AUSMED Pharmaceutical: Evaluating China and South Africa for Expansion

This report, prepared for AUSMED, an Australian pharmaceutical company, evaluates the feasibility of expanding into South Africa and China to overcome stagnated growth. It begins with an executive summary and table of contents, followed by a brief overview of the case. A PESTEL analysis is conducted for both countries, assessing political, economic, social, technological, environmental, and legal factors. The analysis reveals China to be the more favorable market for expansion. The report recommends a joint venture entry strategy for AUSMED in China, justifying this approach based on the country's stable business environment, economic growth, and opportunities for market penetration. The conclusion summarizes the key findings and recommendations, emphasizing the potential for AUSMED's success in the Chinese market.

Running head: GLOBAL BUSINESS
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Author Note

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Executive summary
This paper focuses on the company AUSMED; an Australia based pharmaceutical company that
has been facing issues because of their stagnation in terms of growth in the market. The company
has been a successful company however this issue has made them take a decision of expanding
in the foreign market in order to generate sales and improve their situation. The company has
been considering South Africa and China for expansion to overcome this issue. This paper will
assess the external environment of both the countries by conducting PESTEL analysis which will
give an insight about the current market situation of the countries and which country will be
more favorable for expansion. From the conducted analysis it has been seen that China is more
favorable and entering the market with a joint venture will be feasible for AUSMED to establish
them successfully and strive in the Chinese market and also help them in generating profits.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Brief overview of the case study.................................................................................................3
Analysis of South Africa and China............................................................................................3
South Africa.................................................................................................................................4
PESTEL Analysis of South Africa..............................................................................................4
Political factors........................................................................................................................4
Economic environment............................................................................................................4
Social factors-..........................................................................................................................6
Technological factors-.............................................................................................................7
Environmental factors-............................................................................................................7
Legal factors-...........................................................................................................................8
China............................................................................................................................................8
PESTEL Analysis of China.........................................................................................................8
Political factor..........................................................................................................................8
Economic factor-.....................................................................................................................8
Social factors-........................................................................................................................10
Technological factors-...........................................................................................................11
Environmental factors-..........................................................................................................11

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Legal factors-.........................................................................................................................11
Chosen country for expansion...................................................................................................11
Proposed entry for AUSMED in China.....................................................................................12
Chosen strategy for expansion...............................................................................................12
Justification for the chosen strategy......................................................................................12
Conclusion.....................................................................................................................................13

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Introduction
In recent times, the age of globalization has contributed to the increase in competition in
the market which has led many organizations to expand their business in foreign countries to
create more opportunities and benefits in the market (Rodrik 2018). This paper is going to
analyze the favourability of two countries, South Africa and China for foreign expansion for an
Australia pharmaceutical company, AUSMED provide which country among these two are ideal
for expansion.
Discussion
Brief overview of the case study
An Australian based pharmaceutical company named AUSMED that manufactures drugs
and has been successful in their business for the past 10 years in terms of their revenues and
growth in the market. The annual turnover of AUSMED is approximately AUD 30 million. The
company recently has been facing issues because of the stagnation in their growth in the market.
AUSMED has been considering expanding their business in the foreign market to improve their
situation and developing their business to cater to the foreign market. The company has been
considering China and South Africa for their expansion in pursuance of generating profits and
making a mark in the global market.
Analysis of South Africa and China

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In order to expand their business in the foreign market it is important for AUSMED to
analyze the business environment of the two countries, South Africa and China to understand
which country will be ideal for expansion that will help the organization strive in that market
successfully.
South Africa
To analyze the favorability of the business environment of South Africa, PESTEL
analysis needs to be conducted that will help in understanding the external environment of the
country.
PESTEL Analysis of South Africa
Political factors- The country is a parliamentary republic and the president is the head of the
state as well as the government in the country. According to reports, the political environment of
South Africa is clouded by mismanagement, corruption, protests, violence and political
intolerance (Beresford 2015). These factors often hinder the economic progress and development
of the country and any foreign business trying to expand their business in the country.
Economic environment- South Africa holds the 34th position in terms of largest economies in
the world in regards to the nominal GDP (Liu 2016.). The GDP of South Africa in 2018 was
1273.b billion and the current GDP of the country in the first quarter is 1189.23 billion rand
(TheGlobalEconomy.com 2019). It can be seen that the country has been growing in terms of
their GDP since 2010.

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Fig 1: GDP of South Africa
Source: (TheGlobalEconomy.com 2019).
South Africa is a part of the BRICKS and considered to be one of the economic giants.
The growth of the African pharmaceutical market is expected to grow by 26% (Pwc.com 2019).
The pharmaceutical market in South Africa has the capability of reaching a business opportunity
of around $45 billion by 2020 (Pwc.com 2019). The consumer price index (CPI) in the country
in June, 2019 was 112.80 index points which shows the affordability of the people in the
country.

