Global Business Management

This report discusses the potential risks and opportunities for both South Africa and China in relation to the pharmaceutical industry. The risks and opportunities will be critically analyzed based on different elements and factors. In accordance to the identified factors, the effective country will be selected. An ideal entry strategy will be identified that can help Ausmed to effectively enter in the target country.

Running head: GLOBAL BUSINESS MANAGEMENT
Global business management
Name of the student
Name of the university
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Executive summary
The aim of this report is to discuss about the challenges and opportunities being posed by China
and South Africa for the business organizations. In this report, the business potential for Ausmed
is discussed from the perspective of these two countries. It is identified in this report that China
will be more potential country for Ausmed over South Africa. There are number of factors
identified in this report that concluded that China is leading over South Africa. In addition, this
report also concluded that Greenfield investment will be effective and ideal for Ausmed in doing
business in China.

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Table of Contents
Introduction......................................................................................................................................3
Determination of opportunities in South Africa and China.............................................................3
Economic growth.............................................................................................................................4
Market analysis............................................................................................................................7
Legal factors................................................................................................................................8
Determination of threats in South Africa and China.....................................................................10
Most problematic factors in doing business in China................................................................13
Most problematic factors in doing business in South Africa.....................................................14
Selection of the destination country..............................................................................................15
Determination of the market entry strategy...................................................................................15
Conclusion.....................................................................................................................................17
Reference.......................................................................................................................................18

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Introduction
Entering in the foreign market for business expansion is having more opportunities and
number of challenges for the business organizations. This is due to the reason that different
countries are having different forms of business environments. Business organizations are having
the importance to select the countries carefully in order to have the maximum output from the
international business (Perlmutter 2017). Ausmed is one of the leading pharma companies
currently operating in the Australian market. They are having the turnover of AUD 30 million
annually. However, in the recent time, their business is becoming stagnant in the Australian
market and they are searching for a potential foreign country for expansion. South Africa and
China are being shortlisted for the expansion plan (Penrose 2017).
This report will discuss about the potential risks and opportunities for both South Africa
and China in relation to the pharmaceutical industry. The risks and opportunities will be
critically analyzed based on different elements and factors. In accordance to the identified
factors, the effective country will be selected. An ideal entry strategy will be identified that can
help Ausmed to effectively enter in the target country.
Determination of opportunities in South Africa and China
South Africa is one of the leading economies in the African regions and posing huge
business opportunities for the organizations. On the other hand, China is one of the leading
countries in the world with having the status of leading economy. This section will discuss about
the major opportunities that may be gained by Ausmed in operating in the South African market
and Chinese market.

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Economic growth
China is one of the top most countries in the world in terms of economic growth. It is
reported that as of 2015, China is having the growth of 6.9. However, it should be noted that
economy growth of China was over 10 percent till 2010 (TheGlobalEconomy.com 2018). This
denotes that they are facing downward trend in the recent time. On the other hand, South Africa
is having the growth rate of 1.3 as of 2015 and they are also facing downward trend in the recent
time compared to their growth rate of over 3 percent in 2010. However, it can be concluded that
the positive national growth of both the countries is a major opportunity for Ausmed (Tang
2015).
Figure: 1
Economic growth of South Africa and China

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Source: (TheGlobalEconomy.com 2018)
In terms of corruption index, South Africa is currently standing at the ranking of 42 that
denotes a moderate intensity. In addition, it is also reported that till 2009, their ranking was
above 50. This shows that South Africa is improving in terms of relevancy of corruption in the
country. On the other hand, current ranking for china in terms of corruption is the 40 that is also
denoting the moderate intensity of the corruption (Dai 2013). However, it is also identified that
ranking of China in corruption index was 35 in 2009 (TheGlobalEconomy.com 2018). This
denotes that they are not improving in terms of corruption.
Figure: 2
Corruption ranking for South Africa and China
Source: (TheGlobalEconomy.com 2018)

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According to global competitive index, China is having the ranking of 26 in country
credit index. This denotes that financial position of the country is stable and this will reflect in
the investment of the foreign companies such as Ausmed (Walsh 2016). On the other hand,
ranking of South Africa in terms of country credit rating is 63. This also denotes that financial
condition of South Africa is stable and having less risk probability (Mehrara and Zirak 2013).
Thus, it can be concluded that Ausmed will have the opportunity of having positive return on
investments from operating in both the countries. It is reported that in terms of economic
freedom, both the countries are showing positive trend in the recent time. According to the
reports, South Africa is having the ranking of 62.5 while China is having the ranking of 52.7
(TheGlobalEconomy.com 2018). The major reason behind the lower ranking of China is their
restrictive policies and political approach. However, the recent growth trend of economic
freedom for both the countries will help Ausmed to have free trading and business practices.
Figure: 3

