Global Expansion Factors of Pfizer Inc - Case Study Example

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Global Expansion Factors of Pfizer Inc.

Since 2000, Pfizer Inc. has been increasing its worldwide presence via the establishment of strategic partnerships, mergers and acquisitions of pharmaceutical and healthcare businesses. The global expansion strategy, exercised by Pfizer’s CEOs, brings the company a top position in the world’s pharmaceutical market and ensures the company’s sustainable progress in the future. In order to survive in a highly competitive business environment and keep its leadership, Pfizer needs organizational expansion every 4-5 years (LaMattina, 2014). The purpose of this essay is to evaluate key factors to be taken into account when making strategic decisions and implementing global expansion strategies. Globalization provides companies competing at the global level with plenty of opportunities together with the business challenges. This paper outlines global expansion issues and impacts related to the strategic management, global business environment, organizational behavior, risks management, and sustainable development.

Strategic Management

Pfizer’s business expansion worldwide can have different forms including an increase in market share through the development of new products and new markets’ entry resulting from a business takeover. Any expansion strategy will require additional financial resources. Depending on the circumstances and applied strategy, the business can use various sources of finance: sale of shares, bank loans, retained profits from previous business activities, sale of property or other non-current assets, venture capital (Surridge & Gillespie, 2014). A known public company such as Pfizer is recommended to attract investors for the company’s expansion via the Stock Exchange. The company lists at New York, London, Euronext, and Swiss Stock Exchange (Pfizer company fact sheet, 2016). If business merger or acquisition were to occur, shareholders would also expect synergies that would justify the deal (LaMattina, 2014). Synergies are saving effects companywide resulting from the reorganization. As an example, before the takeover of Wyeth in 2007, Pfizer and Wyeth spent $7.8 billion and $5 billion on research and development respectively; by 2013, Pfizer had cut half of the research and development costs approaching $6.55 billion (LaMattina, 2014).

For the successful strategy execution, the company should continually reevaluate external business environment and conduct a competitive analysis. A framework developed by Porter (CIA learning system: Business management skills, 2010) is extensively used for evaluation of forces that influence competition. Porter’s competitive forces and structural analysis allow the researcher to forecast industry trends, identify company’s strengths and weaknesses, and, finally, define Pfizer’s competitive position. According to Forbes, pharmaceutical companies got used to obtaining 30% of their gross profit from drugs developed “outside of its own walls” (LaMattina, 2014, par. 6). Analysts recognize that external sourcing of drugs as opposed to the internal research is one of the success factors in the pharmaceutical business today. To outsource drugs, which would give such revenues, would be the main challenge for Pfizer.

A competitive advantage could also be obtained through cost leadership, differentiation of products and services, focusing on a narrower market segments, pioneering, and synergy. Due to the business specifics, differentiation, pioneering, and, definitely, synergy drawn upon external and internal resources will create marketing advantages for Pfizer Inc.

During strategic planning, upper management should take into account the company’s life cycle stages that can easily merge or overlap in the dynamic business environment. In simple terms, a company’s life cycle involves start up, regional or global expansion, a product range growth, merger and acquisition stage. It is critical to remember that a mature pharmaceutical organization as Pfizer also depends on drugs’ finite patent lives and their reinvention, which expands company’s life cycle. Pfizer needs to reinvest its portfolio once in 12-15 years; this is a period of drugs’ patents. When the patent expires, other local pharm companies are free to produce the drug. This forces Pfizer to invest in research and development during the safe patent covered period. Entering new markets that are not saturated with the specific product increases the product life-cycle. The expensive research and development costs are always on the agenda as insufficient funding can affect products portfolio. For example, according to the 2013 reporting figures, regeneration of the company’s portfolio was worth nine times as much as the research and development budget, thus, putting at risk Pfizer’s products’ pipeline and future revenues (LaMattina, 2014).

Global Business Environment

As an international organization, Pfizer is impacted by global trends. Thereby, the company’s management needs to have an understanding of the global business environment and incorporate it into its strategic planning. Management and leadership functions in global companies require more efforts from the executives due to the various environments engaged in business processes. Similarly, it is crucial that Pfizer’s management develop skills for working with multinational teams. International business is highly influenced by social trends, political and economic environment, legal and regulatory framework, and differences in cross-cultural communication.

Social trends tend to evolve rapidly, but they define a large part of the expectations workers have concerning their leaders and vice versa. For instance, such expectations may involve the role of the family and work-life balance, the image of a good citizen through encouraging green practices and charity opportunities, immigrants’ issues. Social consciousness is a major force that affects organization’s success at the global marketplace.

