International Business in Emerging Economics - Report Example

International business in emerging economics International business report Page number Table ofcontents Executive summary ……………………………………………………………………..3 Introduction ……………………………………………………………………………..4 Preferred European Country of entry…………………………………………………….4 Dealing with institutional and cultural differences…………………………………..….6 Market entry mode……………………………………………………………………….7 Organization structure and control strategy……………………………………………... 8 Corporate social responsibility………………………………………………………...…9 Conclusion and recommendations ………………………………………………………10 Bibliography…………………………………………………………………………...…11 Reflexive account……………………………………………………………………...…13 Executive summary The management report will offer the CEO of Asia Pharma pharmaceutical company critical advice on the internalization strategy that will be implemented in order to compete globally with other multinationals in the industry. The report will outline the company background information and objectives of expanding to other countries in the European region. The next part of report will provide the basis of selection Germany as the preferred country and highlight the institutional and cultural differences that exist between Germany and Malaysia. The report will also offer advice on how to deal with the cultural and institutional differences and provide information on the best foreign market entry mode depending on the internalization strategy of the company. Next part of the report will highlight the required structure and control strategies and how to deal with corporate social responsibility issues that arise. The final part of the report will entail conclusion and recommendations to the management. Introduction Asia Pharma is a World Health Organization (WHO) certified pharmaceutical company that was established back in 1997 and has operations in two Asian countries. The product portfolio of the company includes anti-cancer products, male hormones, female hormones, female infertility drugs, biological products and hypothyroidism treatment products. The quality control includes in-check processes, inspections and technology upgrades. The company concentrates on the generic product categories of steroids, sex hormones and anti-allergies and is committed to expanding to become a global market leader in pharmaceutical industry (Campbell, 2004). Asia Pharma plans to expand its operations and enter the European market that is dominated by both United States and European pharmaceutical multinational companies in order to attain research and development competencies (Wong and Jomo, 2008). US and European MNCs in Asia participate in limited research and development activities that aim at new product development. Preferred European Country- Germany The pharmaceutical industry in German comprises of more than 300 firms that engage in significant research and development of new products. Germany is the third global largest pharmaceuticals market in terms of sales volumes and generates more than 50 billion Euros annually (Schweitzer, 2007). One of the reasons of entering the Germany market is the availability of excellent university landscape that boosts of renowned scientists and excellent research reputation in pharmaceuticals (Wong and Jomo, 2008). Goethe- University in Frankfurt and Albert-Ludwigs universities engaged in intensive pharmaceutical research projects while Max Planck Society has more than 80 research institutes that concentrate in biology, medicine and chemistry fields (Campbell, 2004). Germany is ranked first in European region for its clinical trial competencies since the quality of data is par with that of the US and trial costs are 50 percent lower than those of other countries. The Federal government of Germany finances healthcare and biotechnology industry research and development projects and ‘BioPharma’ competition promotes research partnerships in the pharmaceutical industry (Garavan, 2012, p 2430). The country has state-of-the art infrastructure that entails high quality energy sources, telecommunication networks and transport network that minimizes the costs of production and enhances the access to global export markets (Bradley, 2005). The country industry is organized in to clusters in places like Munich, Berlin, Ruhr area, and Rhine-Neckar triangle that e (Schweitzer, 2007). Germany has the largest population in Europe with 83 million inhabitants and increase in life-expectancy has created chronic and age-related illnesses. The healthcare spending accounts for 11 percent of the GDP and 18 percent of the more than 161 billion funding of the statutory health insurance is spend on pharmaceuticals (Garavan, 2012, p 2436). (Web:Eurostata). Dealing with institutional and cultural differences Although globalisation has integrated the global market place, national governments still affect the local market conditions thus leading to institutional differences between countries (Rugman and Verbeke, 2004). Cultural differences also hinder trade and investments across countries due to differing consumer behavioural aspects like lifestyles, tastes and preferences. Germany is part of the European Union monetary and economic bloc that dictates the economic policies of the member states through certain policies on product quality standards (Schweitzer, 2007). The government of Germany has minimal intervention in economic development and its work is limited to providing an enabling environment for trade and investment (Wagner, 2009). Germany promotes private ownership while private ownership is limited in Malaysia is limited since the state controls the production decision regarding the type of goods and services that will be marketed in the country (Bradley, 2005). In some cases, the government protects some corporations from foreign control. Asia Pharma must attain competitive competencies in order to survive the stiff competition (Bartlett and Ghoshal, 1995). Germany has a liquid capital and credit markets that is dominated by commercial banks, stock exchanges and insurance firms unlike Malaysian capital and credit