Scarce talent
Is it anticompetitive for dominant multinationals to poach scarce talent in developing countries?
I recently came across an article titled, “Kenyan firms hit as Microsoft, Google talent war raises pay.” The article is set in Kenya but is very much applicable to other African countries, such as, South Africa and Nigeria; markets which global tech giants have signalled their intention to enter. It also focuses on the tech sector, but is applicable to any sector in which multinationals wish to enter on the continent.
The article talks about local companies that are struggling to retain their talent because they cannot match the salaries and employment terms put forward by Microsoft, Amazon, and Google. If you are one of the tech bros being poached, then this is by no means a problem. But, if you are a local company, whether a bank, telco, or tech startup, who invests in and trains young tech engineers, then your business plans are being fatally disrupted.
“We have some people called Microsoft, Amazon, Google who are just mopping up our developers.” — Patricia Ithau, the CEO of WPP Scangroup.
I think this is a competition law problem, albeit a very controversial one, and I will spend the remainder of this blogpost explaining why it is, as well as why and how African competition authorities should intervene.
It is important to, first, point out that, while companies compete in the market where they sell their products or services, they also compete in markets to buy talent and other inputs. For instance, law firms compete to sell legal services to their clients, but they also compete against each other to ‘buy’ the best students from law school.
Previous Compedia posts have explored how buyers can be anticompetitive,1 and even how buyers of talent can be anticompetitive.2
So, it is no surprise to see that the practice in the article above is envisaged under Section 72 of the Federal Competition and Consumer Protection Act, 2018, which states that, “… an abuse of dominant position occurs where one or more undertakings in a dominant position … engage[s] in any of the following exclusionary acts … buying up a scarce supply of intermediate goods or resources required by a competitor.”
Put simply, buying up a scarce supply of resources—ranging from rare raw materials to tech engineers that are few and far between—is considered an abuse of dominance.
Key word is ‘scarce’. Scarce resources are necessary for a competitor to compete. Buying up scarce resources in a manner that makes it unsustainable or impractical for a smaller player to compete is therefore anticompetitive; more so when the quantity of resources purchased are surplus to the dominant player’s requirements.
Talent may very well be viewed as scarce if there are not many people in a country with a particular specialism.3 As such, buying up this scarce talent/resource can have anticompetitive effects. But, if there are many people with this specialism, anticompetitive effects are less likely.
Now, let us consider why our competition authorities should intervene. I think there are at least two reasons.
First, the principle of functional equivalence: in order to avoid the inconsistent application of competition law, the regime should treat transactions or business practices that have the same effect on a market in the same manner.
To illustrate this point, let us refer back to Temidayo’s previous blogpost: if an acquisition of Jumia or Konga, by Amazon, would be blocked for substantially lessening competition, then competition law should also, in theory, prevent Amazon from acquiring Jumia or Konga’s employees. Both transactions (the merger and ‘acquiring’ the employees) are functionally equivalent—Amazon would effectively be replacing Jumia—and should therefore be treated the same under competition law.
Second, and more foundational is the public interest in protecting indigenous players, which must guide competition law enforcement in developing countries.
We must ensure that indigenous players are able to compete in our markets (without protecting inefficient players, of course). After all, the growth of indigenous players and domestic industry is an inextricable element of economic development. We risk economic dependency if we allow our markets to be dominated by multinationals.
The obvious counterargument is that employees are entitled to competitive (and even supra-competitive) compensation. And this is made more pertinent by the Nigerian employment context. We are all familiar with the statistics on the high youth un- and under-employment rates and how this has, in part, caused the Japa phenomenon.
So, surely the public interest in improving wages is important? Regardless of whether it contradicts the public interest in protecting indigenous players. And surely competition law should not be seen as attempting to cap what employees can earn?
These concerns are certainly valid. So, let us reframe things slightly and view the problem as one which could cause harm (to indigenous players) while also providing benefits (improved wages and employment conditions).
Viewed from this perspective—from the perspective of a very difficult trade off between protecting domestic industry and improving wages—the problem is not dissimilar to other competition problems where there are anticompetitive effects which can be justified by procompetitive or other efficiencies/benefits. In fact, the same Section 72 cited above allows for such justifications to possibly outweigh anticompetitive effects of a practice.
Also, this perspective allows us to distil the problem down to easily digestible questions and solution-oriented thinking. How can we know when the improvement in wages is causing unjustified harm to domestic industry? At what point can we say that the anticompetitive effects outweigh the benefits of the conduct? And how can we enjoy the benefits while limiting the anticompetitive effects?
These questions essentially concern when and how intervention should occur. And there are at least four components to a response.
First, we must clarify what we mean by ‘anticompetitive harm.’ As this is an exclusionary act (indigenous players are being excluded from markets), we have to consider what suffices as ‘exclusion’. We need not see an actual exit from the market, all that should suffice is that the practice makes it harder for a smaller player to compete. ‘Harder’ could be that the player faces diminished incentive and willingness to compete, despite having the capacity to compete, despite having made the requisite investments, and despite having proven its market worthiness.
