A Case Study About the commercial transactions of International Business
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International business refers to all the commercial transactions that occurs between two or more regions, nations and countries beyond their political boundaries. Further, globalization has positively affected every company operating in the market and it is possible for business enterprises to operate in different types of market where opportunities can be grabbed easily by performing better (Cantwell, Dunning and Lundan, 2010). The term international business is linked with all the business activities that take into consideration cross border transactions of services, goods and resource sharing between two or more nations. By expanding into the international market, it is possible for firms to serve large number of customers and can lead to rise in overall satisfaction level of customers in the market. It involve various options such as exporting goods and services, providing license to produce goods in the host country, starting a joint venture with a company etc. For carrying out the present study, organization chosen is GlaxoSmithKline (GSK) which is one of the largest pharmaceutical companies (Jackson and Deeg, 2008). Main mission of the company is to improve quality of life by enabling people to live better and longer. Various tasks have been covered in the stu
At the time of expanding at foreign level, it is necessary for GlaxoSmithKline to consider various factors that can directly affect its operations at global level and in turn can lead to decline in efficiency level. Further, various challenges are present at global level due to which companies are not able to perform as expected and are acting as hurdle in accomplishment of desired goals and objectives (Peng, Wang and Jiang, 2008). Factors that can influence operations of GSK are discussed below and it is based on by using the model of Porter’s Five Forces. This will help the company to assess the factors which can influence at the time of expansion of its business in foreign market such as India and China.
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- Threat of new entrants: Threats of new entrants mainly influence the organization at the time when their greater possibility of higher returns and ease in operation of business. GlaxoSmithKline have to consider the factor of threat which may attract the new entrant of the pharmaceutical industry while entering in India (Birkinshaw, Brannen and Tung, 2011). In consideration to business of GlaxoSmithKline, the company already operates in more than 100 countries of the world and expansion of its business in foreign market will not make any major threat of new entrant. Only the threat of new entrant which can be face in India by GlaxoSmithKline is from the entrant of other pharmaceutical companies who are also expanding their business at global level (Tung, 2008).
- Threats of substitute products: In pharmaceutical industry threat of substitute products such as medicines and other pharmaceutical products is low in India. GlaxoSmithKline does not have to face any major threat regarding substitute products. These products are based on generic name and in the case of medication it is low possibility that exact substitute of the product can be available (Matten and Moon, 2008). Though GlaxoSmithKline has to face some problems while expanding its business in foreign market regarding availability of substitute products.
- Bargaining power of buyers: Bargaining power of buyers in pharmaceutical industry is medium in India. GlaxoSmithKline do not have face any significant effect regarding factor of bargaining power of buyers in foreign market expansion. There are two different buyers in pharmaceutical industry, first are patients and second are hospitals or health care organizations. The intensity of bargaining power of patients is low in India as they do not have any other options to buy the medicines at lower price or any substitute (Peng, Wang and Jiang, 2008). GlaxoSmithKline has advantage of this factor while expanding its business in foreign market.
- Bargaining power of suppliers: In context to factor of bargaining power of suppliers in pharmaceutical industry, the intensity is low. Number of companies which deals in this sector is not very huge in India (Dunning, 2012). Expansion of business of GlaxoSmithKline in Indian market will not create any major issue of bargaining with the suppliers of this industry.
- Intensity of competitive rivalry: The degree of rivalry among the pharmaceutical industry at global level is high. There is greater level of competition among the companies as there is not higher number of companies in Indian market ((Kolk and Van Tulder, 2010). Change in prices of the medicines and drugs or introduction of new medicine makes direct impact on the business operations of GlaxoSmithKline in foreign market.
The above report has concluded that to enter into the international business it is very essential to carry out industry analysis through which various factors that can affect the business operations can be determined. The current report has also been discussed about various foreign market entry mode available for the GlaxoSmithKline (GSK) company as it is planning to enter into the new potential market. For this it can use various theories such as international life cycle and network analysis of internationalization that has explained in above section of the report
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- Threat of new entrants: New entrant of the industry affects the competitiveness in the market as it will make impact on the business of GlaxoSmithKline in new market. Though it is not easy for any new company to start its pharmaceutical business as it required huge knowledge, skills and experience to start business in China. Mainly the new entrants will face the issues related to economies of scale, research and development and manufacturing. In addition to this one of the main use for the new entrant is the financial resources and requirement of the The above report has concluded that to enter into the international business it is very essential to carry out industry analysis through which various factors that can affect the business operations can be determined. The current report has also been discussed about various foreign market entry mode available for the GlaxoSmithKline (GSK) company as it is planning to enter into the new potential market. For this it can use various theories such as international life cycle and network analysis of internationalization that has explained in above section of the report.capital for expansion of the business in China (Kose, Otrok and Whiteman, 2008).
