Opportunities And Risks Of Entering Pharmaceutical Market In China And South Africa

AUSMED, an Australian pharma company manufacturing drugs, has grown fast in the last 10 years. It currently employs 60 staff and has an annual turnover of approximately AUD 30 million. However, growth has recently stalled, and AUSMED is now considering South Africa and China to expand its business, and enter the global marketplace for the first time. As an Operations Manager at AUSMED, prepare a report (2500 words) for the company’s executive summarising the risks and opportunities in each of these two countries, recommend the best destination country, and an appropriate entry mode for the chosen country.

For this task, you will need to read materials beyond your text and readings. As a guide you should include 15 references which may include academic sources, government websites, and reports published by international organisations and consultancies. Please place the word count for this assignment on the cover sheet. 10% more or less than the stated word count is acceptable. Executive summary, table of contents, tables, visuals, references and appendices will not be included in the word count. The marker may, at their discretion, discontinue marking if you go above 10% of the recommended word limit.

For this assessment task, you are expected to demonstrate your understanding of the following:

• How to assess country potential through an analysis of risks and opportunities. Risks that should be emphasised (but not limited to) in particular are those relevant to pharmaceutical businesses such as legal aspects, government regulations and financial/currency risks. Opportunities may include (but not limited to) market size, economic growth and trade agreements between the 2 countries.
• How to identify the best market entry strategy based on the business type and host country business environment (this includes but not limited to the level of economic integration between home and host country, the political and legal environment of the host country). The recommended strategy must be well justified based on all the factors (e.g., organisational goals and objectives, resource requirement, degree of control required, risks in the target market, etc.) to consider when deciding entry strategy.

Political and Economic Analysis of South Africa

The aim of this report is to discuss the best market to entre for a renowned Australian pharma company manufacturing drugs for more than ten years in the Australian market. The company aims to enter the market of these two countries for several reasons. First of all, both these countries have huge demand for medicines as the population is much higher than the other countries. Secondly, both these preferred countries have strong influence on the other countries of their continent and through entering one of these markets the company will be able to spread business in all over the continent quite easily.

This report therefore, will be analysing the opportunities and risks of the two preferred countries such as China and South Africa, the reason of choosing the destination country and identifying the best proposed entry for the chosen country.

In order to understand the opportunity level present in the market, the business need to know proper situation of the county starting from the political, legal, economic and social factors. 

The country’s political system has been full of corruption from the very beginning. This corruption is present in every level of the administration system of South Africa (Simpasa, Shimeles and Salami 2015). This is the reason why the business in this market need to depend on the power of the political leaders in their favour. This favouritism leads to the inconvenience for the new business companies be it a manufacturing or retail one (Fosu 2015). Due to this questionable political setting, the investors from the foreign market do not feel secured to invest in the South African market.

In addition to these issues of corruption present in the country, the investors also feel threated due to the economic situation of the country. The currency of South Africa is Rand which remains all time low in value. The Reserve Bank while need to influence the value of the currency remain neutral and inactive. Due this low value of the currency as well as the exchange rate, the African market is avoided by the investors. The labour law of the country is quite similar to that of the UK especially when the foreign companies exporting South Africa. Moreover, the taxation system has Value Added tax, Capital gains tax, Skills development levy, Transfer duty, Stamp duty, Customs and excise duties which dissuade the business investors to start the business in the country or enter the market in any process (Elias 2018).

Challenges and Opportunities of Doing Business in South Africa

China though has the fastest growing economy in the world has some of the most important risks for the business companies first of all which is the difference in cultural understanding. The companies of different part of the world face sensitivity with the Chinese culture (Elias 2018). The Chinese culture supports strong maintenance of hierarchy where the position of the leaders and managers is more distinguished in the organization which is not always followed in the western organizational culture (Lardy 2016). The organizations are more dominated by the management in the Chinese context and they follow more authoritarian style of leadership in order to maintain discipline in the organization. It is important to note that China has a long history of foreign rule in the country hence there are some notions associated with the foreign investors doing business in China (Haggard and Kaufman 2018).

