Multinational Corporation Expansion: Pfizer Company - Case Study Example

? Multinational Corporation Expansion of the Contents INTRODUCTION 3 COMPANY 3 COUNTRY 4 DIMENSIONS OF INTERNATIONAL FINANCE 4 Market Imperfections 5 Expanded Opportunity Set 5 ECONOMIC TRENDS AND IMPACT OF GLOBALIZATION 6 MONETARY SYSTEM IN VIETNAM 7 BALANCE OF PAYMENTS 7 INTERNATIONAL BUSINESS OPERATIONS 8 RECOMMENDATIONS 9 Reference List 10 INTRODUCTION A large number of firms across United States are discovering that the opportunities of global business and international expansion are immense. The present economic environment is volatile and in order to reduce the risk, more and more organizations are opting for international expansion. However, this expansion strategy has many risks and challenges. The business compatibility of the company as well as the market chosen is crucial and should complement each other. The political and legal factors ruling the target company determine the ease with which the organization can establish its business. Proper understanding of the demographics as well as socio-cultural environment of the target market will determine the strategies and promotional plans for market growth. In the current expansion plan, the company chosen is Pfizer, largest pharmaceutical company worldwide. The target market chosen will be Vietnam, where the company has launched its operations yet. COMPANY DESCRIPTION Pfizer is a multinational pharmaceutical company based in United States (Pfizer, 2013a). It is one of the largest pharmaceutical companies in terms of revenue. The company is involved in manufacturing and production of vaccines and medicines for a wide range of medical conditions. The company has its operations in more than 42 countries around the globe. In the current making plan, the company is planning to launch its business in Vietnam (Pfizer, 2013b). COUNTRY DESCRIPTION Vietnam, also known as Socialist Republic of Vietnam and is located in the eastern coast of Southeast Asia. The country is bordered by china, Laos and Cambodia. Hanoi is the capital of Vietnam. The country has a single party socialist system, with the government and the president having executive powers. The country is inhabited mainly by the Viet, constituting about 86 percent of the total population. The average life expectancy is 73 years. Around 70 percent of the demographics belong to age group 15- 64 and merely 7 percent of population constitute 65 years or above. In terms of health and malnutrition, it is one of the major issues in rural provinces. The country has suffered from diseases such as malaria and has made progress in establishing a south health system. DIMENSIONS OF INTERNATIONAL FINANCE Management of international finance deals with monetary and financial decisions taken in the area of international business. High inflation of international trade is responsible for the growth in international business. Thus, while doing international trade, involvement of trade and tariffs is normal and financial management becomes critical as these trade laws and regulations are different for different international markets. International finance is different from domestic finance. There are three dimensions of International finance which differentiates it from others; 1. Political risks and Foreign exchange, 2. Imperfections in market, and 3. Expanded set of opportunities. Political risks and Foreign exchange When individuals and companies are involved in cross-border transactions, they are exposed to risk associated with foreign exchange markets. These are foreign exchange risks and political risks. The companies are exposed to risk in terms of currency rates and nature of the foreign markets. To curb these risks, Pfizer can opt for conducting business in the local currency. Vietnam’s forex market has remained low, so to decrease the forex risk, Pfizer can utilize the foreign risk management techniques used in United States. Political risks range from unexpected changes in tax laws to inappropriate or misuse of assets by foreigners. The economic development of Vietnam is on rise and the country has shown stability in terms of politics. However to curb any risk, the company can sign bongs and contracts with the company or government they are establishing business with. Market Imperfections Market imperfection is a situation in which the resources of an organization are not allocated according to their full potential. Thus, the goods and services produced do not reach the target market and lead to market failure (Smith, 2010, pp 238-243). Some of imperfections which Pfizer is facing are transportation and transaction costs, legal restrictions, asymmetry in information etc. these market imperfections have motivated the organization to establish their productions in foreign market like Vietnam. Expanded Opportunity Set With the objective of maximizing their performance and raising funds, organizations locate their productions in a foreign capital market. This process is known as expanded opportunity set. The economy of Vietnam has shown a steady growth, and the government is welcoming foreign investments. A competitive work force, political stability and a transparent market are few of the opportunities which have tempted Pfizer to establish their business in this capital market. ECONOMIC TRENDS AND IMPACT OF GLOBALIZATION Vietnam has witnessed a steady phase of economic reform, following the structuring and reforms in its policies and regulations. With the growth and development of the economy, most of the indicators of welfare have seen improvement. The country has seen a gradual shift from a centrally planned to a market economy. The country has started more visible roles in local and global markets and has been open to foreign market investments. Vietnam has seen continuous improvements in its GDP and is considered by many big organizations as the next destination for foreign investments (Chan, 2012). Globalization can be considered as a system of interaction with the foreign market, with the objective of growth in global economy. Economic globalization can be positive as well as negative for a country. Vietnam has been in a continuous stage of economic