banks that are mainly controlled by the national government (Tielmann, 2010). Asia Pharma will have to make intensive-capital investments through obtaining commercial loans (Meyer, 2004). Germany and other Scandinavian countries have social market capitalism and high labour costs due to social security remittances by the employers and parental leaves. However, Malaysia enjoys minimal trade union activism than Germany that has strong labour unions that agitate for higher wages (Giroud, 2003). The company will deal with this challenge through offering fair wages and good working conditions (Wagner, 2009). Malaysian cultural values of Confucianism advocate for loyalty towards family, nation and domestic corporations unlike Germany cultural values of individualism that advocate for personal choices and decisions regarding economic pursuit and consumption (Mennen, 2010). Asian countries like Malaysia have a strong work ethics of social harmony unlike Germany cultural values that embrace self-determination and shift-system in the workplace (Trompenaars and Hampden-Turner, 1997). Germany culture embraces high uncertainty and risky investments unlike Malaysian culture that is uncomfortable with unstructured situations or risky investment (Hofstede, 1997). In this regard, Asia Pharma must be willing to enter in to risky and innovative product development in order to accrue R & D learning experience and attain high profitability (Giroud, 2003). Germany offers stable investment environment due to the high regard to rule of law and enforcement of contracts (Beck and Klobes, 2005). Germany is secure from organized crime and offers adequate intellectual property protection due to the independent and efficient legal system. The country has transparent and open markets that encourage free competition and foreign direct investments in all sectors of the economy. Germany has no restrictions on foreign currency transfers, profit repatriations, real estate purchases or capital transactions. The tax system reforms have led to overall tax burdens of not more than 30 percent for corporate thus making the taxation more competitive than most of the industrialized countries across the globe. European Market entry mode- Wholly owned subsidiary The foreign market entry modes are either equity or non-equity modes. Unlike the non-equity modes, the equity modes entail control and ownership of business assets and operations in the foreign market (Beck and Klobes, 2005). The equity modes of entry require management involvement and control of the operations and decisions on systems and methods of production (Glaister and Buckley, 1996, p 321). The non-equity modes have lower transaction costs thus unlike equity entry modes that involve significant transaction costs and risks. The selection of the foreign market entry modes depend entirely on resource availability and need for management control (Tielmann, 2010). Since the company wants to engage in research and development of new products, the market entry strategy should ensure high management control of the undertaking due to the high risks (Beck and Klobes, 2005). The best market entry is formation of a wholly owned subsidiary in order to ensure control of the manufacturing processes and attain intellectual property of the new products (Daphne and Makino, 2002, P 668). The company will have direct contact with local suppliers and customers while at the same time acquiring knowledge of the local market (Pan and Tse, 2000, p 540). However, the entry mode is expensive and substantial resources will have to be committed towards building of research centers and buy manufacturing equipments (Pan and Tse, 2000, p 545). Best organisational structures and control strategies Pharmaceutical clusters in Germany will enable Asia Pharma to learn and develop their operations in line with the existing national culture and attain information on prospective supply chain partners in Germany. A proper structure must support new product development and ensure faster information flow and communication in order to ensure quicker decision-making (Tielmann, 2010).The best structure is global matrix organisational structure that incorporates different functions and products of the company. The pharmaceutical company will establish a research and development function in both Asia and Germany in order to ensure interdependence in decision-making (Ang, 2008). The management must exercise control over the operations and the best control strategy is the output control in order to meet quality standards in production (Mennen, 2010). A transnational control strategy must be implemented in order since the foreign market entry will entail large flows of people, knowledge, and capital between the interdependent units. The subsidiary will also have specialized resources and capabilities in research and development and shared decision-making is necessary (Beck and Klobes, 2005). Managing corporate social responsibility issues Corporate social responsibility (CSR) of any company encompasses economic, leglegal and ethical discretionary expectations that society has of the businesses. Companies commit to sustainable economic development and engage in philanthropic activities that aim at enhancing the quality of life of the communities (Husted & Allen, 2007, p 348). According to the European Union, CSR entails voluntary contribution of firms towards better society and clean environment and influences the success of the firm. Multinational companies must address ethical issues like human rights, environmental pollution and employment practices. Asia Pharma must comply with human rights laws regarding employment in Germany and avoid environmental pollution. The company should provide good working conditions and pay fair salaries to the employees in order to attain high employee satisfaction (Tielmann, 2010). The company must adhere with environmental regulations of Germany. Accordingly, the company will have to eliminate corruption practices like bribes to public officials and suppliers of raw materials thus ensuring ethical procurement processes (Husted & Allen, 2007, p 354). Asia Pharma must have CSR strategy that balances integration-responsiveness pressures and institutional pressures. I believe the best CSR strategy will be localization in order to address the unique social needs of Germany society and contribute to charitable causes that aim at improving the living standards of the local communities (Husted & Allen, 2007, p 350). Conclusion and recommendations Germany offers ideal location for expansion in the European market due to its good infrastructure, high economic activities in the pharmaceutical industry, excellent financial markets and enforcement of contracts. Germany has talented scientists, high population, excellent research facilities and attractive business environment that is characterised by low taxes and zero foreign exchange controls. The company will have to establish a wholly owned subsidiary in order to attain maximum control of the operations, attain intellectual property rights on new products and manage the investment risks. A global matrix organizational structure that includes product range and functions like research and development is ideal for the company due to the complexity of the operations and need for continuous innovation. A transnational control strategy that facilitates movement of capital, information and shared decision making will be more effective for the company. The company should consider the local societal needs in its corporate social responsibility strategy and comply with high ethical practices in operations, respect human rights and minimize environmental pollution. The company will be capable of competing effectively with other global giants after internalization and acquiring research and development capabilities. Bibliography: Ang, J.B. (2008). Financial development and economic growth in Malaysia. London: Routledge. Bartlett, C and Ghoshal, S. (1995). Transnational management. London: McGraw-Hill. Beck, S and Klobes, F. (2005). Surviving globalization: perspectives for the German economic model. Dordrecht: Springer. Bradley, F. (2005). International marketing strategy. London: Financial Times. Campbell, J.L. (2004). Institutional change and globalization. New Jersey: Princeton University Press. Daphne, Y and Makino, S. 2002. ‘The choice between joint venture and wholly owned subsidiary: an institutional perspective’, organization science, vol 13, No. 6, pp. 665-675. Garavan, T.N. (2012). ‘Global talent management in science-based firms: an exploratory investigation of the pharmaceutical industry during the global downturn, the international journal of human resource management, 23(12), pp 2428-2447. Giroud, A. (2003). Transnational corporations, technology, and economic development: backward linkages and knowledge transfer in South East Asia. Cheltenham: Edward Elgar Press. Glaister, K.W and Buckley, P.J. (1996). ‘Strategic motives for international alliance formation’, journal of management studies, 33 (3), pp 301-330. Hofstede, G. (1997). Culture and organizations. New York: McGraw-Hill. Husted, B & Allen, D. (2007). ‘Corporate social strategy in multinational enterprises: antecedents and value creation’, journal of business ethics, 74(4), pp 346-360. Mennen, M. (2010). International trade and finance- pharmaceutical industry in German research and development- innovation and knowledge creation. Munchen: GRIN Verlag. Meyer, K.E. (2004). ‘Perspectives of multinational enterprises in emerging economies’, Journal of international business studies, 35(4), pp 259-276. Pan, Y and Tse, D.K (2000). ‘The hierarchical model of market entry modes’, journal of international business studies, 31(4), pp 535-550. Rugman, A.M and Verbeke, A. (2004). ‘A perspective on regional and global strategies of multinational enterprises’, Journal of International business studies, 35(1): pp 3-19. Schweitzer, S.O. (2007). Pharmaceutical economics and policy. New York: Oxford Universty Press. Tielmann, V. (2010). Market entry strategies: international marketing management. Munchen: GRIN Verlag. Trompenaars, F and Hampden-Turner, C. (1997). Riding the waves of culture: understanding diversity in global business. London: McGraw-Hill. Wagner, T. (2009). Foreign market entry and culture. Munchen: GRIN Verlag. Wong, S.N and Jomo, K.S. (2008). Law, institutions, and Malaysian economic development. Singapore: NUS Press. Reflexive account My selection of Asia Pharma was guided by the innovative approach the company is undertaking in producing modern products like female infertility drugs and anti-cancer products. Indeed, the selection of Germany was guided by the unique opportunities and research facilities that exist in the country and its traditions of pharmaceutical research and development. I was interested in analyzing the unique institutional and cultural differences that exist between Germany and Malaysia and clearly understood that Germany economy supports private foreign investments and is attractive due to zero profit repatriation controls, enforcement of contracts, low political risk and protection of intellectual rights. I have learned that inherent business risks, need for control and resource requirements influence the choice of foreign market entry mode. I was interested in learning the organizational structures and control strategies for multinationals and I have learned that the structure and control depends on the need for movement of people, assets and decision-making while structure depends on nature of functions and products of the company. I believe matrix structure is best for pharmaceutical company since managers will be tasked with supervision of different research and development activities in several product categories. I developed a great interest in analyzing how Asia Pharma must deal with corporate social responsibility issues that result in Germany especially the national governemnt pressures. I discovered that the company must focus attention on local societal expectations and ensure ethical operations through avoiding discrimination in employment, respecting human rights, and minimizing environmental pollution. Read More