Managing International Trade - Essay Example

MANAGING INTERNATIONAL TRADE: BOOTS UK By COMPANY SITUATION ANALYSIS Company Analysis Industry Pharmaceuticals Company Name Boots UK limited Company Type Private limited company Founded 1849 City and headquarters Nottingham Country UK Currency Type Pound Key person Simon Roberts Company Background Boots UK limited is a pharmacy chain company in the UK and is a subsidiary of Alliance Boots, a parent company formed in 2006 after the merger of The Boots Company PLC and the Alliance Unichem PLC. The company was however established in 1849 by John Boot. The company has come through a collection of procedures to be what it is today. In 1860, Jesse boot used to help his mother run their herbal shop in Nottingham. In 1883, the company became Boot and Co. ltd, then Boots Pure Drugs Company in 1888. It was sold to the American drug company in 1920 but in 1933, it was sold back to British operations. The 1960s saw the company diversify into research and manufacturing of drugs with development of the Ibuprofen painkiller. The company has diversified its development to other places and in 1968, the company acquired through purchase Timothy Whites and Taylors Ltd chain. Ion 1978, the company acquired Tamblyn Drugs chain in Canada which saw it entering the market. In 1987, the company became UK’s second largest drugs chain by acquiring Clement Clarke Ltd. and Curry and Paxton Ltd. In 1998, it ventured into dentistry and ‘well-being’ services offered to its customers. The company has seen sales and acquisitions with companies related to the field such as Optical Express but in 2006, the company developed a merger with Alliance Boots Ltd. In 2012, it was announced that Walgreens wanted to acquire a 45% stake in Boots. This is supposed to be a long term investment issue. Company mission statement The company mission statement is, “to become the world’s leading pharmacy-led health and beauty group”. This would be done through collaboration with Walgreen where Boots would boost Walgreen in the UK market and Walgreen boost Boots in the American and Chinese markets where it has prospered. Corporate Level Strategies The corporate level strategies of the company are to focus on its core activities in business. This is specific in the pharmacy led health and beauty retailing as well as pharmaceutical wholesaling and distribution. This is to be achieved alongside realizing international branding of the products so that a third dimension is created. The strategy therefore includes growing the core businesses in the existing markets as well as continued delivery of improved products and saving of costs. Growth opportunities are supposed to be achieved through pursuing the growth opportunities in new high growth markets. The company also seeks to launch new brands in new markets, deliver synergies through strategic partnerships with other companies. The partnerships may take the forms of mergers or direct market partnerships, acquisitions and sales. This strategy is clearly underpinned by the continued focus on the patient-customer needs in the market that would translate to service to them. The company makes selective partnerships and it also has to use the financial strength it has to realize its corporate goals. The company now plans to supply Boot’s foreign market through implants. These are to be done through large established foreign stores. The implants are supposed to sell 800 products in which case there will be a mix of Boot’s own products and bother additional exclusive products. Product Level Strategies The company operates in diverse categories of products and services; Health care dispensing-employs 4000 pharmacists who supply 85 million items per year Over-the-counter medicines (OTC)- Boots is the market leader in vitamins and mineral supplements accounting for a quarter of all the OTC market Beauty- is the market leader in fragrances, cosmetics, hair care and skin care. Employs consultants to provide sufficient information in these areas. Baby- produces baby nappies, toiletries and baby food. Gifts- greeting cards and gifts stationery Other areas of specialization are: Photographic-provides over 550 million photographs per year Food – has developed food stores in the UK Optical field- eye examination, optical laboratories, spectacle dispensing and lens fitting. The strategy is that the company plans to be the place and home for beauty and health. This is to be done by first securing the UK market and start venturing into the international markets through mergers and acquisitions Business Level Strategies The company is planning to put in place a learner management team to provide focus and profile so that profitable areas are developed and grown. This is to be done through strategically targeted and calculated investment in stores, product as well as brands development, competitiveness in prices and service. This is to be led by competitiveness in operational efficiency. COUNTRY SELECTION/INTERNATIONAL INVOLVEMENT International Involvement and Competition Boots is one of the leading manufacturers of pharmaceutical products in the world. Headquartered in Nottingham, UK, the company productions are quite diverse all over the world. Starting from the off-pharmaceutical sections, the company sells just over 5 million sandwiches per year. In health care, the company dispenses 85 million items each year with an employment of over 4,000 pharmacists. It has also been stated that the company supplies over 550 million photographs per year in its operations. Its website, Boots.com is the tenth most visited site in Britain. In 1936, the company opened the first foreign store in New Zealand. Currently, the company operates in over 130 countries all over the world. By 1997, the company had a roll-out in Netherlands, Taiwan and Thailand. In other countries such as USA, Kuwait, Hong Kong and Switzerland, the company has a collection of in-store in-plants in departmental stores and pharmacies. However, the UK companies have highly dominated the pharmaceutical industry in the whole world. Therefore, if a company performs well in the UK, it is bound to perform fairly well in the international market. The major competitors