Novotech Company on the BRIC Countries Market

Executive Summary

This report presents risks and opportunities in BRIC nations. BRIC countries have been recognized as important investment destinations for firms seeking overseas expansion. Novotech, an Australian company, could benefit from IT expertise and business culture found in Indians. The company should enter the market through a local partner who understands the market, local conditions and could offer connections with national and quasi-government agencies. In addition, Novotech should consider licensing to protect its business IT, processes and operations while gaining and learning local market practices.

About the BRIC Nations

In economics, the acronym, BRIC, refers to Brazil, Russia, India, and China together. The common argument is that these countries would probably be richer by the year 2050 than most global economic powers of today (Sonawane, 2015).

The BRIC argument asserts that China will develop to become a dominant player in the global manufacturing sector, while India will emerge as the global suppliers of services. On the other hand, Russia and Brazil will lead other nations in supplying raw materials for industries.

One must recognize that the BRIC countries are not a political alliance, but their move to create a development bank to compete with the World Bank could influence their relations. Furthermore, the BRIC nations also lack any formal trading relations. By focusing on the development bank, it shows that the BRIC nations have the ability to create a major economic trading bloc. Today, BRIC refers to these emerging countries from a generic marketing perspective.

The purpose of this report is to show the best investment destination among the BRIC nations for Contract Research Organization Novotech, an Australian-based company that offers clinical trial services.

Analysis of Risks and Opportunities

From a general perspective, growths among the BRIC nations have slowed down due to various factors, but they have remained significantly well above the US and Europe. Today, economies of most BRIC countries are structurally well organized and sound than previously determined (Gupte, 2014). These countries have focused on the fundamental long-term goal of shifting the global economic powers toward their sides.

In addition, potential investors must also note that BRIC nations have unique characteristics in terms of risks and opportunities. Brazil has been touted as the most diversified in terms of economy. Its major industries cover steel, coffee, ore, iron, ethanol, aerospace, and automotive, among others. Russia has been recognized as the global largest producer and the second-largest export of oil. In fact, the country’s two-third of exports is just oil and gas. In addition, Russia boasts of huge mineral wealth and possible urban expansion. India’s growth has originated from the provision of services and manufacturing activities.

The country has a vibrant domestic market because of its huge population. In addition, India has engineers and software developers, chemical, textile, and leather industries. China has risen to become the global leading importer and exporter of manufactured products. China is considered as the world’s manufacturing hub generally because of cheap labor. Some major industries in China cut across defense, energy, machinery, construction, and textile, among others.

BRIC nations have underlying assumptions required to ensure that they achieve the predicted economic growth (Bell, 2011). On this note, the BRIC countries must formulate favorable economic policies and develop institutions that support business growth to counter their challenges (Bo, 2014). These factors include improving the rule of law, combating corruption, trade openness, and accountability (Jadhav, 2012). Risks could inevitably erode investors’ profits (Eyring, Johnson, & Nair, 2011).

Major opportunities for BRIC nations exist in various spheres. For instance, they all have a large population of the rising middle class. These populations generally have disposable incomes and, therefore, can spend surplus incomes. BRIC nations have relatively cheaper labor (Radulescu, Panait, & Voica, 2014). However, this situation is most likely to change; for instance, in China, workers have continued to demand higher wages and costs of doing business have continued to rise significantly. Besides, BRIC nations also have a highly educated workforce. Cultures in these countries differ.

Brazil

Brazil has more than 192 million people with extremely diverse cultural backgrounds, races, and classes. Brazilian culture depicts confidence, and it is well noted in their business practices. Today, however, many analysts believe that Brazil has become expensive for manufacturing while the business environment remains expensive. Nevertheless, there are opportunities for growth. Businesses may incur higher operational costs while Brazil continues to improve on the ease of doing business. The country’s financial sector has grown significantly after the 1970s and 1980s financial difficulties and hyperinflation.

Apart from the rising costs of doing business and corruption, Brazil’s political risk has continued to ascend steadily. Specifically, “political violence, government interference, and sovereign non-payment risk” (Shires, 2014) have continued to rise in BRIC countries. Brazil’s economic performance has weakened while political risks have escalated from the moderate level as the government moves toward controlling the economy. In addition, the noted demonstrations against the current regime and runaway corruption have also increased the country’s risks. These situations raise concerns about the 2016 Olympics.

