Expanding Business in South Africa and China

This report analyzes the risks and opportunities of expanding business operations in South Africa and China. It discusses the market entry strategy and justifies the chosen destination country.

Running head: GLOBAL BUSINESS
GLOBAL BUSINESS
Student’s Name
University Name
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Executive summary
The purpose of this report was to access the potential of the countries South Africa and China for
expanding its business and enter the global market for the first time. The report has analyzed the
risks and opportunities involved in expanding the business organization in various aspects such
as the legal, regulations of the government and the financial risks and the opportunities such as
trade agreements, growth of the economy and market size. Further, it has identified the market
entry strategy that is suitable for the company. The report has selected the country which is
suitable for expansion based on the analysis and research. It has justified the proposed market
entry for the chosen country. Lastly, the report concludes by stating the reasons for chosen
market entry and summarizes the report.

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Table of Contents
1. Introduction..................................................................................................................................3
2. Discussion....................................................................................................................................3
Analysis of risks and opportunities..............................................................................................3
South Africa.................................................................................................................................3
Risks and challenges................................................................................................................4
Opportunities...........................................................................................................................5
China............................................................................................................................................5
Risks and challenges................................................................................................................6
Opportunities...........................................................................................................................7
3. Selected destination country........................................................................................................9
4. Market entry strategy.................................................................................................................10
5. Conclusion.................................................................................................................................11
References......................................................................................................................................13

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1. Introduction
AUSMED is an Australian pharmacy company which manufactures drugs. The company
has grown in the last 10 years. The company has been planning to expand its business and enter
into the global market; it has considered South Africa and China to expand its business
operations. In the global context business organizations considers operating in the foreign market
as it provides the business with several opportunities for diversification and market growth.
Expansion helps the business organization to diversify their assets and protect them against any
uncertain events (Banalieva and Dhanaraj 2013). On expanding the business organization
globally, it gets access to the new talent and access to unique advantages such as increased
productivity, diverse level of education and advanced language skills. It can also improve the
innovation output within the company. However, there are challenges that can be faced such as
local competition, cultural and language barriers and acceptability by the local people. The
purpose of this report is to analyze the risks and opportunities that can be faced by the company
for expanding the business operations in the countries South Africa and China. It identifies the
market strategy that is best suited for the business organization. It selects the destination country
and discusses on the proposed entry for the chosen country.
2. Discussion
Analysis of risks and opportunities
South Africa
The emergence of growth rate in South Africa is the reason for attracting business
organization from all across the globe. The pharmaceutical industry has a growth scenario in the
African market. The growth rate has been depicted to be at the rate of 26% (Butler 2017).

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However, there are risks that the drug market could increase by 200% according to the
hypothesis and assumptions made by researchers. The business opportunity in the pharma
industry is expected to reach $45 billion by the year 2020(Cooke and Zhan 2013).
Risks and challenges
Political instability: There is an ongoing conflict in numerous countries of Africa; the political
instability causes contention and disagreements. The political instability directly impacts the
business environment. There is a direct link between conflicts and corruption; this directly
disrupts the smooth functioning and operations of the business organization (Butler 2017).
Therefore, AUSMED needs to have a staff evacuation plan in place with a reputable service
provider.
Economic and financial crisis: As mentioned above, the economy of South Africa is extremely
diverse and is known to be one of the fastest growing economies. However, the economy is also
known to be poorer as compared to the other countries. There are huge variances in the gross
domestic product which impacts the business and the living environment. Further, there are
different tax regimes in the country (Cooke and Zhan 2013). Therefore, AUSMED must ensure
that they have an adequate insurance coverage in respect to the local regulations and they need to
comply with different tax regimes. Moreover, cross-border medical cover can be difficult to
arrange and it is very expensive.
Communication barriers: According to the power grid, the communication infrastructure is not
sufficient in terms with the growing demand. Further, AUSMED being an Australian company
might face issues with communication with the local people. The culture and the language of the
local people are different from the Australian local individuals (Cuervo-Cazurra 2016).

