Expansion of business outside its host country needs a lot of deliberations before investment is made as the amount involved is huge. Companies in any field need to analyse the risks and opportunities associated with that country before venturing into it. Apart from looking at the country from a macro perspective, it should be looked at in a micro perspective as well. The said report concentrates upon the expansion plan of a pharmaceutical company of Australia who is looking at expanding its business in China or South Africa depending upon the possible opportunities the market proposes and the available risks that the company has to face. Basis this analysis a country would be chosen and then an entry mode is suggested which would help the company to enter the market without losing on its investment.
Herron Pharmaceuticals- Background
Herron Pharmaceuticals is an Australian pharmaceutical company which manufactures pharmaceutical and natural healthcare items. It is a subsidiary of Sigma Pharmaceuticals. It was founded two decades ago and they are well known for producing medicines such as Paracetamol and Ibuprofen – two of the most renowned medicines for fever. They even produce an entire range of vitamin tablets for kids and range of baby care products such a nappy rash cream.
The said company is planning to expand its business globally. For the same it is looking at either of the two markets- China and South Africa. Both the markets are very lucrative but a detailed analysis of the possible risks and opportunities have to be done of the two countries so that the most apt choice can be made for the same.
China- An Opportunistic Market
China is one of the largest pharmaceutical markets in the world but due to its population it is still defined as an immature market. However in the next ten years the pharmaceutical industry of the country may grow leaps and bounds. Stimulus for the same is the improving research and development activities, the skilled labour force, and awareness amongst the people about the importance of taking care of health, government participation and development of the economic conditions. Even though the pace at which the growth of the pharmaceutical market of China may vary but various eminent observers such as the Economist Intelligence Unit (EIU) and IMS Health are very positive about China’s pharmaceutical market.
The opportunities in the China market are viewed as under:
The increase in the ageing population of China is one of the biggest opportunities it provides to the pharmaceutical companies across the globe. The population of China is expected to be the highest by the end of the year 2016 of which although the elderly population is low but is expected to be at a percentage of 9.7 which is an increase of around 1% in the last five years. The ageing population will naturally demand for more health related assistance due to weak immunity system. The present statistics reveal that around 23% to 40% comprise of elderly people who constitute the prescription drug market and half a century of the population demand for over the counter drug market.
The second carrot for Herron Pharmaceuticals for investing in the Chinese market is the low manufacturing and selling expenses that the country offers. The market is seen growing at an average rate of 20% per year and there are no signs of slowing down of the same.
There has been an upsurge in the R&D area of China because of lower costs, larger patent pool, increment in the capabilities of the scientists who produce drugs and the enhanced knowledge of the local players in the industry (Ispirit Business Solutions, 2016). The said market is preferred the most due to lack of too much of emphasis on regulatory requirements as compared to other countries across the globe.
China is one such market which has always welcomed the foreign drug players and has won the hearts of the customers against the domestic standardized brands. This also gives a big opportunity to the global market players to invest in China.
Last but not the least, the process of formation of a company or setting up of a distribution and manufacturing channel is simpler. It gives options to the companies to obtain a Drug manufacturing License or a Drug Distribution License or both after incorporation as well. Secondly the price controls that were put by the Chinese Government over around a quarter of a percentage medicines have been lifted (cphi.com., 2016).
Risks Involved in The Chinese Market
Along with the potential opportunities which the Chinese market offers to the pharmaceutical industry players which give it a nod to invest in China, there lie some risks which cannot be wade off. These risks should be analysed in detail before investing in the Chinese pharmaceutical sector. To enumerate a few:
The biggest risk being faced by the pharmaceutical companies in China are the investigations which are being conducted in this industry. For example Glaxo SmithKline which has been one of the pre-dominant players in the Chinese pharmaceutical industry is under great vigilance and has been caught for instances of bribery and corruption which has affected its sales (Caroll, 2013).
A state-run campaign in China has led to lowering of the drug prices in the country thus affecting the sales. The China’s government run health insurance funds are forced to negotiate with the drug suppliers for the prices because of the increase in the ageing population and the diseases (Bulloch, 2016).
Thirdly the economic growth of the country has suffered a hit, i.e. it is growing in a very staggered manner which has led to slowing down of the premiums that people used to pay for medical insurance (Harris, 2014).
