Risk And Opportunities Of Market Expansion Into South Africa And China For AUSMED

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. 

Assessment of country potential through risks and opportunities analysis

The aim of the report is to explore the opportunity for the company so that they can meet their objective of expanding the business and achieving the profit. This report is prepared for the case study in which the case of Ausmed, Pharma company is explained who is now willing to expand their business operations. The company is manufacturing drugs for the medicines from the past 10 years with this the company is able to achieve the success in the Australian market. The company has approx. 60 employees on their staff with the turnover of AUD 30 million. This shows that the company is able to achieve the success and growth. Considering this growth, now the company is willing to expand their business operations in South Africa and China. The manager of the company is performing the analysis of the market so that the company can select one company where they can expand the business operations. In the end, the proposed market entry strategy is discussed with the justification of the same

China 

China market is growing in terms of the pharmaceuticals with this it has the fastest emerging market for the sector. Along with this, the company is moving towards the important innovator of the Pharmaceuticals products (Zhang, 2018). According to the health-care information company IQVIA, China is considered the world's 2^nd largest national pharmaceutical market in the year 2017 which is worth the $122.6 billion. The pharmaceuticals market of China is an emerging market with the growth tipped to reach $145 billion to $175 billion by the year 2022 (Tan, 2018). The market for manufacturing drugs in China is rising but there are many issues that the manufacturer might face in the market.

Opportunities 

Increase in the manufacturing of drugs

According to the report, this has been found that China pharmaceuticals manufacturer sales are increasing which is clear from the image that is given below: -

The image reflects that there is a phenomenal rise in the manufacturing and sales of the drugs that mainly used for medicines. The projection for the manufacturing of drugs reflects that it is expected that in the coming years there will rise in the manufacturing of drugs in China (Ni, et al 2017). This leads to the opportunity for the Ausmed Company who is willing to expand their business.

The rise in the use of drugs

China Food and Drugs Administration reflected that there is a rise in the spending on the therapeutic medication cut it on the supplementary and nutritional products. According to the recent Everbright securities report, this will take up to 30% of the nation's pharmaceutical sales which is worth 1.5 trillion yuan in 2016 (Ng, 2018). Along with this, the china is the populated country due to which there are different diseases which take place. Therefore, the people need to take the treatment which involves the use of drugs. In addition, this has been found that 95% of the 189,000 nation’s drugs listed are generic. These drugs are accounted for the worth of 500 billion yuan. 

Identification of the best market entry strategy based on business type and host country business environment

Labour for manufacturing

In the China market, there is the presence of the large number manufacturer and this is the only reason due to which people of China are aware of the work that they are supposed to perform. Ausmed Company will not find any issues related to the labour when they expand their business in the market. This is the opportunities for the company because it is hard to find the labours who can actually manufacture the drugs (Torrey, 2018).

Risks 

The rise in standards for the quality

China’s fragmented Pharmaceuticals industry is predicted to undergo a wave of consolidation over the next 5 years due to the rise in the strictness the drug quality regulations. It is essential for the manufacturer to test the drug that they are willing to distribute in the market of China considering the new standard. This shows that Ausmed will face the risk related to the checking of drugs that they are willing to distribute in the market of China. China food and drugs administration has brought the need of test required to ensure the safety and efficacy of the off-patent generic drugs as a part of a national strategy which is essential to building a strong pharmaceutical industry through reform.

Decrease in distribution

In the China market, the quality standards have removed the small competitors from the market. This has brought reduce in the layers of the distribution intermediaries who distribute the products in the market of China due to which the distribution of the products has been reduced in the market. Along with this, the existing companies who are performing their operations in China are facing the competitive pressure because Beijing implements a raft of measures announced from the past two years to weed out the practices that had brought to mediocre drug inefficiencies and quality.

Legal approval

The legal approval for manufacturing the drug is one of the major risks that are faced by the Ausmed Company in the market of China. CFDA is responsible for the approval and ensuring the quality of the drugs. The company who is willing to manufacture the drugs in the markets need to take the approval from the CFDA and after that only they will be able to set-up their business. This is found in the analysis that it is difficult for the company to take the approval related to the drug that they are manufacturing (China Pharma Industry, 2018).

