Global Business For Biotechnology Company: Risks And Analysis

Background to the Company

Discuss about the Global Business for Biotechnology Company.

When a country decides to move in to the global market, various considerations have to be taken in to account while conducting the operations. The International Operations Manager has the important task of investigating the risks and challenges that the Company will face in the foreign country. International business can be defined as the financial and business activities of the firms across borders earning it the name “cross-border business” (Cavusgil 2014). Companies engage in gaining the foreign customers and launching synergetic relationships with stakeholders in the foreign land (Cavusgil 2014). Whenever a Company wants to penetrate global market to extend its business, it becomes necessary to carry out investigations regarding the current status of the market, the opportunity of bagging profitable stakeholders, the available consumer base and so on. Predictions regarding the future condition of the market in the particular market which the Company has chosen to settle in are also made and accordingly decisions are taken (Cavusgil 2014). International business ventures can run in to various kinds of risks and challenges which it might not face in its own homeland. Successful business venture also depends to a great extent on the Government legislations, policies and tariffs of the foreign country (Cavusgil 2014).

Figure 1: Logo of Giaconda Limited

Source: (www.giacondaltd.com)

As per the official website of the Company, Giaconda Limited was established in the year 2004 for the commercialization of therapies and drugs for gastrointestinal diseases and disorders (Giaconda 2016). The drugs were prepared by Professor Borody at the Centre for Digestive Diseases Pty Ltd. The Giaconda products were prepared keeping in mind the hitherto ineffective gastrointestinal drugs in the market. Hence the products developed in the Centre for Digestive Diseases proved to be triumphant in the Australian market. Originally, the Centre was based in Sydney in the year 1985 by Professor Borody who is one of the foremost specialists in the treatment of gastrointestinal industry (Giaconda 2016). Giaconda, as per the official website, boasts of 20 granted patents and 19 patents have already been applied for. Giaconda is mostly dependent on the innovative investigations conducted in the field of gastrointestinal diseases (Giaconda 2016). The Executive Director and Chief Executive Officer is Mr. Patrick McLean while the Chief Medical Officer is Professor Thomas Borody M.D. Trevor Moore is the non-executive Director and Marcus Conner is the Company Secretary (Giaconda 2016). Giaconda’s mission is to become a pioneer in the path breaking therapies for GI diseases as well as help in the generation of profits keeping the best interests of the stakeholders in mind (Giaconda 2016).

Analysis of Risks and Challenges

Investment in foreign ventures comprises both financial, cross cultural risks as well as additional opportunities. The financial risks that are associated with a global market include foreign exchange risk and political risks (Wild et al. 2014). Consequently, the reliability and continuity of a venture in foreign country depends on a number of variables. The volatile nature of the exchange rate occurs due to the sudden depreciation (or appreciation) which in turn affects the sales and revenues of the Company in the foreign market. Political risk materializes in the event of a government changing its policies which adversely impacts foreign companies in the country (Wild et al. 2014).

Investigations have categorized the different risks faced by foreign companies in alien land under four subheadings. These are shown in the form of a diagram below:

Figure 2: Risks in International business

Source: (as created by the author)

Giaconda Limited is attempting to launch itself in a foreign country to increase its global reach. The two countries chosen by the Company are South Africa and China both of which possess prospective markets for gastrointestinal products. The responsibility of the International Operations Manager is to analyze the four kinds of risks that the Company is likely to experience in the foreign market.

	South Africa	China
Cultural differences	South Africa consists of a medley of people from different ethnic, cultural and linguistic groups. Differences in customs and traditions between the two countries are much more apparent in case of South Africa (Sahistory.org.za 2016).	China is notable for its traditional and ethnic outlook which is the country’s main source of pride and strength. Once a “Celestial Empire”, the Chinese culture also stands as a contrast to the progressive minded Australians.
Negotiation patterns	The Company would look for relatively easier negotiation patterns in the foreign country for its business transactions. The people of South Africa are friendly and they speak from the heart. Hence negotiations can be dealt with frank honesty with the South Africans.	The Chinese are conservative and are inclined to be indifferent to foreign companies in the market. They are generally more favorable towards the China based companies.
Decision-making styles	The South African tend to take decisions quickly and unflinchingly.	The Chinese are prone to take time before taking any kind of decision and reaching a conclusion.
Ethical practices	The South Africans are usually lenient when it comes to ethics and standard business practices.	The Chinese are very conscientiousness in their dealings, whether it is in life in general or in business.

