Many firms are trying to improve their sales revenue by expanding into new markets. In this case, globalization plays a crucial role in helping the firms to achieve their set goals. In their assessment of the international theory of globalization, Johanson and Vahlne (1990) have identified three distinct phases of globalization.
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During the first phase of globalization, the firm tries to establish itself in the local market. During the second phase of globalization, the firm launches its operations in the neighbouring countries.
Usually, neighbouring markets have similar characteristics and as such, the experience of the firm with the domestic market is crucial. In the final stage of globalization, a firm launches its operations in the international market.
Before a firm can decide to introduce its products or services into a new market, there are several factors that it needs to consider. For example, a Canadian pharmaceutical firm wishes to introduce a new type of painkillers in either China or the United Kingdom.
Before the firm can decide on the most appropriate market, several factors have to be put into consideration. The paper therefore focuses on the factors that the Canadian company should take into account before venturing into either the UK or Chinese market. It offers a critical analysis of benefits and shortcomings of each market.
Approaches to globalization
Before introducing the new drug to the international market, the Canadian company can choose between using a direct approach and entering into a strategic partnership with another firm that has already established itself in the desired market.
Under the direct approach, a company sets up the premises from where it will distribute the drug. A strategic partnership would involve the use of local partners for purposes of distributing the drug. Goldstein (2005) observes that China is one of the fastest growing markets with an average annual growth rate of 8%.
Moreover, the Canadian company may require a local partner because the Chinese market is large with a diverse culture. Although identifying and contracting a reliable local partner would be a costly undertaking, there are several advantages associated such an approach.
For example, international partners may rely on the experience of the local firm in the market. On the other hand, the UK’s pharmaceutical industry is still reeling from the effects of the 2008 global financial crisis. The pharmaceutical market in the UK is expected to grow at an annual rate of 0.4% (Epsicom n. d.)
In addition, the National Health Service is expected to implement budgetary cuts, and this would effectively reduce its expenditure on new drugs. This would affect the pharmaceutical industry greatly and also derail efforts by the Canadian company to breakeven.
Competition and Market Share
China’s healthcare system is run by the socialist government whose aim is to provide quality healthcare to all its citizens. The government has implemented several policies aimed at improving the healthcare system (KPMG 2010). Among the proposed policies is the upgrade of health facilities and enlarging insurance coverage to include the rural population in China.
In China, small-scale firms account for 80 % of the pharmaceutical market (KPMG 2010). Plafker (2011) states that small companies have room for growth in China’s expansive market. On the other hand, the UK pharmaceutical market is dominated by international pharmaceutical giants.
The major players in the UK pharmaceutical industry include GlaxoSmithKline, Merce & Co., and Pfizer. These firms account for more than 40% of the pharmaceutical market in the UK (Abpi 2010). Therefore, the Canadian firm may find the UK market harder to penetrate especially after the NHS has implemented the proposed budgetary cuts.
From the above analysis, the Canadian pharmaceutical firm should introduce the new drug into the Chinese market. This is because of factors such as market potential which would impact on the company’s margins in future. The company can use local distributors before launching its operations fully in the region.
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Abpi 2010, Leading pharmaceutical corporations, UK market share, <http//:www.abpi.org.uk/industryinfoknowledge_hub/ukeconomy/Pages/leadingcorporations.aspx
Epsicom n.d., The pharmaceutical market: United Kingdom, <http//:www.espicom.com/prodcat2.nsf/Product_ID_Lookup/00000326?opendocument
Goldstein, A. 2005 Rising to the Challenge: China’s Grand Strategy and International Security, Stanford University Press, Stanford.
Johanson, J. & Vahlne J.E.1990 The mechanism of internationalization, International Marketing Review, vol 7 no.4, pp. 11-24
KPMG 2010, China’s pharmaceutical industry-poised for the giant leap, KPMG, <http//:www.kpmg.com/cn.en/issuesandinsight/articlepublications/documents/chinaphamaceutical201106-pdf
Plafker, T. 2011. Doing Business in China: How to profit in the World’s fastest growing market, Sage Publishers, London.