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With reference to the academic literature and using your analysis of relevant environmental factors, suggest the most important external issues and trends driving the partnership of Pfizer Inc. with Zhejiang Hisun Pharmaceuticals. In which areas are the expected internal benefits and synergies for both companies? Why are the Chinese and the US governments involved?
A strategic partnership is a joint venture between two businesses that is frequently created by one or more binding contracts between the partners. The fact that a strategic alliance frequently lacks a legal partnership agency, entity, or commercial partner organization is one of its characteristics, which has a significant impact on the agreement's goals (Todeva & Knoke, 2005). The most common type of partnership in the corporate world is the formation of a joint venture. Two or more institutions will arrange for a collaboration if each of the business possess one or more commercial assets or experience that will support the other by improving its business ability. One of the significant factors influencing partnership in the corporate world is to outsource relationships whereby each of the parties desires to attain a long-term win-win advantage and innovation established on anticipated mutual outcomes. A good example is a partnership of Pfizer Inc. with Zhejiang Hisun Pharmaceuticals.
Zhejiang Hisun Pharmaceuticals Co., Ltd is a company, engaged in the investigation and development, manufacture and distribution of pharmaceutical products globally, based in China. Pfizer Inc. is a US-based pharmaceutical company headquartered in New York City. The Corporation engages in the development, production, and manufacture of a wide range of pharmaceutical products and vaccines for various medical disciplines such as immunology, cardiology, neurology, and oncology just to mention a few. Several factors influenced the growth and establishment of strategic partnership between Zhejiang Hisun Pharmaceuticals and Pfizer Inc. One of the environmental factors that favored the conglomerate was the desire to raise the presence of Pfizer in the world’s second-largest economy (China) in the healthcare sector. The objective of the deal meant the US-based Corporation would invest approximately $250 million giving it a 49 percent minority stake in the joint venture. The contract will help Pfizer Inc. to manufacture, develop and sell off-patient drugs in China as well as in the international markets. Zhejiang Hisun Pharmaceuticals will hold the 51 percent majority; which entailed pouring nearly $295 million into the dealing making it a Hisun Pfizer Pharmaceutical.
Another factor that influenced the partnership between the two corporations needs to pool resources together and to expand the growth as well as performance in the world markets. The two companies will contribute various items and products, cash, manufacturing sites, as well as other pertinent assets after the formation of the JV. Pfizer Inc. aimed at discovering commercial development prospects including establishing a good relationship with companies in China to support their successful expansion into the generics sector of the pharmaceutical market. In China, 70 percent of all domestic pharmacological market is generics medications. Additionally, the US-based Corporation will benefit from Hisun since it is the primary producer of active pharmacological constituents in China.
China has a scarcity of top-quality API producers; therefore, the Chinese API will help Pfizer Inc. to penetrate the market in the most cost-effective approach. However, it will be a privilege for Hisun to work with the largest and leading pharma organisation in the world. Besides, both corporations will gain from technological and management expertise through the joint venture. Pfizer expects to build on the recent Chinese success in the corporate world, whereby Zhejiang Hisun Pharmaceuticals made operational income growth increase of 18 percent in 2011. Pfizer Inc. will benefit from the lower economic costs associated with companies in China particularly in manufacturing as well as growing researchers’ population.
The partnership will help establish a robust network of sales in the pharmaceutical and healthcare industry that covers most health facilities and areas in China. Moreover, Zhejiang Hisun Pharmaceuticals will have the capacity to access the global market by using Pfizer’s advantage on international business networks. The hisun-Pfizer joint venture will benefit from strong product portfolio of Hisun, extensive market outreach and know-how with manufacture and commercialization of branded generic drugs. Moreover, the JV will benefit from world-class R&D, quality management, manufacturing, operational capacities, and global market promotion of Pfizer Inc. The joint venture will help the two countries to establish a good partnership and relation that will support technological development and knowledge. The states will provide a conducive environment for the facilitation and achievement of the technical goals and benefits for both the parties involved. The Chinese and US countries are involved in this partnership to create and build dominant pharmaceutical products in the world that can treat various diseases. Furthermore, these two governments can use the collaboration to involve and participate in development and research in the healthcare industry.
