Background to the company

Describe about the Global Business for Conducting Market Survey.

Australian pharmaceutical industry is a industry in Australia that is responsible for manufacturing and retailing of beauty products and health products in Australia. Starting a business in a new place and a country is not easy. It is essential for the companies to conduct a market survey in order to formulate strategies and decide in which country it wants to expand its business. An Australian pharmaceutical industry wants to expand its business in the global market place that is South Africa and China (Vitry 2016). Analyzing the risks and opportunities of both the countries is essential to know that which country will be beneficial and which will not for setting up the new business. The first step is to analyze the market and economic condition of both the countries. It is also essential to analyze the risks and opportunities of conducting a business in a particular place. The next step is to formulate a marketing strategy by analyzing the threat from the competitors, formulating the target consumer and segmenting the market.

South Africa is a developing economy where the GDP growth rate is high and so is the unemployment and poverty rate. The main problem encountered in South Africa is that of income inequality. Chine is also a developing nation because of the low per capita income. This is so because China has the largest population in the world (Murray 2014).

Australian pharmaceutical industry is the largest wholesale distributor in Australia that is involved in retailing, manufacturing, wholesaling and distributing health and beauty products. The headquarter of the industry is in New South Wales, Australia. The various brands under the Australian pharmaceutical industry are Priceline pharmacy, Soul Pattinson and Pharmacist advice. The industry was established as a chemist in the year 1910 and later became the wholesaler of drugs in the year 1971. It is listed in the Australian securities exchange. The industry is involved in various medical and bio medical research. It is one of the major exporters of products. The industry wishes to expand its business in global market place and chooses to South Africa and china for the analysis of risks and opportunities and which country will be suitable for the industry to expand its business.

This part of the report specifies the risks and opportunities of the two counties. It analyzes the four types of risks such as commercial risk, financial risk, country risk and cross-cultural risk.

Analysis of risk and challenges

Risks:

Commercial risk or economical risk : commercial risk is the financial risk that occurs due to the credit facility given by a country without any collateral or any security. Commercial risks include all types of risks rather than political risk. The changes in the political and economical environment in south Africa is making it difficult for managers to identify exactly what types of risks exists in the country. The financial, political and industrial conditions of the country are unstable. The investors face operational and finical risks in South Africa. There are various risks involved that makes it very difficult for the business to thrice and a new business to set up. The risks concerns risk of increasing cost, price, government intervention, and lack of transparency, fluctuation in the currency and various factors that increases the uncertainty for businesses to thrive (Tilly et al. 2013). The economic transformation led to an increase in the risks of business in South Africa.

The economic growth is slow in the economy due to which the Australian pharmaceutical industry will have weaker competitive advantage. The poverty and unemployment rate is high in the economy that increases the threat for the businesses in long run. The businesses in South Africa are also at risk due to weak infrastructure. Due to low economies of scale and weak economy, the cost of production is high for the businesses, which makes the new business difficult to survive (Ungerer et al. 2015).

Financial risk or currency risk: South Africa faces various types of financial risks. The inflation and the interest rate is high in south Africa. The foreign exchange rate is highly volatile in nature due to which investment faces many risks in the country. The currency of South Africa is weak when compared to other countries, which makes the imports expensive and exports very competitive in the market. High interest rate will increase risk for Australian pharmaceutical industry as the loans will be expensive and the demand will decrease, as the money supply in the economy will fall (Ntim et al. 2013). It is the duty of the management to reduce the risk to let the new businesses to enter the market. This will help the nation attract capital inflow that can be used for the benefit of nation. The forex market is fluctuating in nature that puts the businesses at risk for the future earnings. The risks for South African country are high especially for the investors due to unstable financial market.

South Africa

Country risk or operational risk: new industries are increasing in the nation that is increasing the competition. Advancement in technologies has increased the trend of online shopping that have increased the cyber crime and has reduced the demand of products from retail stores. The risks for the retailers in South Africa are as follows:

Risk of damage of brand reputation puts high risk on the new retailers, as it is essential for the new retailers establish brand reputation in the market. Damage of brand reputation will hamper the growth of the company.

Interruptions of business hamper the retailers to conduct the business. This interruption can be in form of political interruptions, economical factors, and financial factors.