Figure 3: Cross Cultural risks

Source: (as created by the author)

South Africa

China

The commercial risks in South Africa have increased in the past year due to the depreciation of the African currencies. However, the rate of stabilization has increased in several South African countries like Ghana and Kenya. In the 2016 survey conducted by the Risk Frontiers, the exchange rate has been considered as the greatest commercial risk in South Africa. Another risk that comes up in the survey is related to the economic uncertainty (Commercial Risk Africa 2016). The regional as well as political variances that the countries face in the sub continent have an important impact on the dynamics of the market. Corruption has also topped in the list of commercial risk as different tiers of the business is dependent on bribery to get their work done (Commercial Risk Africa 2016). Conversely, the anti-corruption campaign has been launched in the countries to promote international business in South Africa. The business operation and strategies are on the way to be improved owing to the active participation of the big players in South African market. The recent year has seen the market in South Africa as a “bright spot” for investment albeit a bit risky (Commercial Risk Africa 2016).

As per the survey conducted by World Bank on “Doing Business Well” which lists the countries where foreign companies find it easy to invest, China ranked 84 (Doingbusiness.org 2016). China is known for its closed economy with the domestic companies getting more opportunities to innovate and prosper. However, the Chinese Government has placed several restrictions in large areas of the country. In China, chops are used as stamps which are legally binding for any company to operate in the country. The loss of such chops may lead to commercial risk for the foreign company in China. China, the world’s second largest economy, poses other risks for foreign business as well (Doingbusiness.org 2016). According to the Business Insider, the economic growth in China is not real. The fixed asset investments explain the large chunk of Chinese economy. The high speed of the growth of the economy is planned by the Central government though in reality the growth does not exist (Reckoning 2016).

Figure 4: Commercial risks

Source: (as created by the author)

South Africa

China

The political risks at South Africa are very high for the foreign company to invest in the market. The political disturbance in the country will intensify in the coming years which are sure to scare away investors from coming to invest. The economic growth has grown only by 1.3% in the year 2015 (Sabc.co.za 2016). The control of the Government on the market is also a growing concern for the investors. The license created for the company needs the creation of an official who can be corrupted and bribed in to getting any legal work done. The interventionist nature of the government has been the chief reason behind the decadent growth of the country (Cato Institute 2003).

The political risks in China comprise the political unrest currently existent in the country. The economic reforms resulting in staff turnover, wide gaps between the haves and have not’s, industrial accidents have led to social unrest. In such an event, the government is forced to take strict steps which endanger supply chains and investor confidence. Further, the legal protections are not applied properly to the industries. The public sector undertakings still constitute about 40 percent of the economic activity of China and hence private, foreign companies face stiff competition (Harvard Business Review 2006).

Figure 5: Country risks

Source: (as created by the author)

South Africa

China

The currency of South Africa, rand, has depreciated which has caused the economy to weaken. As a result, the South African assets have come under pressure (Bloomberg.com 2015). The exchange control regulations are mainly regulated by the South African Reserves Bank. The South African currency is subjected to flexible exchange rate regime which denotes that the currency rate is determined by the market forces of supply and demand (Fatima Bhoola 2016).

The Chinese currency, Yuan, is considered to be the world’s 4th most used currency for cross border transactions (International Business Times 2015). However, the switch from the currency to RNB is complicated. Additionally, the depreciation of the Chinese Yuan has been predicted to cause upheaval in the market (International Business Times 2015). This issue will seriously impact the foreign investment in the country.

