Task:As individuals. students are required to select an Australian company as the basis of a case study. Once the company has been approved by your lecturer you will be required to prepare a detailed strategic report to management that anaIyses the macro-environmental geopolitical risks and opportunities, as we as overall market attractiveness of entry of this company into both a specific European AND Asian market.
Ideally your report will contain:
A limit of 2000 words overall (plus or minus 10%) is to be strictly observed.
Globalisation has opened a new gateway for organisations, where organisations can work beyond their limited geographical boundary (Gygli et al., 2018). One of the crucial factors, which decide the fate of any organisations while it works beyond the geographical location, is that how good those organisations are with their market entry strategy (Amoore, 2018). While an organisation starts planning to enter a new market or country, it is necessary to understand the macro-environmental and geopolitical forces of that country along with existing trade policies. However, that is not enough for the success, as organisations need to understand the potential risk and opportunities of the new market in terms of current policies. Henceforth, an in-depth understanding of the market is essential. This market entry strategy assignment aims to identify one new market for AFT Pharmaceuticals Limited from either Europe or Asia, based on the risk and profitability of the new market.
2. Company Background
AFT Pharmaceuticals Limited is one of the leading pharmaceuticals companies of Australia that is listed in ASX. AFT Pharmaceuticals is involved in developing, licensing and selling a range of medical products all across the world. As a pharmaceuticals company, AFT believes that basic idea of improving people's lives is possible through innovation, so AFT keeps innovation at the centre of business. The vision of the company is to develop innovative products for people. The company believes that they have acquired success by identifying opportunities in areas, which are majorly ignored by other firms. Developing products with various benefits, providing lower-cost drugs to people who are affected by rare diseases are some of the strategies, which are responsible for the success of AFT Pharmaceuticals Limited (AFT Pharmaceuticals, 2018).
3. Identification of two specific countries in Europe and Asia for Market Entry
Understanding the pharmaceuticals market of Europe and Asia is extremely important for AFT Pharmaceuticals Limited before the organisation makes an entry to either of the market. However, considering the major differences between Asian and European countries, it is hard to identify one specific country from either of the continents (Cuypers et al., 2018).
According to the market data, it can be stated that the current pharmaceuticals market of Spain (Europe) has a strong growth opportunity for AFT Pharmaceuticals Limited. Based on a report, the Spanish pharmaceuticals market is expecting a rise in the total value from $23.7 billion in 2016 to $25.1 billion by 2021; this forecast is suggesting an annual growth rate of 1% for Spanish pharmaceuticals market.
Any developed markets have a moderate scope for growth for any of the industry; on contrary developing markets of Asia have better growth opportunity. India is one of the major contributors to the Asian market due to its high economic growth rate. According to a report, Chandran and Brahmachari (2018) Indian pharmaceutical market is the third largest market in terms of the net volume while in terms of value it is the thirteen largest markets in the globe. Though the new GST policy of Indian government has slowed down the growth rate of the Indian pharmaceuticals market economists, believe that it will increase with the coming year (2020).
4. Analysis of contemporary macro-environmental and geopolitical forces impacting the country
Spain: Macro-environmental is a condition, which subsists in the economy as a whole. There are six micro-environmental factors (Political, Economic, Social, Technological, Legal and environmental) which can affect the trade of the country. Macro-environment is more associated with general business rather than performances of any individual sector. Therefore, it is essential to understand the extent to which these forces influence the overall business performances of Spain before AFT Pharmaceuticals decides to enter the market of Spain.
The political environment of Spain is highly driven by government law and regulations which are made to regulate the country and its trade. Spain is a constitutional monarchy with a total population of 47 million. Further Spain is divided into 17 regions along with 2 autonomous cities. Congress of Deputies and Senate are two chambers of parliament, which eventually made Spain one of the divided countries within Europe. However Spain is a member of EU and EU member countries need to consider many rules and regulation which were majorly developed by EU administration, this makes situation little challenging for any country to start their business in Spain, especially if it's not a part of EU (Medina et al., 2018).
Spain is the 13th largest economy across the globe and 5th largest within EU. Majorly most of the revenue sources of Spain are generated from tourism sector; therefore, tourism industry enjoys special attention from government and foreign investors. The government of Spain started their National Reform Programs during 2012, which aims to develop employment rates and stabilise the economy of the country.
Before entering any new market, organisation must gather information regarding geopolitical challenges or geopolitical factors, which may affect the performances of the organisation.
A study conducted on the social condition of Spain suggests people of Spain have good education level. Further, the study revealed that the Spanish population has a better understanding of foreign languages, which makes it easier for any foreign company to find internal employees in Spain.
For any business organisation gaining good access internet and telecommunication, connectivity is majorly important. Spanish communication uses advances in technology, and the availability of the internet made the trade process easier for any foreign investors.
Geopolitical factors: The geopolitical condition of Spain cannot be considered as strong as another European country. The economic crisis and the latest terrorist threat have affected the entire condition of Spain. The government of Spain is planning to reform the current economic and justice system of Spain. However, the three layers of political structure can be a barrier in that way.
