Global Management Strategy - Essay Example

GLOBAL MANAGEMENT STRATEGY by This paper focuses on Jordan International Company (JIC), which is a global marketing company with the objective of venturing and establishing itself in new markets. A comprehensive and critical analysis is given by one of its global marketing consultants on the viability of entering the pharmaceutical industry in the Czech Republic, which is one of the European Union countries. The marketing consultant has given a critical analysis of the marketing, theoretical and practical framework for JIC successfully entering the targeted pharmaceutical industry sector and the justifications for the findings of this research, which are supported by various underlying marketing factors in this regard. This research has applied global marketing theories and frameworks supported by a well-structured bibliography of various international marketing components relating to market entry into a new market. This paper finally gives its findings and recommendations on the proposed venture. Executive Summary It is never anyones wish to feel unwell and be forced to seek medication. Nevertheless, individuals find themselves visiting pharmacies on various occasions to get the needed medical assistance. The usual ailments experienced by people have a broad selection of drugs that can be acquired over-the-counter in numerous pharmacies in the city of Prague. That notwithstanding, in as much of Czech Republic, an individual cannot purchase drugs from any drugstore like is in the case in the United States. A pharmacist can only do the sale of drugs in Czech Republic, and people find themselves making long queues await their turn to be served by a pharmacist at the counter. Conversely, eye products that include spectacles, contact lenses, and eye drops cannot be found in pharmacies in the country unless an individual visits an optician with a prescription. Toiletries and other products made to improve hygiene are also unavailable in Czech Republic pharmacies but can be purchased in stores elsewhere. Pharmacies in Czech Republic normally have queues for those who have prescriptions and those individuals without. "Na rezept" indicates the queue for people with prescriptions and people without prescriptions are made to stand on the "bezrezeptu" lines. Language barriers are often major impediments for individuals who do not speak the native Czech dialects. Primarily three companies namely; Leevia, which would later change its name to Zentiva, Lachema and Galena, which was purchased by the United Pharmaceutical Establishment (SPOFA) during the late 1980, built the Czech pharmaceutical industry. An investor later bought the three companies from overseas (Prudil 2003). The late 1980s signified the peak point in Czech Republic although SPOFA had been in existence since 1946 owing to German manufacturers having been nationalized at that time. During the peak point, thirteen companies were already in the Czech pharmaceutical market including Galena and Zentiva, and SPOFA could already manufacture 540 medicaments with a capacity to produce twenty new medicaments yearly. SPOFAs association with communist nations, unfortunately, caused it to suffer a big blow in losses, which eventually led to its partial denationalization between 1989 and 1990. In 1993, the denationalization of Torso was implemented, which led to it becoming a public limited company. Its woes never ended there as it was dissolved in the year 2008. The entry of foreign investors throughout the 1990s and the subsequent privatization of the Czech pharmaceutical market brought with it major changes in the industry (Roelcke and Maio 2004). New policies were set in place to allow companies to infiltrate the Czech pharmaceutical market since local companies lacked sufficient technological knowledge and the required capital to survive in the industry. Consequently, most pharmaceutical companies in Czech Republic were sold to foreign companies. FDI (Foreign Direct Investment) is a success story in the Czech Republic. Intense focus has been directed at increasing public funding for purposes of industrial studies as well as numerous incentives targeting FDI (Czech Out Strong FDI 2004). With the advent of the economic crisis, FDI in Czech Republic was pulled back tremendously, which necessitated the pharmaceutical industry to shift focus and turn to generic substitution (Dittrich & Stara 2011). The year 2011 brought an estimated € 4000 million (4000 million Euros) worth of FDI with most of the amount going to the automotive industry. Nevertheless, the pharmaceutical market ranked sixteenth in the same year in FDI flows. Target Market and Product Positioning There are several important issues, which to a large extent serve as reasons why JIC targeted entry into this particular market and employed various marketing strategies in entering the pharmaceutical market industry in the Czech Republic. These factors pose challenges to the Czech population in obtaining adequate medical assistance. A comprehensive and critical analysis was carried out on obtaining adequate medical treatment for minor and complicated illnesses such as migraines, toothaches and headaches, allergies, menstrual