Venus Pharmaceutical Machinery LLC - Merge - Case Study Example

Subject: Assignment Number: Date Submitted: Assignment Title: Student Name: Student Number: Declaration of Originality: The work contained in this assignment, other than that specifically attributed to another source, is that of the author(s). It is recognised that, should this declaration be found to be false, disciplinary action could be taken and the assignments of all students involved will be given zero marks. Signature: Executive Summary The following report involves two companies merging to form a company based in the US, Venus Pharmaceutical Machinery LLC. The two are Hunan China Sun Pharmaceutical Machinery Co., based in China and ACIC Fine Chemicals Inc., based in Canada. The total joint capital to establish the new company stands at $25m. Hunan China is the largest shareholder with 80% of the shared interest in the new company. The report looks into the various potential risks and returns involved in establishing the company. The main challenge is competition from the well established companies and lack of experience in the new market. Letter of Transmittal Hunan China Sun Pharmaceutical Machinery Co. asked me to write a report on its interested venture with ACIC Fine Chemicals Inc. I have managed to gather information of how this will impact on the company. I have analyzed reports and journals of other companies that made a similar move in the past. The report made me understand the setting of the American market dynamics. The report indicates that there are many challenges that a company should expect when starting a new company. The returns are expected steadily over a period of time, depending on the marketing strategies imposed. Table of Contents The Expected Joint Venture 6 Potential Risks 6 Expected Returns 8 Mode of Payment 10 Bibliography 12 The Expected Joint Venture Venus Pharmaceutical Machinery LLC will be a joint venture between Hunan China Sun Pharmaceutical Machinery Co. and ACIC Fine Chemicals Inc. Hunan China Sun Pharmaceutical Machinery Co. Will be the largest shareholder, it will contribute 80% of the joint venture. The success or failure of the merger will be determined by the following key factors. Risks involved Expected Returns Mode of payment Potential Risks The pharmaceutical venture is a vital aspect comprising of many risks involved in manufacturing to the selling of the products. One department will face a different challenge from the other (Michael et al., 2005). There is a risk associated with all the processes, internally and externally. Before engaging in this venture, Hunan China Sun Pharmaceutical Machinery Co. Should ensures it understands all the risks involved by analyzing these issues: i) The safety risks present. ii) Which is the most crucial risk? iii) Which stakeholders is the posed risk directed to? iv) The predictability of the risks. v) Can the risks be avoided? Competition is one of the risks that Hunan China Sun Pharmaceutical Machinery Co., Will face in its inception. The two companies are based in china and Canada. They do not have any prior knowledge to the US market dynamics (Larker and Thomas, 1987). It will be a difficult task to “catch up” with the other established companies in the pharmaceutical industry. It will take time for Venus Pharmaceutical Machinery LLC to identify with the intended consumer. Generic competition will affect the company’s growth. The advance in technology has dictated new ways of handling pharmaceutical products. This builds up fierce competition as every company wants to stay on top of the market (Ackermann et al., 1999). There will be a continuous research programme aimed at discovering new technologies and ways of tackling medical issues. The company will be affected by the US’s government pressure to the public to reduce healthcare expenses. This move will reduce the impact of the company’s products. The clients are succumbing to the external pressure, provided by the government. There are various litigation aspects that the company will have to abide with before operations can commence in US. The two companies should complete the required paper work to ensure competency in the pharmaceutical industry (Agrawal et al., 1999). Some of the documents to be provided will be patents and health reports. Failure to provide these documents the company will not be granted the go head to establish its operations. Hunan China Sun Pharmaceutical Machinery Co. Influence on the new company will make ACIC Fine Chemicals Inc. an underdog in the establishment of Venus. The management will face internal pressure from the small company (Barker and Serkan, 2002). The company with the highest capital stake in forming the new company will call the shots in major decisions involving the company. The company has risked a lot of capital than the small company. Outsourcing of services in the US is a threat to establishing Venus. There are small companies that have specialised is the manufacture of pharmaceutical products. The specialization has made them perfect in what they manufacture or sell. Larger firms have a habit of outsourcing certain duties to the small