in the market are; Pfizer Pharmaceutical Company Smith And Nephew Reckett and Benkiser Boots majorly specializes in uniqueness of its products and has been able to maintain the quality, sometimes charging higher prices than normal. For instance, the company in 2007 was considered as being the most expensive in the Czech Republic but its operations continued due to its good qualities. Pfizer Company is an American pharmaceutical multinational company with its headquarters in New York. By revenue, it is one of the largest companies in the world. This is an all rounded company that produces medicine in oncology, immunology, cardiology and many other medical fields. The company is divided into nine areas of operation that cover the entire medical filed. Established in 1849, the company has grown through mergers and acquisitions and commands a very high percentage of the world pharmaceutical industry. For instance, in 2002, the company acquired Warner–Lambert Company. In 2002, it merged with Pharmacia Company and in 2008, the company agreed to buy, at a combined cost of US$ 68 billion Wyeth company. This shows how large the company is and its international operations are quite exclusive to providing stiff competition to any other company in the industry. Smith and nephew is a British multinational company that specializes in production of pharmaceutical equipment. In terms of its position in the market, the company is the largest producer of arthroscopy products. Moreover it is the largest producer of products used in wound management. In terms of clinical therapy instruments, it is the third largest company and then the fourth largest producer of orthopaedic products. It has its products sold in more than 90 countries all over the world. With the company strategy based on research and development, the company in 2008 started investing well over US$ 152 million in further research and development. This is also a company that directly deals with the medical field and commands a very high percentage of the market. Reckitt Benckiser is majorly a consumer foods multinational company that produces health, hygiene and home based products. Operating in more than 60 countries, the company also has its products sold in more than 200 nations across the world. The company has been launching products and in 2007, US$ 10.5 billion came from the company revenues. The company has also made acquisitions and in 2012, it acquired Schiff Nutrition Company for a cost of £877 million. This is a high capacity operating company and has its fair share of the market which is a high level competition to any other company like Boots UK Company. All these companies have an international domain in their operations and are clearly in stiff competition against each other. Since two of these major competitors are UK based companies just like Boots, there is a cultural similarity and this may lead to the companies competing under similar foundation conditions in the international market. Boots also has to face other competitors from all over the world such as marks and Spencer, Bayer and Roche. Methods of International Function Methods Of Involvement Boots UK Pfizer Recket And Benkiser Smith And Nephew Indirect exporting Direct exporting Overseas sales subsidiaries Joint venture Company owned retail stores Importing products (Final products) × × × × Importing component parts Table 2: International Involvement 3.3 Organization of International Function Organization of the International Function Boots UK Pfizer Recket And Benkiser Smith And Nephew International division International team (logistics) Global structure by area Table 3: International Functioning International Experiences International experience Boots UK Pfizer Recket And Benkiser Smith And Nephew 5 or more years’ experience in the international market Table 4: International Experience On overall basis, the company Boots and its competitors operate in a similar basis and the level of experience, function and involvement in the international business is the same. Reckett and Benkiser and Smith and Nephew are British companies that are founded on the same cultural level. The existence of Pfizer as a chief competitor only reiterates the importance of the presence of international competitors. Industry Analysis Porter’s Five Forces Analysis Figure 1: Porters Five Forces Analysis Summary Threats of New Entrants The threats of new entries into the pharmaceutical industry are quite low for a collection of reasons. First, the cost of research and development in drug making is very high. Coming up with a new drug may take a couple of years of research and development to succeed. Secondly, the government regulations are quite strict about the aspect of drug making and use in the market. These act as constraints to entry by new companies making this threat relatively low. New entrants have a lower influence on the large established companies but the possibility of having them cannot be ruled out. Threat of the Substitute Original drugs from these industries have no substitutes. However, generic substitution exists where another company is able to come up with another drug that serves the same or similar purpose. This threat can therefore be considered as very low among the companies in the industry. These generic drugs do not provide any convenient step in replacing the existing drugs. The threat of substitutes therefore is almost non-existent. Determinants of the Supplier Power The bargaining power of suppliers is low due to the very many suppliers and a relatively lower number of companies. The players are just a handful but very large. This gives them the power to effectively regulate the power of the suppliers which is highly reduced. Determinants of the Buyer Power Hospitals and other facilities that use these products usually purchase in bulk is therefore able to benefit from economies of scale in purchases. This forces the companies to keep their prices in check as the people who influence the prices are the doctors. Patients have also been dependent on generic drugs as opposed to brand names. In this case, these individual patients have lost their bargaining power given that the prices of generic drugs