pains, colds, and flu. Migraines A common drug for treating migraines in the United States market is Excedrin, which contains a mixture of acetaminophen, aspirin and caffeine. The Czech pharmaceutical market has no drug that is similar to Excedrin. Consequently, people with migraines are required to combine drugs like Panadol with caffeine and aspirin tablets in order to get the needed relief from migraines. However, a drug like Migreflux is common with Czechs for the relief of migraines and can be purchased over-the-counter. There are no over-the-counter sales of stronger medications for migraines in the Czech Republic. Toothaches and Headaches Acetaminophen, which is the common element found in painkillers is contained in various drugs with brand names such as Panadol or Paralen. In the United States, the conventional dosage of acetaminophen is 325 milligrams unlike in Czech Republic where the common tablet contains 500 milligrams of acetaminophen. Aspirin in Czech Republic is found in dosages of 500 milligrams and uses the same name. Advil, which is easily available in American drugstores and is a favourite for treating headaches, has its equivalent in the Czech Republic in the form of ibuprofen tablets with similar ingredients and obtainable in 400 milligram and 200 milligram doses. Allergies For individuals who suffer perennial allergies and need antihistamines for relief, the drugs Claritin, Zyrtec or Reactine can be found in pharmacies in Czech Republic with a dosage of 10 milligrams of the element loratidine although a pharmacist too must strictly provide this. Menstrual Pains Midol is the ideal drug for menstrual pains in countries such as the United States. It contains 15 milligrams of the pain-relieving element Pyrilamine Malate, which relieves cramps almost instantaneously. Unfortunately, this drug is unavailable over-the-counter in pharmacies in Czech Republic. The subsequent alternative is taking a more intensive dose of ibuprofen, which contains 400 milligrams as well as using a heating pad. Colds The Czech Republic has passed a new law, which restricts selling medicines, which contain the element pseudoephedrine; hence, any drug used to treat colds containing the element pseudoephedrine can only be obtained by individuals who possess identification cards and upon presenting the same (Albert, Bennett, & Bojar 1992). An alternative drug that can be purchased by an individual without having to produce his or her identification card is coldrex, which is available in both powder and tablet form. The powder version, however, contains a higher concentration of acetaminophen, which is 700 milligrams as opposed to the 500 milligrams of the substance found in the tablet form. Nose sprays as remedies for colds are also available in pharmacies with brand names such as Nasivin, Bibrocil, and Olynth. Flu A visit to the pharmacy with flu in Czech Republic will most likely end up with the pharmacist advising an individual to seek the services of a qualified doctor. Nevertheless, early detection of flu symptoms may be treated using substances containing Vitamin C or using ibuprofen or aspirin. Analysis and Evaluation of Market Opportunity and Market Entry Strategy Market Description The population of the Czech Republic was 10.5 million people in the year 2012. Its pharmaceutical market by 2011 had an estimated value of $3.114 billion (3.114 billion dollars), which translates to CZK 58.724 billion (PharmacoEconomics & Outcomes News & NA 2006). This figure was derived from calculating the amount of drugs delivered to healthcare centres and pharmacies and was a bit lesser than the previous by slightly above 0.2% (Blythe 2009). The volume was also reduced by 2.3% with regard to the packages delivered to healthcare centres and pharmacies in the country with an estimated 298 million packages being distributed. The sale prescription drugs to healthcare centres and pharmacies rose by 10.85% at the end of the year 2011 reaching CZK 13.5 billion. Market Share The market share of the pharmaceutical industry has gradually grown over the past five years from 2009 to 2013. In relation to the manufacture and retail of drugs and medicine in Czech Republic, the market share of the pharmaceutical industry rose from 33.69% in 2009 to 51.07% in 2013. Below is a diagram of the market share of the pharmaceutical industry in Czech Republic. Market Entry Strategy As noted earlier, there are entry barriers to the pharmaceuticals market entry more so in the Czech Republic due to the sensitivity of the pharmaceutical industry. There are classic issues that need to be addressed while entering the Czech market. They include the infrastructural constraints and problems associated with the distribution and marketing of the pharmaceutical products. There are a number of market entry strategies adopted by the young company including acquisition and mergers, partnership or entering the market alone. Considering that the Czech market is considered hostile because of the entry requirements, JIC will be in a much better position should it choose to collaborate with an existing organization inside the Czech market. This is because it will cut down on set up costs, including sidestepping