Analysis of risks and opportunities
In the current era, competition among the companies is increasing with the rise in the expansion of business in different countries. The report is based on the case study which includes the expansion of Ausmed Company, an Australian Pharma company who manufactures drugs. The company has grown faster in the last 10 years and this is the reason that currently it employees 60 staff and had a turnover of approx. AUD 30 million. Considering the growth, it has been analysed by the Australian company to expand the business one of the market for which they have selected South Africa and China as a potential market. Ausmed Company analyses the risk and opportunities in both the countries and to recommend the country where they can expand their business operations. Along with this, the details related to the appropriate mode of entry within the chosen country have been discussed in the report.
This section of the report will include the depth analysis of the risk and opportunities for the Ausmed Australian Pharma Company in South Africa and China.
The worth of the Pharmaceutical industry of Africa has skipped to $20.8 billion in the year 2013 from just $4.7 billion a period prior. This development is on-going with the fast step in South Africa which emphasis on predicting that the market will worth $40 billion to $65 billion by the year 2020. This is one of the good news for the companies who are willing to expand their business operations in the market of South Africa. Africa’s pharmaceutical markets are increasing in each and every sector (Gray, Riddin and Jugathpal, 2016). According to the analysis, this has been found that between 2013 and 2020, the medicine drugs that are predicted to rise at a multiple annual growth rate of approx. 6%, generics at 9%. Over the counter drugs at the 6% and remedial devices at approx. 11% are increasing in the market of South Africa. There are certain factors which lead to the opportunity for the country.
The analysis related to the opportunities within South Africa will help the company in making the decision for the expansion of the business. Some of the factors which lead to the opportunities include: –
Urbanization
In South Africa, the population of the country is undergoing a major shift. The people in the cities are enjoying the better infrastructures and healthcare capabilities with this there is an increase in the purchasing power of the customer. Along with this, there is a rise in the adoption of the modern medicines by the people in South Africa which include the different types of drugs (Holt, Lahrichi and Seliva, 2015). The rapid urbanisation of South Africa with the sedentary lifestyles and dietary trends of the people leads to the long-term demand for the pharmaceuticals that mainly target the chronic, lifestyle-related diseases which indicate the increase in the use of drugs.
South Africa
Health care capacity
The healthcare capacities in South Africa are improving which include increasing the 70,000 new hospital beds, 16,000 doctors and 60,000 nurses (Pharmaceuticals and medical devices sector, 2018). This makes the health provision more effective which makes the people use nurses to initiate the antiretroviral drug therapy. In simple words, high disease burden leads to the rise in the demand for drugs mainly in the anti-retroviral drugs (Venter, et al 2017). This shows that there is a need for a drug which is an opportunity for the company.
Need for improved supply of drugs
The mixture of the strong policy with the increase in the demand for the drugs leads to the opportunity for the better supply. This has been found according to the report that the country is extremely dependent on the additional nation state for the pharmaceuticals as well as for drugs. This supply will be filled with the opening of a new manufacturer in South Africa.
Business environment
The government of South Africa is willing to create the helpful environment for business, administrations have brought the value control with the import restriction which is the only way through which they can encourage and boost the morale of the domestic drug manufacture in South Africa. This step is taken by the government of Africa because, in the industry of Pharma, the pharmacy chains are consolidating, vertical and horizontal integration are increasing in South Africa and becoming a threat for the manufacturer who deals in the market.
Pharmaceuticals financial risks
The main regulatory body that regulates the medicine is the Medicines Control Council (MCC) is beset by the inner capacity restraints which lead to the incompetence of its essential purposes. The MCC’s times for the record-keeping and agreement of medicines with the clinical trials in South Africa are up to four times higher as compared to the international best practice. Along with this, a team has been appointed by the MCC to review the institution and to give the suggestions to the new regulations. This shows the factor of risk for the companies who are willing to enter into the market of South Africa (Nanda and Rhodes-Kropf, 2016). Most of the drug manufacturing companies don’t enter the market because they have to face the trial and the review team. According to the recent report, the companies have reported that they are not carrying out the medical trials because it is value of R1m to R5.5m reliant on clinical trials and types of business that the company is willing to open.
Opportunities for Pharma Company
Licensing
MCC in South Africa performs the operation of licensing in which license for the manufacture is problematic. MCC recently move towards another change in which they clearly mentioned that they will approve for that drug manufacturer who is able to meet the global quality values for producing drugs (Pharmaceutical Inspection Cooperation Scheme or PICS). The way MCC brought it leads to the risk and issues for the manufacturing of drugs in South Africa (Hanuja, et al 2016). Along with this, the pricing of the drugs is also going to be decided by the government.
