Global Business Strategy: AUSMED's Entry into New Markets (MNG00723)

This report assesses the viability of AUSMED, an Australian pharmaceutical company, expanding into the Chinese and South African markets. It details the risks and opportunities associated with each market, considering economic factors, cultural differences, and political landscapes. For China, the report highlights risks such as industrial overcapacity, debt, and cultural barriers, alongside opportunities like infrastructure and a large consumer base. For South Africa, it notes risks including high corporate tax and unemployment, balanced against opportunities like increasing economic freedom and political stability. The report recommends South Africa as the more suitable destination due to its business-friendly environment and proposes a specific market entry mode, considering investment freedom and reduced business restrictions.

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GLOBAL BUSINESS ASSIGNMENT
Name
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Executive Summary
The challenges associated with market entry have become increasingly important for
many companies wishing to expand their business to international markets. Many companies
have been trying to venture into the Chinese market although the results have almost always
been disappointing due to the increasingly growing rate of China's economy. For any country to
be successful in its market entry strategy, the choice of the market and appropriate research are
critical. The report summarizes the opportunities and risks involved in AUSMED’s entry in the
Chinese and South African markets, the best market for entrance, and the entry mode for that
particular market.

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Table of Content
Executive Summary.......................................................................................................................2
Introduction....................................................................................................................................4
Analysis of Risks and Opportunities............................................................................................4
China...........................................................................................................................................4
Business Risks in the Chinese Market......................................................................................5
Business Opportunities in the Chinese Market.......................................................................6
South Africa...................................................................................................................................8
Business Risks in South Africa.................................................................................................8
Business Opportunities in South Africa...................................................................................9
The Selected Destination Country................................................................................................9
South Africa................................................................................................................................9
The Proposed Market Entry for South Africa..........................................................................10
Conclusion....................................................................................................................................12

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Introduction
A market entry strategy that is well-planned requires efficient and effective management
of the market launch and initiation strategies, so as to assure the meeting of financial targets.
Currently, businesses are geared towards increasing their sales, improving business sustainability
and brand awareness through venturing into new markets (Johnson & Tellis 2008 p.3). An in-
depth analysis of potential customers and the market competitors is important in formulating a
good market entry strategy. Various options for entering a market include international licensing
of technology, acquisitions and mergers, joint ventures, and direct and indirect exporting. As
Morschett, Schramm-Klein & Swoboda (2010 p.67) state market entry strategies have associated
benefits and risks which are factors which the executive should consider in the planning of the
strategy to enter a particular market. The factors include the cultural, business, economic and
political environment of the potential market, service or product support requirements, and the
nature of the services or products the company offers. The best strategy depends on the perceived
risk-level which the organization is able and willing to take, and the organization’s level of
commitment and its resources.
Analysis of Risks and Opportunities
China
According to York and Ye (2018 p.352) China is a highly populated country. Sectors of
the country are growing rapidly in terms of the economy with the nation experiencing high GDP
ratio, excellent economic structure, bilateral national, cultural and social aspects, which are ideal
for business. Furthermore, foreign investors who venture into the country enjoy high success
rates as compared to failures, with the country being interconnected by a high population and
large territories which guarantee a favorable environment for conducting business (Lam 2018

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p.15). Additionally, the Chinese market has important aspects of political, legal, and
motivational obstacles for the investment of multinational firms, industries or sectors which are
likely to attract Foreign Direct Investment (FDI), as there can be a high risk of foreign
companies planning to venture into the market for business. Therefore, it is clear that entering
the Chinese market has opportunities for both prosperity and risks, which can make a business’
sustenance in the country difficult.
Business Risks in the Chinese Market
The Chinese market faces several threatening risks that scare multinational companies
planning to expand their businesses into the country. Internal factors such as industrial
overcapacity, debts and ineffective capital allocation have been a reason as to why the country
has taken the time to stabilize financially.
In terms of finances, the country has an economic freedom index of 57.8 percent and its
economy ranked 110th most free in 2018 (Yilmaz 2018 p. 4). Although the overall score in
economic freedom index has increased by 0.4 percent with high scores experienced in judicial
effectiveness and government integrity, the nation also experiences a decline in labor freedom,
fiscal health and property rights. Furthermore, the country is ranked twenty-fourth out of forty-
three countries in Asia–Pacific hence its overall score is below the world averages. Therefore, it
is clear that the Chinese economy is still mostly unfree for investments.
In terms of culture, the Chinese market has low momentum for reform and enterprises
owned by the state that are still a dominance of many industries and the financial sector. With the
current socialism and Chinese characteristics, that guides ideology, leaders have drawn back
from liberalization increasing less openness to investment and imports, weaker rule of law, new