The changes in the legislation and regulatory in nation is harmful for the business in future especially for the pharmaceutical industry. Pharmaceutical industry is strictly regulated industry that needs to follow legal laws and regulations. Changes in anyone of these laws will affect the business of the retailer in future.

Increase in competition is also risky for the retailers as the customers have choice to choose between the products (Magruder 2012).

Cross cultural risk or political risk: culture of two countries is different. Culture in Australia is different from culture in South Africa. The cross-cultural differences increase the risks for retailers. Lack of transparency in the country also increases the risks for the country. Increase in the crime rate in the country increases the risks for the retailers. Rise in the corruption puts the business at risk.

The economic growth of the sub Saharan African country is likely to grow in future that is advantageous for South Africa. South Africa has an opportunity to reap the benefit from the high-expected growth rate of sub Saharan countries, as the foreign investment will increase from US, Europe and other Asian countries that will help the industry experience opportunities from their traditional market. The country is rich in natural resources and human resources that provide great opportunities for both the domestic and international market. South Africa has opportunity for growth as it accounts for less than two percent of the global insurance market. The level of unemployment is high in the economy due to which labor will be able at low cost. This will decrease the cost of production of the Australian pharmaceutical industry as the labor cost of the firm will decrease (Booysen 2013).

 Conducting business in South Africa is easy because no new business ideas are needed to conduct a business. The communication and the transportation sector are advanced that helps the new businesses expand its opportunities. South Africa is rich in natural resources that will reduce the cost of production the industry will not have to import the products from other countries. The market for the pharmaceutical industry is growing that is a great opportunity for the Australian pharmaceutical industry to expand its business in the nation. The market for pharmaceutical industry $20.8 billion in 2013 from $4.7 billion that is a great opportunity for the pharmaceutical industry(Singh 2016).  

China

There are three reasons for the growth of pharmacy industry in the nation. The first reason is urbanization and an increase in population. The infrastructural development is strong for the pharmaceutical company. Adoption of technology in healthcare facility is increasing the capabilities of the firm. The number of hospitals in the nations has increased due to which the demand for pharmaceutical retailing is increasing (Smit and Watkins 2012). This will help the Australian pharmaceutical industry expand as the market for health care facility is already set up in the economy.

Risks:

Commercial risk or economical risk: income per capita is low in china. The economic growth of the nation is low. The service sector of the nation is highly developed and the contribution towards the GDP growth has increased. China has the highest population in the world. The number of competitors is high due to a developing nation (Li and Qin 2014).

Financial risk: the intellectual property law in china is not in accord with modern economies. Hence, it can put the business at risk in future. Investment in the Chinese economy is a very tedious and time consuming task as seeking approval is not easy. The forex market is not stable due to which the businesses have high risk (Lardy 2014).

Country risk or operational risk: the number of new entries is continually increasing in the economy that is raising the level of competition in the market. Hence, it will b difficult for the Australian pharmaceutical industry to survive competition.

Cross cultural risk or political risk: the political and bureaucratic condition of china is bad and is not well established. Taking out permission from the government is a tedious and time-consuming task. Opening a bank account and registering a industryin china takes months due to lack of well-established bureaucratic services. This causes inconvenience for the retailers to start the business (Chow 2015). This increases the administrative cost that ultimately increases the cost of production. A new retailer should have its personal administrative staff and team that can handle the services. The cultural differences increase the risk of conducting business. Conducting businesses in china is difficult due to large cultural differences.

Opportunities:

China is one of the leading nations for expansion of international business and investment. The investments are goods the market of china is well established and is a major exporter of products to other countries. One of the major priorities of the government and the Chinese economy to attract foreign direct investment and attract international businesses for expansion. People in china are highly educated that have great skills and knowledge. This will help the industry employ labor that is efficient (Choi et al. 2015).

Both china and South Africa have its own risks and opportunities. The economy of South Africa is growing. Hence, the Australian pharmaceutical will choose South Africa for its international expansion. The health capabilities of the country are increasing. There are three reasons for the growth of pharmacy industry in the nation. The first reason is urbanization and an increase in population. The infrastructural development is strong for the pharmaceutical company. Conducting business in South Africa is easy because no new business ideas are needed to conduct a business. The market for pharmaceutical industry $20.8 billion in 2013 from $4.7 billion that is a great opportunity for the pharmaceutical company.