- Threats of substitute products: The reason behind threats of substitute products factor is that there are many in these industry most companies perform their research development in very effective manner in China. With the help of R&D activities companies which are already The above report has concluded that to enter into the international business it is very essential to carry out industry analysis through which various factors that can affect the business operations can be determined. The current report has also been discussed about various foreign market entry mode available for the GlaxoSmithKline (GSK) company as it is planning to enter into the new potential market. For this it can use various theories such as international life cycle and network analysis of internationalization that has explained in above section of the report.operating their business in foreign companies can impact on the business of GlaxoSmithKline.
The above report has concluded that to enter into the international business it is very essential to carry out industry analysis through which various factors that can affect the business operations can be determined. The current report has also been discussed about various foreign market entry mode available for the GlaxoSmithKline (GSK) company as it is planning to enter into the new potential market. For this it can use various theories such as international life cycle and network analysis of internationalization that has explained in above section of the report.Bargaining power of buyers: On the other side in case of bargaining power in context to buyers such as hospitals and health care, intensity is medium in China. It is due to capacity of hospitals and health care organizations to buy the pharmaceutical products in bulk. It becomes important for the GlaxoSmithKline to bargain with health care organizations and hospitals that should have to sell their products at such price which can be afforded by these buyers (Shenkar and Luo, 2008). On the other side individual patients or the customers do not have any choice to bargain as these medications or drugs are very essential for them and they are easily ready to pay any price for these products without bargaining with the seller.
- Bargaining power of suppliers: GlaxoSmithKline has to face the issues while expansion of its business in other countries of the world as their requirement of some resources which can be easily purchase from the foreign countries only. In this situation company may have to face the issue of high prices or availability of product on time in China. But company will not have to face any greater problem in foreign market as presently company is operating in most of the countries of the world (Ricks, 2009). They also have their own manufacturing units, resources and also operate on large scale of economies which gives advantage to bargain with the suppliers of pharmaceutical industry in China.
- Intensity of competitive rivalry: This industry is highly competitive as companies always see the opportunities to capture large market share to enhance their position and to increase their sales revenue in China. GlaxoSmithKline has to consider the various opportunities or the advantage of their competitors while expanding its business in foreign market (Griffith, Cavusgil and Xu, 2008). It is very essential for their business as any competitive advantage of the competitor influence on the market share of the companies.
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ANALYSING THE POTENTIAL ENTRY MODES
In order to expand operations at global level it is necessary for GSK to analyse the best option through which it is possible to operate efficiently in the international market and different opportunities can be grabbed through this easily (Piekkari, Welch and Paavilainen, 2008). To better understand the nature of the international market it is required consider the three stages of international life cycle theory which takes into consideration following stages which are:
- Growth: It is the regarded as the first stage where customers will prefer to buy pharmaceuticals products offered by GSK and will lead to rapid growth in sales. In this stage demand for product is considered to be very high and when customers who want product buy it then demand and sales level off. In case if organization is able to meet demand of its customers then sale of products decline to the level required for product replacement. At global level the product life cycle accelerates due to the presence of follower economies that introduces innovation very less (Coffman, Kleindienst and Ramaswamy, 2008). Furthermost, the market size in international business is wide and many pharmaceuticals companies are operating in such market due to which it is necessary for company to produce differentiated product.
- Maturity: It is the next phase of the product lie cycle sales volume and demand of product increases but at slower rate as compared with the first stage. Furthermore, the original supplier of the product reduces price in order to maintain maintain share and overall sales too (Dunning, 2012). But in this stage profit margin of GSK can decline at global level as satisfaction level of customers starts decreasing due to which aareness is required with the help of advertisement and other techniques that are applicable to pharmaceutical firms.
- Decline: It is the last phase of product life cycle where customers does not prefer to purchase product rather than shifts to other brand present in the market. In pharmaceutical industry many companies are present which sells same medicine for specific disease and other type of treatments (Wild, Wild and Han, 2014). So, chances of product to reach at decline stage increases and has overall adverse impact on the organization. Therefore, it is necessary for GSK to adopt effective techniques through which its products can be saved from reaching at decline stage in the market.
