Friday, March 5, 2021

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Index | ICC

The Indonesia Competition Commission (ICC) found that the Business Competition Index (IPU) in Indonesia for year 2020 had decreased from 4.72 points in 2019 to 4.65 points in 2020. IPU is a comprehensive measurement of the level of business competition in providing indications of whether a sector or a certain region has a high or low level of business competition. This index was developed by ICC in association with the Center for Economics and Development Studies (LP3E), Padjadjaran University, since 2011 and has even managed to measure the level of national business competition (the measurement wasconducted in 34 Provinces). IPU also constitutes one of the development mandates in the 2020-2024 National Medium-Term Development Plan (RPJMN), wherein IPU is one of the national targets in the Priority Program6, namely in terms of added value increase, employment and investment in the real sector, as well as industrialization.

IPU is prepared by using the SCP (Structure, Conduct, and Performance)  concept or paradigm and co-considering the market dimension aspects (demand and supply conditions), regulatory dimension, and institutional dimension (respondents’ understanding of business competition institutions and policies). The method used by ICC in calculating the weight for each dimension is the Principal Component Analysis (PCA) and the weights are the same. The use of the same weights to add up the scores for all dimensions is conducted so that comparisons of business competition index scores can be conducted every year. Based on the survey and calculations conducted, it is found that the IPU scores based on the overall dimensions are 4.50 points (PCA weight) and 4.65 points (same weight). Meanwhile, the IPU score based on the SCP dimensions is 4.39 points (PCA weight) and 4.26 points (same weight). If compared to the previous year, the index in 2020 (overall dimensions and with the same weight score) decreased from 4.72 points in 2019 to 4.65 points in 2020.

The following table can be seen for more comprehensive details:

Dimension Year 2019

(Overall Dimension)

Year 2020

(Overall Dimension)

Structure 4.24 4.34
Behavior 3.90 3.58
Performance 4.70 4.86
Regulation 5.95 6.12
Demand 4.35 4.06
Supply 5.14 4.94
Institutions 4.74 4.61
Same Weight Scores 4.72 4.65

With due obserance of the various dimensions above, the regulatory dimension has the highest index score, namely 6.12 points. This shows that existing regulations in regions have led or supported fair business competition conditions. In terms of the SCP dimensions, the dimension of behavior (conduct) has the lowest index score as compared to the dimension of the structure and that of performance. This indicates that in terms of business actor behavior, business competition has not led to high business competition yet and there is still market control by several business actors, there is a  potential cooperation in determining outputs and prices, as well as other matters that lead to low business competition. In terms of the market side, the supply dimension has an index score that is not high enough either to lead to high competition. The institutional dimension has an index score of 4.61 points, which indicates that there is an indication that the stakeholders ofICC do not have adequate understanding of the institutions and regulatory umbrella for business competition in Indonesia. The demand dimension for 2020 has the lowest score as compared to other dimensions in terms of environmental factors, this is in line with the general conditions faced with regard to the COVID-19 pandemic.

In the mean time, the result of survey conducted by ICC also shows that the economic sector which has the highest business competition is the accommodation provision sector and food and beverages. The high score in the food and beverages as well as accommodation provision sector is closely related to the development of the tourism sector and regional infrastructure development in recent periods. Sectors that are generally controlled or managed by the Government show a low business competition index score, namely the electricity and gas procurement sector, as well as the water treatment sector, litter and waste treatment sector. The score of mining and excavation sector is also relatively low as a result of natural constraints brought aboutby the needs for huge capital to start a business in that sector.

ICC is the only business competition authority in the world that possesses a Business Competition Index. This has made ICC a reference for other countries, especially several countries from the ASEAN region which are also interested in developing the business competition index.