Russia

Russia is vital as the center of the former Soviet Union. While the country has abundant natural resources, many foreign investors have complained about the difficulties of doing business in Russia. Its large consumer base and rising middle-class present opportunities for investors. Today, however, Russia continues to struggle to attract foreign investors to assist in developing the high-tech industry, transforming the economy and establishing an international financial hub in Moscow. These are real opportunities for foreign investments eyeing one of the BRIC nations.

Natural resources have continued to dominate the economy, but Russia has also focused on infrastructure development and modernization. Besides, Russia continues to cooperate with neighboring nations such as Belarus and Kazakhstan, to enhance accessibility and ease custom union processes.

Russia, however, faces serious political risks because of its alleged role in fueling the war in Ukraine, the annexation of Crimea, the US and the European Union sanctions. The country’s economy may collapse because of these factors. Political strains and the leadership focus on geopolitical factors at the expense of investment have aggravated an already poor operating business environment. In addition, the government has introduced new rules on exchange transfers, which present risks for new capital controls and investments. The Russian government is continuously dominating the economy. As a result, Russia is experiencing economic policy deadlock with negative repercussions on investments, which could escalate political violence.

India

India boasts of linguistic advantage over other BRIC countries. The English language has been a part of India’s business culture for several centuries. Thus, shared language and legal advantages with potential investors from the West offer unique investment opportunities.

India’s governance, the legal system, and a robust stock market are some advantages that the country has over China. These systems are aligned with the Western nations’ practices. India also has far more robust capital and equity practices relative to other BRIC countries.

The country has abundant natural resources. However, India has a critical challenge with the exploitation and production of these resources, including fossil fuels. Companies in India have adopted a hierarchical structure from most western companies. Thus, individuals’ positions in the company are extremely important.

Today, India has an advantage in its IT/BPO sector. The country’s earnings from the BPO businesses have continued to increase gradually over the years.

India, however, has experienced political risks, which investors must evaluate effectively. For instance, legal and regulatory risks have continued to rise because of widespread corruption and significantly high rates of political interference. India’s territorial disputes, ethnic and regional struggles, and terrorism have also enhanced the country’s political risks. These risks could affect the entire market (Ng, Eburne, & Kaye, 2014).

China

The Chinese government has massively invested in infrastructures to improve economic growth. Today, China has developed robust telecommunication, transport, and utility networks. In addition, the Chinese economy started to evolve from agrarian to a modern one, and natural resources have continued to define the country’s future. In fact, China protects its interests in oil-rich nations across Africa.

Hong Kong has been a good destination for many investors. However, this situation continues to deteriorate because of political protests and struggle for democracy. Hong Kong’s transport links and tax regime remain important for potential investors.

China concentrates on improving and playing a critical role in the world economy. The consumption-driven economy of China continues to put pressure on consumer products and services. Hence, potential investors can exploit these opportunities. Investors must, however, find the right Chinese partner who understands the local market. It is imperative to understand the local market and have excellent connections to succeed in China.

China’s political risks for investors have continued to increase. Political violence, particularly in Hong Kong, has taken place when the country’s economic growth has declined, and the recent stock market crash indicates ineffective policies. This implies that China has implemented poor economic policies responsible for deadlock and sluggishness in the economy, and they could escalate violence in the future (Shires, 2014).

Host Country (India) Business Environment

The preferred investment destination for Novotech is India. The country has a highly educated, English speaking, technology-savvy, and extremely motivated workforce. In fact, many IT, financial, and telecom firms have set up their operations in India because of these factors (Gryczka, 2010).

Although India’s economic freedom has stagnated, the reform-oriented Modi government is promising to change the system through its structural reforms, which have hardly achieved any meaningful outcomes (Heritage Foundation, 2015). Influences of the government on the economy remain widespread, and state-owned firms are also under subsidy programs. Thus, free and fair competition has been compromised. India lacks an effective legal and regulatory framework, the rule of law remains weak, and the economy is generally not free, a situation that inhibits the development of more vibrant private businesses.

Novotech must strive to cooperate with the government and quasi-government agencies at the local levels. In fact, most Western pharmaceutical firms have thrived through such collaboration. For instance, Novotech may undertake to conduct cheap research and enhance spending on research and development for projects of the government or other Indian partners for a given period.