Discussion of the proposed market entry strategy

South Africa market has registered a growth for the pharmaceutical products and this is expected that in the near future this will reach to $40 billion to $ 65 billion by 2020. This shows the opportunity for the company who is willing to expand their business operations. In addition, this has been found that medical drugs are predicted to rise in the year 2013-2020 (Hassen, 2017). This is evident from the data which shows that the rise will get multiple annual growth rates of approx. 6% generics at 9% (Finance 24, 2017). Though, the regulations of the legal and political elements can affect the working. 

Opportunities 

Urbanisation leads to a rise in the use of drugs

In South Africa, there is rapid urbanization of South Africa which includes the improvement in the lifestyles of the people and drastic increment in the dietary trends. The awareness for the dietary products has made the people demand the long-term pharmaceuticals mainly chronic related diseases which increase the major use of the drugs (Holt, Lahrichi and Seliva, 2015). The improvement in the healthcare capabilities is also making the people use the more of products that can make them fit and fresh.

Supply of drugs

In the current market of South Africa, this has been found that the supply of the drugs is not as effective as most of the people are not able to access some of the medicines involving drugs easily. The improvement in the capacities of the health care is an increase in the supply for the drugs which is one of the major opportunities for the company (Pharmaceuticals and medical devices sector, 2018). Ausmed Company can involve in manufacturing the products and supplying it to the customers that can improve the supply of the Pharma drugs in South Africa

Government Restriction

In the market of South Africa, the government regulations affect the entry of the company into the market. this has been found that the government has restricted the imports of the medical drugs to control the availability of the drugs in the market as this the effective way through which they can motivate the domestic manufacturer (Saidi and Douglas, 2018). The chains of Pharma companies are consolidating, horizontal and vertical integration are improving in the South Africa which is one of the biggest threat for the manufacturer.

Regulator of Pharmaceuticals

MCC (Medicines Control Council) is the main body that regulated the medicine in South Africa. The regulator has increased the regulations to maintain the quality in the drugs that they offer to their customers (Newton, Hanson and Goodman, 2017). MCC has brought an agreement of the medicines which include the details related to the increase in the clinical trial in the South Africa up to four times comparing it with the international best practice. In addition, MCC has appointed a team which will perform the activity of reviewing the institution and to offer the recommendation for the new regulations. Ausmed Company might face the high threat due to the regulations of the regulator in the market.

Financial risk

The financial risk is also there which is faced by the company as when they enter the market they need to carry out the medical trials which need huge capital which is difficult for the business to source. The clinical trials cost to the company to the value of R1m to R5.5m on the clinical trials which are hard for the company to invest. Along with this, if in case the company will get fail in the clinical trials then the amount that was invested also gets failed.

The analysis related to the risk and opportunities which might be faced by the company in South Africa and China reflects that the need of the healthcare facilities is increasing which indirectly leads to the rise in the opportunities for the Ausmed Company. Considering the analysis, the country that will be best for the Ausmed Pharma Company is China. The company should enter into the market of China. The company will find the huge business opportunity as there are many manufacturers who are producing drugs. Along with this, the market includes the rise in the demand of the medicines or therapy that involves drugs. In addition to this, the company will not find any issues related to the human resources as there is the presence of skilled and experienced labours. Though, this is the fact that the company will also face some risk in which the applicability of the standards related to the quality is included. Ausmed Company needs to take the approval from the government for performing the operations in China (Yao, et al 2017).

Market entry strategy is the strategy that is selected by the company to enter into the market for offering the effective goods and services to their targeted customer across the market. The entry mode is directly depended on the nature and business of the company. Along with this, while selecting the mode of entry into the market the company need to consider some elements which include the goals and objectives of the company, resources availability, risk and opportunities for the company. In addition, they need to ensure the profit sharing and distribution of the capital elements. There are different types of market strategies which are used by the company which include Joint Venture, licensing, franchising and many others (Collinson, 2015). These strategies vary a lot from each other and according to that, the company need to select the best strategy for them. The method which is suitable for the manufacturing company is Exporting and licensing. Out of which, it is essential for the business to select one for which the comparison between both the methods has been done. 