China is the world’s largest manufacturer in terms of the pharma components and maintains the position of the world’s second largest pharma market. In year 2016, the growth is projected to reach $158 billion across the world and growth at CAGR 7.7% between the year 2014 and 2019 (China Pharma Industry, 2018). This is clear from the data that there is present of the huge market opportunities in China for growth. The system of the China pharmaceutical regulatory appraisal and support system will put the hard work to reduce or remove the drug request excess within 2-3 years (Tan, 2018).
Changes in Regulation
In China, there is a amendment of the drug administration law and Chinese pharmacopoeia as this will progress the competitive skill of the Chinese pharmaceutical and improve the quality of the products and easy access to the market across the borders. This shows that there is a rise in the demand for drugs in the market.
Pricing Pressures
Pricing pressures in the tender system are growing along with the different countryside which are done to bring reduce at the prices of the drug offered by the manufacturer. The new tenders are open for the manufacturer which is one of the opportunities for the manufacturer who produce drugs at the lower prices.
Growing reimbursement opportunity for innovative drugs
The innovative drugs in the Chinese market have been proven as the long-standing struggle for the manufacturers that have been given a low patient out of pocket (OOP). China market is growing in drugs due to which there is an opportunity for the manufacturer to bring something new to the market of China. Though, the companies get affected due to the amount that they want to capture from the customers that are present in the market because innovative drugs generally cost a high amount (Hu and Mossialos, 2016). This is the fact that the reimbursement opportunity is increasing for the drug manufacturer in the market.
Risks for Pharma Company
Approval for the drug is one of the foremost factors that can affect the working of the Ausmed Company in the China market. This has been found that in China CFDA is responsible for the approval of the new drugs and also for monitoring of quality of drugs. CFDA has brought many reforms which introduced currently with the aim of improving the drug and market authorization process (Yao, et al 2017). The manufacturer who is willing to perform the operation in China needs to take the approval from the CFDA and after that only they will be able to perform their business operations in China.
The quality of the drugs is one of the leading issues which are faced by the Ausmed Company. According to the report, this has been found that ensuring the pharmaceutical quality is one of the issues which are pressing the manufacturer. The GMP guidelines show that they are not aligned with the standards of international that enforce among the manufacturers. This leads to the rise in both the domestic and international scepticism of the Pharmaceutical quality in China. This has been found that the bioequivalence testing is weak in China and this is the reason due to which issues for quality are arising (Mehta, et al 2017). The guidelines related to the drug has affected the manufacturer who is willing to enter the market of China for expansion.
The market of Chinese is very fragmented with the rise in the competition among the drugs suppliers in the market. The major competitor that is present within the country includes Pfizer, leading pharma group by the sales of the drug by just 2% of the total market in the year 2012 (Mathurin, 2013). Ausmed Company might face the risk of the competition in the market due to the presence of the wide range of drug manufacturer.
According to the analysis, the country has been selected for expansion of the business is South Africa. The reason behind the selection of the country is the growing demand for the drugs in the market. The opportunities that are present in the country are supporting the working of Ausmed Pharma Company and their goal to achieve the profit. Along with this, considering the relationship between the Australia and South Africa both the countries share the understanding which helps them in conducting the trade. Ausmed Company can take effectively supply of drugs in the market with the rise in the demand of products by the customers. Though, this is the fact they might need to face the licensing and legal aspect. Along with this, they need to ensure that they are able to maintain the effective quality of the products but these regulations are available in every country where the company will expand their business operations.
China
Market entry strategy is the planned method which is adopted by the company for delivering the goods and services to their targeted customers in the market across the boards. The selection of the market strategy is depended on the different aspects that are related to the company. Some of the elements that can affect the selection of the market strategy for the company include the objective and goals of company, resources, control and risk (Collinson, 2015). There are different types of marketing strategy that are present such as exporting, licensing, joint venture and some others. These entire entry modes have different specification due to which the company get affected.