The Best Market Entry Strategy

The only unique characteristic among the BRIC nations is their growth pattern. However, they openly do not have much in common. Thus, the best market entry strategy should be partnership and localization. Without effective partnership and localization, significant barriers to market access exist in India for Novotech.

Studies have shown that the market entry strategies in BRIC countries have critical influences on subsequent success, and relatively important achievements have been noted in India (Holtbrügge & Baron, 2013).

Novotech must continuously evaluate economic, political, demographics, and epidemiology trends in India to tailor its services to meet local needs.

As Novotech continues to focus on emerging economies, it must clearly understand strategic entry mode in this market. On this note, the best entry strategy involves working with the right partner in India. It is expected that the right local partner will provide the right support, local industry and market knowledge, business connections, and robust advice on relationships with national government and quasi-government agencies in India.

Novotech will have to visit, research, listen, and work with local stakeholders to build mutual relationships. These processes take time and financial resources. By thinking locally, Novotech will penetrate the developing markets in India and target the right customers.

Novotech has recognized the growth potential in BRIC nations. The company, however, must conduct massive investments in local research and development to develop local strategies, which will ultimately determine its success or failure in India.

Apart from the company’s focus on local operations and strategies, Novotech must also deploy a significant number of locals as field officers. This strategy, of course, requires massive financial resources. It is believed that local field officers will reinforce the localized entry strategy and partnership. Given the large population in India, a large number of sales representatives may be required to visit various firms, hospitals, pharmacists, physicians, and other healthcare bodies.

The effective partnership should ensure local customer targeting strategies. Novotech should ensure that its localization strategies and partnership must have provisions for gaining access to local market opportunities. Thus, the company must account for barriers and challenges when targeting customers. Traditionally, firms in the pharmaceutical industry have effectively understood important individual stakeholders and movers in every market segment. This strategy would ensure commercial success as the company works with both drug manufacturers and hospitals. These stakeholders assume major roles based on their influences. In addition, as India institutes critical reforms in the economy, Novotech must strive to align its strategies with changes in the market.

Effective use of field officers will remain important in India. The use of field officers in Western markets is a major challenge. However, Novotech must realize this vision by optimizing its field workforce. The strategy must identify the customers, designed and implemented in a manner that reflects local conditions. Once again, Novotech must demonstrate an effective understanding of local conditions.

As previously noted, BRIC nations do not have uniform characteristics and, therefore, promotional strategies must differ significantly. Field officers have been important for promotional strategies too. Thus, Novotech will have to invest significantly to reach its intended markets. In fact, India has emphasized field force as the most relevant communication channel and marketing strategy. Spending on marketing and promotional activities has continued to increase in BRIC countries.

Novotech must be patient. In addition, the company must realize that creating a suitable operational model to achieve growth in emerging economies is usually a complex process. Thus, establishing a regional structure in India could be an effective model to manage and enhance growth after the entry. The company executives must realize that achieving success will take considerable time. This strategy is considered a low commitment entry mode, which aims to control risks and ensure high-levels of flexibility in operations (Boyd & Ulrich, 2014).

Novotech may also consider licensing to protect its assets, technologies, services, operating processes, and product designs. Licensing, as a mode of market entry, would ensure that the company has complete control over its operations India. It will determine the best marketing strategy and show greater commitment to market entry and may not delegate all aspects of operations to local partners. It will have highly qualified executives to work with local partners and field agents. This approach would accelerate market adaptation and development while optimizing performance during the early stages of operations rather than completely relying on a local partner.

Therefore, Novotech should prepare a long-term, rigorous plan for the Indian market immediately it enters the market. The plan must not be based on opportunistic approaches but rather on a deeper analysis of the local context, market potentials, and prevailing environments. A short-term plan and overly optimistic strategies may not yield the desired results for Novotech.

Conclusion

BRIC countries continue to play critical roles in shaping the future of the global economy. Thus, they are appropriate investment destinations for Australian firms seeking overseas expansion.

For Novotech, India has been considered because of the IT skills of the potential workforce and business practices deeply rooted in English culture. Notwithstanding critical challenges, including corruption and increasing political risks, working with local partners to enter the market would favor the company. At the same time, long-term commitment and well-formulated marketing strategies and goals would assist the company in gaining success. Overall, a thorough understanding of the Indian pharmaceutical market and its challenges would ensure that the company succeeds in India.

Reference List

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