Executive Summary
Globalization of economy and continuous innovations have necessitated business organizations to think beyond familiar premises. Business organizations are exploring opportunities in new territories for diversifying into new products to confront the challenges that have emerged from increasing competition and market saturation. Countries like India and China have emerged as preferable destinations for product expansion because of liberalization of business policies, a promising growth rate and availability of skills and other resources at a cheaper rate compared to United States and Europe (Johnson & Tellis 2008).
However establishing business operations in a new country can only be successful if it is attempted after a thorough research about the cultural, legal, economic and other relevant factors affecting business for the intended product in the target country. Every country has features typical of its own cultural, legal and economic environment that influence market conditions, customer expectations and preferences. Unless organizations understand these features and modify products and policies to accommodate these differences, the possibility of success of their expansion venture is quite low.
The following report consists of the expansion plan of a Canadian Health care company that is contemplating the expansion of its products to India. The report includes the cultural, legal and economic factors that influence the market conditions in India. It also addresses the consumer expectations and the modifications that has to be incorporated in the products to satisfy the local customers.
Company Profile and Rationale for expansion
The Canadian Pharma Company (CPC), founded thirty years ago and located in Toronto, Canada started by manufacturing analgesic drugs. Since then it has patented many drugs and injectable medicines through research and development. It now specializes in producing aspirin based heart care dugs and insulin injections for diabetes. Its products are sold in Canada, Europe and America. However with the globalization of competition and introduction of stricter laws on drugs manufacture and animal testing, CPC has decided to diversify into Healthcare equipment like X-ray, Ultra Sonography, surgical instruments and Blood pressure monitors incorporating digital technology. Since the European and American Markets are reaching a saturation stage in pharmaceuticals, the management considered expanding into a new range of products related to healthcare and into new markets like Asia. The countries in Asia offered various opportunities with their Governments liberalizing economic policies in favor of foreign direct investment, availability of cheaper factor inputs and a growing market. India and China with a growing population offered a market that wouldn’t reach a saturation level soon. CPC finalized India as the new destination for its expansion strategy after an extensive study of the market forces and the factors affecting it. The democratic structure of its Government was more similar to Canadian political structure compared to China’s Communist administration. It would be easier to convince the investors to invest in a familiar environment compared to a critically different one.
Factors influencing the market in the new location
Although the political atmosphere of India is similar to that of Canada, there are considerable dissimilarities in the other factors concerning the Indian market which are discussed below
Legal Factors - Healthcare products like drugs are regulated by the FDA (Food and Drug Administration) in India and are subjected to strict laws regarding manufacture and storage. Retail stores cannot sell certain drugs without valid prescriptions from medical practitioners. Groups like PETA (People for Ethical Treatment of Animals) restrict testing of certain drugs or serums on animals. Although healthcare equipment does not fall under FDA regulations, Indian laws and the medical council of India prohibit indiscriminate and unlawful use of these equipment. While marketing and manufacturing these gadgets, manufacturers and distributors of must take care that the specifications fulfill the prescribed standards and do not jeopardize the life of patients in any way which is not only a punishable offence in India but also permanently damage the company’s credibility.
Cultural Factors - Unlike the west, Indian culture is quite orthodox and do not condone practices like abortion and IVF. The society is male dominated and there is a general preference for male off springs; even if there are strict laws against sex determination and female infanticide, medical practitioners overlook them and use healthcare equipment for these purposes. However the Indian culture or tradition do not support such practices. Companies manufacturing healthcare instruments should take care not to offend the cultural values of the country and should not promote the products in such a way that is against the cultural beliefs.
Economic Factors - Before the Indian government liberalized its economic policies to facilitate the entry of foreign business firms, India was considered an underdeveloped country economically. After liberalization India became a preferable destination for many multinationals because of its abundance of natural resources and cheap manpower. Moreover in an attempt to attract foreign joint venture to promote technological upgradation the Indian Government introduced Special Economic Zones which enjoyed tax exemptions and subsidies for a specific period which acted as further impetus for multinationals considering expansion into foreign territories. Multinationals were greatly benefitted by the software expertise available in India.
Many pharma companies like Baxter and GE healthcare also expanded their operations to India for drug manufacture and product diversification. The Indian healthcare market shows a promising growth in future (Bisht, et al; 2012), owing to its growing population, supportive infrastructure, availability of cheaper and skilled work force and natural ingredients and an expertise in logistics development needed for digital equipment.
Existing Competition- Globalization of business operations have also resulted in internationalization of competition. Healthcare based industries face competition from local manufacturers as well as from international brands from China, America and Japan. Other companies looking for diversifying are also considering India as a viable option. Hence CPC should consider product differentiation and aggressive promotion as an entry strategy.
Other Factors - Other factors include political environment, ecological and social factors. The political administration in India has enacted laws that protect local manufacturers and human resources but is supportive of foreign investments in healthcare sector. Public awareness about ecological sustainability restrict depletion of natural resources. India presents a great economic divide socially where there is extreme affluence and extreme poverty existing side by side. Multinationals must address the issue of poverty and social backwardness like sanitation and hygiene as a part of their CSR policy.
Consumer Needs in the new international market
Studies indicate that disposable incomes for India consumer is growing and they are fascinated by International brands (Srivastava, 2015, p.45). However, the average Indian customer is not too well off financially and cannot afford expensive tests and facilities. Therefore CPC should concentrate on developing economic product range aimed to satisfy the needs of average customer. Also Indian customers still rely on traditional methods for treatment of common ailments based on herbal and natural medication. In order to wean away these consumers to modern healthcare services, CPC should consider modifying its products to fulfill the requirements of the consumers in the new international market. The Indian Government has introduced subsidized medical treatment for the poorer sections which may act as an impetus for the healthcare market.
Necessary modifications to the product – CPC healthcare should use technological innovations for substituting expensive components and software with more economic parts to satisfy the needs of the general consumer in Asian markets. This strategy will attract more consumers and enhance sales. Affordability of the facilities may convert consumers using traditional methods to modern facilities. It may consider manufacturing drugs using herbal ingredients for these consumers.
Distribution plan
CPC healthcare has decided to appoint C&F agents and distributors in India for supplying the products to hospitals, clinics, private practitioners and retailers selling drugs and medical instruments. The company may also appoint medical representatives who may introduce and demonstrate the product to the consumers.
Another effective mode of distribution is through a tie up with existing pharma companies for distribution of the product through their agents. CPC intends to develop a supply chain network to deliver its products to the consumer through franchises, distributors and retailers using all three modes of transportation.
References/ Bibliography
Bisht, R., Pitchforth, E., & Murray, S. F. (2012). Understanding India, globalization and health care systems: a mapping of research in the social sciences. Globalization and health, 8(1), 1.
Johnson, J., & Tellis, G. J. (2008). Drivers of success for market entry into China and India. Journal of marketing, 72(3), 1-13.
Srivastava, R. K. (2015). Consumer Purchase Behavior of an Emerging Market like India towards Chinese Products. Journal of International Business Research, 14(1), 45
Spirig, R. (2011). International, Market-Driven Expansion Strategies in General and in Private Banking Specifically-Achieving Sustainable Growth in Times of Uncertainty (Doctoral dissertation, University of St. Gallen)