Fourthly the introduction of bidding in order to sell medicines in public hospitals has hurt both domestic as well as foreign pharmaceutical companies. Due to this the local companies are seen to be in a better position thus hitting the investments of various international companies (Bloomberg 2016).
Opportunities in The Market of South Africa
The South African market is also a lucrative market for the foreign companies to invest into. The country offers various opportunities which are enlisted below. They are as under:
The domestic production in Africa is very low which gives room to the foreign entrants. The issues that the domestic market faces can be used as an opportunity by the foreign players such as lack of better research and development capabilities and shortfall in the capital and the domestic skills which these foreign companies possess. Further the support of the government to the local pharmaceutical companies is also an opportunity based on which these foreign companies can get a hold to the South African market (Holt et.al. 2015).
Urbanization is yet another reason for investing in the South African Market. Within a decade it is expected that nearly two-fifths of the economic growth is expected to come from thirty cities. The purchasing power is very high and people in those cities are inclined towards buying expensive and modern medicines (Taylor, 2013).
Expansion of pharmaceutical companies in South Africa is lucrative also because of an increase in the health care facilities such as addition of hospital beds, new doctors and nurses. The count is in thousands.
The government of South Africa has contributed a lot for the development of pharma sector which has opened room for greater foreign investment. The drug approval process was very slow in the country which has now speed up. The Medicines Control Council is being replaced by South African Health Products Regulatory Agency (SAHPRA) which has emerged as a major contributor for providing incentives to the foreign pharmaceutical companies. The registration process was one of the major concerns for the foreign entities which will be addressed by this agency. It will reduce the time gap from five years to one year (PR Newswire, 2013).
Risks Involved in the South African Market
Even though the market of South Africa may seem to be lucrative from a foreign investor’s view point yet the same also poses risks which cannot be ignored. Some of the prominent issues faced are enumerated as under:
The biggest risk that the foreign entrants may face is in the wake of the support by the government to the local pharmaceutical companies. Export is very low, which clearly indicates that whatever is produced is consumed within the country itself. Government has announced that first mover advantage would be given to the local pharmaceutical manufacturing companies in case of awarding of National tenders for the supply of medicines.
The companies here operate on a very low margin of profit. Although the risk of failure is very low because of income guarantee as the chances of changes in the input costs are very low as well. Thus for foreign entrants the market is not very attractive due to low margins and in some cases no margins at all (Singh, 2012).
The phased roll out of the National Health Insurance Scheme by the government of South Africa is one of the biggest reasons deterring the foreign investors to invest in the pharmaceutical segment. The government has plans to build an indigenous manufacturing plant for generic drugs and is expected to be in operation (Oxford Business Group, 2014).
China As The Preferred Destination Country
I being an international operations manager of the company, on analysing the various risks and opportunities associated with China and South Africa would conclude that China seems to be a more lucrative market for investment. Factors such as low cost production, adequacy of availability of the number of labour, government regulations, population of the country, support of the masses to the foreign pharmaceutical companies and most importantly the infrastructure facilities available all are major deciding factors. However political, economic cultural and ethical risks are equally important decisive factors.
Both the countries have risks and opportunities attached but on analysing the two it are found that China is more preferable as an investment country since the demand for health care amenities, drugs and medicines have increased manifolds. The government’s support is stronger in South Africa due to which it is difficult or at least time taking to break through the market of South Africa as compared to that of China. The economic growth although slowing down but not as much as that of South Africa also makes it an attractive country. More importantly China is viewed as a country which is capable of producing low cost medicines and provide better infrastructure which is the need for any manufacturing firm. The next important criterion which weighs the Chinese Market above the South African market is the high-end research and development facilities. Although South Africa also offers an increase in the amount of health care amenities yet it is far behind than that offered by China. Therefore on studying these issues in depth it is clear that our company should invest in the Chinese market as its strategy of expansion.
Strategy to Enter The Chinese Market
The best part about entering the Chinese market is the warm welcome which the people of china give to the foreign enterprises in spite of stricter government regulations and regime. Even though it is said to be one of the most difficult markets to penetrate into, the same is still possible. For the same we should study the strategies adopted by various foreign firms which would provide an aid to our company to plan an effective entry into the market of China. We should aim at entering the Tier 1 companies as a testing ground. Off lately China’s Tier 2 cities have also developed a lot and is an attractive market for us.
