PUBLIC PROCUREMENT MARKET – COMPETITIVE ENVIRONMENT

 

Hanna Lewandowska (SWPW, Płock, Poland)

 

Abstract: The public procurement market as an European area of optimal public finances spending has played a very important role in creating the supply market since 2004. The economical subjects realizing their orders on the public procurement market stimulate the development of the supply market. The existing quasi – oligopolistic groups and those which are being established cannot endanger the development of small and medium – sized enterprises in terms of the supply and demand markets which cause the growth of competitiveness.

 

1. Introduction

One of the significant areas of modern economy which influences the creation of the amount of public finances spending is the public procurement market. Since 2004 it has been an European / supranational market which, as a result of market movement reinforcement through extending its range of operation, provides objectivity in creating the prices of goods and services. A country which through macro- and microeconomic policy is able to create development of economy and economic subjects is the greatest incumbent of public finances. It is achieved through, among other things, the transfer of public finances to those fields of economy which, in accordance with suitable legal acts (e.g. Constitution), are bound to supply the society with its needs (e.g. health care sector). Yet, the effective spending of the public finances depends on direct incumbents (customers) [1]of those finances  and on understanding the fact that only the equal and unlimited access to orders of all economic subjects on the market can ensure competitiveness in every field of economy. The main field of such creation is the public procurement market, on which, as a result of competitiveness, objective parameters such as prices and quality are created.

The Polish binding statute since 2004, called the Law of public procurement¹, has established obligatorily the public procurement market as a competitive area, in which market movements determine the product of future actions of the customers and sellers[2].

The established regulations which guarantee an equal and unlimited access to the public procurement market within the European Union ensure that all the economic subjects are treated equally irrespective of their financial and technical potential[3].

Moreover, the established regulations allow small and medium - sized enterprises to form syndicates in order to meet the customers’ requirements while submitting the tender documents[4].

The aim of this case study is a subjective indication of the Polish public procurement market for supplies in 2004 – 2006.

The case study applies to the afore mentioned market supply I.E. economic subjects which supply the health care sector (public health centers). In this case study the year 2004 was taken as a whole year in which new regulations regarding the threshold values of the orders (ˆ 60 thousand) were in force, in excess of which the orders financed by the public finances must be obligatorily published[5]. The collected and quantified data characterizing the supply of the public procurement market allowed formulating the present hypothesis:

the economic subjects which form a quasi – oligopolistic group do not endanger the competitiveness on the public procurement market

The methods to analyze and rate the collected data were the general statistical methods.

 

2.       The subjective characteristic of the public procurement market for supplies

The specialist nature of orders coming from the subjects of health care sector (medical equipment, drugs, reagents) as well as the quality requirements concerning the supplies cause the fact that the subjects which realize the orders must also meet very high requirements. Poland’s accession to the European Union and, connected with it, implementation of the Union’s directives have strengthened those requirements by relevant regulations included in respective directives.

The subjective analysis of the public procurement market supply led to isolate a group of 8 subjects forming the quasi – oligopolistic group which, from 2004 to 2006, realized the orders from the health care sector most frequently. (vide: diagram 1).

 

Diagram 1- The subjective structure of the public procurement market in 2004 – 2006

Source: own calculations on the basis of data from Public Procurement Bulletin [2004 – 2006]

 

    The group of the most active subjects supplying the health care sector consists of, among others, Johnson&Johnson co., Aesculap Chifa co. [6], GlaxoSmithKline co.[7], Sanofi-Synthelabo co[8] and the companies mediating between other companies selling the products: Cefram co.[9], Cezal co[10]., Urtica co.[11], and Zarys co.[12]. The subjects listed above realized on the public procurement market 31.59% of orders from the health care sector in 2004[13]. The companies’ activity reached the level of 37.12% in 2005, however, in 2006 it was similar to year 2004 (30.31%). The diminished activity of the listed economic subjects left a market niche which was successfully filled by small and medium – sized enterprises.

