Analysis of Risks and Opportunities

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.

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 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 110^th 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. 

China

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 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 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.

Business Risks in the Chinese Market

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.   

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.

Business Opportunities in the Chinese Market

Business Opportunities in South Africa

In terms of finance, South Africa economic freedom has a score of sixty-three percent hence its economy ranked 77^th 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. 

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 compared to South Africa’s 1.3 percent in 2018. However, the economic freedom of South Africa is flexible being ranked 77^th and above the world’s average as compared to China’s score of 111^th 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.

South Africa

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 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). 

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.

Business Risks in the South African 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. 

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