Question 2. With reference to the academic literature, how would you describe this partnership? Explain the risks associated with this choice of partnership. Compare and contrast this choice with Pfizer Inc.’s recent partnership with Hospira, Inc. Justify your view.
The partnership between Zhejiang Hisun Pharmaceuticals with Pfizer Inc. is joint venture. The two corporation sign an agreement to pool their resources with an aim of realising a specific task or objectives (Jin, Zhou & Wang, 2016). In this dealing, both partners are responsible for losses, profits and cost related with the venture yet the venture is a separate entity from the contributors. Irrespective of the legal structures utilized for joint venture, the most essential document will be the signed agreement, which establishes the rights and obligations of all the associates, objectives, and initial contributions of each partner. Even though the joint venture is profitable and beneficial to both parties involved, it has some risk associated with it that can be devastating to both entities. Some of the risks connected to joint venture include;
In a joint venture, most of the stipulated objectives bringing together the two or more entities are not 100 percent clear; as a result, they are infrequently communicated to individuals involved in the deal. Consequently, this may lead to issues that affect the common goal of the venture to both partners.
Limited outside opportunities
One of the disadvantages of entering into a joint venture is that a partner cannot pursue other activities outside the deal while the project is underway. Joint venture often limit an entity’s involvement in accomplishments outside while the agreement still binds them. For instance, the contract may oblige Pfizer Inc. and Zhejiang Hisun Pharmaceuticals Co., Ltd to sign an exclusivity accords or a non-compete arrangement, which will upset existing relationship with other vendors in the corporate world. These provisions made are to help in reducing the possibility of a conflict of interest from arising between the associate organisations and other outside companies.
The partnership exposes each of the parties involved into the liability integral to it. Consequently, Zhejiang Hisun Pharmaceuticals Co., Ltd and Pfizer Inc. are liable for claims put forward against the venture on the same basis despite its involvement level in the undertakings that brought a prerogative.
Uneven division of resources and work
Partners in a joint venture share control over the project (Pfizer Inc. (49% ownership) and Zhejiang Hisun Pharmaceuticals Co., Ltd (51% ownership)). However, the tasks and utilization of resources associated with the completion of the project are not evenly distributed. For instance, the venture will expect Pfizer Inc. to contribute technology, accessibility to distribution channels or manufacture facilities needed during the project while Zhejiang Hisun Pharmaceuticals will provide personnel and expertise for the project completion. Assigning each company responsibilities in the venture means putting heavier weights on one corporation thus creating a disparity for time, capital and efforts contributed to the venture. However, it does not mean high share profits for the company overstrained. Instead, the uneven work and resource distribution can generate conflicts among the corporations involved and lead to a lower success for the project.
Clash of cultures
Given that the two companies are from a different cultural background, a clash of cultures can result leading to unsuccessful joint venture in the long-term. Clash of civilizations as well as management techniques may lead to unfortunate co-operation and incorporation of the businesses undertaking and processes in the corporate world. Individual management staffs with diverse belief, preferences, and tastes can get in the way to influence the progress of the joint venture if left unmonitored.
The partnership between Pfizer Inc. with Zhejiang Hisun Pharmaceuticals is different from that with Hospira Inc. The former conglomerate involved a joint venture whereby both partners agreed to pool their resources towards an ordinary course while the latter entailed acquisition. Pfizer Inc. acquired Hospira Inc. at a value of approximately $17 billion. The deal was to transform the New York-based Corporation into the leading player in the emerging market for lower-priced drugs and other pharmaceutical products.