Many companies supplying the health care sector subjects have activated on the public procurement market since 2004. Companies such as: Farmacol co.[14], Skamex Company Ltd.[15] and Tyco co.[16] joined the already existing quasi – oligopolistic group. The activity of the extended quasi – oligopolistic group on the public procurement market during the analyzed period reached the level of respectively 39.08% in 2004, 46.79% in 2005 and 43.59% in 2006 (vide: diagram 2).

 

Diagram 2- The activity of the extended quasi – oligopolistic group on supply  market in 2004 – 2006

Source: own calculations on the basis of data from Public Procurement Bulletin [2004 – 2006]

 

     The increase of the share of market of the analyzed quasi – oligopolistic group (of 7.71%) on the previous year and its little decrease (of 3.2%) in 2006 on 2005 was influenced by the financial restructuring of the public health care sector[17] (clearing of debts) thank to which the subjects partially regained their financial liquidity. It caused an increase on the market demand on the public procurement market (more orders) which directly influenced the supply market (realization of the orders).

 

               3. The structure of the quasi – oligopolistic group

The public procurement market reacts to demand and supply market and it also creates the “leaders” of this market in the field of sales, prices and quality. During the analyzed period the leaders of the quasi – oligopolistic group on the market were mainly pharmaceutical warehouses and a few medical assortment producers e.g. Johnson&Johnson and Aesculap Chifa (vide: diagram 4).

 

Diagram 3- The quasi – oligopolistic group share of market in 2004 – 2006

Source: own calculations on the basis of data from Public Procurement Bulletin [2004 – 2006][18]

          

The warehouses proved the greatest share of supply in public procurement for public health care sector in 2004 – 2006. They were: Cefarm, whose share grew from 3.25% in 2004 to 9.71% in 2006, Urtica from 4.99% in 2004 to 8.64% in 2006 and pharmaceutical products distributor – Farmacol, whose share grew from 2.37% in 2004 to 6.85% in 2006.

 

Diagram 4 - Quasi – oligopolistic group dynamism in the share of supply market (previous year=100)

Source: own calculations on the basis of data from Public Procurement Bulletin [2004 – 2006][19]

 

Analyzing the dynamism of pharmaceutical companies Cefarm co. must be indicated due to the fact that as a state shareholding in 2005 proved the greatest growth on supply market (realization of supplies for independent public medical institutions). The other economic subjects proved the growth in the share of market from 33.53% (Urtica) to 113.73% (Farmacol). Whereas in 2006 all the analyzed subjects (apart from Farmacol) showed a decrease in supply market from 50.08% (Urtica) to 1.42% (Cezal) on 2005.

 

Conclusions

The development and expansion of the quasi – oligopolistic group on the public procurement market which proved a great share of market in 2004 – 2006 could not stop or limit the expansion of competitiveness. Controlling about 40% (estimated) of the supply market left about 60% of free area for other economic subjects ( small and medium – sized enterprises). The presented analysis allows to indicate the development of the public procurement towards growing competitiveness, which allows to verify positively the hypothesis stating that the economic subjects which form a quasi – oligopolistic group do not endanger the competitiveness on the public procurement market.

References

1. Lemke, M. & Piasta, D. 2006, ‘Analiza orzecznictwa Eurpoejskiego Trybunału Sprawiedliwości’ [The Analysis of European Court of Justuje Law Reports]: Public Procurement Office, Warsaw, Poland 

2. Lewandowska, H. 2007, ‘Outsourcing – determinant konkurencji rynku zamówień publicznych’ [Outsourcing – Determinant of the Public Procurement Market Competitiveness]: Warmińsko – Mazurski University, Olsztyn, Poland

3. Lewandowska, H. 2007, ‘Zamówienia publiczne w ochronie zdrowia’ [Public Procurement in Health Care Sectir]: Difin, Warsaw, Poland

4. Journal of Laws No. 79 item 551 from 2004. The law of public procurement

5. Journal of Laws No. 5 item 45 from 2001 about negotiating system of creating the growth of an average salary in enterprises and about changes of some laws and the law about medical institutions

6. Journal of Laws No. 78 item 684 from 2005 about public assistance and public health care sector  restructuring

7. European Parliament and European Council Directive 2004/18/EC