In the globalization of the businesses, it is essential for an Australian Pharmaceutical firm to enhance its market share, business performance, and product positioning in the global pharmaceutical industry through setting of new business ventures or operations in new destination or country including China and South Africa. This assessment will discuss the business opportunities and risks (commercial risks, country risks, currency or financial risks, and cross-cultural risks) for the company while setting up new business ventures in another destination (Bryan and Christiansen, 2014). For this report, China is preferred to South Africa as a new destination for starting the foreign business operations by the Australian pharmaceutical firm. Along with this, Strategic Alliance through merger or acquisition is selected as an entry strategy, which is a potential entry strategy that will provide the firm new business opportunities for setting of the businesses in a new destination. For this report, the Australian Pharmaceutical firm, Lawley Pharmaceuticals is selected which is planning to enter into new markets for the growth of the businesses.
Background Information of Lawley Pharmaceuticals
Lawley Pharmaceuticals is an Australian pharmaceutical firm founded by Michael John Buckley in 1995. It is a private limited pharmaceutical company having its headquarters in Perth, West Leederville in Western Australia. The firm is concentrated on the transdermal administration of the natural occurring hormones including progesterone, testosterone, and oestradiol. It is the global leader in the research and development of the typical hormones. Lawley works in collaboration with manufacturing partners Perrigo Australia which has world class manufacturing facility in Balcatta, Western Australia. The firm provides the solutions related to the hormones-related disorders as it is fundamentally focused on the use of natural-occurring hormones (Lawley Pharmaceuticals, 2015). Lawley specializes in the manufacturing of the hormone replacement therapy through the development of the progesterone and testosterone creams. It provides the hormone replacement therapy for the treatment of the hormonal disorders or endocrine deficiencies (eg. Klinefelter’s Syndrom, Castration, Low Libido, and hypogonadism in men and Menopause, Fibroids, PCOS, Endrometriosis, Infertility, Hysterectomy, Menorrhagia, and Female Endrogen Efficiency in women).
Evaluation of Commercial risks, Currency (financial risks), Country risks, and Cross-cultural risks
There are different types of risks involved while operating the businesses in the new destination by the foreign company (Australian Pharmaceutical Company). These risks involve country risks, cross-cultural risks, commercial risks, and financial (currency risks) that can affect the business operations and activities of the firm while starting new business ventures by an overseas firm. The evaluation of these risks is following discussed:-
Country risks- This type of risk is involved of the political instability, government legal systems and laws related to foreign investments, government intervention, protectionism and barriers to trade and investment, bureaucracy in country systems, corruption and unethical activities in the country, mismanagement or failure of the national economy, markets, and economic unrest. The political instability, economic unrest, and country legal system affect the business operations and activities of the firm while starting the new pharmaceutical ventures in a new destination. This type of risk affects the business growth, revenue, and profitability of the foreign firm caused due to the development of the country’s legal and political environment systems. The political system is a set of formal institutions constituted by the government that includes democracy, socialism, and totalitarianism systems. It includes political parties, trade unions, legislative bodies, and lobbing groups (Yuann, 2008). The legal system includes civil laws, common laws, religious laws, and mixed systems. It is a system for establishing and enforcing laws, rules, and regulations. It affects the business activities of the foreign firm, such as taxing economic outputs, protection of the intellectual rights, and resolving disputes in the commercial activities.
Commercial risks- The commercial risks refer to the potential loss arising from the misunderstanding of the trading partners or the market conditions in the country. This type of risk is comprised of the partner’s insolvency or unwillingness to pay, differences in the trade agreements between two partners, and not acting in the accordance of the partner to comply with the country’ trade legislations or trade agreements. This risk also involves poor execution of strategy, competitive intensity, operational problems, poor financial strength of the partner, and timing of entry into the foreign markets. This risk affects the partner selection, market entry timing, pricing and distribution strategy, product features, and promotional themes of the company in another country (IBP, Inc. 2015). This type of risk may affect the business expansion, profitability, production capacity, and the sales growth of the company while initiating the new commercial ventures in the foreign country. This type of risk results into the potential loss or failure of the firm to execute the business strategies, procedures, and tactics.
Currency risks (financial risk) - This type of risk includes currency exposure, asset valuation, changes in fiscal and monetary policies, foreign taxation, inflationary and transfer pricing. This risk creates potential loss caused from the fluctuating foreign exchange rates while the foreign investor has exposure to foreign currency investments for the exchange of goods and services. This type of risks caused from the unexpected fluctuations in the exchange rates or currency values. This type of risks is caused due to denomination of the financial transactions in the foreign currency than the base currency of the company in the Australian country. This type of risk includes the transactional exposure, translation exposure, economic exposure, and contingent exposure of the financial statements (Arora and McIntyre, 2014). The currency risk comprises of all form of international traded monies including foreign currencies, bank deposits, cheques, and electronic transfers. The changes in interest rates, exchange rates, inflation rates and currency value affect the international business operations and activities of the company. The financial or currency exchange risk affects the demand and supply of the goods and services, financial transaction, and liquidation of the financial investments.