However, the undertaking between Pfizer Inc. with the China-based Corporation entailed contribution of each party involved. Acquisition refers to purchasing of an organisation (smaller) by another (bigger) (King & Schriber, 2016). In this circumstance, the minor company ceases to exist, and all its assets and equity becomes part of the bigger corporation. After the Pfizer Inc. partnership with Hospira Inc., Hospira ceased to exist. Nevertheless, the two types of ventures require the commitment of each partner involved to achieve a particular business goal and objectives in the corporate world.
Question 3. By applying appropriate theory and using evidence from your research of these companies, analyse the national and corporate cultures involved. Speculate on the impact of both on this ‘partnership’ between Pfizer Inc. with Zhejiang Hisun Pharmaceuticals.
The partnership between Pfizer Inc. with Zhejiang Hisun Pharmaceutical is a cross-border relationship that will influence the growth and technological development of both companies. Given that, the connection involves a US-based corporation, and China-based Company with a different management style, national and corporate culture will significantly influence the success or failure of the joint venture. The cultural variations between companies involved are very substantial in the growth of the business as well as the corporate investment as a distinct entity. Failure to appreciate and acknowledge the corporate and national cultures may lead to embarrassing mistakes, broken relationship and a drop or fall in the productivity and performance of any of the companies. Moreover, the issue of culture often persists even in life-and-death settings. Ghemawat & Reiche (2011) noted that the difference in the national cultures has remained steady over the years. Even though at the surface level there is a convergence in the American consumer culture and habits, at the broader level the variations in the perception exist strongly. Some cultural values in the society emphasized a universal commitment whereas others consider loyalty important in the relationship and to a particular group of people.
One of China’s corporate culture is loyalty, which is the greatest virtue considered among business entrepreneurs. Consequently, the possibility of misunderstanding is high especially among US-based corporations. The perseverance of variations in cultural values is of significance to the success and growth of multinational organisation particularly those from a different background. As a result, management that goes beyond borders encounters complexity as it forces the companies involved to tailor their approaches and technique to each cultural environment they operate within.
The manifestation of corporate and national cultures observable in the two countries involved in this joint venture include behaviors, music, language, and food. These perceptions are what will define the framework for the success of the joint venture. For instance, in China, it is termed rude not to study the business card issued to an individual, as these cards reflect a person’s title, social status, and professional identity. Failure to read is a sign of disrespect to a person who issued the business cards. As a result, dealing with national cultural variations requires the companies to have adequate knowledge of behavior in the corporate world as well as understanding the deeper-level traditions and virtues explaining specific behaviors.
According to research conducted by Bamford (2016), the US and the UK are some of the countries with the smallest Corporate Boards. The US boards comprise a great majority of non-executive and independent Directors. Another corporate culture is the different beliefs that underlie the fundamental determination of a Board in the organisations. For instance, in the US, the public outlook holds that the Board subsists to foster and protect the shareholder’s interests in the commercial world by making profits. However, this is not similar to China’s culture where the society expects the Board primarily to represent the interest of employees, community, shareholders and the public at large. Accordingly, such divergent interest on the purpose of the Board between China and the US may result in management issues and complication deemed damagingly to the future of the joint venture. The impact of the differences in the national and corporate cultures may be adverse on the performance of each of the companies involved in the business. The success of the partnership will depend principally on the capacity of the corporations to acknowledge and appreciate each nation’s corporate culture to support the achievement and accomplishment of long-term goals of the joint venture.
Question 4. Drawing upon academic literature and theory, critically discuss the possible effects, both positive and negative, of exchange rate movements on the deal.