Second, we must also clarify whether intervention should occur ‘ex ante’ (before the anticompetitive effect, like merger control), ‘ex post’ (after the anticompetitive effect, like cartel investigations), or whether we should use a combination of both.
Ex ante interventions might work. But it is impractical to expect indigenous players to report their resignations through a procedure similar to merger filings. That said, competition authorities could track news stories of dominant multinationals, with a certain turnover, that are considering entering their markets. They could also prioritise particular categories of employees in particular sectors of national significance and global interest, perhaps after conducting thorough market studies.
These could be complemented by ex post interventions as competition authorities could rely on complaints from small players.
Third, we must think about the market conditions that make the conduct more likely to cause anticompetitive harm. In competition law, there are very few practices that are always and only anticompetitive or are always and only benign; there are only market conditions that make anticompetitive effects more or less likely.
In this context, one such condition is that there is an actual scarcity of the specialism in the country. A competition authority may take the turnout rate from Universities into account, as well as the required training time in companies. Also, the centrality and importance of the employees to the small player, as well as their level of expertise, could be taken into account. Another factor is the necessity of the employees to the dominant player; if, for instance, the dominant player only requires 10 tech engineers, but is instead hiring 50, that is more likely to cause anticompetitive effects.
Competition authorities could also take into account the number of indigenous players already present in the sector; less indigenous players makes harm more likely. And the size and scale of the indigenous player(s) is also relevant. For instance, larger and more established players are less likely to be the victims of aggressive poaching.
Noticeably, I excluded any consideration of an exorbitant difference in wages. That could actually be a factor worth taking into account. But that is tempered by considering the pre-existing employment conditions in developing countries. In any case, there are practical obstacles to determine whether exorbitant wages are indeed harmful. Determining that a particular wage is ‘fair’, and not exorbitant, is very difficult to do in practice and, generally, I am not convinced that competition authorities can, at this stage, reliably include fairness into their analysis.
Fourth, and finally, we must think about potential remedies when these market conditions are present. This is where things get harder because it is very difficult to stop employees leaving to get better compensation. What competition authorities can do, however, is to mitigate certain effects. For instance, they could intervene against obstacles that might be put in place by dominant players to prevent talent from leaving, such as non-compete provisions. They could also order dominant players to establish an employee share ownership program. South Africa’s competition authority recently did this in a merger to ensure that the post-merger entity was partially owned by employees. This could mitigate the potential economic dependency.
Another remedy, one which is outside the remit of competition law, is for competition authorities to lobby governments to invest in education for the country’s scarce talent groups, perhaps through scholarships at Universities.
Ultimately, competition law does not operate in a vacuum. Interventions within the field will inevitably and invariably affect many aspects of our economic, civic, and personal lives. More so in developing countries, where developmental objectives must be included into competition analysis. And I hope to have demonstrated the simultaneous difficulty and importance of doing just that.
Munene previously explored this in his buyer power article, and again in his analysis of the Carrefour case in Kenya. In a nutshell, buyers with excessive leverage can impose unfair conditions on their suppliers.
In my post on the legal profession, I referred to the US Supreme Court’s recent ruling that the National Collegiate Athletic Association engaged in price fixing by agreeing how much college athletes could be paid across different universities. Specifically, Justice Kavanaugh noted that, “[P]rice-fixing labour is ordinarily a textbook antitrust problem because it extinguishes the free market in which individuals can otherwise obtain fair compensation for their work. … The bottom line is that the NCAA and its member colleges are suppressing the pay of student athletes who collectively generate billions of dollars in revenues for colleges every year. Those enormous sums of money flow to seemingly everyone except the student athletes.” No punches were pulled.
Even if the talent is not scarce in a particular country, there are still concerns when a dominant company aggressively attempts to buy a small competitor’s talent. There are stories of this happening in the United States’ tech scene, where Google and Facebook have been said to, in a ‘vulturelike’ manner, buy particular tech engineers, even the CEOs of budding startups, leaving the target companies hollow. You can read more in this excerpt from Chaos Monkeys by Antonia García Martínez.
This is so interesting. I wonder how this could be measured though. For instance, in Nigeria you have thousands of students graduating with a law degree every year. Most of whom will not get jobs in the field of law due to the lack of jobs available. So if a multinational was to then poach one of the "better lawyers", wouldn't there be an argument that there are readily available replacements?
What I find hard to measure is the "talented" aspect of this. We know multinationals seek the most talented but it's hard to quantify. In the case of mergers, you can look at the market share of both companies then subsequently deem it's anticompetitive. In the case of talent, where there isn't a shortage, it's a lot harder to measure I think.
Brilliant article as usual Fola. Looking forward to future posts.
An insightful, thoughtful and informative read. A critical indictment of anti-competitive practices by tech giants in developing countries, of which the author argues convincingly on the need for competition authorities to intervene, in order to avoid what many scholars have termed as brain drain in this countries.
Looking forward to reading more on this topic as you develop more insights.
Cheers