A Comparative Analysis Of Chinese And South African Pharmaceutical Markets

Discussion

Answer:

The AUSMED Company is highly popular for its pharmaceutical products in the Australian market. However, recently the company faces stagnation in its business and willing to expand the business in a foreign market. There are two countries where the company is willing to expand its business such as China or South Africa. Therefore, the purpose of this report is to enlighten the company’s decision in order to choose the right country where it can start its new operations. In course of the discussion, the report is going to use the PESTLE analysis and the SWOT matrix in order to understand the scope and risk factors exist in both the country. For the betterment of the understanding the report focuses on the comparative assessment of Chinese and South African pharmaceutical market. Based on this analysis, the report also suggests the best country that the AUSMED Company should opt for and the market entry strategy for conducting its new business establishments.

The pharmaceutical industry in China is considered to be one of the leading sectors in the country. There are number of domestic and multinational pharmaceutical companies in China that are responsible to deliver a steady growth in the Chinese market (Mossialos et al. 2016). In this regard, with the growth in the Chinese population the government is willing to create a better framework in the healthcare facilities across the world. As per the report of DBS Group Research, the Chinese government intends to ensure the public medical insurance and as a result of that the sales growth in the pharmaceutical sector has declined from 3.9% in 2012-2015 to 0.6% in 2016 (Kong and Lam 2017).

On the other hand, the South African government firmly depends on the multinational companies in order to expand their pharmaceutical market all over the country. As far as the government report in 2015, it was accounted that 85% of the pharmaceutical products were imported (IPASA, 2018). In fact, South Africa is the only country in the Southern African Development Community (SADC) that only meets the Manufacturing Practice Standards prescribed by the World Health Organisation (WHO) (polity.org.za 2018)

As far as the economic situation is concerned, the Chinese pharmaceutical sector is referred as the second largest market in the world and the fastest emerging market. According to the CNBC report in 2017, the Chinese pharmaceutical market was valued $122.6 billion and expected to be reached $145 billion to $175 billion by 2022 (Deloitte 2018). In compare to this, the annual growth in Chinese pharmaceutical market was accounted 9.4% between 2013 and 2017 (fmprc.gov.cn 2018).

On the other hand, the South African pharmaceutical market is also promising for the new multinational entrants. The pharmaceutical market in South Africa was calculated R11.7 billion in 2015 (sanews.gov.za 2018). Furthermore, there are approximately 276 companies that are listed in the South African market with the purpose to import, export and distributing pharmaceutical products (polity.org.za 2018). As a matter of fact, the South African market is also interested to attract multinational pharmaceutical companies to develop the infrastructure of manufacturing pharmaceutical products and creating new employments for the citizens.

Risk and opportunities in the countries

In case of China, the population growth has become an escalating trend in the country with 247 million in 2015 (Kong and Lam 2017). Therefore, it can be argued that there is ample of opportunities for the pharmaceutical companies to expand their business in the China where they can expect a dynamic market with enough customers. As a matter of fact, the Chinese government has planned to ensure health care facilities for all the citizens. It requires adequate infrastructure as well as enough pharmaceutical products. According to the 12^th Five-Year Plan of China, the authority was proposed to expand the distribution of pharmaceutical products from the Eastern province to the rests of the country (Li and Hamblin 2016). Therefore, for AUSMAD it creates high prospect to intervene into the dynamic Chinese pharmaceutical market.

As far as the South African pharmaceutical market is concerned, the country suffers with enough diseases and epidemics. Besides this, the rapid urbanisation, sedentary lifestyles and the dietary trends facilitates the demand for pharmaceutical product to strengthen the healthcare facilities (sanews.gov.za 2018). The South African people face lots of life causing diseases and epidemics that have to be stopped with the urgent need of pharmaceutical products.

Technological advancement fosters a more lucrative market opportunities for the multinational pharmaceutical Companies in China. The Chinese authority expresses grave concern regarding the role of the quality of the pharmaceutical products and intends to imply more transparency in the drug approval process. As per the ‘Made in China 2025’ industrial plan the Xi Jinping government seeks to upgrade the existing technology in the pharmaceutical sector (Deloitte 2018). In this context, it can be argued that most of the domestic pharmaceutical companies are still relied on the generic drugs or the therapeutic medicines. Therefore, they only invest 5% of their profit for the R&D projects in compare to US where the pharmaceutical companies invest 20% (Mossialos et al. 2016). Keeping in mind of this drawback the Chinese government takes the responsibility to upgrade the existing system by aiding $1.5 million in the pharmaceutical sector (Kong and Lam 2017).