|
Basis |
Exporting |
Licensing |
Joint venture |
|
Meaning |
An exporting is the entry in which the manufacturer of drugs sent their products to South Africa. |
In licensing, the company take the permission or approval from the government of South Africa to perform their manufacturing of drugs in the country itself. |
In a joint venture, the Ausmed company gets combine with the other company who is operating the business in South Africa. Both the company will together perform the business operations collectively (Cavusgil, et al 2014). |
|
Degree of Control |
The company will have the single control on the business. |
The company will have the single control on the business. |
The control will be distributed |
|
Profit distribution |
No distribution of profit |
No distribution of profit |
Distribution of profit among the two companies. |
|
Expenses |
In exporting, the company need to pay the tariff as fees for exporting the goods. |
In licensing the company need to pay the fees for taking the license from the government for conducting the operations within the country. |
In a joint venture, there is the cost of agreement that will be associated. |
Considering the analysis of strategies, the licensing strategy will be appropriate for the Ausmed pharma company to enter in the market of South Africa. The analysis shows that the organisation goal of the company that is to attain the maximum is fulfilled in Licensing. The need for the resources will be there if the company will select the licensing because then they need to spend the capital in setting up the operations (Gillespie and Riddle, 2015). Along with this, the degree of control will be single owned and there will be no distribution of control.
The reason behind the selection of this market entry is the benefits of this market strategy. Some of the benefits are: –
- Easy and quick entry into the foreign markets (Irwin, 2012)
- High potential for the large return on investment (ROI)
- Low risk
All these benefits will be attained by the company when they make use of licensing for entering into the market of South Africa.
Conclusion
In the end, it can conclude that the Ausmed has opportunities in both the markets of South Africa and China. The analysis of the risk and opportunities in each market has taken place for the Ausmed Australian Pharma Company. The analysis of the risk and opportunities will help further in deciding the market which is suitable for the company. The destination which is selected for the expansion in South Africa as this has been found that the need for drug in medicines is increasing in South Africa. Though, the company need to face some legal regulations while setting the business in South Africa. In the end, the recommendation for the market entry mode has been done which is essential for the company as the success comes when they will be able to identify the current mode of entry.
References
Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Australia: Pearson.
China Pharma Industry (2018) China Pharma Industry [Online]. Available from: https://www.cphi.com/china/visit/why-visit/china-pharma-industry [Accessed on 28th August 2018]
Collinson, S. (2015) Foreign Market Entry Analysis. Wiley Encyclopedia of Management, pp.1-1.
Gillespie, K. and Riddle, L. (2015) Global marketing. UK: Routledge.
Gray, A., Riddin, J. and Jugathpal, J. (2016) Health care and pharmacy practice in South Africa. The Canadian journal of hospital pharmacy, 69(1), p.36.
Hanuja, G.S., Kumari, B.S., Nagabhushanam, M.V., Reddy, D.N. and Bonthagarala, B. (2016) Regulatory Requirements for Registration of Generic Drugs in “BRICS” Countries. International Journal of Pharmaceutical Science and Health Care, ISSN, pp.2249-5738.
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 28th August 2018]
Hu, J. and Mossialos, E. (2016) Pharmaceutical pricing and reimbursement in China: when the whole is less than the sum of its parts. Health Policy, 120(5), pp.519-534.
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 28th August 2018]
Mathurin, P. (2013) China’s pharmaceutical market: risks and opportunities [Online]. Available from: https://www.ft.com/content/7c1e0385-6d70-377d-96d9-8a502e7a2539 [Accessed on 28th August 2018]
Mehta, U., Kalk, E., Boulle, A., Nkambule, P., Gouws, J., Rees, H. and Cohen, K. (2017) Pharmacovigilance: a public health priority for South Africa. South African health review, 2017, p.125.
Nanda, R. and Rhodes-Kropf, M. (2016) Financing risk and innovation. Management Science, 63(4), pp.901-918.
Pharmaceuticals and medical devices sector (2018) Pharmaceuticals and medical devices sector [Online]. Available from: https://www.thedti.gov.za/parliament/2017/Pharma_Sector.pdf [Accessed on 28th August 2018]
Tan, H. (2018) China’s pharmaceutical industry is poised for major growth [Online]. Available from: https://www.cnbc.com/2018/04/19/chinas-pharmaceutical-industry-is-poised-for-major-growth.html [Accessed on 28th August 2018]
Venter, W.D.F., Kaiser, B., Pillay, Y., Conradie, F., Gomez, G.B., Clayden, P., Matsolo, M., Amole, C., Rutter, L., Abdullah, F. and Abrams, E.J. (2017) Cutting the cost of South African antiretroviral therapy using newer, safer drugs. SAMJ: South African Medical Journal, 107(1), pp.28-30.
Yao, X., Ding, J., Liu, Y. and Li, P. (2017) The New Drug Conditional Approval Process in China: Challenges and Opportunities. Clinical therapeutics, 39(5), pp.1040-1051.
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