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Economic freedom of South Africa and China
Source: (TheGlobalEconomy.com 2018)
Market analysis
Market analysis is important in determining the market opportunity and potentiality of
South Africa and China. It is reported that in the global competitive index that South Africa is
having the ranking of 30 in terms of the domestic market size. This refers to the fact that market
size favorable in the South African market (Brandt, Tombe and Zhu 2013). The more will be the
market size, the more will be the market opportunities for the pharmaceutical products for
Ausmed. On the other hand, China is having the ranking of 1 in market size mainly due to the
fact that China is the most populated country in the world (weforum.org 2018). Older aged
population is one of most potential markets for pharmaceutical companies due to the reason that
older people are having the major need for medicines. In this case, both China and South Africa
are having increasing trend of older population. Thus, Ausmed is having increasing market
potentiality in both the countries.

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Figure: 4
Population growth above the age of 65
Source: (TheGlobalEconomy.com 2018)
Legal factors
Government effectiveness is another major criterion for pharmaceutical companies due to
the reason that intensity of regulations and legislations on the pharmaceutical companies are
more (Fernald and Spiegel and Swanson 2014). In this case, the Ausmed will have the
requirement of effective governance in the country. In terms of this, China is having the score of
0.41 and South Africa is having 0.26 (TheGlobalEconomy.com 2018). This denotes that both the
countries are having nearly same level of government effectiveness. In addition, it also denotes

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that score of the both the countries is not strong but moderate. Thus, Ausmed will find
moderately favorable business environment in doing business in both China and South Africa.
Figure: 5
Government effectiveness of South Africa and China
Source: (TheGlobalEconomy.com 2018)
This is also reported that South Africa is having the ranking of 31 in terms of legal
efficiency. This refers to the fact that Ausmed will have favorable and positive business
regulations in regards to their operation. On the other hand, China is having the ranking of 45 in
same index. Thus, it can be concluded both the countries are having nearly same level of
regulatory effectiveness with South Africa is having the edge (Wu et al. 2014). It should also be
noted that China and Australia is having free trade agreement that can help Ausmed in sourcing

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the components from their home country seamlessly. On the other hand, Australia and South
Africa are not having ant free trade agreements but they are having MOU that extends to
different traded goods. In addition, South Africa is the largest export market for Australia in the
African region. Thus, both the countries are having positive relationship and cooperation that
will help Ausmed to have favorable business.
Determination of threats in South Africa and China
One of the major challenges that will be faced by Ausmed in doing business both in
China and South Africa is high level of corporate tax rate (Badertscher, Katz and Rego 2013).
This is due to the reason that it is reported, China is having the score of 25 and South Africa is
having 28 in terms of corporate tax rate (TheGlobalEconomy.com 2018). This denotes that both
the countries are having considerably higher rate of tax. This will have impact on the
pharmaceutical industry due to the reason that there are number of expensive components being
used by this industry and added tax will lead to increase in the end price.

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Figure: 6
Corporate tax rate in South Africa and China
Source: (TheGlobalEconomy.com 2018)
Regulation is also a major determining factor for the pharmaceutical companies due to
the reason that it deals with the health of the people. Thus, it is important for Ausmed to have the
favorable quality of regulation in their operating country (Adomako and Danso 2014). It is
reported that South Africa is having the score of 0.28 in terms of regulatory quality index and
China is having the score of -0.29 (TheGlobalEconomy.com 2018). This denotes that both the
countries are not having favorable regulatory environment for the pharmaceutical industry and
Ausmed will find it difficult to get adhered with the regulations. Currency valuation will also
affect the business operation of Ausmed due to the reason that they will source some of the key

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components from their home country. It is reported that in terms of units per US dollar, China is
standing at 6.23 and South Africa is standing at 12.76. Thus, in both the countries, Ausmed will
have to spend more in sourcing from their home country.
Figure: 7
Exchange rate
Source: (TheGlobalEconomy.com 2018)

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Most problematic factors in doing business in China
Figure: 8
Problematic factors of doing business in China
Sources: (weforum.org 2018)
World economic forum identified a number of problematic factors to be faced by the
business organizations in doing business in China. One of the major problematic factors is access
to financing. This refers to the fact that Ausmed will have difficulty in sourcing fund for their
business operation. In the long term, this may cause in the having seamless funding options. It is
also identified that inefficiency of the government is also a problematic factor for business
organizations in operating in China (weforum.org 2018). This will cause Ausmed to face the
added burden of government regulations. Due to the fact that China is a communist county,
restrictive policies of the government will case challenges for Ausmed in doing business.