Legal systems and regulatory environment are no less important than the national economy and policy. As legal systems can differ greatly, it is highly recommended to obtain legal assistance in the countries of business. There are three legal systems to consider: common law (used by the USA, Great Britain, Commonwealth nations), civil law (used in Japan and most European countries), and Islamic law (applied in Middle Eastern countries, Malaysia, Indonesia). Pfizer needs to conduct regular monitoring of legal and regulatory issues in the countries of its business operations. The main areas of concern are accounting practices, business taxation, trade restrictions, immigration requirements, dispute resolution rules, national security (CIA learning system: Business management skills, 2010).

International managers should be aware of and continually revise the political, legal, and economic landscapes of the business. Capability to balance multinational business requirements and anticipate possible changes contributes to the organization’s continued profitability. Global environment also refers to the cross-cultural communication. Cross-cultural competence is a must for the international company. Knowledge of a foreign language is a key factor that enables cross-cultural communication, thereby, a language interpreter should be available for non-speakers. However, language skills are not enough, global leadership is greatly influenced by cultural norms. A global manager needs to understand how business is done in the supervised country. An effective communication in a global context is based on belief systems, values, and, certainly, assumptions. In order to prevent possible misunderstandings and awkward situations, managers of the multinational teams should pay attention to the body language, use of space, perception of time, avoid negative stereotyping, and maintain a positive attitude (CIA learning system: Business management skills, 2010).

Organizational Behavior

When enjoying global expansion, companies face the challenge of proper organizational restructuring. The expanded business structure should be efficient, agile, and quick to respond to emerging challenges, at the same time, providing the system of internal controls and enabling business processes that contributed to the past success of the company. Pfizer’s top executives should avoid heavy management layers and complicated approval processes, inherent to large mature companies. Such inefficiencies reduce flexibility, hamper innovations, decrease motivation and loyalty of the personnel, and, eventually, hinder the company’s performance and development.

To ensure proper market responsiveness and local supervision of the functions, Pfizer is advised to consider establishing business centers at the regional level. Such structure will help to monitor regional economic indicators and market conditions, allow the company to pay attention to sensitive cultural issues, and ensure that needs of local customers are met. Another option to improve a managerial model of a global company is to move operational functions to the locations that are best suited for specific objectives. For example, international companies have long practiced the remote IT and HR services or implemented decentralized manufacturing and warehousing structure.

Organizations involved in transformations are challenged with the problems of work force reaction and leadership. There is no unique methodology that will help to create a strong collaborative team dedicated to corporate values. Nevertheless, the executive team has to recognize the importance of the human factor when introducing organizational changes. Key principles of the change management are offered further (CIA learning system: Business management skills, 2010).

1. A formal approach to address changes and such issues as resistance to a new approach and development, employees’ psychological needs, etc., should be developed in advance and adapted when introducing changes.

2. Changes should begin at the top. This means the leadership team has to embrace new practices and provide strong support to new rules or new management.

3. Every organizational layer should be involved in the design and implementation of new approaches.

4. Management needs to create the formal case explaining why changes are necessary and proving that company is moving in the right direction.

The effective change management strategy allows the company to extend organization’s life cycle or even conceive a new company through transformation.

Risks Management

Global markets offer many opportunities to international companies owing to the prospect of scale economies and the expanded customer portfolio. However, beyond the opportunities, there are significant risks that should be considered. Besides operational risks, there are threats of political conflicts, terrorism, business and investment restrictions, and many other that should be thoroughly identified and assessed.

Regular risk assessments should result in recommendations on risk mitigation and quick management response. Further, there are examples of business-processes’ risks inherent to the global businesses and recommendations on controls’ improvement that will help eliminate or mitigate the risks.

1. Risk of a non-compliance with corporate business travel policies. The recommended solution: management should provide training and monitor the travel activities by means of approved reporting processes to ensure that the various aspects of business travelling are in compliance with the company’s policies.

2. Untimely delivery of supplies that hampers manufacturing. The recommended solution: management should investigate the reasons of untimely supplying and consider decentralization of procurement and warehousing functions.

Sustainable Development

Corporate responsibility and sustainable development are the business drivers, which are often underestimated. Nevertheless, the present global community greatly appreciates companies’ efforts to contribute to the evolving needs of the society and wellness of the world. Pfizer is a bright example of an international company that exercises corporate responsibility and strives for sustainable development worldwide. Pfizer created several organizations such as the Pfizer Foundation and the Pfizer Patient Assistance Foundation to address complex healthcare challenges, charity, and environment protection issues. In these efforts, Pfizer works with governments and nonprofit organizations (Responsibility, 2016). Its initiatives involve facilitation of healthcare for underserved communities, expanding access to medication, encouraging employees to invest in their communities, programs on environmental sustainability (energy efficiency, climate change, greener workplace, and many others). Pfizer provides drugs and volunteers, grants to support entrepreneurs and enterprises (Responsibility, 2016). The company’s efforts together with its global presence and scale truly make a difference in the surrounding environment and help resist demographic risks.