Figure 6: Currency risks

Source: (as created by the author)

The analysis and discussion of the various risks that the Company is going to face in the global market have brought to light the current market conditions of the two countries – South Africa and China. When it came to South Africa, the risks multiplied in different domains like exchange rate, security systems and most importantly, the system of bribery to get things done (Bloomberg.com 2015). The political as well as the commercial risks in the country South Africa may prove to be detrimental for the growth of foreign companies like Giaconda in the market (Bloomberg.com 2015). Hence, China has been selected as having the best market for pharmaceutical industry.

Conversely, the market of China has shown promises regarding the foreign investments being one of the greatest economies of the world. China boasts of low debt level, soaring savings rate, mounting domestic expenditure and strong work ethic (Reckoning 2016). The foreign direct investment has reached $136 billion and showed a growth rate of 6 percent (English.gov.cn 2016). The other associated factors that have helped in proving China as a good place for investment are improved infrastructure, logistics industry and high quality human resources (English.gov.cn 2016). The state owned enterprises in China do enjoy a favorable climate to prosper and earn huge profits; however, the new reforms of China have ensured that there were enormous opportunities for the foreign investors to help in the economic transition of the country (Jiangang 2015). Hence Giaconda Limited can reap benefits if the Company shifts to the Chinese market and engages itself in business transactions with the same.

Cross Cultural Risks

Modes of entry into the international market can be defined as the various channels which are utilized by the Company to gain entry into the foreign market. According to Impullitti et al. (2013), the productive firms are those who are able to survive in the foreign market after a considerable period of time. The companies generally perform differently after entering the foreign market owing to the various factors depending on which the companies thrive. There are several modes through which the Company can enter the foreign market. In case of Giaconda, the proposed mode of entry that would benefit the Company is Green field investment (Luu 2016). The Green field investment is the process through which the parent company establishes its business operations in a foreign country through construction of distribution hubs, offices and staff quarters. The Green field investment acts as a form of foreign direct investment (FDI) where the company gets to build a business from the scratch. There are multiple advantages in choosing this form of mode of entry in the foreign market (Luu 2016). First of all, the control of the parent company over the company established in the foreign country is greater than the control it would have had in case of franchisee or licensing. The parent company will also have greater power over the in-house staff and the commitment of the company to the market (Luu 2016).

In case of Giaconda Limited, the Chinese market can prove to be a prospective place for selling the gastrointestinal drugs and therapies. The economic growth in China has shown to be increasing which forecasts well for the progress of the Company. The Centre for Digestive Pty Ltd can build its own plant in China where the cases of inflammatory bowel diseases among the Chinese. The gastrointestinal diseases were once rarely found in China; recent years have shown such cases to double (American Association for the Advancement of Science 2015). Giaconda can use this opportunity of opening its own laboratory and train its own set of skilled medical officers and research assistants to commercialize their latest inventions in bowel infections. Giaconda will have full control over the Chinese plant where it can operate freely while maintaining compliance with the government legislations and policies. Apart from the prospective market, in terms of the perfect destination for Green field investment, China ranks second lagging behind India only by a few points (The Economic Times 2016). The growth of the economy and the stability in the foreign exchange rate will act as good motivators for the Company to invest in this country.

Commercial Risk

Conclusion:

Giaconda Limited is a leading name in the field of gastrointestinal drugs and therapies. The Company has commendable reputation in Australia and the drugs produced and commercialized under the vigilant supervision of Professor Borody and his skilled team of experts have achieved unprecedented success. When the Company decided to penetrate into the foreign market, the International Operations Manager had to analyze the risks and challenges that the Company will face in the foreign land. When the marketing conditions and the risks were evaluated in both South Africa and China, it was discovered that the Company will benefit on opening its own plant in China where the economy has promising signs for growth and development. The current exchange rate, the government rules and regulations and the strongly knit market policies of the country have proved to be advantageous for reaching out to the masses of the country. When it came to choosing a definite mode of entry to the Chinese market, Green field investment has been chosen. The advantages of this particular form of Direct Foreign Investment will prove to be profitable for Giaconda. The rising cases of gastrointestinal diseases in China will also help in increasing the consumer base of the Company.

References:

American Association for the Advancement of Science, 2015. Surge in gastrointestinal disease spurs US-China collaboration. Science, 348(6238), pp.983-984.

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