companies to be done over an agreed time and cost. These companies make large companies vulnerable; they engage in two or more activities, they do not narrow down to one aspect of production. The discussed risks threaten the success of establishing the new company in the US, but they do not make it impossible. A risk management paradigm can be used to control the threats posed (Hirschhorn and Gilmore, 1992). It has six steps that can be followed sequentially, identification of the risk, analyzing, planning on the actions to be taken, keep track of the suggested plan, controlling the plan from deviating and communicate the effectiveness on the solution carried out. Expected Returns The returns should be determined by the success rate. The goals achieved will reflect on the success of the company. The company should not expect much from the initial stages of its inception, 3-4 months. At this stage, the company is familiarizing itself to the market. The marketing department will advertise and promote the various products that Venus will engage in (Fung and David, 2001). This is a spending phase of a new company investing in the pharmaceutical industry. There will be setting of the new company, recruiting staff and establishing a new management. The company will generate an interaction platform to engage with the stakeholders in the business. This step will enable the company understand the pharmaceutical industry in the US. Regulatory boards will give proper guidelines towards running a successful business abiding to all the stated laws (Asquith et al., 1983). The forums carried out by the manufacturers and wholesalers will enable Venus to be in the correct path in business. The establishment of a research system will make the company competitive as the well established ones. The company will come up with new ways of doing things, by putting the latest technology in best use (Karolyi and John, 1998). When the practices succeed, the company will increase the income gained in manufacture and wholesaling. The joint venture provides the company with an opportunity to expand to the US. This is a success measure for the company. This must be one of its goals, to develop the company (Jackwerth, 2000). Venus Pharmaceutical will serve as an avenue for the company to sell custom based products from china. This will give a new way of dealing with pharmaceutical equipments. The Chinese culture will help sell the company. Hunan China will have a great responsibility on deciding which pharmaceutical equipments should be manufactured. The company is based in China. It will develop equipments that are closely related to the Chinese culture. The Chinese community will be attracted to the products as they try to familiarize themselves with the culture in the modern world. This will result in an increased customer base for the company in the new territory. The company will increase its network. There will be stakeholders who will want to invest in the company, Venus. This will provide Hunan with an opportunity to infiltrate the American market and expand (Canina et al., 1998). The company will hire experienced personnel who perfectly understand the market dynamics. Their exposure will enhance competition in the firm and enhance its success. The potential returns are aimed to increase the profits obtained by the Venus Company. Some of the returns are not directly linked to the perceived financial gains (Malatesta, 1983). It is the resources accumulated over time that guarantee the financial gain and success in the company. Mode of Payment New stocks, is the preferred mode of payment in establishing Venus Pharmaceutical Machinery. The companies will issue share certificates to form the company. The transaction will not incur taxes during its formation. The shares will be distributed to all the new stakeholders to Venus Company (Schwert, 2000). The shares will be managed by the two companies involved or given to a broker who will manage them. It is only during a sale of the shares that tax will be subjected to the shares held. After closing the deal, when establishing the new company, shareholders to the two main companies will obtain new stocks. The stocks will identify with the new formed company as an added entity to the main company, depending on which company the stakeholders belong to. Conclusion Merging the two companies to establish a new company in the US is a move with great challenges. The study has shown many types of risk and the counter measures that can be implemented. The company will be expected to abide by the steps given and many other issues that come up with setting a new company. However, the move is timely; there is a great customer base to occupy in manufacturing pharmaceutical machinery. The company should not expect an instant steady growth after its formation. It takes time for such a company to fully establish itself. It will follow development phases, identical to the ones passed by the two partner companies. The analysis has shown that technology is the deciding factor in staying on top. The new company should use this tool to its advantage. 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