The implementation of new technologies in the South African market was low in the past years. Nevertheless, in recent times some impressive and optimistic initiatives taken by the SA government drive better opportunities for technological intervention in the pharmaceutical sectors as well. The introduction of the Innovative Pharmaceutical Association South Africa (IPASA) in 2013 further bolstered the process. The purpose of this organisation is to encourage the pharmaceutical companies to research and develop novel medication, medical device and diagnostic tools (IPASA, 2018). With the assistance from IPASA now both the public and private pharmaceutical companies are able to provide better medication facilities for deadly diseases like small pox, diabetes and heart attacks which are growing in a rapid pace in the country.

In case of the legal framework for maintaining the quality of the pharmaceutical products and licensing of drugs the Medicine Control Council of the Department of Health of South Africa enacts some regulations. The guidelines follow the Good Manufacturing Practices (GMP) and the Good Distribution Practices (GDP) in order to safeguard the life and mortality of the South African citizens (Statutory Mandate 2018). Besides this, there are some important laws that the private pharmaceutical companies have to follow such as the Medicines and Related Substances Act 101 of 1965, Occupational Health and Safety Act 85 of 1993 and the Pharmacy Act of 1974 (Legislation 2018).

Political

Subsequently, the Chinese authorities also put some monitoring process and reflect grave concern for the medicines and other pharmaceutical products. As far as the Chinese regulation is concerned, the China Food and Drug Administration (CFDA) is solely responsible for the regulation of medical devices and pharmaceutical products in the Chinese mainland (fmprc.gov.cn 2018). For a better healthcare service in March 2018 the CFDA was merged with the National Market Supervision Administration (Li and Hamblin 2016). Moreover, the multinational pharmaceutical companies have enjoyed a reduction of R&D costs since the new guidelines advocated for the elimination of the unnecessary and costly clinical trials in China. In this context, it will be a beneficial factor for the AUSMED to expand its pharmaceutical business by entering in the Chinese market.

Since 2013 after XI Jinping Came to power in China the government expressed their top concern on the question of environmental pollution. In this regard, the government intended to implement strict enforcement of pollution control. In fact, it was in the agenda of the new government under the leadership of Xi to maintain the global standards of environmental performance. A major push was started since last year where the authority tried to put more emphasis on the detrimental impact of the producers of Active Pharmaceutical Ingredients (API) (Kong, M. and Lam 2017). As a matter of fact, the government initiates a program of monitoring the pharmaceutical plants and measures the intensity of pollution.

Simultaneously, in South Africa also the government tries to follow the global mandate of maintaining environmental sustainability. The country is full of natural diversities in terms of both flora and fauna. Therefore, it is pertinent to restore some eco-friendly attitude for sustaining in the South African market.

Strength	Opportunity
China	South Africa	China	South Africa
· The Chinese market has a promising prospect in future. · Huge consumer strength. · High technological advancement. · Government endorsement.	· Huge government initiatives. · The continuous growth in the market. · International aids for developing the health infrastructure. · Encouragement of R&D projects.	· The population growth increases the opportunity for more Pharmaceutical products. · Government provides further financial aids in Pharmaceutical sector. · Following the international standards.	· Government always encourage foreign Pharmaceutical companies to invest in the country. · The growing market with less competitiveness. · Need of medication for combating with deadly diseases. · Ample scope for R&D projects with the help of IPASA.
Weakness	Threats
China	South Africa	China	South Africa
· Government puts more focus on the local companies. · High taxation. · Less initiative in R&D projects. · Popularisation of the traditional Chinese medication.	· Lack of international standards of infrastructure. · The Pharmaceutical market is not so large.	· Intense competition from the local companies. · Low pricing strategy implemented by the government. · Corruption.	· Volatile market with dearth of proper infrastructure. · Presence of many international Pharmaceutical companies increases the competition.

