Executive Summary
Global economists have assumed that any kind of financial crisis or economic crisis in China is unlikely to happen shortly. China is progressing in terms of GDP growth compared to the GDP growth of South Africa. Considering such aspects, it can be stated that the management of AUSMED should enter the Chinese market and capitalise on the opportunities quite effectively. Among different market entry strategies, the company will select the joint venture strategy to enter the Chinese market.
Introduction
AUSMED is an Australian pharmaceutical company, which specifically produces drugs. The company has improved profitability across Australia in the last 10 years. The company has currently employed almost 60 staff across Australia. Recently the company is enjoying an annual turnover of almost 30 million Australian Dollars. After getting huge success in Australia, the company is trying to expand the business operation network in the Chinese as well as South African market. The major reason behind the expansion in the international markets is to maximise profitability. In addition, the growth is also stalled in the Australian market in recent years. Therefore, the company is eying on international business expansion activities to improve the growth rate. Most importantly, the management is concerned about both the risks as well as opportunities in both the international markets.
The major objective of this assignment is to analyse the possible risk factors and opportunities in both Chinese and South African markets regarding government regulations, legal aspects, financial risks, trade agreements, economic growth, and market. Depending upon this analysis, a market entry strategy can be suggested for AUSMED to enter a better international market among South Africa and China to improve profitability and business growth.
Analysis of the Risks and Opportunities (China and South Africa)
Risks and opportunities for an industry in a specific foreign country always need to be analysed before taking any kind of market entry decision. This is an important part of market research and this particular approach will allow the management of AUSMED to identify the better option for international expansion. Among both China and South Africa, China is the leading trading partner of Australia. Hence, in this particular case, the management of AUSMED will get valuable support from both the parent country as well as the host country if they decide to enter China. On the other hand, the trading relationship between Australia and South Africa is not that healthy. Therefore, it would be important here for the management of AUSMED to get specific support from the particular country, which is a trading partner of Australia. Hence, China is the leading trading partner and it will be important for AUSMED to capitalise on this particular opportunity as the company will get benefits like lower tax rates, lower tariffs, and other important benefits (Gilmartin et al., 2018). This will help in enhancing benefits for AUSMED in the Chinese market compared to the South African market.
In terms of economic growth, both South Africa and China are considered to be the growing and emerging economies across the world. In terms of comparison, it can be stated that China is a prosperous economy in this contemporary era compared to South Africa. The GRP growth and GDP per capita are two important economic growth indicators, which generally indicate the strength of the economy. Most importantly, China is progressing in terms of GDP growth compared to the GDP growth of South Africa. In addition, the GDP per capita in China is also high compared to the GDP per capita in South Africa. In terms of employment generation, China is advancing sustainably compared to South Africa. Most importantly, the health of the Chinese economy is sustainable compared to the South African economy in terms of major economic indicators, such as GDP growth rate, GDP per capita, and Unemployment rate (Baer, 2015). Hence, the management of AUSMED should consider these economic indicators while deciding on business expansion in either the Chinese or South African market. However, it is clear enough to state that the management of AUSMED will get effective benefits if they decide to do business in the Chinese market.
Apart from the trade agreements and economic scenario of the countries, this is also important for the management of AUSMED to understand the fact that government regulations are important to decide whether to enter the Chinese market or enter the South African market. In terms of government control and regulations, it can be stated that the corruption index at the government level in South Africa is more compared to the corruption index at the government level in China. Hence, this will be essential for the management of AUSMED to consider this corruption aspect. A country with a higher corruption level can force organisations to settle unnecessary or unethical things against bribery as well as other types of immoral activities. Now, there are two important angles of it. First of all, higher corruption levels and doing business in such a corrupted environment will force the organisations to adopt unethical approaches to do business and earn a profit (Liamputtong, 2019). These unethical approaches will hamper the degree of corporate governance in the eyes of the important and loyal stakeholders of the organisation. Secondly, lack of stakeholder support due to unethical business operation approaches is mostly corrupted countries may hamper the revenue generation and profitability of AUSMED shortly. Hence, it will be important here to discuss that the Chinese business environment will be favourable for AUSMED compared to the South African business environment due to strong governance and ethical control by the government of China.