are also increasing. The bargaining power on average of the buyers is therefore a medium cause in the industry. Determinants of the Competitive Rivalry The industry is made up of big players. The level of competition is extremely high. The UK companies command a high stake in the pharmaceutical industry as well as established competition from already existing companies in the other countries. The companies compete at every level and there are always claims of each company’s goods performing better in the industry than another. For instance, in terms of products, Eli Lilly & ICOS hats brought up claims that Viagra manufactured by Pfizer works for a shorter time than theirs. Industry Sales and Growth Rates Figure 2: Global Industry Growth Rates Figure 3: Global Value of Sales Figure 2 shows a growth trend in the industry indicating highs and lows depending on the economic conditions in existence. By 2011, there was still an average drop in the performance of the two companies from 4% to 3%. Looking back at the sales volumes in figure 3, there is a continuous increase in the annual sales and the subsequent years are still expected to follow the same trend. TARGET MARKET PROFILE End User Product Description China is an emerging market and has a collection of middle level consumers with average affordability rates. It is a population with a low profile health insurance and that has become the concern of the government. The concern of the population at the moment is access to insurance since the industry has a high collection of pharmaceutical producers. End Users in Foreign and Domestic Market The target market in china is not similar to the UK market. The UK market is very developed and the industries well established with effective regulation systems. For the past ten years, the industry in china has been seen to start developing. Before then, there were no effective pharmaceutical regulations and copyright laws were very flawed. China also accounts for just 1.5% of the world pharmaceutical market regardless of having well over 15% of the world population. The market in china is highly fragmented and inefficient due to the named lack of effective regulations. In this transitional period, there are expected high level reductions in the extent of the differences in the two markets. The nation has close to 3500 pharmaceutical companies as opposed to the UK market that has comparatively fewer large players. Another difference is that the thousands of the domestic companies control 70% of the market and the top 10 companies control just 20% of the market as opposed to the UK where the top ten companies control well over 59% of the market. Product Profile As stated, Boots UK has several products that it produces. In a bid to venture into the Chinese market, the company seeks to make entry with all its pharmaceutical products and develop them to fit the Chinese market. In the pharmacy and medicines section, the profile of its products is that of empowerment to deliver the best care to the customers. The products have been designed to rake care of most long term conditions that are common in the current status of health of the people. The eye care services are supposed to be provided on the normal franchise basis. This is the normal UK profile that oversees the best of the products provided. The eye care for instance has the best and firm frames that would make sure it takes care of individuals through their day to day rigorous exercises without breaking down. The hearing care services will put to task the idea of the products being credible enough to solve the collection of all hearing problems. This is supposed to be a replica of the already developed UK market products. The profiled sections of all products as per the company conditions would refer back to the individual requirements of each product. The company will seek to develop high quality products in the dense market and create a long lasting difference to the Chinese people. In terms of prices, the company will regulate the prices according to the affordability level of the people of China. A reference back to the case in the Czech Republic indicated that the company charges more than other companies. However, the qualities of the products warrant their prices. Company Product Life Cycle The company products in the industry will be expected to undergo the normal life cycle of its other products albeit differences are expected since Chinese market is different from the UK market. Stage at Boots UK in China Applicable Action Pre-clinical Market research and proposed development Clinical Final product development Pre-launch Search for approval by FDA Launch Introduction to the Chinese market Active marketing Use of media to popularize the products Market maturity Gains in stable market and further development There is not expected an early decline in the life cycle of the products as the market is still on the development stage. Being an international market, the company is supposed to also experience a difference in the way the products are managed at this level. In this case, the company may decide to introduce to the Chinese market through international direct exports from the UK. When the product reaches maturity stage, the company can lower dependence on exports from the UK and develop a local branch to produce locally. There is supposed to be a decline especially when other forces such as foreign competition are too competitive or the government legislations in china not favoring operations of the company. The reversal stage however comes to hand when the company puts in place measures to counter these obstacles. This is the ideal method to describe the company and industry product life cycle. Global Readiness The Chinese market is not very well developed in the pharmaceutical industry but the rate of development has become very high. The company will therefore seek to use the advantage of low labor costs and the continuous incentives given by the government to companies. However, china experiences over 3500 local companies, some of them very small but influential enough to cause a stir in the market. Boots UK will therefore capitalize on its financial strength, the experiences