Cross-cultural risks- The cross-cultural risk is comprised of the differences in the cultures, traditions, and customer shopping patterns, cultural blunders, interpretation of culture, negotiating pattern, language and communicational differences, ethical practices, decision-making styles, differences in the customers’ age groups and background, and cultural pattern. It arises when the cultural communication issues affect the human values at stake. It exists due to differences in the cultural environments characterized by unfamiliar languages and changes in the human values systems, beliefs, and behaviors of the customers in another country. The cross-culture risk determines the success of the foreign outsourcing company in another country where it is planned to start the business ventures. This type of risk will affect the business profitability, customer base, sales performance, and product positioning of the company in another country (Scarlett, Koslow, Ph.D., and J. D. 2009). It will also affect the risk tolerance, operational processes, entrepreneurship, control system, decision-making and employees’ development and reward structures of the company. It will also affect the managerial roles, leadership qualities, technical competences, and interpersonal skills of the employees in another country.
Opportunities and risks in China and South Africa for the Pharmaceutical business and Justification for the Chosen Country
China is selected as a new destination for starting new business ventures by this Australian pharmaceutical firm because china is one of the fastest growing economies in the world that provides the foreign investors a lots of business opportunities for generating large revenues and achieving the high sales growth. Along with this, the Chinese government supports the foreign investment operations of an overseas firm by providing the sophisticated business infrastructure, technology, and labors at low costs. Additionally, there is lesser cross-cultural risk, currency risk, country risk, and financial or currency exchange risks in China than South Africa. China is one of the largest countries in the world having the most number of people in the world (Yong-Hwang, 2015). The healthcare and life science activities are rapidly growing robustly in China that has been creating lots of opportunities for the new firms. China is one of the largest pharmaceutical markets in the world that is growing rapidly and yet not mature. The combined forces of the economic development, government stimulus, enhanced health awareness in general public, improved research and development capabilities, market consolidation are some causes that will prove the justification for the selection of China than South Africa. China’ pharmaceutical market also has long chain of the suppliers, manufacturers, drug distribution companies, healthcare service providers, and medical service providers. While, on the other hand, in South Africa there is lesser population in comparison to China as there are not so much growth of the pharmaceutical business as China. The risk level is also lesser in China than South Africa as Chinese Government supports healthcare and pharmaceuticals business in China.
China is the third largest economies in the world which has currently low unemployment rates, low inflation rates, and low interest rates in comparison to South Africa. Because of the high population rates in China, there is large number of customers for the healthcare or pharmaceutical products. Along with this, China has high potential markets because of the large consumer and business to business markets for the pharmaceuticals business in China. The GDP, currency value, and growth rates are higher in China than South Africa. There is no restriction on the foreign trade of the pharmaceutical products because the Chinese Government supports the foreign investments by the overseas firms. The political and legal system, technological advancement, and the economic structure of the Chinese Government support the entry of the overseas pharmaceutical firms in the host country. In addition to this, there are lesser trade restrictions on the foreign exchange of goods and services, and lower amount of taxes on the pharmaceutical products than the South African Country.
The Chinese Pharmaceutical industry is a knowledge-based, innovative, and technological-intensive industry that supports the business ventures of an overseas firm in the host country by making the trade partnership with the local Chinese pharmaceutical firm. There is high customer base and high level of competition among the pharmaceutical firms in China that will encourage the overseas firm to enter into Chinese markets for the growth of the pharmaceutical businesses as well as enhancing the market share, business performance, and positioning of the company in the pharmaceutical world (Slideshare, 2015). The Chinese pharmaceutical industry is comprised of the pharmaceutical companies, bio-medical research centers, biotechnology firms, generic medicine companies, and healthcare centers. Along with this, there is a range of top pharmaceutical firms in China, Lawley Pharmaceuticals can expand its businesses by making strategic partnership with any of these firms in the host country.