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bureaucratic hurdles, strengthen resistance from stakeholders that already impede dynamic
cultural development.
In terms of commercial, the Chinese market has many industries with low per capita
income that is below the world average. Currently, the nation has a payload debt to GDP ratio
that is estimated to be two hundred and ninety-five percent (Montgomery 2014 p.115). This
means that if AUSMED enters into the Chinese market it will likely pay a higher corporate tax,
and survive in a struggling environment at a twenty-five percent standard rate tax without the
taxation of incomes
Business Opportunities in the Chinese Market
In terms of the country development, China has good infrastructure with well-maintained
road, rail, and air transportation system, as the Emirates group has recently launched air
operations in China's main cities making it convenient, fast and reliable for cross-national
transportation (Li & Cui 2018 p.6). Furthermore, the country has trade freedom of seventy-
three .percent with investment freedom of twenty-five percent and the combination of imports
and exports amounting to thirty-seven percent and an average of 3.7 percent tariffs. Therefore,
after entering China's market, AUSMED will experience a few challenges when exporting and
importing products, as the reliable transport system highly supports trade.
In terms of commercial, China is ranked second in GDP, with the constant improvement
of the economy showing that there is an increase in the level of goods being consumed (Zhang
2018 p.1). The country has business freedom of 54.9 percent and monetary freedom of 71.4
percent showing the country has a good capability of running flexibility operations. Furthermore,
the GDP growth trend in China follows a reverse trend concerning the rates of unemployment
(Eichengreen, Park & Shin 2013 p.1). However, despite the slowdown of the GDP growth, the

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country has gained a relatively good economic shape that supports investments by multinational
corporations, with the environment turning out to be suitable for AUSMED.
In terms of finances, China has high inflation rates and financial freedom of 20 percent.
Inflation refers to the increase in price measurements against a standardized purchasing power
level. According to Zhou & Clements (2010 p.267) the current inflation of China is at 2.10
percent with most of its factories and organizations located in different cities having the lowest
minimum wages for employees and an infinite number of employees willing to have the
opportunity to work for the low wages. Furthermore, China has a very low cost of production,
and if AUSMED enters the market it will have a better opportunity of recruiting both casual and
professional staff who have skills and are readily available. Furthermore, by offering slightly
higher salaries, the company is likely to attract experts from other countries.
In terms of culture, the country is densely populated and has a high number of drug
consumers, with an increase in the cost of goods resulting in a demand for commodities and
resources. This has led to the demand for drugs exceeding their supply since the majority of
people in China are likely to be potential customers of drugs. Therefore, the market prediction
costs of goods manufactured from China is expected to increase rapidly at the same rate as the
inflation rate of the country increases. Furthermore, due to stabilized economic structures, the
inflation rate of China is directly coupled with global inflation (Borio 2014 p.182). The country
has implemented the reforms and opening policies, which attract and encourage export and
import trade as well as encouraging foreign investment with the country having an extremely
good governmental budget and loose monetary policy providing a speculative environment for
investors from foreign countries.

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South Africa
Business Risks in South Africa
In terms of commercial and finances, the country has a corporate tax rate of twenty-eight
percent with an overall tax burden of thirty-six percent of domestic income and the public debt is
equivalent to fifty percent of GDP (Yilmaz 2018 p. 4). The government spending is the country
is still high amounting to sixty-eight percent. Therefore, South Africa has a high taxation for
market entry since foreign investor’s taxes and incomes are credited against the country’s
monetary unit. Furthermore, the value added tax in the country is being collected at a fourteen
percent standard rate on all services and goods subject to certain deductions, exceptions,
exemptions and all adjustments, which are provided in the VAT act (Ataguba & McIntyre 2012
p.35). Therefore, if AUSMED enters the South African market it will incur huge costs that affect
its profit margin and may interfere with the future sustainability of the company.
In terms of culture and country’s development, the country has a high unemployment
rate, resulting toa low GDP. The situation of the increase in unemployment has risen since the
demand for labor in the country is less than its supply, with firms in the country undergoing a
skill-biased change in technology. Furthermore, the government has high government
expenditure of sixty-nine percent. The unemployment rates affect GDP and, therefore, if
AUSMED enters into the South African market, the drugs will not be highly consumed, as they
will be unaffordable to most of the people. Furthermore, the country also has a high poverty level
because of its high inflation, this places AUSMED under the risk of having low sales turnovers
as people living under the poverty line will have to depend on the government for medication as
drugs are likely to be dispatched in low quantities.

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Business Opportunities in South Africa
In terms of finance, South Africa economic freedom has a score of sixty-three percent
hence its economy ranked 77th in 2018. The overall score of the economy has increased by 0.7
points with the country experiencing significant improvements in judicial effectiveness and
investment freedom although the country has experienced declines in trade freedom index and
tax burden index. Furthermore, the overall financial score of South Africa is above world
averages. Therefore, if AUSMED invests in the country will face little economic problems.
In terms of culture, politics, and commercials, the country has a good political stability
and security with judicial effectiveness ranked at sixty-six percent and government integrity at
fifty percent. The country also has trade freedom index of seventy-one percent, financial freedom
of fifty percent and investment freedom of fifty percent. Therefore, if AUSMED utilizes the
opportunity it means that the company will have little interferences in insecurities and politics.
The country also has an effective education system providing the operating organizations with
highly-trained professionals who can add value to the organization. Furthermore, the majority of
the professionals are unemployed but their culture restricts them against working for cheap labor.
Therefore, if AUSMED invests in this country, it will have skilled and professional employees
but the cheap labor will not be available.
The Selected Destination Country
South Africa
South Africa proves to be the best country for market entry due to its business
environment that is increasingly open, has increased consumer spending, rising incomes, and
rapidly changing demographics, which have made the country’s market the more attractive to
AUSMED. In terms of Government Intervention Index China has a growth of 6.8 percent as