Despite the fact that China has a stable political history but the role of government in the business sector of the country is not very acceptable (Lardy 2016). The government keeps a watch in every movement of the business section so that any type of problem affecting the economic growth do not take place in the country’s market. The economy of this country is planned and closely connected with the government hence joint venture becomes quite difficult (Geng, Sarkis and Ulgiati 2016). The legal matters lack consistency therefore, it becomes quite difficult to constantly changing legislation by the convenience of the Chinese government. The process of connecting with the local brands is quite impossible as they have substantial governmental involvement (Giles and Mu 2017).

Corruption in China has become one of the most important factors in doing business in the country. The policies, institutions and the norms of Communist Party of China have clashes with the current market liberalisation (Pomeranz 2016).It has all the country’s assets therefore; the government does not consult with the budget process. Tis is the reason why, the amount of bribery, misspending of public fund has been increasing. The government has spent a huge amount of money in building infrastructure projects and the office buildings hence cannot support the business like before (Summers 2016). The growing debt of the government is another factor of anxiety in the foreign investors. The debt due to investing in the infrastructure projects like roads, electricity, railways, telecommunications and other similar projects have slowed down the growth in the business sector. 

Political, Legal, and Economic Analysis of China

It is quite natural that the foreign investors aim to reduce the operational costs hence spread in other countries but this particular cost is increasing in China. Moreover, all the foreign companies are bound to spend some percent of their profit to the education, urban maintenance and the constriction taxes (Pandya 2016). The additional operating cost includes the employee insurance. This is the reason why the foreign investors are not taking interest in investing funds in the Chinese market. In addition to this, the market of China is already quite full with difefrnet domestic and foreign companies which has created high competition in every sector of business. The pharmaceutical companies with high brand popularity have already captured the Chinese market for which the concentration in this industry has grown making barrier for the new entrants.

In spite for suffering from all these issues, the country has become an attractive place for investment by the foreign investors (Fosu 2015). This is due to the fact that this system of the administration of South Africa is undergoing complete change. First of all, due to fast urbanisation in this country, the infrastructure is fast growing (Africa 2018). The cities have started to enjoy better logistics as well as systems where the business can operate smoothly. The huge population of South Africa is ready to be granted as the workforce and the households are gaining more purchasing power than they could before (Africa 2018).

The business environment of this market has been shifting towards the development and getting support from the higher level of administration (Simpasa, Shimeles and Salami 2015). This is due to the fact that the government of the country has started to introduce the import restrictions and price controls in order to encourage the investors. Along with this, the government has initiated to tighten the regulations regarding import, retail and wholesale margins. As mentioned before, due to urbanisation, the population with high standard of living are accumulating in the cities (Thow et al. 2015). Therefore, the business companies are attracted towards opening their brunches in the African cities.

In addition to this, with the increased buying power of the consumers, the local African labours are highly available to build local team of workforce. They have basic education but need training to acquire the skills needed for fitting themselves in the particular business context (Thow et al. 2015). Therefore, the international business companies can get the opportunity to capture of cheap labour market and develop local managers to lead and guide them without any further conflicts.

Challenges and Opportunities of Doing Business in China

The opportunity in doing business in the country is growing as the regulations to address the issues of supply and distribution (Coburn, Restivo and Shandra 2015). Beforehand the transport and the logistics infrastructures have been patchy which now in being changed therefore, the capability to innovate a proper distribution channel for setting up an efficient operation against challenging backdrop has gained support and captured growth opportunities. In this regard, the government is helping to align the political and business structures and partnering with the local logistics providers to point out the efficient transport routes. Therefore, the Australian pharmaceutical company like AUSMED can easily enter this country and do a successful business with huge support from the government of South Africa. 

China is a fast-growing country where the size of the market is huge with the highest population growth each year. This is why the demand of the people is also increasing which the business can easily capture. The customer of this country has high standard of life and prefer to mix traditions and modernity in every aspects of their lives. Hence the foreign investors enter the market and through applying proper strategy, fit themselves with the unstable nature of the Chinese market (Geng, Sarkis and Ulgiati 2016). It takes along time of the foreign investors to strengthen themselves in this market for which some of them feel frustrated hence leave the market but actually Chinese market takes time to return profit hence patience is mandatory for the business.