On the basis of the above discussion it can be argued that the AUSMED Company should go for expanding its business in South Africa. It is true that the South African market is growing and the standard of infrastructure is not of international standard. Despite of this issue, it will be better for the AUSMED Company to put focus on the South African market. One of the major factors is the government willingness. The South African government is keen to have more multinational pharmaceutical companies to invest in the country (IPASA, 2018). On the contrary, in China the government policy is not advantageous for the international companies. The Chinese government always encourages the local pharmaceutical companies rather than the foreign counterparts (Kong, M. and Lam 2017). As a matter of fact, the AUSMED Company is not so big to compete in the high competitive market in China. In addition to this, apparently the Chinese market looks very lucrative and full of opportunities but corruption and the way of business in China are far different from the rest of the world. Moreover, in South Africa the AUSMED Company can get a near similar market environment as in Australia where the government and the international organisations can help to establish business profoundly. As a matter of fact, the South African market is more relaxed and transparent in compare to the Chinese market.

Economic

There are number of strategies to enter into the new market for a foreign company. Strategies like direct exporting, licensing, franchising, partnering, joint ventures, buying a company and turnkey projects. However, for the AUSMED Company it will be a better strategy to follow the joint venture strategy to enter into the South African market at first. The Company is not so big to establish new set up in South Africa. Moreover, there are a number of advantages for joint venture strategies.

According to Hitt, Li and Xu (2016) it is better for the not so big companies to expand their business by utilising external knowledge on technological development and innovation. As a matter of fact, procuring the joint venture strategy is a purposeful technique of the foreign companies to achieve long term technological benefits (Chanu and Dhir 2016). Based on this understanding, it can be argued that the AUSMED Company should focus on the joint venture strategy. The Company has no previous experience in international market and business operations. Taking direct entry in the South African market may cause a catastrophe for the company. On the other hand, the joint venture strategy can provide them proper understanding of the market trend in South Africa and the AUSMED Company can use its experience in expanding business through direct investment in future.

Moreover, as per the study of Hearn (2015) from the perspective of profit and stock market holding it will be an advantage for the companies to go for joint ventures to establish a strong market capitalisation in the developing countries. As a matter of fact, van der Meer-Kooistra and Kamminga (2015) opined that joint venture strategy is highly beneficial for the healthcare firms in expanding their business in foreign country. It can be argued that the role of the joint ventures in new market entry can facilitate product innovation through sharing products, expertise and knowledge (Romeli et al. 2016). The strategic flexibility that the joint venture strategy provides will be highly effective for the AUSMED Company for its future sustainability. It will give AUSMED a strategic position to think about further expansion of its business.

On the other hand, Shah (2015) explained the joint venture strategy on the basis of new trend in the global market. It can be asserted that with the growth in the communication and transportation system the market competition has been escalated intensely (Klijn et al. 2014). Moreover, there is a transformation in the global business orientation. Khamaksorn, Kurul and Tah (2017) showed that fifty years ago business was largely localised and only the large multinational companies had the ability to take part in the global business. However, presently the multinational enterprises also play significant role in the global market (Link, Ruhm and Siegel 2014). As a result of that, the business orientation has changed its shape and incorporates more effective measures by introducing joint ventures as a strategic measure (Nakandala and Lau 2015). Therefore, the AUSMED Company should take the opportunity to penetrate in the international market through the medium of joint venture. By taking part in the joint venture strategy the company can dodge the threats and competencies in the dynamic global market and ensure an healthy business environment for its future sustainability.

Social

Conclusion

The report clearly tried to figure out the best possibilities and risk factors for the AUSMED Company for its new expansion in the international market. As the company is intended to expand the business in China or South Africa therefore the report identified the risk factors and opportunities by conducting a comparative analysis for the pharmaceutical market in both the countries. In fact, the report incorporated the PESTLE analysis and SWOT tools to get a clear picture of the condition of the pharmaceutical market in both China and South Africa. After an in-depth analysis the report advised the AUSMED Company to opt for the South African market because it is more flexible with high exposure for future sustainability of the company. Moreover, the discussion also suggested using joint venture strategy keeping on mind about the strength and weakness of the company. Henceforth, it can be concluded that the report portrayed a thorough understanding related to the business expansion of AUSMED and is relevant and rational with contextual analysis.

Reference

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