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compared to South Africa’s 1.3 percent in 2018. However, the economic freedom of South
Africa is flexible being ranked 77th and above the world’s average as compared to China’s score
of 111th globally. The country has a high business freedom index of 71 percent as compared to 54
percent of China meaning that If AUSMED invests in the country it will incur low licensing fees
and reduced business restrictions. Furthermore, the political freedom index of South Africa is
highly advanced with the country experiencing political stability as compared to China where
leadership has rejected fundamental reforms and corruption is endemic. The country also has
lower tax burden indexes of 62 and government spending of 68 percent as compared to China
with 71-government spending and 70-tax burden. Therefore, the successful entry into the South
Africa market can be an important step for AUSMED since the organization has limited
experience in the market. South African also has high investment and financial freedoms, which
has resulted in a high GDP; hence, the organization can expect to have high sales of its products.
The country also has improved infrastructure, making the transportation of goods across the
country to be easy due to the development of roads and railway transport. Additionally, a high
population means there are more people looking for limited job openings, hence this will be of
advantage to the organization since it will be able to find experienced personnel to work for the
company. Government policies also allow for the entrance of foreign organizations into the
South Africa market hence the limited restrictions make South Africa favorable for market entry.
The Proposed Market Entry for South Africa
According to Meyer, Estrin, Bhaumik and Peng (2009p.70) the best entry strategy to
enter into the South Africa market is through exportation, and specifically through direct
exporting, to avoid the risk of entering the South Africa market fully with no experience hence
resulting to losses and frustrations. Direct export will allow time for AUSMED to understand the

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market well to ensure a gradual but strong growth in the South Africa market. Direct exporting
involves the direct selling of goods to consumers by an organization in a global market (Gao,
Murray, Kotabe & Lu 2010 p.380). Companies are able to sell their products to different
customers, with some being intermediaries in the target market. However, the involvement of an
intermediary does not affect direct export since the intermediary is also a consumer in the target
market (Pehrsson 2008 p.135). AUSMED should, therefore, consider securing a customer base
including the consumers themselves, government medical organizations, retailers, distributors,
wholesalers, and importers in order to succeed in the market entry strategy.
Being a simple strategy, direct exporting would be a suitable strategy for entering the
Chinese market as it would allow time for companies to maximize profits and expand their
market share (Chen & Orr 2009 p.1203). Since the company has already recorded success in the
pharmaceuticals manufacturing business in Australia, it has some experience in the industry
which is reflected by the turnover of AUD 30 million (Dalton-Brown 2016 p.417). AUSMED
should make the export sale, process the payments letter of credit, ensure paperwork preparation,
organize licenses and permits allowing the export of pharmaceutical medicine into South Africa,
and arrange for insurance and shipping. The organization should also spend some time in the
research of the Chinese pharmaceutical market, potential competition, market rivalry, threats in
the market, and the company’s weaknesses and strengths. The aspect will also ensure that
AUSMED’s pharmaceuticals have been priced and promoted efficiently. The use of direct
exporting serves as the best market entry strategy if there is ready accessibility to the target
market, and if the target market’s trade customs and regulations, cultures, ways of conducting
business, and legal systems, are similar to the company’s country (Johnson & Tellis 2008 p.7).

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Through direct exporting, AUSMED will be able to control all its processes in the
manufacturing of their pharmaceutical products, with the manufacturing being based on its
facilities in Australia. The aspect will prevent the risks which are associated with producing
goods overseas, including child labor or poor standards of production, and the risks associated
with a foreign market’s political instability. Additionally, it is easy for AUSMED to withdraw
from the Chinese market and without incurring elevated costs. Moreover, the company can
acquire extensive information about the target market’s trade policies, which will enable it to
strategically make decisions regarding the investment in the market facilities in the future.
According to Hill (2008 p.24) direct exporting provides more control to the exporter on the
selling and positioning of their products and also provides an opportunity of gaining increased
profits following the careful selection of the market. Since AUSMED is interested in expanding
its markets and in its growth in the South Africa market, directly exporting pharmaceutical
products to South Africa will provide the organization with an opportunity of first learning and
developing the best channels for distribution in the market.
Conclusion
Organizations willing to venture into direct exporting should be comfortable with the risk
associated with this kind of market entry strategy (Jiménez 2010 p.623). AUSMED should be
willing and able to take responsibility for any kind of losses which may be incurred during the
storage and shipping of their pharmaceutical products to South Africa. The company should
invest a substantial amount of its finances in the marketing of its products in South Africain
order to increase sales and boost revenue. However, a risk of incurring losses is present in case
the venture is not successful. Therefore, the company should ensure that it has all the relevant
information regarding the South African market before venturing into the market.