the difficulties in acquiring licenses for operation. JIC will also benefit from being associated with a household brand, already in existence in Czech Republic. Pricing Strategies and Expenditure Projections Pharmaceuticals The projected expenditure for pharmaceuticals in the year 2011 in the year 2011 in Czech republic was US (United States) $ 4.6 billion (CZK 80.8 billion), which dropped to US $ 4.3 billion (CZK 79.7 billion) in the year 2012 (Danzon and Epstein 2008). This was a 6.7% drop in terms of the US dollar and a 1.2% drop in terms of the Czech Koruna. The local currency experienced a modest upward surge in 2012 because of a growth that was reported in the fourth quarter of that year. Healthcare Meanwhile, the projected expenditure on health care during the year 2011 was US $ 16.9 billion, which translated to CZK 298.3 billion. This rose to CZK 299.9 billion in 2012 as opposed to US $ 16 billion in the same year. The drop in terms of the US dollar was 5.1% lower, and the corresponding rise in CZK was 0.5%. Medical Devices The cost of medical devices in the year 2011 was US $ 1.6 billion (CZK 28 billion) with a slight increase in the year 2012 in terms of Czech Koruna to 28.5 billion and a decrease with regard to US $ of approximately 4.1%, which translated to US $ 1.5 billion. The increase in terms of the CZK was slightly above 1.5 %. According to statistics, generic drugs had a higher selling rate as compared to original drugs in the year 2011 primarily due to cost cutting on the part of the government and expiry of patents among other considerations (Pride and Ferrell 2008). This higher sales rate was a commendable 13.8% high. In fact, sales in the generic sector enabled the government to have a seemingly smooth transition from the economic crisis. On the contrary, GlaxoSmithKline, Baxter, AstraZeneca among other original companies experienced the brunt of the economic crisis and were compelled to reduce their workforce leading to a large number of unemployed citizens. Below is a diagram depicting the sales revenues, which are expressed in billions of dollars of generic and original drugs between 2009 and 2012. Sales Revenues Legislation Fees The Czech administration introduced various charges in the year 2007 that patients had to pay in had to pay healthcare centres. The charges ranged from 30CZK for patients visiting health centres as well as for prescriptions. Those patients who needed emergency medical services were required to pay 90 CZK and those admitted for a day had to pay 60 CZK (Verner, 2008). This step by the government to charge fees to patients was as a result of the economic recession experienced by the country and did not go down well with the majority of the people. There was an outcry opposing the implementation of these fees from the public, which drove some pharmacies to desist from charging the fees. Margins and Prices There is a likelihood of prices for pharmaceutical products to differ in the Czech Republic since the price limits are often set by the Ministry of Finance. The price regulations do not affect over-the-counter (OTC) sales of drugs hence, the reasons for sales reductions for pharmacies. It is imperative to note that the margins are unlikely to exceed regardless of the numbers of the pharmacies or distributors involved in distributing the product (Praznovcova 2004). These margins are calculated with regard to each package of a particular product. The end price, which the consumer purchases the product at is inclusive of price of the product direct from the factory (ex-factory price), which is inclusive of any charges like taxes or delivery charges among other charges. Product and Branding Decision-Making All decisions concerning healthcare policies made in the Czech Republic are done at national or state levels (Mayrhofer 2012). Social solidarity is the key factor that influences decision-making in the country. Public Health Insurance According to the Insurance Industry Profile: the Czech Republic (2015), the Czech government has in place a mandatory public insurance policy in, which patients are mandated to contribute to the costs. Since the early1990s, the Czech government introduced models of free health care expenditures with the participation of the patients. Ethics All pharmaceutical companies in the Czech Republic have a defined code of ethics, which they have created and are supposed to follow to the letter. Such codes, which are present at the national level, are CAFF, which is the code of ethics associated with the countrys pharmaceutical companies and AIFF, which involves innovations in the pharmaceutical industry (Roelcke and Maio 2004). Trends Times have been difficult for Czechs pharmaceutical industry ever since the economic crisis. The national and state levels of government had to apply cost-cutting measures in a bid to survive the economic crisis. Expenditures in public healthcare were controlled to a minimum with visible alterations in the VAT rates on drugs. Generic drug use has since been a good way to maintain affordable drugs with an insistence on proving the value of goods. Czech Republic was among the few countries, which opted to reduce the prices of drugs and adjust the rules