Discuss about the Global Expansion Developing, Producing, and Marketing.
The company that deals in discovering, developing, producing, and marketing of drugs or pharmaceuticals for medication purpose is known as the pharmaceutical company. A pharmaceutical company may operate in brand or generic medical devices and medications. A pharmaceutical company comes under a number of laws and regulations. The laws are levied to govern the testing, efficacy, patenting, safety, and marketing of drugs. ‘Remedy’ is a pharmaceutical company operating Queensland, Australia since 2011 (Amankwah-Amoah, 2014). It has earned a well-known name in the domestic market and now wanted to enter in the International market. Two countries shortlisted by the company’s management are China and South Africa. Both have lot potential to provide gain to the company. This report identifies the challenges and risks a company may face while operating in either of the countries. After determining all the risks the country which has better prospects will be decided and justified. The best entry mode for operating in the chosen country will be discussed. At the end of the report, the summary of the report will be provided in the conclusion (Anderson and Sutherland, 2015).
The remedy is a well-known Pharmaceutical company operating since 2011 in Queensland, Australia. It engages in the marketing and distribution of the branded medication for the cancer and related disease. It also researches on the medications related to cancer. In 2015 the company’s profit reached one billion in the domestic market. Now management wants to expand its business internationally. It aims at increasing its profit to the double by investing in the global market (Bradley, 2016). The company is searching for a country where it has the availability of resources as well as man power that will be required to run a unit in a new country. It also prefers that the country laws and regulations where it is going to develop its new unit should be business friendly and helpful. The management of Remedy has shortlisted two countries China and South Africa for setting up a subsidiary. Now the management has to analyse and decide the best place to set up a subsidiary of the company (Cisse, 2013).
China is the most populous country in the world, governed by the Communist party of China. China is considered to be a major regional power in Asia and a developing market. Most of the international company take China as a favourable place for expanding their business. The Chinese government has great plans for developing the healthcare industry. It has added healthcare system in its five-year plan. The result shows an astonishing growth in the healthcare sector. The budget committed by the Chinese government to the healthcare sector in 2011 was $359 billion and expected to increase to $1 trillion in 2020. China is acting as the most attractive market globally for pharmaceuticals, medical products, and consumer health. Most of the multinational healthcare companies are interested in investing in China for the development of their business. But there is no surety of success in a long-term (Font, 2012).
Commercial risks- the risk of the inability of foreign based customer to honour its debt in an international transaction is known as commercial risk. A lot of difficulties are occurring in the Chinese economy recently. The wealth in China is not divided equally. Maximum wealth is clustered amongst 25% of the Chinese population and rest 75% population comes under poverty. This makes the transaction of money a shady process. This may lead to commercial risk where the money transactions do not get honoured (Greenbaum, 2015).
Country risk- When a company decides to expand its business in another country it prefers to check the country risk which refers to the level to which economic and political unrest and fluctuation affect the business. It is divided into two categories:
Political risks- In China business rules and regulations are very absolute and transparent because China comes under the communist party that overpowers the legislation, economic and cultural institutions. One has to follow a social network called guanxiwang for operating in China. The corruption and lack of transparency only people associated with the communist party can make things better for a company to enter the Chinese market (Habberton, 2015).
Economic Risks- when a company enters a foreign market the economic stability of that market has to be considered. The economy of China mainly depends on the exports of the manufacturing industries. Due to this China tries to keep the Yuan maintain against United States dollar. Thus, any change in the value of Yuan will directly affect the profitability of the western company operating in China. The banks of China favour the local manufacturers and provide them huge loans for their success. Even taxes are levied to favour the local manufacturers. This result in increased cost advantages for a local company and a challenge for a foreign company. The knowledge of macro economics risk of China becomes important for the foreign companies before starting the business (Hughes, 2007).
Currency risk- China has a strong GDP growth in last decade and many investors prefer to invest in the emerging markets of China. The Chinese government tries to have a stable currency, means maintaining the value of Yuan against US dollars. But, fluctuations in other countries currency affect the currency, of China that affects the profitability ratio of the foreign companies (Liu, 2012).
Cross-cultural risk- China is a very traditional country and they have very different cultures than the western countries. The Chinese culture is immensely reflected in the business world of China. Following strict hierarchy, valuing face culture are few traditions that are followed in China, and expected to be followed by the foreign companies also. People’s characters play a very important role in China. Therefore to run a successful business in China one has to understand and overcome the cultural challenge (Loo, 2012).
Old age population- the population of people above 65 years is quite high in China. The requirement of healthcare services is more than any other age group due to their weak immune system. The weak immune system results in higher number of illness. 20-30 percent of prescribed drug market and 45-55 percent of the over the counter drug market is covered by the elderly population. This means a lot of prospects of success in future for ‘Remedy.’ (Okoro, 2012)
Strong Economic Growth- China’s GDP has shown a remarkable growth in the last two decades which makes Chinese economy the fastest growing economy in the world. This is a big attraction for the foreign investors to invest in the emerging market of China.
Rising Global Status- The growing economic structure of China and the increasing foreign investment in the country has poised China the largest economy in the world. This has also given China a higher status in the global politics (Overbo, 2016).
Healthcare Sector- China has included Healthcare Sector in its five-year plan and made a lot of plans for the improvement of the healthcare sector. It has aimed at increasing $369 billion dollars budget (2011) of the healthcare sector to $1 trillion dollars till 2020. This will give a lot of opportunities for success and business in China for Remedy Pharmaceuticals Company (Slangen and Hennart, 2007).