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Opportunities
Market size: South Africa is a fast growing economy which is an advantage for the business
organization expanding in the country. Therefore, it can be considered as a major investment
location. It serves as an opportunity to AUSMED and it offers additional market opportunities
for its border countries (Cuervo-Cazurra 2016). There is a rapidly growing middle class family
with increased purchasing power. This is an added advantage to the company.
Economic growth: The country is rapidly growing economy with abundant supply of natural;
resources. Further, the modern infrastructure of the country can support efficient distribution of
goods (Davidson 2014). The CPI Inflation rate of South Africa and the annual growth rate of the
country is 4.0%.
Government support: The government of the country supports international business in the
country for the development of the country. The government promotes and creates laws and
legislations for promoting skills and training to workforce. The Austrade assistance and services
can help the company to make the expansion a success. Austrade provides wide range of
assistance such as general information and advice on international and exporting business
(Davidson, 2014). . This can be an opportunity for AUSMED (Dunning 2013). Further, South
Africa is a member of WTO since the year 1995.
China
China is has the largest healthcare in the entire world because of its ageing population.
The country is increasingly in need of Pharmaceutical industry as the population requires greater
levels of medical treatment. (Fosu 2013).

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Therefore, many marketing managers are of the opinion that China is the best destination
for market expansion. However, there are various challenges and risks that can be faced by the
companies planning to expand their business operations in China.
Risks and challenges
Regulatory framework: The market access is highly challenging for the business expanding in
china. The local distribution networks, regulatory requirements, the local consumers can make it
highly difficult to access the market place. This makes it highly difficult for the business
organization to be successful in the Chinese market (Goodman 2017).
Bureaucracy and government challenges: International business organization struggles to
survive with the laws and regulatory framework in china. Bureaucracy is considered to be the
major cause of concern for the business planning to expand their operations in the Chinese
market. Obtaining the required licenses and permits becomes a laborious process. High level of
corruption in the country is also the major cause of concern for the international organizations
expanding in China (Lardy 2014). Hence this can be a growing risk for AUSMED.
Increased level of Competition: In order to improve the quality of the products and services
being sold, most of the international companies sell them abroad. China has a huge population
therefore, the competing firms prefer expanding to China, and this has increased the level of
competition in the market (Lardy 2014).
Consumer preference: The local consumer gives purchasing preferences to the local companies
of the country rather than the international companies. Additionally, the government also gives

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preferences to the local firms rather than the international firms. Hence this can be a challenge to
AUSMED and disrupt the market. There has been a class shift in China and the consumer
environment is more diverse (Shenkar, Luo and Chi 2014).
Opportunities
Economic conditions: The inflation rate of the company is 2.80, which has slightly increased
from the previous year. The Consumer price index is 102.80 which have slightly increased from
the previous year. The export prices are 105.10 which were previously 103.40 index
points(Young, 2015) .
Appealing market size: The population of China is around 1.3 billion people and has a land
mass more than Australia, the parent country. The favorable market conditions of China attracts
foreign business organizations of all types and sizes, be it western multination or first time
market entrants (Tian 2016). Despite higher costs for the foreign businesses and higher
regulations, the international businesses are considering China for market conditions.
Political and economic stability: The government of China highly values stability. This is the
overriding priority of China. In the past three decades the country considers social stability an
important factor for economic development of the country. Therefore, it can be said, that the
political and economic stability of the country will enable a healthy operation in the country.
High level of stability in the country represents added opportunities and predictability for
AUSMED to have a better understanding in the future aspects of the business organization.
Social stability and economic progress of the country can offer a favorable business conditions
for AUSMED to conduct its business activities (Wu and Chen 2014). The WTO agreements with
China ensure favorable trade situations.

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Availability of skilled workers: There is an abundant availability of skilled and competent
talent in the country. The education level of the company is increasing in the country, which is
an added opportunity for the company. The skilled workers and employees can better operate the
business by offering better quality medicines and service to the consumers (Young 2015).
AUSMED needs to retain the skilled workers for maintaining its competitiveness in the Chinese
market.
Supportive policies of the government: The government has revised laws and legislations
which aim to create a just, open and fair market conditions. Moreover, the government of China
has been setting up various investment policies starting from taxation policies and land using in
order to develop the economy of the inland regions of China (Amighini, Rabellotti and
Sanfilippo 2013). The Austrade Offices present in China can help the pharmaceutical company
to the introduced to the experienced locals and help the company in the importing process,
distribution and support. The CPI in china has increased to 102.80 Index points (Young, 2015).
Free trade Agreement: The major advantage of expanding business to china is the China
Australia Free Trade Agreement (ChAFTA). This will enable AUSMED will an easy process of
executing its business activities in China by opening unprecedented access and opportunities
through wide range of industry (Butler 2017). This is an opportunity for AUSMED to execute its
business operations in the world’s most populated country. These opportunities are an added
advantage to the company.
3. Selected destination country