Recommendations on Entry Strategy and Justification
There are several market entry strategies including Exporting, Licensing, Strategic Alliance or Partnership, Ownership, Joint Ventures, and Foreign Direct Investment (FDI). The selection of the entry strategy will depend on several factors including firm’s resources and capabilities, nature of competition and risks, agreed goals and objectives of the firm, the market focus, financial strengths and resource capabilities of the partnership firm, and the competition level and environmental conditions in another country. After considering all these factors, the strategic alliance or partnership is selected as an appropriate market entry strategy that will be suitable to grow the businesses of Lawley pharmaceutical company by starting new business ventures through building strategic partnerships with the Chinese pharmaceutical firms. This is an appropriate market entry strategy because of the suitability of products for the Chinese market, nature of indigenous competition in the Chinese pharmaceutical industry, and identifying customers’ needs (Ncube, Ndou, and Gumata, 2016).
This is an appropriate strategy for the overseas firms to start the business ventures in new destinations in order to enhance the market share and product positioning of the company in the global pharmaceutical industry. This strategy will assist the firm to share the ownership rights and control over the property rights and operations. The strategic alliance is a type of business strategy that enables the business firm to achieve the agreed business objectives and long-term goals in new marketplace (Isoraite, 2009). It will also be effective to develop outsourcing relationships between the parties when the businesses are desired to achieve the long-term benefits and innovation based on mutually desired outcomes.
The strategic partnership with the Chinese Pharmaceutical firm will assist to provide the expertise, technology, product infrastructure, and market access that the firm would not be able to afford on its investment. The strategic partnership will also assist to share the products and services of others as well as reducing the operating costs through joint marketing efforts or sharing of distribution channels. This strategy will assist to cover the large customer segments of these Chinese markets by making alliances or partnership with the local Chinese pharmaceutical firm (Hanna, 2009).
Lawley Pharmaceuticals can choose mergers or acquisition as a strategic partnership for acquiring the business operations of the Chinese pharmaceutical firm. This entry strategy will assist to identify the customers’ needs and nature and intensity of competition in the Chinese market. This strategy will also assist to capture the most business opportunities by reducing the market risks (commercial risk, financial risks, currency risks, and cross-cultural risks). This entry strategy will assist the company to obtain additional sales and affiliate generates greater revenues from the Chinese markets.
Advantages and Disadvantage of Strategic Alliance entry Strategy
- It assumes greater control over decision-making and future directions of the firm
- It facilitate transfer of technology, knowledge and resource between two firms
- It assists to attain the common goals driving joint ventures
- It is effective to quickly respond to the changing technology and market conditions
- It facilitates simple management structure that can be adjusted easily
- It assists to enhance the production capacity by extending a supply chain or providing a sophisticated distribution system
- It assists to provide a competitive advantage through pooling of skills, knowledge, and resources
- It is effective in the development of new production technologies (Gekonge and Christogfer, 2013).
- It will be effective to increase the production capacity and sales volume
- It provides opportunities to access to new markets through acquiring new customers
- It enhances the brand awareness and access to supplementary services
- The strategic partnership with other firm can lose some degree of control over the way in which the business is perceived
- The partners may have different perspectives and views on the partnership business
- It may create conflicts between the contracting parties over resource and profit sharing
- It can bring certain inherent difficulties because of lack of trust and credibility issue (Wagner and Disparte, 2016).
Justification of Selection of Entry Strategy
The rationale behind the selection of this entry strategy is that it will be appropriate for Lawley Pharmaceuticals in expanding the businesses by starting the business ventures in new destination through making strategic partnership with another firm. Along with this, this strategy will be appropriate for finding the nature or extent of competition and customer base in the Chinese market. This entry strategy will suit to the foreign investment operations of this Australian pharmaceutical firm. By using this strategy, the firm will be able to enhance the production capacity and sales volumes, generating higher revenues, and profitability (Richardson, Steffen, and Liverman, 2011). This strategy will be appropriate to assume greater control on sharing of resources, profit sharing, and decision-making. This strategy will be effective to develop new pharmaceutical products or services by sharing technology, knowledge, and resources of each other. This strategy will be effective to create new opportunities by reducing risks and costs.
From the above studies, it can be concluded that Lawley Pharmaceutical firm can expand its business in the international markets by starting new business ventures in the Chinese Pharmaceutical industry. China is one of the fastest growing economies that provide a lot of business opportunities for the overseas firm to grow its business by starting business operations through making huge investments. Along with this, there are lesser risks including commercial risks, country risks, currency risks, and cross-cultural risks in China than South Africa. The Chinese Government also supports the new business operations by an overseas business firm for creating more foreign investment opportunities, new jobs opportunities as well as ensuring the high economies of the firm. For this assessment, the strategic alliance or partnership is selected as a new entry strategy for initiating the business operations because this strategy will be effective to grow the businesses by making mergers or acquisition with the local Chinese pharmaceutical firms.
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