Similar to the government regulations and control, the organisational management of AUSMED also needs to determine the favourable legal aspects in South Africa as well as China to do business. The majority of the organisations are generally trying to enter the Chinese market to do business compared to the South African market due to a sustainable legal environment. The company regulations, employment regulations, and consumer rights regulations are highly transparent, sustainable and ethical for the firms in the Chinese market compared to the South African market. Due to the low corruption index, the organisations always follow the developed legal regulations (Wu and Hsu, 2018). On the other hand, the organisations within the South African market can have the opportunity to violate the regulations or bypass the regulations by offering bribes as well as doing several unethical activities. Most importantly, the favourable legal aspects and limited scope of corruption help or motivate the organisations to enter the Chinese market rather than the South African market to do business.
In terms of the financial risks, it is already stated that South Africa and China are both emerging economies across the world. Most importantly, the greatest global economists have assumed that any kind of financial crisis or economic crisis in China is unlikely to happen shortly. The constant growth in the GDP growth rate, GDP per capita, and employment generation rate can state that the economy is in the emerging and growth stage. On the other hand, the possibility of the financial risk, as well as economic crisis, also can be analysed in this part (Li et al., 2016). The unemployment rate in South Africa is increasing rapidly. In addition, income disparity also can be considered a serious challenge for the management of organisations doing business in South Africa. Apart from these, some serious issues like higher energy prices as well as infrastructure costs can create problems for the multinational organisations doing business in South Africa. Overall, the possibility of an unlikely financial crisis or economic crisis in the Chinese market is more compared to the South African market. Hence, it will be important here to accept the fact that the management of AUSMED needs to consider the Chinese market.
Last but not the least; the market size of the pharmaceutical industry in the Chinese market, as well as the South African market, also can be discussed here. The pharmaceutical industry in both the Chinese as well as South African markets are achieving a sustainable growth rate. In China, the value-added output of the industry has increased by almost 15 per cent in the year 2018. In South Africa, the value-added output of this particular industry has increased by almost 5 per cent in the year 2018 (Ren and Su, 2015). In addition, the population growth rate in China is more compared to the population growth rate in South Africa. On the other hand, China is considered to be the largest consumer market in terms of pharmaceutical goods. Apart from all of these aspects, the average living age of people in China is between 70 and 75. On the other hand, the average age of South Africans is between 60 and 65. Hence, people living for long years will require medicines or different pharmaceutical supports. That is why it can be realised that the management of AUSMED will get strong benefits from in the Chinese market compared to the South African market considering these factors.
In terms of the South African market, the only opportunities for AUSMED are a positive GDP growth rate, improved per capita income, and sustainable profitability growth as well as an increase in value of the pharmaceutical industry (Hwang, 2017). On the other hand, legal challenges, corruption challenges, inadequate governance, soft control of the government, growing unemployment rate, and lack of healthy trade agreement between South Africa and Australia can be considered as the major risk factors for AUSMED in the South African market. On the other hand, the company will gain benefits in the Chinese market due to strong governance, low corruption, high economic growth, and strong trade agreement between the two countries.
The Selected Destination Country
China is the leading trading partner and it will be important for AUSMED to capitalise on this particular opportunity as the company will get benefits like lower tax rates, lower tariffs, and other important benefits. On the other hand, China is progressing in terms of GDP growth compared to the GDP growth of South Africa. In addition, the GDP per capita in China is also high compared to the GDP per capita in South Africa.
In terms of employment generation, China is advancing sustainably compared to South Africa. The majority of the organisations are generally trying to enter the Chinese market to do business compared to the South African market due to a sustainable legal environment. The company regulations, employment regulations, and consumer rights regulations are highly transparent, sustainable and ethical for the firms in the Chinese market compared to the South African market. Most importantly, the greatest global economists have assumed that any kind of financial crisis or economic crisis in China is unlikely to happen shortly. Considering such aspects, it can be stated that the management of AUSMED should enter the Chinese market and capitalise on the opportunities quite effectively.
Discussion and Justification of the Proposed Entry
It has been decided by the management of AUSMED that the company will love to enter the potential Chinese market considering the potential opportunities of the Chinese market and pharmaceutical industry of China. Now, it is important here for the management of AUSMED that the company must enter into the Chinese market effectively and sustainably so that the company can get the support of all available resources, an effective supply chain network, and other operations management facilities. Now, it will be important for the management of AUSMED to select an appropriate market entry option from different available market entry strategy options. Some available market entry strategies are direct exporting, licensing, partnering, franchising, merger and acquisition, piggybacking, turnkey projects, and joint ventures. Now, the management of AUSMED has decided to enter the potential Chinese market through the Joint Venture model. In the Chinese market, the pharmaceutical industry is growing at a booming rate and the industry of China is also achieving a strong growth rate (Pisani et al., 2019). Now, it will be important here for the management of AUSMED to build a partnership with an existing pharmaceutical company in China to enter China and operate in the Chinese market. Now, it will be important here to justify the decision of selection of joint venture market entry mode by discussing the advantages of this particular market entry mode.
