Genicon - a Surgical Strike into Emerging Markets - Assignment Example

? International Business Management Genicon: A Surgical Strike Into Emerging Markets inserts his/her s Executive summary Genicon is a small business that manufactures and distributes laparoscopic instruments in international destinations. Although the company has originated from United States, it has been unable to pick up sales in the region owing to its small size that makes it difficult to secure contracts with the GPOs (Kupetz, Tindall, & Haberland, 2010). Unable to compete with larger counterparts, Genicon decided to expand its operations internationally which now account for 80% of its business (Kupetz, Tindall, & Haberland, 2010). However, the company remains pressed for resources and cannot afford to make the wrong decision when it comes to entering a new market. It is currently not in a position to bear high political, economic or regulatory risks. To this end, great potential exists in BRIC countries as the growth potential in these nations tends to be higher compared with the U.S. The founder of Genicon must, therefore, decide whether or not to enter the BRIC markets and, if so, which of these markets to enter. This decision must be made vis-a-vis the decision to continue to expand in European regions such as Germany. It is recommended that Genicon enters Brazil owing to low political risks and smooth regulatory environment. 2. Problem statement Genicon faces the problem of whether to enter into developed markets such as Germany or focus on existing markets or enter into BRIC countries. If it chooses to enter the BRIC economies then which economy should Genicon enter for maximizing its profits and growth potential and minimizing its risks? 3. Analysis Genicon possesses over 10 years of experience in the sale of laparoscopic instruments within and outside U.S (Kupetz, Tindall, & Haberland, 2010). Internationalization may be active or proactive (Wild & Wild, 2012). However, Genicon’s internationalization has been largely proactive to take advantage of favorable business opportunities. Furthermore, the current marketing and distribution environment required firms to sell through GPOs which favored large companies owing to financial structure (Kupetz, Tindall, & Haberland, 2010). Hence, Genicon’s sales in the U.S were declining (Kupetz, Tindall, & Haberland, 2010). Additionally, international markets were providing higher growth rates as far as the market for MIS was concerned. Theory attributes internationalization to the strategic intent of the founder (Wild & Wild, 2012). The case suggests Genicon’s founder- Haberland to have had interest in entering emerging markets owing to their high growth rates. However, the biggest concern encompassing Genicon is which BRIC market to enter. It is important to analyze each BRIC economy from the perspective of various factors. Global legal issues such as intellectual property which faces threat of piracy may be important considerations for international businesses (Wild & Wild, 2012). In terms of the legal environment, India offered improvement in terms of shorter product launch times and tighter IP laws. Russia offered weak enforcement laws whereas China offered uncertain, slow and weak regulatory procedures (Kupetz, Tindall, & Haberland, 2010). Brazil, on the other hand, offered “internationally accepted” regulatory standards with the prospective introduction of the four-tier system (like that in the EU) which was favorable for Genicon. Considering that the role of government intervention is critical factor for startups, the BRIC countries need to be analyzed in terms of this aspect as well. India has been heading towards privatization. Political ideologies may range from being anarchist ( whereby personal and private groups have liberty) to totalitarian (where every aspect of people’s lives is controlled) (Wild & Wild, 2012). Pluralism exists in the middle whereby both public and private groups coexist (Wild & Wild, 2012). China seems to have moved towards pluralism in the wake of globalization with the case suggesting a recent trend towards privatization. On the other hand, government in Brazil increased spending on healthcare whereas the healthcare in Russia is being indirectly funded by the state (Kupetz, Tindall, & Haberland, 2010). As far as the competitive landscape is concerned, domestic players would “move up” the value chain and entry of other foreign companies was also expected in China along with pressures to reduce prices. In Russia, on the other hand, local manufacturers were being encouraged by the government which would not be favorable for Genicon. This can be traced to the high import tariff (of 75%) in Russia (Kupetz, Tindall, & Haberland, 2010). This could substantially increase the costs for Genicon. China also offers significant import resistance. Brazil takes the lead here with zero tariffs, thereby offering lowest import costs for Genicon whereas India remains moderate in this aspect. Furthermore, the political climate remains unfavorable in China owing to mandatory input from local government and bureaucratic practices. Russia, too, followed the same pattern with “significant political risk”. Theory suggests companies with internal constraints may not be in a position to handle macro level political risks (Wild & Wild, 2012). Furthermore, political risks add to the cost of doing business in the country (Wild & Wild, 2012). Since Genicon has limited resources, entering into Russia may not be viable. Brazil, on the contrary, had a swift registration process and little political risk. Also, size must be considered as an important variable here. Whereas, the medical device market in India is expected to grow from US$1.3 billion to US$4.01 billion over the10 year period, China demonstrates a growth from US$6.9 billion to US$23.25 billion and Russia depicts a growth from US$1.67 billion to US$2.88 billion (Kupetz, Tindall, & Haberland, 2010). Brazil’s market is expected to almost double from US$2.1 billion to US$5.7 billion over the same period (Kupetz, Tindall, & Haberland, 2010). The figures show that China is expected to attain the highest growth in this market followed by India and Brazil with Russia lagging behind (Appendix 1) (Appendix 2). 4. Discussion of alternatives One alternative would be to invest in Brazil. This is because the barriers to entry are significantly low in Brazil compared to other countries. One of most favorable aspects of Brazil is that Genicon’s business shall flourish and sales shall be high in Brazil due to favorable government policy in this regard as well as high demand for its products. Furthermore, the regulatory environment was also highly favorable and the decision to implement four-tier system meant that these standards would parallel those in Europe. Genicon could benefit from cost advantages as a result of this as well as the “swift process of registration” which meant that Genicon could use its small size and flexibility to introduce new products quickly in this market as it did not have to succumb to bureaucratic practices as in the case of Russia, India and China. Most importantly, however, the cultural similarities owing to Brazil being a part of Latin “America” may make it easier for Genicon to handle the market compared to entirely new cultures such as that in China, India or Russia. Furthermore, duty-free imports meant that the cost of importing to Brazil would be significantly lower leading to higher profit margins for Genicon. The drawback of entering Brazil, however, would be the inefficient distribution system which may support large MNCs who can afford to tie up with local suppliers. Another alternative would be that Genicon does not enter either of the BRIC countries and expands its presence in Europe by entering into countries such as Germany. One of the biggest advantages of this would be that local distributors, who have been pushed out of the market, have low bargaining power and can, therefore, be utilized by Genicon to sell its products on highly favorable terms (low costs) in Europe. Furthermore, the company has already achieved significant sales in the region with over 10 years of experience. Therefore, it could experience advantages along the ‘learning curve’ in terms of being highly familiar with the European market. Cost advantages (particularly those in logistics) could be obtained by selling to Germany as it is geographically nearer to Genicon’s current markets. The drawback, however, was that sales could not be realized steadily and immediately owing to the “tender” system prevailing in Europe. This lag means that it would take Genicon at least 1-3 years to recover its investments which may not be feasible considering it is already tight on budget. 5. Recommendation Keeping in view the above analysis, it is recommended that Genicon pursues the first alternative of entering Brazil. This is because Brazil offers the added advantage of cultural and market similarity by virtue of it being a part of America- a region which Genicon has already handled. Considering that Genicon is pressed for resources, it must build on its sales to develop its capital base. Brazil’s high economic growth rate combined with the government policy of increasing healthcare spending seem to offer significant advantage to Genicon in terms of increased sales. Furthermore, being a small company with relatively little resources and investment capabilities, Genicon’s expansion capacity in Europe would be limited. On the other hand, one may argue that, unlike European markets, no margin and sales information is available for BRIC countries, thereby making comparison difficult between the two options. Additionally, the growth rate for the market for MIS was higher for Europe (9%) compared to Latin America (6%) making Europe a more lucrative option (Kupetz, Tindall, & Haberland, 2010). Nevertheless, the high growth in medical device market as well as streamlined regulatory processes and political setup of Brazil significantly lowers the market, political and economic risk for Genicon. Keeping in view these factors, Genicon must put its foot forward into the Brazilian market. At the same time, it should consider withdrawing from European nations that are providing low margins and keep track of developments in China as, certainly, after Brazil, China seems to be the most lucrative and viable option for Genicon’s expansion. Reference Kupetz, A. H., Tindall, A., & Haberland, G. (2010). Genicon: A Surgical Strike Into Emerging Markets. Ivey Management Services, 1-13. Wild, J. J., & Wild, K. L. (2012). International business: The challenges of globalization. New Jersey: Pearson Education Inc. Appendix 1 Market growth (Percentage change from 2003/2006) 191% 237% 171% 73% Appendix 2 Market Growth Rate (Year on Year) for BRIC countries Read More