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Most problematic factors in doing business in South Africa
Figure: 9
Problematic factors of doing business in South Africa
Sources: (weforum.org 2018)
One of the major problematic factors of doing business in South Africa as identified is
corruption. It is quite relevant in the business environment of South Africa. This will affect the
business operation of Ausmed due to the reason that corruption will lead to instability in the
policy and decision making of them. In addition, this can also cause increase in cost for Ausmed.
Crime and theft are also identified as another major problematic factor for the business
organizations in doing business in South Africa (weforum.org 2018). This denotes that Ausmed
will have the challenge to protect their assets from the potential thefts. This will lead to added
cost for Ausmed. Government instability is another problematic factor in doing business in South
Africa. In the case of pharmaceutical companies, huge investment is required in research and

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development. Thus, instability of government will increase the risk in doing business in South
Arica.
Selection of the destination country
From the above analysis of China and South Africa, it is identified that China will be the
ideal country for Ausmed for their foreign expansion. This is due to the reason that, in terms of
the market potentiality, China is way ahead of South Africa by the fact that China is the largest
country in the world in terms of population. The core objective of doing foreign business is to
have more market potentiality (Long, Yang and Zhang 2015). Hence, China is the natural choice
over South Africa. On the other hand, current economy growth rate of China is more than that of
South Africa. This also denotes that business opportunity is getting more increased in China than
in South Africa. Corporate tax rate is also lower in China compared to South Africa. Therefore,
Ausmed will have lower cost of operation in the Chinese market. In addition, Australia is having
free trade agreement with China but not with South Africa. This will further help Ausmed in
doing business in China. They can source their components from their home country and indulge
in bilateral trading between the two countries without having the presence of added taxes and
tariffs (Wang and Wang 2015). Therefore, it can be concluded that China will help Ausmed to
have more market potentiality along with having more favorable business environment.
Determination of the market entry strategy
It is recommended that Ausmed should initiate the strategy of Greenfield investment in
China. This will enable them to directly investing in the Chinese market and having their own
facilities. The major advantage that can be gained from direct investment is high degree of
control (Ashraf and Herzer 2014). This is due to the reason that that in the case of direct

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investment, Ausmed will have own manufacturing facilities and other units in the Chinese
market. All these units will work as subsidiaries of Ausmed and thus the control will be entirely
with them. In the pharmaceutical industry, degree of control should be high due to the presence
of complex activities in research and development of medicines. In addition, the quality control
for medicines will become a risky affair if being given to third party (Lee and Ries 2016). On the
other hand, the organizational objective of Ausmed is to enhance their brand value and identity
in the global market. Thus, with the help of the Greenfield investment, Ausmed will be able to
create their brand in the Chinese market. In the above country analysis, it is identified that
political and business risks are lower in China and thus the risks related to the direct investment
for Ausmed will be less (Tulung 2017).
It is stated in the case study about Ausmed that they are having AUD 30 million annual
turnovers. Thus, they are having the financial strength in investing in the foreign country. This
will be beneficial in setting up the manufacturing facility in small scale. Having the free trade
agreement will help Ausmed to source the expensive materials from Australia in the initial stage.
Having own facilities and units in the Chinese market will help Ausmed to compete in the
market effectively and offering products in more competitive prices (Ashraf, Herzer and
Nunnenkamp 2016). Furthermore, with the help of direct investment, Ausmed will be able to
avail the benefits of Chinese government given to the foreign investments. This includes tax
benefits and incentives. Thus, it can be concluded that in terms of organizational objective, risks
involved in the Chinese market and business pattern of Ausmed, it is concluded that Greenfield
investment will be the most effective and ideal market entry strategy. This entry strategy will
help Ausmed to establish their brand identity in the foreign market along with regulating the cost
of operation by involving the local resources (Farla, De Crombrugghe and Verspagen 2016).

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Conclusion
This report concludes that China and South Africa are having number of challenges and
opportunities for the business organizations. In this report, the potential opportunities and threats
to be faced by Ausmed from operating in these countries are being identified. It is concluded that
Ausmed will have more market potentiality and opportunity in doing business in China over
South Africa. Different factors are being considered in this report to compare the opportunities
and threats of these two countries. In addition, this report also concluded that Greenfield
investment will be the most ideal for Ausmed to initiate as entry strategy in doing business in
China. There are number of advantages that can be gained by Ausmed from initiating direct
investments are discussed in this report.

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