innovation with the objective of integrating into the global market. Widened international exchanges have helped the capital in understanding the global economy in a better way. However, there are a few risk factors associated with globalization which can potentially disrupt the business operations of Pfizer disagreements over profits and organizational gain can affect the bilateral relationship between Pfizer and the local business (Martin, 2009, pp.391-403). Apart from that, finding professionals to conduct business in a foreign land will be tough. Vietnam is primarily am agricultural economy and education sector is still developing. Thus, lack of proper human resources can be one of the reasons distorting the business. MONETARY SYSTEM IN VIETNAM The currency in Vietnam is issued by the state bank of Vietnam. But the current monetary system is developing and this can cause confusion between the old system and new monetary policies. The country maintains a flexible exchange rate system. The current exchange rate for 1 US Dollar is 21223 Vietnamese Dong. In case of smaller enterprises, cash payment in more popular (International Monetary Fund, 2012). The depreciation of exchange rate is an indicator of the health of an economy. The Vietnamese currency has seen a gradual appreciation of its currency, which has increased the overall GDP of the capital. A weak exchange rate is the major drawback of the monetary policy in Vietnam. Since the US dollar is much stronger than Vietnam dong, production and manufacturing of goods will cost much more in home countries than in Vietnam (Export.gov, 2013a). By creating a fixed exchange rate system, the country will be able to control its domestic currency and thus the exchanged rates can be properly monitored and controlled. Apart from that, a flexible or floating exchange rate has many risks. It can damage the existing exchange policies. Regular volatility in the global market can have adverse effect on the overall economy of the country. Thus, Pfizer will have to make strong and effective financial strategies before entering into this market. BALANCE OF PAYMENTS While doing business with other countries, it is critical to maintain a record of all payments and transactions between the host countries and the foreign nations during a specific period of time. This process of record keeping is known as balance of payments. It generally calculates the differences between the amount of exports and imports in a country. A negative balance of payments indicates more money going out and vice versa. In Vietnam, there has been a drastic change in the external transactions in recent past. Till 1991, the country suffered from cash deficit; it started decreasing gradually and in the present economic scenario the country has a surplus of cash. The major exports of the country are agricultural products. The country lacks in technology and production equipments. Even though the balance of payments is relatively strong, rapid changes in the economic policies can have a negative effect on the US Company. INTERNATIONAL BUSINESS OPERATIONS The current bilateral trade agreements between United States and Vietnam have opened many trade opportunities. The Vietnam market has seen constant growth and development and major US companies are seeing opportunities of market establishment in this country. However, growing bias in the policies of the government can prove to be a challenge for the US based company. There are many sectors in Vietnam which have grown as a result of foreign investments. Some of these sectors are telecommunication, oil and gas, research and development, pollution and environmental training, education and training and healthcare sectors (Export.gov, 2013b). In all of these healthcare has seen the steepest growth. Growing concerns among society and government has opened opportunities for foreign healthcare market to invest in this capital. Apart from that, the central bank of Vietnam lacks appropriate capacity and resources to monitor the exchange rate policies and monetary measures (Ekeledo & Sivakumar, 2004). These are the various factors which can impact the international business operations of Pfizer RECOMMENDATIONS Despite of the various challenges which the country is facing, it is gradually becoming an attractive market for foreign investors because of the increasing size of middle income group and favorable demographics (Courtney, Navarro & O'Hare, 2007, pp 34–46). As the basic structuring of the company is getting into the right direction, it is becoming a lot easier and healthier for foreign companies in investment. Thus, with the help of improved structural reforms and sustainable macro-economic environmental conditions, Vietnam can become hot destination for foreign investment. Reference List Chan, S. (2012). Vietnam’s economic development: Policies, challenges and prospects for the future. Retrieved from http://www.voxeu.org/article/macroeconomic-stability-vietnam Courtney, H. S., Navarro, E. & O'Hare, C. A. (2007). The Dynamic Organic Transformational (D.O.T.) team model for high-performance knowledge-worker teams. Team Performance Management, 13(1), 34 – 46. Ekeledo, I. & Sivakumar, K., (2004). International market entry mode strategies of manufacturing firms and service firms: A resource-based perspective. International Marketing Review, 21(1) 68 - 101 Export.gov. (2013a). The U.S. Commercial Service in Vietnam. Retrieved from http://export.gov/vietnam/ Export.gov. (2013b). Best U.S. Export Prospects. Retrieved from http://export.gov/vietnam/marketresearchonvietnam/bestu.s.exportprospects/index.asp International Monetary Fund. 2012. Monetary Stability in Vietnam. Retrieved from http://www.imf.org/external/country/VNM/rr/2012/050912.pdf Martin, D.M. (2009). The entrepreneurial marketing mix. Qualitative Market Research: An International Journal, 12(4), 391 – 403. Pfizer. (2013a). About Pfizer. Retrieved from http://www.pfizer.com/about Pfizer. (2013b). Products. Retrieved from http://www.pfizer.com/products Smith, W.W. (2010). Setting parameters: operational budget size and allocation of resources. International Journal of Event and Festival Management, 1(3), 238 – 243 Read More