the relevant market is determined on the basis of the relevant product market and the relevant geographical market.

Relevant product market is a market of goods and services that can be substituted for each other in terms of characteristics, utilizing purposes and prices.

Relevant geographical market is a specific geographical area in which provided goods and services can be substituted for each other with similar competitive conditions and significantly different from other nearby geographical area.

Method of identifying the relevant product market:

Step 1: Starting from the business lines and specific products and services of each enterprise participating in the economic concentration (focal product), identifying each product category of the enterprises participating in the economic concentration.

Step 2: Categorizing products by group:

– Duplicate product group

– Product groups which are inputs to each other or complementary to each other

Products that do not overlap but are inputs to each other or complementary to each other are also defined as markets relevant to evaluating significant impact of competition restriction or assessing the positive impact of transactions in accordance with Competition Law.

Step 3: Determine interchangeability in terms of characteristics, utilizing purpose and price

In particular, remarking to the consideration of the price replacement of the product in case the price of goods or services has a difference of more than 5% to determine the factor by which whether consumers move from one product to anothers or not (SNNIP test method).

For example: Assuming that the price of product A is increased by more than 10%, if less than 35% of the 1,000 consumers in the relevant geographical area switch to product B, the product market identification is only product A. If more consumers switch to product B (over 35%), all A and B are identified as a product range.

3. Assessment of the significant competitive restraint effect of the economic concentration transaction

Step 1: Assessing the significant competition restriction impact of economic concentration based on one of the following factors or the combination of the following:

(i) The combined market share of enterprises participating in economic concentration in the relevant market;

(ii) The degree of concentration in the relevant market before and after economic concentration;

The level of concentration in the relevant market before and after concentration is assessed to identify risks of creating or strengthening the market power of enterprises, the ability to increase coordination and collusion among enterprises on the relevant market.

(iii) Relationship of enterprises participating in economic concentration in the production, distribution and supply chain for a certain type of goods, services or business lines of enterprises participating in business concentration is each other’s input or complementary to one another;

Relationship of enterprises participating in economic concentration in the production, distribution and supply chain for a certain type of goods or services or business lines of enterprises participating in economic concentration is the input of each other or complementary to each other, which is assessed to determine the ability of the following parties after economic concentration to create a outstanding competitive advantage compared  to other competitors with the aim at preventing or eliminating the competition entering the market.

Step 2: After determining the first three factors, assess whether economic concentration falls under the “safety threshold” or not in one of the following cases:

– The combined market share of enterprises participating in economic concentration is less than 20% in the relevant market;

– The combined market share of enterprises participating in economic concentration is 20% or more on the relevant market and the sum of squares total of the market share of enterprises after economic concentration in the relevant market is less than 1,800;

• The combined market share of enterprises participating in economic concentration of 20% or more in the relevant market, the sum of squares of the market share of the enterprises after the economic concentration in the relevant market is over 1.800 and the increasing amplitude of the sum of square of the enterprise’s market share on the market related to the previous and the following time of the economic concentration is less than 100;

– Enterprises engaged in economic concentration related to each other in the chain of production, distribution and supply of a certain type of commodity, services or main business lines which are inputs to other enterprises or complementary to each other have a market share lower than 20% in each relevant market.

Step 3: Relevant markets which are not one of the afore-mentioned circumstances continue to be evaluated for a significant competitive restriction effects according to the following factors:

(i) Competitive advantages brought about by the economic concentration in the relevant market;

Competitive advantages brought about by the economic concentration in the relevant market are generally considered based on the advantages of product characteristics, production chains, distribution, financial capacity, brands, technology, intellectual property rights and other strength of enterprises after the economic concentration in relation to competitors in the relevant market, leading to the risk of creating or consolidating significant market power of enterprises, formed after the economic concentration.

(ii) The possibility of enterprises for raising prices, or business profit margin on revenue after the economic concentration;

The possibility of enterprises for raising prices, or business profit margin on revenue after the economic concentration is evaluated based on one or more of the following factors:

1. An anticipate change in demand before the possibility of enterprises to increase in prices after the economic concentration, changes in output or transaction conditions of commodities or services on the relevant market;
2. An anticipate change in supply of enterprises which are competitors in the relevant market before the possibility of enterprises to increase in prices after the economic concentration, changes in output or transaction conditions of commodities or services;
3. An anticipate change in prices, output, and transaction conditions of commodity and service suppliers are the input factors for enterprises participating in economic concentration
4. Conditions and risks of enterprises being competitors in the market to increase their coordination or agreement in order to raise selling prices or profit margin on revenue;
5. Other factors affecting the ability of enterprises to raise prices or profit margin on revenue after economic concentration.

(iii) The possibility of enterprises to eliminate or prevent other enterprises from entering or expanding the market after economic concentration;

1. The degree of control of the input factors for production and business before and after the economic concentration;
2. Competitive characteristics within the industry, sectors and the competitive acts of the enterprises participating in economic concentration in the period before the economic concentration;
3. Barriers to market entry and expansion prescribed in Article 8 of this Decree;
4. Other factors leading to the possibility of the enterprises to eliminate or prevent other enterprises from entering or expanding the market after economic concentration.

(iv) Specific factors in the sectors and fields in which enterprises participate in economic concentration.

Specific factors in the sectors and fields in which enterprises engage in economic concentration are considered when those factors directly affect or significantly change the results of the evaluation of the competitive restriction impacts and the ability to cause competitive restriction impacts of economic concentration.

Summary:

• Transactions with duplicate related product markets (horizontal economic concentration) need to evaluate all of the above criteria.
• Transactions with products and services that are inputs to each other or complementary to each other (vertical economic concentration): It’s not necessary to evaluate the combined market share criteria and the concentration level criteria. We only need to assess market share criteria in each relevant market and the relationship between enterprises participating in economic concentration.

4. Assessing the positive impact of economic concentration transactions

Assessing the positive impact of economic concentration on one of the following factors or a combination of these factors:

• Positive impacts on the development of the sector, field and science and technology according to the government’s strategies and zoning plans are evaluated based on the following aspects:

1. The ability to promote economic efficiency thanks to the scale and resources of localities, industries, fields and society, due to the economic concentration in accordance with the goals set in the strategies and plannings on the development of fields and sectors already approved by the Government or the Prime Minister;
2. The level of application of scientific and technological advances of enterprises to the society after economic concentration in order to improve productivity, quality and business efficiency that aims to reduce costs and improve the quality of products and services or serve the interests of consumers and society.

• The positive impact on small and medium-sized enterprise’s development is considered based on the assessment of opportunities and favorable conditions for small and medium-sized enterprises upon the entry and expansion of the market or joining the production chain, the distribution network of goods and services expected to be brought about by the economic concentration.
• Enhancing the competitiveness of Vietnamese enterprises in the international market is assessed based on the positive consequences of economic concentration due to the expansion of production, domestic consumption, export of goods and services of enterprise after economic concentration.

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