of operating in the developed markets and the strength of its products to venture into the Chinese market. The Boots UK products have been very successful in the UK market. By this standard, the company will be expected to use direct export method up to the post launching level and use its financial viability to develop a company in the Chinese market. With the success experienced in the UK market, the international expansion analysis favors its operations in the complex Chinese market. Swot Analysis Internal Factors Strengths The first strength is that the company is the biggest chemist chain in the UK market with more than 2500 chemists in UK alone in addition to those that lay under the umbrella of the alliance. This gives it a big resilience in the market of operation. Strength is that the company gives customers pick-up trade opportunities. In this case, the customers are able to get medical advice from the experienced staff employed at the company. The company also owns label brands. The company is highly regarded brands especially in the beauty industry where established brands such as the No in beauty, sultan in sun-care have given the company a high status in the industry. The company also has a loyalty card that has kept customers loyal to it for a very long time. Weaknesses The company is very dominant. The repercussions of this dominance are that it becomes hard for it to grow the current UK market share further. Moreover, the Boots Opticians is a section of the company that has struggled a lot in the market to march the competition that it gets from the other companies. This puts the company at a disadvantage in the market as a whole. The company also has a weaker non-core sale in the market. Apart from the core areas of operation, the company has failed to be as aggressive in the other fields of operation like photography and electricals. External Factors Opportunities The first opportunity is in the synergies. The recent merging with the Alliance and the progressive US based Walgreen Company is in a position to give the company marketing economies. This would help it improve in the areas that it is not performing well (Bubb, 2012, p. 5). The second opportunity lies in further development of its products. Personal health and well-being sections of its products can move the company to making sure that it further invests in anti-aging products. This is an area of diversification. The third opportunity is in third party sales. This is where the company would develop overseas sales in the international market so that the products that are entirely sold in the present market can be sold equally in the international market such as in China. The company can also directly introduce the products into the other markets it has never ventured in such as this Chinese market. Threats The company is highly threatened by the presence of the discount shops such as Bodycare Company seems to be threatening the viability of the company in the market. Secondly, the supermarket chains in the UK have opened chemist stores in every location they operate in making it possible for them to retain their customers in an all-inclusive shopping. The company also merged with Walgreens of the UK and this may possibly work in the favor of publicizing Walgreens at its expense. Therefore, the company may end up losing focus on the market in the long run. TARGET MARKET Country Selection Selection of the company is based on an analytical view of product development in a new market. An analysis was done to get to a market where Boots UK is still non-existent. The major markets that were identified on the basis of either being developed or developing. A collection of five countries were established and then analyzed so that the best market for the company can be chosen from these. The initial analysis singled out the following markets for consideration: China Malaysia Japan South Korea India The countries have been chosen on the basis of a collection of factors; Population Government regulations on foreign companies The nature of the pharmaceutical industry Economic situation Availability of supportive factors South Korea is a highly developed nation and it has been selected in this section because most companies are given high subsidies on venture and operations. China has been selected because of the high population and the developing nature of the pharmaceutical industry. Japan was also selected because of the high population and the economic satiation of the people. India’s inclusion was based on the high number of people, their high urbanization levels and the subsequent economic situation. There is also an availability of supportive factors in that research and development is rife in the country. On Malaysia, the selection was based on its rampant development nature. The country is experiencing a high level of development and the subsequent economic ability of the people. Criteria of Selection The following countries were selected based on the above named variables. A collection of variables were derived from these so that their specificity can be measured against the prevailing conditions. Population Population density Sex Life expectancy Economic situation GDP Purchasing power parity Government regulations on foreign companies Subsidies Tariffs Ease of doing business in the country Corruption levels Regulation levels Availability of supportive factors Internet connection level Good transport levels The nature of the pharmaceutical industry Number of companies in the industry Level of development of the industry Country Evaluation From the analysis of the parameters mentioned above, the countries were measured against each other and establishment made to determine the best country for Boots UK Company to invest in. Information from the GMID database clearly indicated that china is the best of all the countries that were under scrutiny. Information from the appendix that favored china showed that the country has a high population density. Its pharmaceutical industry is also on the development stage which gives a well-established company an early leverage in developing. Korea is ranked second based on the subsidies that it gives to companies. Read More