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Fig 2: CPI of South Africa
Source: (Tradingeconomics.com 2019).
In South Africa the corporate income tax for the residents as well as non-resident
organizations for the tax years which is ending between 1st April, 2018 and 31st March 2019 is
flat 28% (Ebrahim et al. 2019). The individual income tax rates starts from 18% and rises to
around 45% based on the amount the business generates (Ebrahim et al. 2019). South Africa is
considered to be the largest trading partner of Australia in the African continent which indicates
their positive trade relations (Dfat.gov.au, 2019). This will be beneficial for the pharmaceutical
company to expand in this market.
Social factors- South Africa is often popularly known as the rainbow nation (Sidanius,
Brubacher and Silinda 2019). The total population of South Africa currently is 58.8 million
(Tradingeconomics.com 2019). The literacy rate of the country is very high and majority of the
population of the country can read and write which can be beneficial for the company in terms of
hiring employees and also selling their drugs to the consumers who will understand the

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importance and need of the drugs. . However, there are a few social challenges and constraints
that the company currently faces like high rate of unemployment and ailing public health system
(Plagerson et al. 2019) The tropical climate of the country makes the population of the country
get affected by infectious diseases like tuberculosis, malaria, yellow fever and many more (van
Leeuwen et al. 2019). This situation creates a demand for proper hospitals and pharmaceutical
companies. South Africans long for a better opportunities and for a fast economic growth for a
proper education system, better opportunities in terms of employment.
Technological factors- South Africa is considered to be one of the most advanced countries in
terms of technology in Africa (Efobi, Tanankem and Asongu 2018). The country has made huge
progress in terms of security software, electronic banking and mobile softwares however the
country is progressing in terms of incorporating advanced technology in their healthcare system.
Environmental factors- South Africa is considered to be one of the beautiful countries and
generates a good amount of money from the tourism industry set up here however the pollution
rate of the country is pretty high which has resulted in majority of the people suffering from
chronic diseases (Koens and Thomas 2015). There are other environmental challenges that South
Africa faces like inefficient solid waste management, deforestation and land degradation
(Gwenzi et al. 2015). This often affect the health of the people as they bring climate change in
the society.
Legal factors- It is favorable for businesses to expand in the South African market because of
the less rules and regulations in terms of business in the market. However, the country has
imposed value added taxes on foreign businesses where they have to pay to the country custom
tax, skill development tax, stamp duty and capital gains tax ((Bhorat et al. 2014)

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China
To understand the favourability of China for expansion of AUSMED in the country,
PESTEL analysis will be conducted to understand the business environment of the country.
PESTEL Analysis of China
Political factor- China is said to be a global power which is the fourth largest country in the
world by its total land area (Pigato and Tang 2015). The political environment in China is stable
however the growing concern for the country is their famine of political freedom and the lack of
openness in the political system (Goodman 2013). China positions themselves as one of the best
destinations in terms of FDI. China attracts many foreign investors for expansion in the Chinese
market which had resulted in the country gain US$139 billion of FDI in the year, 2016 (Salike
2016). The country is considered to be the third largest country in terms of FDI destination in the
world. This will be beneficial for AUSMED to expand in the country.
Economic factor- China is considered to be the second largest economy in the world in regards
to the nominal GDP after The United States of America (Pang and LYE 2013). Nevertheless, the
country is considered to be largest economy based on the purchasing power. The GDP of China
in the year in 2018 was 25359.86 billion. The current GDP of the country is 23750 billion
(TheGlobalEconomy.com 2019). The GDP of China continues to grow and since 2010 it has not
depleted.

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Fig: GDP of China
Source: (TheGlobalEconomy.com 2019)
The economic growth and development in China has possessed some challenges for the
country which is rapid urbanization, environmental damages and high inequality rate (Shin
2015). Majority of the countries prefer investing in China because of the availability of cheap
labour there which has helped them to attain competitive advantage in the market (Nistor 2015).
The CPI of China in June 2019 was 102.80 which indicate the positive financial condition of the
country.

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Fig 4: CPI of China
Source: (Tradingeconomics.com 2019).
The corporate income tax rate which businesses or organizations have to pay the
government is about 25% but the government of China modifies and reduces the income tax rate
to around 15% for the qualified organizations conducive to encourage the operations of
international as well as local businesses in the country (Richardson, Wang and Zhang 2016).
Social factors- The population of China is at its peak with a total population amounting up to 1.4
billion in the year 2018 and continues to grow in 2019 (IMF 2019). However, the global drug
market in the country is very low thus research is being conducted is being conducted for better
drugs in the market. Shanghai is considered to be one of the leading centers for research and
development on drugs. The literacy rate of China is very high with about 96.4% and this as also
resulted in the reduction of poverty in the country. This will be fruitful for AUSMED as the will
get customers who will be able to afford the drugs that AUSMED produces and will also help in