As in the case of Bluepharma which had been looking at China as an investment country since long first and foremost understood how it can succeed since the market is not too sensitive towards price fluctuations. It understood that in order to have a hold in China it has to enter into a partnership agreement with a Chinese partner which would ease the drug registration process and further partnership with others who would aid distribution of the drugs in China. Thus according to me we should firstly appoint a consultant from China who would enable us to find some good potential Chinese business partners for distribution and research and development This partnership would help us to understand which medicine is in high demand, which medicines are rarely available but of need and what kind of advertisements and selling strategies would attract the customers (EUSME Centre, 2012).
Secondly to ensure ease in registration we should next find a Chinese partner who would help us in the same. Then we need to get Clinical Trials conducted in China even if the same is well known and accredited in other countries in the world. Therefore all thee can be possible if we enter into a joint venture with a Chinese partner who would hold a Drug Supply Certificate and enable such imports easily.
Thirdly we should enter into a partnership only with such marketing agencies who are well known in China and the same differs state wise. We also need to understand the products whose patents have expired as it could be a good market for our products.
Fourthly is the staff which we intend to hire. The lower level staff should be hired from local areas only but it is preferable to have at least one Chinese officer in the higher management there who would be well versed with the language and culture necessary to survive in China (Chitour, 2013).
Lastly the most important part of our strategy or entering the Chinese market should be International Property Rights (IPR) Strategy. Violation of the IPR in China is very common thus we should consult lawyers and the IPR specialists to help in managing the said risk. The patent registration should be done at the earliest as this is the area which is most bleak.
Therefore these are the basic strategies which according to me should be adopted in order to enter the Chinese market.
Thus on a concluding note I would like to reiterate over the fact that although both the markets – China and South Africa have their own risks and opportunities which deter us to invest yet the Chinese market seems to be more lucrative due to the support it shows to the foreign companies. Not only citizens but the government itself welcomes foreign entities with a view to see an upsurge in their economic scenario. Though some restrictions are there which is necessary for the protection of the country’s economic growth but they are such restrictions which are acceptable by any new entrant. Therefore on a concluding note I would like to cast my opinion for China as a profitable and rewarding market to enter into.
Caroll, D., (2013), Is Big Pharma Setting up for a China Sales Catastrophe?, Available at (Accessed 02nd September 2016)
cphi.com., (2016), China Pharma Industry, Available at (Accessed 03rd September 2016)
Bloomberg, (2016), China’s Drug Price Cuts are Hitting Big Pharma Where It Hurts, Available at (Accessed 03rd September 2016)
Bulloch, D., (2016), China’s War on Big Pharma Exposes The Mirage of Market Access, Available at (Accessed 03rd September 2016)
Chitour, H.L., (2013), Big Pharma In China- The Driving Forces behind Their Success- A Qualitative Analysis, Chinese Studies, vol. 2, no.4, pp. 169-177
EUSME Centre, (2012), Bluepharma – Entering the Chinese pharmaceutical market, Available at (Accessed 03rd September 2016)
Harris, D., (2014), Does a “Prudent” Market Entry Strategy for Healthcare Services in China Exist, Available at (Accessed 03rd September 2016)
Holt, T., Lahrichi, M., & Santos de Silva, J., (2015), Africa: A Continent of opportunity for pharma and patients, Available at (Accessed 03rd September 2016)
Ispirit Business Solutions, (2016), Should you be Investing in Chinese Pharma Sector?, Available at (Accessed 02nd September 2016)
Oxford Business Group, (2014), South Africa’s pharmaceutical industry braced for change, Available at (Accessed 03rd September 2016)
PR Newswire, (2013), Emerging Pharmaceutical Market in South Africa – Proposed Introduction of New Drug Regulatory Agency (SAHPRA) to Accelerate Drug Registration Process, Available at (Accessed 03rd September 2016)
Singh, S., (2012), Pharmaceutical industry risk review, Available at (Accessed 03rd September 2016)
Taylor, L., (2013), South Africa Pharma market “to grow 5.8% / year to 2020”, Available at (Accessed 03rd September 2016)