Describe about the Global Business for Australian Pharmaceutical Company.
The assignment seeks to explain the case of an Australian pharmaceutical company that aims to consider South Africa and China to expand the purview of the business and enter the global marketplace. With the changing perspective of the society, the pharmaceutical industry of China and South Africa occupies a phenomenal place in that sphere.
China is the world’s largest producer of the medicine ingredients and has a leading medicinal drug market. At the same time, South Africa also maintains a supreme position in the domain of the pharmaceutical industry (Tsui and Lau 2012). The value of Africa’s pharmaceutical industry leaped to $20.8 billion in 2013 from a hitherto staggering $4.7 billion. The pharmaceutical business of both the countries (China and South Africa) is booming at a rapid pace (Papaioannou et al. 2015).
The assignment reflects on the background of an Australian pharmaceutical research company (AMCAL Pharma) that endeavors to extend the scope of the business to the countries of China and South Africa and enter the global business. In the second segment, the paper evaluates the potential of both the countries (China and South Africa) through a comparative analysis of risks and opportunities. The third section explains and analyses the market strategy based on the business development and host country business milieu.
The discourse centers on the development and the growth of an Australian pharmaceutical company (AMCAL Pharma) that aims to expand the scope of the business to the countries of China and South Africa. Major General C.H Simpson founded Allied Master Chemicals of Australia Limited (Amcal) on 13 July 1937 (Www.amcal.com.au 2016). It was initiated as a movement that had an important influence on the development of pharmacy in Australia. The founding group comprised 11 pharmacists. A buying group that possessed by the members who all had the shares with the AMCAL group. It is still operating as a marketing group. However, a franchise segment of Amcal, entitled Amcal Max is functioning under an advantageous and competitive framework.
China
With the growing economic potential of China, the people’s healthcare regimen is also reviving. Consequently, China’s pharmaceutical market is accelerating at a rapid pace. The pharmaceutical market has witnessed an average growth rate of between 15% and 17% over the past decade. According to variegated sources, the net profit of China’s pharmaceutical industry in 2012 was $60 billion. The pharmaceutical market will achieve a comprehensive growth rate of 12% from 2013 to 2020 (Www.pacificbridgemedical.com 2014) Of all the production, half of the sales go to western drug segment and the rest get absorbed into the fold of the Traditional Chinese Medicines (TCM). On the other hand, a large part goes to nutraceuticals and biologics. In 2011, China took the third position in the particular sphere, greater than the UK, Italy, Canada, Spain or Brazil (Gasman et al. 2013).
In the recent time, China endures the most of risks and challenges in the sphere of health care. The first risk entails the deteriorating food pattern of the Chinese made them inherently sick. Chronic diseases are escalating at a rapid pace (Zhang et al. 2012). A handful of patients become the victims of cardiovascular diseases. Therefore, cardiovascular drugs are on high demand. According to “2011 Health Statistics Yearbook”, the Ministry of Health (MOH) of China identifies various diseases that lead them to inferno (Www.pacificbridgemedical.com 2014).
The second risk necessitates, the traditional Chinese Medicines (TCM) play a significant role in the domain of Chinese healthcare. However, Western medicines are the most effective drugs for curing pernicious diseases and surgical procedures. Due to an increasing demand for pharmaceutical drugs, many foreign medicine companies carved out a unique space in the sphere of health care (Hillier et al. 2013). The western drug companies began to identify their target audience and create a phenomenon in the field. In the recent time, the handful of domestic pharmaceutical companies in China remains concentrated and are unable to compete with their foreign counterparts (Chiralli 2014). Therefore, the domestic Chinese drug companies emphasize on the production of generic or specific drugs that cater to the preference of the customers. Generic drug production occupies a colossal part of the pharmaceutical industry of China. Sihuan Pharmaceutical Holdings Group Ltd has set a paradigm in developing generic or specific drugs that aim to cure the vital diseases affecting the cardio-vascular system, Central Nervous System. It deals with the maintenance of metabolism and oncology (Www.sihuanpharm.com 2016).