Licensing is a strategy in which the company takes the approval from the government for operating the business. On the other hand, exporting is the market entry in which the manufacturer sent their products in the foreign market. In both, the method, the degree of control remains with the single owner. Though, the major difference takes place when it comes to the cost of entering the market (Gillespie and Riddle, 2015). In licensing, the company is supposed to pay the one-time amount to the government for entering in the market. The agreement on which the government will take the approval is supported by the contract. On the other hand, exporting is a strategy in which the company need to pay the tariff when they will send the products to the other countries. Along with this, the company will make use of the resources in the home country for producing the products (Irwin, 2012). This will cost high for the company because the resources are cheaply available in the market of China.

The analysis reflects that licensing will be a suitable mode of entry for the Ausmed, an Australian Pharma company. This mode of entry will offer the numerous advantages to the company which include: -

• Legal, easy and quick entry of the business into the market of China
• High potential for the better return on investment
• Low level of risk with the low expenses
• Single control with the single owner of the profit (Laufs and Schwens, 2014)

All these benefits will help the company in successful setting up of the operations in the market of China. Licensing will allow the company to avail the benefit of resources at the low cost in China 

Conclusion 

In the end, it can be concluded that Ausmed, Pharma Company achieved the success in the market of Australia and then further to grow the business there is a need for expansion. The company found the opportunity in South Africa and China. The analysis related to the risk and opportunity that is present in the market has been done which shows that both the markets have the potential. The rise in the need for the pharmaceuticals products is one of the beneficial elements for the company. According to the analysis, the country has been selected for the expansion of business in China. Though in the market, there will be risk factors that can impact the working and these risk will be faced by the company in each and every market where they will perform their business operations. The strategy which will be used by the company to enter the market is licensing as this is one of the effective strategies for the manufacturing companies. 

References 

China Pharma Industry (2018) China Pharma Industry [Online]. Available from: https://www.cphi.com/china/visit/why-visit/china-pharma-industry [Accessed on 28^th August 2018]

Collinson, S. (2015) Foreign Market Entry Analysis. Wiley Encyclopedia of Management, pp.1-1.

Finance 24 (2017) Generic medicine market to continue growth trend in 2017 [Online]. Available from: https://www.fin24.com/Companies/Health/generic-medicine-market-to-continue-growth-trend-in-2017-20170111 [Accessed on 28^th August 2018]

Gillespie, K. and Riddle, L. (2015) Global marketing. UK: Routledge.

Hassen, E. (2017) The Pharmaceutical Industry [Online]. Available from: https://www.whoownswhom.co.za/store/info/4557?segment=Healthcare [Accessed on 30^th August 2018]

Holt, T., Lahrichi, M. and Seliva, L.S.D. (2015) Africa: A continent of opportunity for pharma and patients [Online]. Available from: https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/africa-a-continent-of-opportunity-for-pharma-and-patients [Accessed on 28^th August 2018]

Irwin, T. (2012) Licensing arrangements – the pros and cons [Online]. Available from: https://www.tcii.co.uk/2012/10/26/licensing-arrangements-the-pros-and-cons/ [Accessed on 28^th August 2018]

Laufs, K. and Schwens, C. (2014) Foreign market entry mode choice of small and medium-sized enterprises: A systematic review and future research agenda. International Business Review, 23(6), pp.1109-1126.

Newton, P.N., Hanson, K. and Goodman, C. (2017) Do anti-malarials in Africa meet quality standards? The market penetration of non quality-assured artemisinin combination therapy in eight African countries. Malaria journal, 16(1), p.204.

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Ni, J., Zhao, J., Ung, C.O.L., Hu, Y., Hu, H. and Wang, Y. (2017) Obstacles and opportunities in Chinese pharmaceutical innovation. Globalization and health, 13(1), p.21.

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