of reimbursement (Praznovcova 2004). The pharmaceutical industry had to change tactic after the economic crisis with a reduction and better collaboration with the government. Country generic drugs have become the Centre of focus for the Czech government, and the country hopes to continue using the drugs in the future. More than half the pharmaceutical market is filled with generic medications where value plays a key role. The primary objective of the Czech government is to reduce expenses in the purchase of drugs and try to promote reliance on the generic substitutes. The pharmaceutical industry has also come up with proposals to the government to enable it achieves more savings, which the industry hopes will lead to cutthroat generic market and original drugs. The Czech pharmaceutical industry has always been open to any assistance in its quest to provide original drugs and hence has always displayed its potential in the number of Universities with laboratories that are well equipped as well as professionals in the medical sector. Some of the laboratories found in the Czech Republic can comfortably be compared to top laboratories from Europe, which deal in medical chemistry, rheumatology and immunology. Distribution and Communication Strategies Despite the fact that the Czech pharmaceutical industry has always been open to any assistance in its quest to provide original drugs, there still exists a flow in the pharmaceutical market of the Czech Republic. This is so because it has never really been able to infiltrate the international stage of the industry to make an impression and cause pharmaceutical companies from other countries to take an interest in it (Czinkota, Donath & Ronkainen 2004). This has contributed to low patent numbers since the drive by researchers to make an application for the same is always considerably low. However, all is not lost as the new medication has been developed in the countrys laboratories and made its way to overseas markets courtesy of international companies. In a bid to control the entry of costly drugs in the countrys healthcare system, the Czech Republic has introduced reforms in the healthcare sector, which are intended to curb such infiltration. This has been made possible by the application of strict regulatory rules and it seems to be working. It is part of the Czech Republic government plan to cut costs on drugs and equipment, which it deems too expensive and boost doctors morale by giving them salary increments. According to a report by Business Wire (2011), the economic crisis that occurred nearly ten years ago in Czech Republic caused the pharmaceutical industry in the state to change tactic. It went from a profound aggressive style that demanded specialization to the current less intent style that instead focuses on co-operation among companies. The current companies in the market are keen on using refined distribution channels as they assess the benefit of collaboration amongst themselves. The industry stakeholders have also taken to collaborating with other organizations as well as strengthening their activities in upcoming markets. Findings and Recommendations The income per head for everyone in a country affect the countrys expenditure levels, retail prices including its pharmaceutical consumption. However, in addition to this, other factors affect a countrys expenditure levels. There is a positive correlation across different countries with different expenditure and consumption per capita levels with their respective per capita income levels. The Czech Republic, as a member state of the OECD (Organization for Economic Co-operation and development) countries, can minimally be explained by the variability, its retail price and expenditure levels as a consequence of its relative volumes concerning its per capita income of consumption (Country Reports 2015). Research findings indicate that as much as income is inelastic in nature, the relationship between income and expenditure is inversely proportional meaning that the demand for pharmaceutical products in Czech Republic changes at a lesser rate compared to the change in income. In essence, this implies that pharmaceutical expenditures rely more on private sources in Czech Republic, which accounts for nearly half of the expenditures in the country. However, much of the healthcare spending is funded by the government although the various laws put in place have mandated patients to chip in a little of the money spent on healthcare (Czech Republic 2014). R&D (Research and Development) has particularly been on the rise, thus, causing a major decline in the production of new drugs. In any business environment, prices of commodities, products and services are not the only ones, which determine the levels of profits realized. 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Stuttgart: Franz Steiner Verlag. Retrieved from http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=47&sid=f4308dcd-f437-4c73-bbb7-749d98920070%40sessionmgr112&hid=105 Verner, R. (2008). 50: Emergency Medical Service in the Czech Republic. Annals of Emergency Medicine, 51(4), p.486. retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=cmedm&AN=18022754&site=ehost-live Read More