Unlike the foreign companies, the local companies have made scarce investment in research and development. Therefore, many foreign firms aimed to co-operate with the foreign players to focus on Sino-foreign joint ventures (JVs). For an instance, the American Taishan Pharmaceuticals Company forms an agreement with a group that involves the China International Exchange Center for Traditional Chinese Medicines (TCM), China National Cooperation of Traditional Chinese and Herbal Medicine, and the Shanghai Traditional Chinese Drugs Company (Venkat 2014). However, the foreign companies endeavor to establish their own identity as a wholly foreign-oriented enterprise. Sanofi ($SNY), Eli Lilli ($LLY) and Merck ($ MRK (David et al. 2015) pick the gauntlet of the pharmaceutical business in China. It spawns a hyper-competitive, high-stakes market situation, which can push big sales. With the strengthening of ties with the government, Sanofi aims to provide diabetes training. This type of divergence is manifest in the picture
The third risk involves, the area of Traditional Chinese Medicines (TCM) garners low profit from the competitive character and government price cuts. Therefore, the local Chinese drug companies embark on the western-style mechanism of producing medicines (Park et al. 2012). The Chinese pharmaceutical industry is largely segmented, which means that there are scores of manufacturers and sellers without any lump sum market share. Local pharmaceutical companies are particularly small size and accrue a low rate of profit. Therefore, they could not invest on the Research and Development sectors. At the same time, they function in hyper-competitive milieu and possess an insignificant rate of profit (Shao et al. 2013).
The fourth risk states that due to a considerable dearth of infrastructure and logistical delivery equipment in the rural regions, it is hard to maintain effective drugs deliverance to China’s rural areas. The main risk is that the small and concentrated distribution system creates problems, as far as the regulation of drugs is concerned (Chen et al. 2015). The manufacturers often face the problem of covering the whole gamut of rural distribution of medicines. Because of the small size of distributor units, the manufactures could not meet the targets. Therefore, the fourth and the most important challenge explains that there is no composite product tracking system between manufacturers and distributors that makes product tracking mechanism a problematic in the rural region (Bollampally et al. 2015)
Before analyzing the risks and challenges faced by South Africa, it is important to comprehend the nature and the trajectory of the pharmaceutical industry of the region. It is indispensable to have an access to the essential medicines that maintains sustainable balance of health. The number of people with a steady access to essential medicines has leaped to 4 billion in 2002 from a meager 2.1 billion (ECSA Health Community). It is significant to understand the factors that affect the pharmaceutical production of Sub-Saharan Africa and other parts of Africa that encompass the African union.
A motley of countries dispersed in East and South Africa have domestic pharmaceutical units. Africa and Kenya maintain a wide array of local manufacturing units. Kenya particularly exports between 35 and 45 % of its medicines to other parts of the country; mainly to East, Central and Southern Africa countries, (Mahomoodally 2013).The pharmaceutical industry of South Africa is highly fragmented. South Africa maintains a limited degree of Active Pharmaceutical Ingredient (API) production. Due to an insignificant domestic production of medicines in the regions of South Africa, the part relies on the import of essential medicines (Iwu 2014).
The African Union (AU) Summit developed a Pharmaceutical Manufacturing plan for Africa in 2007. The manufacturing plan locates the defects and crises to domestic medicine production. Firstly, a debilitating policy environment and restricted governmental support, related to the maintenance of a steady domestic investment in the specific field. Secondly, high tariffs on imported units and extravagant interest rates on the credit and other facilities. The main challenge states that the government of South Africa experiences shortage of capital. Due to a lack of credit facilities, the sustenance of the pharmaceutical industry is not maintained (Rezai 2012). Thirdly, dearth of capital and man expertise, as far as the inclusion of scientists and industrial pharmacy is concerned. The recent Deloitte report entitled “The Skills Gap in Manufacturing” elucidates that the country could hardly maintain a reservoir of talented workers in the present time in South Africa. At the other end of the spectrum, there is a source of potential in the regions of South Africa (Www2.deloitte.com 2012). Fourthly, there is a lack of international collaborative ventures. Fifthly, the medicine companies countenance the challenge in using the essential expertise technology for various purposes. Many companies confront shortage of regulatory enforcement that helps to upgrade production standards. Sixthly, weak market base within individual countries and lack of research potential.
In the recent time, the government of South Africa deliberates on the improvement of the pharmaceutical situation by forging alliance with the foreign companies. The government of Mozambique forms a collaborative venture with the government of Brazil. The international partnership culminates in the formation of Mozambican Medications Company (SMM) (Brazil-Mozambique ARV Plant). The joint enterprise emphasizes the production of generic or specific drugs for the treatment of obnoxious diseases such as AIDS and Cancer (ECSA Health Community) In 2007, Cipla Limited, a premier Indian pharmaceutical manufacturer helped Uganda to improve its technical expertise in the field of pharmaceutical industry. These examples reflect the improving character of the pharmaceutical industry in the present time.