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So the international production life cycle directly highlights the condition of the international market that can affect GSK operating in pharmaceutical industry. Effective plans and strategy are required to be developed so as to perform efficiently at global level and in turn this can increase capability of organization to face challenges present in the business environment. Apart from this organization has to focus on quality of its products and it must be kept high (Killing, 2012). Furthermore, prices have to be kept moderate so as to face the challenge linked with competition at international level. Therefore, through this it is possible for organization to operate smoothly by complying with the needs and requirement of its target market. It is very essential for GSK to choose most suitable entry mode so that it can achieve its strategic objectives without facing any kind of market failure. In order to apply the different modes of entry three countries chosen for this includes Qatar, India and China where in country like China and India operations of GSK are already present and in Qatar new unit will be set up for carrying out operations . For three countries two specific entry modes have been chosen and these entry modes are described as follows:
- Merger: It is concerned with the combination of two or more companies in which one company integrate its resources with the another company in exchange of adequate purchase consideration. GSK can get merged with the another company functioning in the destination market as a foreign market entry mode (Forsgren and Johanson, 2014). This will help the company to grow more speedily with low establishment cost and also can control the whole business from the home country. There are five ways to get merged with another company among which the GSK can choose the best options as per the conditions. The company can merged with the firm which is engaging different business from it and then it will be termed as a conglomerate merger. Horizontal integration can also get chosen by the company like GSK can get teamed up with another pharmaceutical company of that particular country in which it wants to enter. This will help in reducing the competition in the domestic market and at the same time the company can capture good market position in the company (Jenkins, 2013). As GSK is financially sound company so it can choose horizontal merger as a entry mode through which it can get more resources to produce its products in more appropriate manner. Through merger the company can achieve economies of scale as mass production will be needed to produce the products and greater efficiency can also be achieved by the firm. Competition can also get reduces as two or more competitor companies will work jointly for the accomplishment of the common goals.
- Acquisition: As the GSK is very big and financially sound company so acquisition can also be a good option to enter into the new market of India and China. Acquisition is the process through which the company can takeover the asset and liabilities of the another company in exchange of adequate purchase consideration. By this method GSK company can enter into the chosen market and establish control them. Legal and tax implications can be reduced if the the enterprise takeover any less profitable company of the market and simultaneously it can expand its market reach (Verbeke, 2013). There will no need to face any kind of deficiency in resources to produce the product in the new market as it firm will have assets and liabilities of the another company. So overall it can be said that acquisition is the another way which can be adopted by the GSK to enter into the new potential market.
- Joint venture: It can also be a good option for the new market entry in Qartar. Joint venture is the association of two or more parties who pool their resources in order to perform a specific task for a definite period and after accomplishing the task entities can dissolve the joint venture. GSK can also formulate venture with another company in Qatar by equal investment and can enter into the new market with lots of resources. Risk of being failure to establish the new enterprises get shared by the co-ventures as per their investment which will give very big advantages to the GSK company (Penrose, 2013). This strategic option will provide large amount of capital, latest technology and qualified human resources which is require the produce best medical solutions to the consumers. In this way it can build its image in the host country by providing them innovative medical solutions with the help of latest technology and human power. Through this method the company can also build healthy relations with the national government which will resulted in support of government and political parties to establish the new venture in the host country.
- Franchising: The company can provide the right to use its business processes and trademark to produce and sell the product in the market under several specification. Both the parties will come into the legal agreement in which the franchisee firm will pay franchising fee and fixed percentage of the sales revenue as well to the company. As the GSK is already having very reputed position in the market so this will give advantage in terms of immediate recognition of the brand in the host market (Ricks, 2009). Expansion and earnings of the organisation can grow rapidly with minimum investment and risk. Even the greater control can be established at the functioning of franchising company and can gain high knowledge and information about the host market which will helpful in capture the strategic position in the new market.
- Direct export: Another way to enter into the new market is the direct export. GSK can produce the product in its home country and sell them to the target country. This method is very well established and traditional method to enter into the new and potential marketplace. As the goods will be manufactured in the home country so there will be no requirement to invest in the target market to establish new branches. Cost of hiring new employees will also get reduced and no new technological establishment will be needed to carry out the manufacture process (Shenkar and Luo, 2008). Through this method the firm can take the market entry in very speedy manner with minimum risks and investment. Full utilisation of the resources can be taken place as mass production will be needed to export the goods to the target country so in this way capacity of available resources can fully utilised.