First of all, consideration of the joint venture mode can help the management of AUSMED to scale up with available limited capacity and resources. The strength of both the companies can be utilised by each other, which will ensure a strong competitive advantage for AUSMED as well as the partner of AUSMED in the Chinese market. Both the companies will be highly benefited through this joint venture model.
Secondly, the management of AUSMED will not find major difficulties regarding the operation management activities within the saturated Chinese pharmaceutical industry due to the available and established supply chain network of the company. Most importantly, the established supply chain network of the partner will ensure efficient sourcing of raw materials and distribution of the end products in a time and cost-effective way. This will help the company management of AUSMED to ensure core competency.
Thirdly, this is important for every new organisation to gather valuable market information through market research activities in a new foreign market. Most importantly, it is a time taking and costly approach. Now, the joint venture approach will directly assist AUSMED to gather valuable market information and consumer behaviour in the Chinese market. This will significantly assist AUSMED to maintain efficiency, sustainability, and proficiency in the business operation process (Fey et al., 2016).
Lastly, this is also important for the management of AUSMED to share the risk factors with the management of another partner in the Chinese pharmaceutical industry. This particular approach will minimise the possibilities of different types of new market entry-level challenges. Overall, risk-sharing activities will help the management of AUSMED to enhance profitability.
Conclusion
After getting huge success in Australia, AUSMED is trying to expand the business operation network in the Chinese as well as South African market. China is the leading trading partner of Australia. AUSMED needs to capitalise on this particular opportunity as the company will get benefits like lower tax rates, lower tariffs, and other important benefits. In terms of economic growth, both South Africa and China are considered to be the growing and emerging economies across the world. China is a prosperous economy in this contemporary era compared to South Africa. Most importantly, the health of the Chinese economy is sustainable compared to the South African economy in terms of major economic indicators, such as GDP growth rate, GDP per capita, and Unemployment rate. The majority of the organisations are generally trying to enter the Chinese market to do business compared to the South African market due to a sustainable legal environment. The majority of the organisations are generally trying to enter the Chinese market to do business compared to the South African market due to a sustainable legal environment. In China, the value-added output of the industry has increased by almost 15 per cent in the year 2018. Therefore, the management of AUSMED has decided to enter the potential Chinese market through the Joint Venture model.
References
Baer, H., 2015. Complementary medicine in Australia and New Zealand: Its popularisation, legitimation and dilemmas. Routledge.
Fey, C.F., Nayak, A.K., Wu, C. and Zhou, A.J., 2016. Internationalization strategies of emerging market multinationals: A five M framework. Journal of Leadership & Organizational Studies, 23(2), pp.128-143.
Gilmartin, C.E., Vo-Tran, T.H. and Leung, L., 2018. Complementary medicines in pregnancy: recommendations and information sources of healthcare professionals in Australia. International journal of clinical pharmacy, 40(2), pp.421-427.
Hwang, S., 2017. Middle-ground players in dynamic imitative markets: global entry strategies of Korean firms in the biosimilars market. Technology Analysis & Strategic Management, 29(3), pp.325-338.
Li, J., Zhu, J., Hu, H., Harnett, J.E., Lei, C.I., Chau, K.Y., Chan, G. and Ung, C.O.L., 2018. Internationalization of Traditional/Complementary Medicine products: market entry as medicine. Chinese medicine, 13(1), p.50.
Li, X., Zheng, Y. and Wang, C.L., 2016. Inter-firm collaboration in new product development in Chinese pharmaceutical companies. Asia Pacific Journal of Management, 33(1), pp.165-193.
Liamputtong, P. ed., 2019. Public Health: Local and Global Perspectives. Cambridge University Press.
Pisani, E., Nistor, A.L., Hasnida, A., Parmaksiz, K., Xu, J. and Kok, M.O., 2019. Identifying market risk for substandard and falsified medicines: an analytic framework based on qualitative research in China, Indonesia, Turkey and Romania. Wellcome open research, 4.
Ren, S. and Su, P., 2015. Open innovation and intellectual property strategy: the catch-up processes of two Chinese pharmaceutical firms. Technology Analysis & Strategic Management, 27(10), pp.1159-1175.
Wu, J.Z. and Hsu, Y.C., 2018. Decision analysis on entering the China pharmaceutical market: Perspectives from Taiwanese companies. Computers & Industrial Engineering, 125, pp.751-763.