India: In terms of political stability, India has been one of the politically powerful countries within Asia. The presence of multiple political parties have made the political decision making not only complex but also time taking. India is the biggest democratic country across the globe and major political decision made by the government are major people oriented. The current government of India has taken the decision of demonetization in the year 2016 to reduce the corruption within the country. This demonetization has affected the entire socio-economic condition of India. It has affected the entire political condition of India and the life of people (Singh et al., 2018).
India is the third largest economic across the globe hence any business organisation has a great opportunity within India. The tax system of India has always encouraged the foreign investors or the new entrants to enter in Indian Market. Despite various political issues, India has managed to keep their GDP growth high, and that is certainly a positive part of this economy.
Considering the social condition of India, illiteracy and unemployment are two major issues, which are affecting the growth of the country. However, the large population of Indian has built a strong market for any new entrants.
Considering the technological advancement, India has managed huge development. The advancement of technology and the availability of internet have been helpful for any domestic or international organisation to grow within India.
Geopolitical Factors: The geopolitical factors focus on political powers, which are associated with geographical space (Karim and Islam, 2018). It suggests a country can be considered as a geo-politically strong in case if the geographical position of the country is better than others. Base on this perspective India has a strong position in the world politics. India is considered as a land of sea. Therefore many of the countries are dependent on the water bodies of India. Since the historical age, India was one of the lucrative geographical locations for foreign countries for their business, and it continues to be the same.
5. Analysis of the development of trade and business policy for each country
Spain: The government of Spain has some special regulation for foreign investors who are interested in investing. FDI has played a major role in shaping up the Spanish economy for more than 35 years (Mosquera, 2018). The lucrative market with greater export possibilities and growth opportunity many of the foreign investors get attracted to invest or start their venture in the Spanish market. In order to recover Spain from the economic crisis the government of Spain have decided to attract a number of foreign investors and therefore providing investment opportunities for a foreign investor is one of the major strategies adopted by the government.
However, major changes in trade regulation and foreign exchange could not be found after Popular Party took the responsibility of administration in December 2016. The Spanish law allows 100% foreign ownership in investments and the best part is capital movements are liberalised by the government. The current corporate tax rate for foreign investors is 25%, which is lower compared to many European countries.
India: The foreign trade policy of India is regulated under the Foreign Trade, Development, and Regulation Act 1992. The major trade barriers for India are that the Government of India has identified a list of commodities, which includes 109 commodities, which must be certified by the National Standards Body of India. The basic idea behind such policy is to secure that only products with good quality are getting access to the market. Import livening is a major issue in Indian trade market (Bown and Mavroidis, 2018). However, the Indian government has already removed import-licensing need on many consuming good but still there are few which face licensing related issues for their trade. Another significant rule, which foreign investors must know before planning to invest in the Indian market, is- there is a negative list, which is developed by the Indian government based on imported products. Those products or industries, which produce those products, face major barriers in terms of business. There are two rates of tax for corporate in India, however foreign company pay tax at the rate of 40% irrespective of their years turnover. However, the yearly turn over in only calculated in Indian rupees.
6. Assessment of potential dangers, risk, and opportunities in the current policies of each country
By analysing the trade policies, in this market entry strategy assignment it can be found that for both the countries, there are certain risks are involved for new entries. The major risk, which is involved in Spain for foreign investors as new entrants, is that Spanish government have very less control over the trade policies, which make the business process easy for domestic traders but the level of competition goes high when foreign investors planned to invest in Spain. Very less control over the export and import policies makes the Spanish market vulnerable for new entrants. On the other hand, a 25% tax rate and liberalised capital movements are some of the opportunities, which are included in the Spanish Market.
On the other hand, India has made a very strict import licensing policy, which creates barriers for many of the foreign products (Prasad and Prasad, 2018). Not only that, Indian trade policies are strictly governed under the Indian constitutional act, which makes it impossible for investors to disobey any of those policies. The major opportunity, which can be found in the Indian market, is the certification policy, which ensures the only product with good quality will be able to get the access of market. Apart from that, the current Indian government is keen to gain more new entrants into the market in order to gain more FDI. Henceforth, various trade policies are inline, which can be implemented in the future to develop the market condition.
From the above discussion, it can be concluded in this market entry strategy assignment that between Spain and Indian, entering the Indian market will be more profitable for AFT Pharmaceuticals Limited. There are various aspects, which makes India a better market for any pharmaceutical company.
First, of all Indian is the biggest democratic country across the globe, which naturally built one of the biggest markets for any of the organisation. However, this is not the only reason why India can become the first choice. The economic growth and technological advancement have helped India to become a versatile market, which can connect AFT Pharmaceuticals Limited with another neighbour country. Therefore, by entering in India, AFT Pharmaceuticals Limited will be able to capture a large section of an Asian market. It is also important to understand why Spain is comparatively a weak market. One of the major reasons is entering in an EU nation such as Spain is challenging for any organisation from the Non-EU country. Therefore, it is highly recommended by this market entry strategy assignment that AFT Pharmaceuticals Limited should choose India as their location for new market entry. In this market entry strategy assignment various strategic tools are used to arrive at a valid solution.
AFT Pharmaceuticals. (2018). Home | AFT Pharmaceuticals. [online] Available at: https://www.aftpharm.com/ [Accessed 25 Aug. 2018].
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