The movement of China invests itself and encourage the investors to invest in the health acre sector. The health consciousness in this market has grown fast as the change in the environment has affected health with emerging of different types of diseases. Therefore, with the traditional method of healthcare and over dependence on the herbal products have reduced and dependence on the modern medicines have grown (Thow et al. 2015). For the pharmaceutical company as a result get easy access to the tons of raw materials quite easily.

Huge population does not only create a huge market for the foreign investors to sale their products but this has created a huge workforce who are highly educated and skilled to fit in any type of industry (Geng, Sarkis and Ulgiati 2016). These cheap labours are also attractive feature of the Chines market and they can be mould in any way to earn profit from hi articular market. In addition to this, China is technically advanced country which actually helps the company to flourish much faster than in the other country’s markets. Proficient infrastructures, transport system and supportive economy will help any kind of business fast in this territory.

Comparison of China and South Africa Markets

South Africa will be the best market to enter and operate successfully for AUSMED as the demand of medicines in this place is high and supply is not so strong. Hence AUSMED will be able to spread itself within few years in the South African market (Coburn, Restivo and Shandra 2015). As AUSMED is a renowned pharmaceutical company will be facing initial issues regarding cross cultural management in both South African market as well as the Chinese market. However, the organizational culture of South Africa has much similarity with the European organizational culture that is similar to that of Australia. On the contrary the Chinses organizational culture is completely opposite to the Australian organizational culture which can lead to conflicts among the employees. Secondly, the market of South Africa is much less competitive than that of China. Moreover, the economy of South Africa is growing in which the drug manufacturing companies can operate successfully.

The government of the country is investing in the healthcare sector. It is increasing healthcare capacities by adding new hospital beds with highly efficient and trained doctors as well as nurses. The healthcare provision of the country is increasing and becoming more efficient when the government is providing trainings to the nurses through the government institutions for imitating antiretroviral drug therapy (Elias 2018). This is the reason why, the demand for experienced drug dealers to introduce innovative delivery models are also increasing in the market. The scope of forgoing dependable partnership with the manufacturers, packagers and distributors for navigating in the local market is increasing. These partners will help AUSMED to understand the wide variety of customer preference, manufacture and distribute infrastructure and price points. This scope of partnership with the government of the country is another reason why AUSMED must enter the market of South Africa (Africa 2018). This will help the company to get assistance in research priorities as well as secure funding and collaborating with the health ministers to provide awareness campaigns and gain opportunity to market their own products. 

Among all the entry strategies, licencing can be the most appropriate strategy for entering the African pharmaceutical market. Through this process the company will be transferring the rights to use the products and services but does not completely lose the control over them. In doing business licencing agreements are mutually beneficial as the companies merely licence the rights to the products to the foreign company for limited amount of time (Adeola, Boso and Adeniji 2018). To Chen et al. (2017), this strategy is particularly useful if the purchasers of the licence have relatively larger market shares in the proposed market. In case of AUSMED, this method will be the best to entre the African market. First of all, this will help the company to do the business directly introducing their own products in the South African market without much problem of government agreements. Secondly, there will be no issue to depend upon the building in infrastructures and employ staffs in the branches and train them to operate successfully (Singh, Singh and Sandhu 2017).

Conclusion

Thirdly, the company will not have to understand the working and organizational culture of the country and its people but only take care of the demand or preferences of that region. Finally, the company be able to operate in the market without thinking about manufacturing but easily acquire the profit share from the market without spending much for the country or the market (Hofer and Baba 2018). However, there are risks that AUSMED will not get as much profit by following this method of entering market. However, the company can initially follow this method and understand the future prospects as well as the culture of doing business in this country and do the needed according to the situation.

Conclusion:

Therefore, it can be concluded that the company named AUSMED must enter the South African market because organizational culture of South Africa has much similarity with the European organizational culture, the market of South Africa is much less saturated than China, the scope for building partnership with the government of South Africa is much easier for the company and healthcare capacities as well as standard of living in the cities are increasing in this market. Hence, the company may enter the market of south Africa through licencing method and do business and understand the situation and future prospect then will be making further decisions. Through licencing AUSMED will be entering the market with confidence and trust and build dependable connection so that they can use those networks if needed after the time limit will be ended. The Australian company if follow these factors nothing can stop it from flourishing in this foreign market. 

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