There are two types of entry modes of foreign market that are equity mode and non equity mode. The non equity mode of entry strategy consists of exports and contractual agreement and the equity mode of entry consists of joint ventures and wholly owned subsidiary (Wooster et al. 2016).

To enter the South African country there are three modes of entry. These include:

Non-equity or export mode: the firms that are able to take high risks in business and have an option of shifting the risk to another firm prefer this type of entry mode.

Joint venture mode (JV): the firms that are ready to take moderate risk with an option of sharing fifty percent of risk prefer the strategy of joint venture mode for entry in the global environment.

Wholly owned subsidiary- the firms that have no option of taking risk and plan to strive at a market with low risk prefer this type of mode of entry (Xu et al. 2015).

Australian pharmaceutical industry will choose the method of wholly owned subsidiary as it has no option of sharing the risks with other partners or the companies. The Australian pharmaceutical industry is a wholly owned subsidiary that has no partners. Hence it will choose that strategy of entry mode that has minimum risk. Since the Australian pharmaceutical industry wants to establish its retail store in South Africa, it will not use non equity mode of entry. Hence, the most feasible mode of entry for the Australian pharmaceutical industry as it has less risk involved. Wholly subsidiary is of two types such as Greenfield investment and acquisition. The choice of entry mode depends on the situation. Australian pharmaceutical industry will prefer to choose Greenfield investment has it will have a full control over the firm though the cost is likely to be high.

Conclusion

Expansion of business requires analysis of risks and opportunities of the market and the country in which it wants to expand its business. The purpose of the report was to survey the economy of South Africa and china and choose between the two countries. The pharmaceutical industry will choose South Africa for conducting business because of the opportunities that it provides.

References

Booysen, L., 2013. Societal power shifts and changing social identities in South Africa: Workplace implications. South African Journal of Economic and Management Sciences, 10(1), pp.1-20.

Choi, Y.R., Zahra, S.A., Yoshikawa, T. and Han, B.H., 2015. Family ownership and R&D investment: The role of growth opportunities and business group membership. Journal of Business Research, 68(5), pp.1053-1061.

Chow, D.C., 2015. How China’s Enforcement of Its Anti-Monopoly Law Poses Risks to Multinational Companies. Santa Clara Journal of International Law.

Lardy, N.R., 2014. Markets over Mao: The rise of private business in China. Peterson Institute for International Economics.

Li, J., Hsu, S. and Qin, Y., 2014. Shadow banking in China: Institutional risks. China Economic Review, 31, pp.119-129.

Magruder, J.R., 2012. High unemployment yet few small firms: The role of centralized bargaining in South Africa. American Economic Journal: Applied Economics, 4(3), pp.138-166.

Murray, G., 2014. Doing business in China: The last great market. Routledge.

Ntim, C.G., Lindop, S. and Thomas, D.A., 2013. Corporate governance and risk reporting in South Africa: A study of corporate risk disclosures in the pre-and post-2007/2008 global financial crisis periods. International Review of Financial Analysis, 30, pp.363-383.

Singh, A.M., 2016. Policing and crime control in post-apartheid South Africa. Routledge.

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Tilly, C., Agarwala, R., Mosoetsa, S., Salas, C. and Sheikh, F., 2013. Final Report: Informal Worker Organizing as a Strategy for Improving Subcontracted Work in the Textile and Apparel Industries of Brazil, South Africa, India and China. South Africa, India and China, Los Angeles, University of California, Institute for Research on Labor and Employment.

Ungerer, M., Kruger, S.M., Vorster, S. and Mansfield, G.M., 2015. Entrepreneurial opportunities in the craft-distilling market in South Africa.African Journal of Business Management, 9(6), pp.259-269.

Vitry, A., 2016. Transparency is good, independence from pharmaceutical industry is better!. Issues, p.1.

Wooster, R.B., Blanco, L. and Sawyer, W.C., 2016. Equity commitment under uncertainty: A hierarchical model of real option entry mode choices.International Business Review, 25(1), pp.382-394.

Xu, H., Taute, H.A., Dishman, P. and Guo, J., 2015. Examining Causal Relationships among International Experience, Perceived Environmental Uncertainty, Market Entry Mode, and International Performance. International Marketing in the Fast Changing World (Advances in International Marketing, Volume 26) Emerald Group Publishing Limited, 26, pp.135-156.