- Green field strategy: This is the another method to take entry into the new market in which the company can start its new business from the zero ground. For this the firm needs to purchase new property in the target country to carry out its business functions and then will invest in installing new machinery and hire the new manpower from the local market. Through this way the company can carry out its business operations and formulate the strategic decisions without any interference of another party. By following this method GSK will be whole responsible for the failure in the new market as no risk sharing is there for the new establishment (Alexander and Doherty, 2009). High investment will be needed to carry out market research, purchase land and building, acquire machinery and hire the new employees. So it can be said that this mode of market entry will be vary costly an risky for the company.
So these are some of the effective entry modes that are beneficial at the time of entering into new market. In order to carry out operations in the market of India and China where operations are carried out presently the most appropriate entry mode for GSK is acquisition where organization can acquire small companies operating in the market of India and China. Both countries are developing due to which pharmaceuticals market is not highly developed and local companies operating in the market of China and India are searching for new ways so as to perform better. Therefore, acquiring small firms would be beneficial for GSK as at present entity is financially strong company can easily add new products in its present range (Beamish, 2013). Innovative healthcare products can be served to market of both the countries and this can directly support in improving overall performance in the market where ample of opportunities are present. Furthermore, through acquisition large amount of funds can be saved as in this mode business is only set up and by acquiring other firm it is possible to perform on larger platform so as to become leader in the market. Pharmaceuticals industry is considered to be very large and many challenges are present that prevents firm to achieve its desired objectives. So, through this entry mode it is possible to perform in the existing market and more awareness linked with the products is possible in short period of time.
Main advantage of undertaking acquisition as a entry mode is that:
- Business can easily gain the experience, goodwill and assets of the other business and supports in increasing efficiency.
- Leads to immediate cash flow (Griffith, Cavusgil and Xu, 2008)
- Existing customers, suppliers and staff can be easily acquired
- Market of product and service is already well established
- On the other hand there are some disadvantage of acquisition which GSK has to consider which are:
- Sometime it is possible that acquired firm is poorly managed with low staff morale.
- Business that is underperforming requires lot of investment
In order to enter into the market of Qatar joint venture will be more suitable option for the GSK. In case of joint venture the company can get equipped with enough resources which will help it to carry out business operations without any deficiency. Market of pharmaceutical companies is very competitive in the country so entry of the company with well equipped resources will provide vary big advantages in terms of availability of enough resources to hire talented personnels and produce competitive product in the market. Qatar is one of the developed country of the world and the company can create employment opportunities over there by establishing new venture in the market (Beamish, 2013). This will help the company to gain support of political parties and government authority as the GSK is going to contribute in development of economy of Qatar. Although joint venture will give lots of benefits to the GSK but at the same time it can create certain disadvantages also which can be in terms of problem of transfer pricing, lack of trust and confidentiality of business process etc. As stated earlier the market of pharmaceutical is most competitive in nature so it would be very time consuming for the GSK to search potential co-venture company which can provide it major benefits. Sometimes differences in culture of co-ventures can create difficulty in managing the business and taking the decisions (Arnold, 2003).
Main advantage of adopting joint venture as entry mode option is that:
- Sufficient resources can be obtained in order to carry out operations in pharmaceuticals market as two or more companies pools their resources due to which situation of inadequacy not arises (Piekkari, Welch and Paavilainen, 2008).
- Spreading of risk is another benefit as co ventures shares profit and losses in predetermined ratios. Therefore, this supports in reducing the level of risk.
- On the other hand there are some of disadvantage of considering joint venture which GSK has to consider which are:
- Large time is required to develop appropriate relationship.
- Objectives of every business differs from one another and due to this chances of conflict increases.
- Difference in culture and style of business leads to poor cooperation.
The above report has concluded that to enter into the international business it is very essential to carry out industry analysis through which various factors that can affect the business operations can be determined. The current report has also been discussed about various foreign market entry mode available for the GlaxoSmithKline (GSK) company as it is planning to enter into the new potential market. For this it can use various theories such as international life cycle and network analysis of internationalization that has explained in above section of the report.
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