South Africa is an important industrial section of Africa. It has more than 50 million of the population divided into various ethnic groups. The country is full of diversified cultures. The World Bank has classified South Africa’s economy as an upper-middle-income economy. South Africa is gaining a fine name in the industrial sector as per the World Bank. South Africa has an ample store of natural resources which makes it a choice for various industries. In ESA countries only South Africa and Kenya has a few pharmaceuticals companies. But, still, most of the population does not have access to the proper medications. The reason of it is the low domestic production. South Africa does not have supportive policies, skills, capital, and weak research capacities. South Africa can be a very potential country for opening a pharmaceutical company. If all the barriers like investment, technology, and skills can be overcome than a huge market is available for a pharmaceutical company in South Africa (Slangen, 2013).
Commercial Risk- Starting a new venture in South Africa takes a lot of time as it is a lengthy procedure. It can also cost quite an amount of income per capita. But, this is also true that the cost of starting a business venture in South Africa is only 0.3% per capita income as compared to other continents which could be 60% of per capita income (Sun, 2010).
Country Risk- it is divided into two categories:
Political Risk- the government of South Africa is quite stable but new in governing a country. There are still a lot of laws and rules required for the development of the country. Same goes for the pharmaceutical companies. Proper rules and regulations are required to be framed by the government to attract the investors in this field.
Economic Risks- the market value of Rand is quite low in the global market. This help in reducing the cost of production using the labour and raw material available in South Africa. But, this also results in decreased profitability as compared to other countries, because the profit will also be coming mainly in Rand (Timmins, 2015).
Cross-cultural risk- there is some diversified cultures in South Africa. The total number of national languages is eleven which makes it a tough task for a foreign country’s company to operate in South Africa. It is very important to understand that the business environment here is quite informal. They prefer to be direct in their approach which is very different from western countries. All the different religions are deeply rooted in their traditions here and prefer the foreign companies also to follow these traditions.
Corruption- in South Africa the public resources are used for private use. Bribery and improper favouritism is also a part of day to day working of South Africa legislation. These corruption practices are illegal still, there are loop holes in the rules against corruption which make these practices possible (Wang, 2009).
Natural Resources- South Africa have abundant natural resources. Tropical woods can act as a great research material for Remedy Pharmaceuticals Company. They can research and experiment with new herbs and plant found in South Africa.
Monopoly- Pharmaceuticals companies operating in Africa can be counted on fingers. If Remedy Pharmaceutical Company decides to put up a unit in South Africa, then they can cover the whole market as they have the expertise of the business beforehand (Weaven and Frazer, 2007).
Remedy Pharmaceuticals Company wanted a place where they can easily adjust with their business operations and expand their business globally. After scrutinizing both the countries the best destination for the company-expansion will be South Africa. Both the countries has their benefits and challenges, but South Africa has maximum potential for the type of business Remedy Pharmaceuticals Company wanted to set up (Wu and Chen, 2014). The reasons of selecting South Africa are:
Stable government- South Africa may have a new government, but it is stable. The government still has to come up with some rules and regulation regarding pharmaceutical sector, which make it easy for the company to complete their set up without a lot of government intervention.
Cost Advantages- both the countries have cheap labour but in the recent times, Chinese Government has passed wages rule in their country which all the business set ups has to follow. In South Africa, no such rule has come up till now which can act as an advantage for the company. Also, raw material availability is also added to the cost advantages as South Africa has abundant natural resources (Yee, 2008).
Market share- Company will be a leading organisation as their no or a very few competitors that can share the market share of the company.
Cultural diversity- China and South Africa both the countries are traditionally rich and prefer to follow their culture, but Chinese are stricter in business traditions, and interfere with the company’s working style. South African has traditions, but they have not up to that level that they interfere in company’s job (Zhang, Cui and Qian, 2014).
Requirement- The requirement of a pharmaceutical company is more in South Africa rather than China.
Ownership- In China, a company can only operate when it has a partnership with a domestic company which is not the case in South Africa. The Remedy Pharmaceuticals Company will remain the whole sole owner of the company (Zhang, Cui and Qian, 2014).
For setting up an operating unit, it is necessary to decide how a company want to set up its business in a foreign country. There are three methods Joint Venture, Greenfield, and Acquisition. The best entry mode for Remedy Pharmaceuticals Company to enter the South African market is Greenfield. Greenfield entry mode means setting up a business from scratch in a foreign country. All the machinery, plant, research unit, etc are built by the company itself (Han and Luo, 2016). It is an expensive entry mode for a company and also a bit risky for the company which is entering international market for the first time. But, the type of pharmaceutical company Remedy is, it needs secrecy in the case of discovery and research work they do in their company, which is not possible in the case of the joint venture and acquisition. The company will be the boss and does not have share the market share and profit with anyone. The company can purchase or lease a land or a factory in the host country and set its own machinery and research work there. This will not only be beneficial in keeping research and discovery under safe hands, but also the company can follow their rule in the company which is not possible with the domestic people also being a part of the company (Dheda, 2016).
Conclusion
The emerging markets have become an attractive option for companies to open their subsidiaries and enter the international market. These companies enter an emerging market in search of growth and new opportunities as the developed markets are tending to be more competitive and saturated. In this report, a pharmaceutical company ‘Remedy’ decided to enter the international market in search of new growth opportunities. Considering the requirements of the company two countries were shortlisted, and their risk and benefits were discussed. Out of China and South Africa, South Africa proved to be a better option for opening a subsidiary and expanding business for Remedy Pharmaceutical Company. South Africa proved to a place where a company can easily set up its business as it has a stable government, cheap labour, fewer rules and regulations, and ample natural resources. Once the country got finalized the entry mode for the company required to enter the international market was justified as Greenfield entry mode. This will provide the company full control of its subsidiary even in the foreign country. Hence, it concludes, that South Africa will prove to be a better option to expand the business of Remedy Pharmaceutical Company in the international market.
References
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