At the same time, South African pharmacy firms such as IMS Health (Www.imshealth.com 2016) and others deliberate on the development of high-end pharmaceutical companies focusing on the international partnership. The South African pharmaceutical firms such as Sun Pharma embarks on the production and distribution of generic drugs that help to fight against the crucial diseases such as Cancer, diabetes and AIDS (Www.sunpharma.com 2016).
In the process of addressing the assignment, the writer selects the country ‘China’ and substantiates the stance behind the selection of the country.
The reason behind choosing the specific country is that the pharmaceutical industry of China is comparatively in a better position than South Africa. The domestic pharmaceuticals of South Africa countenances huge problems, as far as the procurement of medicines is concerned. Therefore, South Africa aims to follow China that has set a quintessential mark by establishing state-owned medicine manufacturing facility. The development of the domestic line helps to cater to the growing demand for medicines and acts as an import substitution scheme. South Africa attempts to bring in a “paradigm shift” in the sphere of pharmaceuticals. Therefore, the paper selects ‘China’ as the model country and the discussion centers on the development of pharmaceutical segment of China. In order to expand the horizon of the Australian pharmaceutical industry, the framework of China fits the bill. The Australian pharmacy could extend its reach to the parts of China and enter the Eastern unit of the global market.
Definition of Participation Strategy: Equity and Non-Equity Mode
Foreign market entry modes (Participation Strategy) explain the degree of risk they entails, the regulation of resources they require and the increasing return on investment. There are two major variants of entry modes: equity and non-equity modes. The category of non-equity mode involves export and contractual agreements.
In an equity mode, collaborative enterprises and wholly owned subsidiaries are the two facets of the programme. A joint venture is a fledgling entity jointly concocted and owned by two or more principal companies. A combined enterprise allows the organization to share cost, risks and profits. On the hindsight, the joint ventures include many disadvantageous points such as distance, cultural divergence, different goals and stakes. Conversely, a wholly owned subsidiary is an ancillary unit owned by the foreign multinational unit. In the discourse, the writer selects the equity mode of market strategy. In the segment, the joint venture model of the equity mode/entry of marketing strategy should be taken into consideration.
The Australian pharmaceutical company (Amcal) aims to expand the purview of the business and extends the control to the eastern region of China. Consequently, the company enters the Eastern part of the global space and engages in collaborative ventures. The Australian company Amcal is an old pharmaceutical company. It wants to specialize in the production of generic or specific medicines produced by China. Therefore, the company of Australia emphasizes on the joint collaboration with Sihuan Pharmaceutical Holdings Group Ltd that particularly produces generic drugs to cure critical diseases. In this manner, the Australian company would extend the scope and the profundity of the business.
The Australian pharmaceutical company seeks to form a partnership with the Traditional Chinese Medicine (TCM) giant, Tong Ren Tang through the usage of the equity mode/entry of marketing strategy. Tong Ren Tang maintains the legacy of producing the Traditional Chinese Medicine (TCM) since the 17th century. The company, like the older Chinese companies, aims to accommodate significant market revisions. It is one of the oldest brands for the production of Chinese medicines. The company controls the whole gamut of traditional medicines that include acupuncture, massage and other herbal medicines. Tong Ren Tang forges collaboration with various International countries such as California, San Jose, Germany.
Keeping in mind the factors, the writer selects the equity mode/entry of market strategy. Under the equity mode, the concept of ‘joint collaboration’ is embedded in the narrative. The Australian pharmaceutical company wants to create an alliance with the top ranking Chinese local pharmaceutical ventures such as Sihuan Pharmaceutical group and Tong Ren Tang that underscore the production of generic or specific medicines and the procurement of Traditional Chinese Medicine (TCM).
Conclusion
The assignment explicates the instance of an Australian pharmaceutical company that endeavors to extend the scope of the business and enter the global space. The discussion centers on the background of the Australian Company (AMCAL) that wants to expand the horizon of the business by considering the model of China or South Africa. In the segment, the writer makes a comprehensive analysis of the risks and challenges faced by the health care and pharmaceutical companies of China and South Africa. In the next section, the paper selects a particular country (China) and provides the reason behind the selection. In the last section, the writer picks up the entry/ mode of marketing strategy (Equity mode) and takes into account the ‘Joint Venture’ aspect of the Equity mode of marketing strategy. At the same time, the assignment also discusses the reasons behind choosing the proposed mode. It gives suitable examples that reflect the alliance between the Australian Company (AMCAL) and the Chinese local medicine companies. In the particular case, the writer selects two Chinese local pharmaceutical companies that specialize in generic medicines and traditional medicines such as Sihuan Pharmaceutical Group and Tong Ren Tang.
References:
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