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China is the selected destination country for business expansion as it has the most
favorable business environment. Arguably Australia has benefitted mostly from China as
compared to other countries. Australia and china is considered to be the key partners and it is
greatly influenced by the ChAFTA (China Australia Free Trade Agreement). The country is
mostly favorable and attractive because of this huge market size, the GDP rate of the country has
increased in the past decades, there is abundance of cheap and skilled labor in the Chinese
market. Most importantly, because of the governmental support especially China Australia Free
Trade Agreement will enable AUSMED to carry out its business operations with ease (Butler
2017). Further, China has a broad and strong economic, strategic, and cultural relationship with
Australia. This is an added advantage to the company. Therefore, china is the selected company
for expanding business operations of AUSMED (Cooke and Zhan 2013).
4. Market entry strategy
The chosen country for market expansion is China, influenced by the large market size,
government support and socio-economic stability. Additionally as mentioned above, the
emergence of the China Australia Free Trade Agreement is an added advantage to the
organization. AUSMED can embrace the opportunity in the world’s most populated country. The
country is a home to 1.3 billion people approximately which is about 56 times the populations of
Australia (Dunning 2013). It is the number one trading nation and manufacturer by output. The
country has an increased rate of GDP since the past years, which is highly favorable for the
business environment (Goodman 2017).
AUSMED can consider entering the market via direct channels. It can sell directly to an
authorized trade group in china. The company can consider its representation in the country

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through any local agents or distributor. The rationale behind the direct entry through local
channels is that the local Chinese agent or distributor can provide information about the essential
contacts and provide local knowledge which is critical for the success of the business
organization. The domestic Chinese distribution companies have a better understanding on the
current formal trade structure of the country (Tian 2016). Other strategies for market entry such
as contractual joint ventures have not been used as it requires detailed implementation of
legislations and regulations which has not been promulgated. The company has to rely on
negotiations and operations. Moreover there is strict foreign exchange requirement and the tax
rates are higher in joint ventures (Hutzschenreuter, Kleindienst and Lange 2014).
AUSMED must consider own resources while formulating a long term business strategy
for entering in the Chinese market. The company can consider its representation in the country
through any local agents or distributor. The local Chinese agent or distributor can provide
information about the essential contacts and provide local knowledge which is critical for the
success of the business organization. However, acquiring the right Chinese agent or distributor
requires preparation and hard work (Hutzschenreuter, Kleindienst and Lange 2014). The goals
and objectives of the organization must be taken into consideration while developing the
strategy. The functioning and operations of the business in the foreign country must be in
accordance with the goals and objectives of the business organization. Considering the huge
market size, AUSMED can consider the geographic segments and find the local agents or
distributors within the specific geographic or pharmaceutical sector of Chinese. The AUSMED
must take into consideration the potential business agents and distributors which specializes in
the industry segments (Shenkar, Luo and Chi 2014). This is essential as the business need to
have connections with the large state-owned and other private enterprises operating in the

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particular industry sector. The consumer market can be fragmented by geography, age and
income levels. AUSMED can aim for niche markets which can be profitable for the business
organization. Niche marketing can be the best approach in the initial stages of introducing itself
in the Chinese market. The first tier cities can be aimed for when entering the Chinese market.
The risks associated with the target market are the acceptability of the offerings by the local
people, as they prefer products and services from the local companies. In order to overcome this
obstacle the company needs to formulate an effective marketing and communication strategy and
focus on building long term relationship with the local consumers (Tian 2016). This will enable
the business organization to gain the trust and confidence of the local consumers. There is
abundance of resource available including abundance of skilled workers which is an opportunity
to AUSMED. This can be fully utilized by the business organization. Initially a lot of control is
required for carrying out the business operations; it requires time and effort for the company to
fully gain the trust and confidence of the local consumer (Wu and Chen 2014). This can be done
by effective marketing and communication strategy.
5. Conclusion
Therefore, from the above analysis it can be concluded that AUSMED can consider
expanding its business operations in China as it is the most favorable country for business
expansion. It has been analyzed that China being the most populated country in the world, has
abundance of skilled labour and talent, which is beneficial for the organization. The report has
analyzed the risks and opportunities involved in expanding the business organization to the
countries South Africa and China. From the analysis and discussed it can be stated that because

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of better market opportunities, socio-economic stability and government support the company
can consider China for business expansion. Additionally Australia and china is considered to be
the key partners and it is greatly influenced by the ChAFTA (China Australia Free Trade
Agreement). This can be considered as an added advantage to the company. Further, the report
has recommended market entry strategies to overcome the challenges that can be faced by the
business and take advantage of the opportunities prevailing in the Chinese market.

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