A joint venture can assist organisations both small and big to save money and reduce the risks linked to operating in a particular industry through resource and capital sharing (Wang, Wuebker, Han & Ensley, 2012). However, a partnership deal between two corporations from different commercial context and using separate currency has a substantial effect on the exchange rate movement in the process. The Chinese and the US currency will face the influences of fluctuations in the flow of money on their trades. Variations in the Chinese currency during the partnership will adversely affect the imports and exports from China and the US. A drop in the value of Renminbi (Chinese currency) will mean that the cost of their services and products used in the undertaking will be cheaper compared to their counterparts in the Asian continent. The currency transfer between the two companies (countries) will bring a significant balance in the international trade as well as promoting sustainability of the two corporations in the corporate world. Auboin & Ruta (2011) revealed that exchange rates for the three world largest economies namely China, Eurozone and United States substantially influence trade; however, it is difficult to interpret their effects on international transactions. Additionally, Auboin and colleague discovered that the exchange rate movement between these countries would have a considerable impact on the agricultural exports than on the manufactured items. Consequently, price transmission mechanism will result, with farm products witnessing the most significant value fluctuation in the long-term. A comprehensive analysis of the study revealed that the value of trade between China and the United States would experience an enormous implication by the changes in the currency compared that of Eurozone-US or China-Eurozone. The exchange rate movement between the two states will affect the overall international regarding imports and exports in the market. Auboin & Ruta (2011) revealed a strong link between volatility in the real exchange rate and the coverage between two trading collaborates (Nicita, 2013) Given that, distance does not affect the volatility thus the strong connection infers that greater distances between nations considerably changes (increases) bilateral exchange rate unpredictability (Özşahin, 2017). Consequently, the exchange rate movement between China and the US will be more volatile when this partnership deal is successful.
Question 5. Identify three (3) specific aspects or challenges of doing business internationally that you have come to appreciate through the seminars or Expert Lectures on this module. Explain why these are significant to you personally and to the future of international business.
Globalisation has a considerable impact on the development of business organisations in the global arena. Moreover, it can offer several economic opportunities for improvement of quality life among people in the host country. However, international trading comes with several challenges that need the corporation to address for it to remain successful. Some of the problems associated with globalisation include;
Ethical Business Practices
The most significant obstacle faced by multinational corporations is ethical business practices in fields such as product safety, labour, corruption, environmental stewardship as well as regulatory compliance. These areas have taken a considerable part in defining the success or failure of global players in the corporate world. For instance, the image of a company in a host country may be damaged if it is low-wage workers. In some countries, especially without a firm rule of law, bribes and corruption it becomes standard for those seeking better working condition and terms to get favor by paying off officials to start up a business. Even though international and national laws and regulations are working to crack down on corruption and bribery, some entrepreneurs and managers receive pressure to follow the locally acknowledged practices in the corporate world. Consequently, upholding the highest ethical standards and practices in a given country has a considerable impact on the success of corporations.
Another considerable challenge that corporations face is the capacity to efficiently and actively integrate new states within the value chain and business structure (Tsang,2016). International corporate expansion needs massive investment regarding capital and other resources along with the development of a particular strategic business unit (SBU) to achieve these accounts and processes. Therefore, corporations must find a way to capture value notwithstanding this organizational investment in a bid to remain competitive in the industry.
Infrastructure often includes the basic physical and organizational structures for the functioning of the community and the economy. Infrastructure is a term used to define organized structural components that offer framework facilitating a wholesome development such roads, railways, bridges, airports telecommunications just to mention a few. The aspect can also entail organizational structures such as property rights, the banking system, essential social services, stable government, financial system, and judicial services just to mention a few (Totten & Knecht, 2017) The available public infrastructure will support the ease and efficiency of doing business in a particular nation. For instance, a state with poor conditions of the road and extreme traffic situation may not be appropriate region to undertake business that needs transportation of goods from one city to the other by land. Poor infrastructure affects the performance and productivity of a particular organisation in a region as they put additional cost and risks to the company to provide what the community or government does not offer. These aspects are the most important factors that determine the success of MCNs in other regions of the world. Personally, I believe infrastructural development plays the greatest part in determining the success of the business since it support the government’s ability to create conducive environment for operation of businesses locally and internationally. Organisational structure influences the corporate culture of corporations in the global business world.
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