International Business in AstraZeneca

ASSIGNMENT

This assignment focuses on the behaviour of managers when going international. You are to research the Multinational Company assigned to you, & analyse it using concepts introduced in the IB module.

The company will have a wide range of international activities as it is taken from a global listing – there will be plenty of information available to you in the public domain. You may need to set the scene using the company’s overall operations, then focus on a few examples which show different approaches to international activities.

The company’s Annual Report will be a good starting point, the Internet & the company’s own website will be valuable sources of information. Your task is to research relevant information & interpret its development over time & the behaviour of its managers, using concepts in the module.

THE COMPANY’S INTERNATIONAL ACTIVITIES
– Concisely summarise the geographic & product markets that the company serves, indicating
(with examples) the range of transaction modes it uses to serve these markets (you may need to do this by interpreting the nature of the subsidiaries it operates – are these wholly-owned, joint ventures, agents, etc).
– Depict the historical development of the company’s International Business operations & expertise.
50 % of mark
INTERPRETING COMPANY BEHAVIOUR
– Use concepts from the module to assess the company’s current principal goals for International Business. Consider which of the Forces of Globalisation it is responding to.
– Use the pattern of internationalisation to show how the company has adjusted to the challenges of internationalisation over time – how many countries it entered, how similar they were to the ‘home country’, etc. Is there a pattern to the countries it has selected to serve?
– Consider the organisation’s approach to ‘organisation & control’ – how does it structure its international operations? What is its approach to international human resource management – home country nationals, host country nationals, third country nationals. Relate the company’s approach to its cultural origin.

Conclude by interpreting the company’s strategy using Dunning’s OIL – what does it own, what has been the approach to control/internalisation, & why has it chosen locations.
Make effective use of Appendices in your answer.

GlaxoSmithKline
– Do more, feel better, live longer.

In today’s era of fierce competition, almost all businesses are going global i.e. engaging in commercial transactions and other activities beyond their political and geographical boundaries. One such major player in the domain of healthcare, biologics and pharmaceutics is the very popular and successful GlaxoSmithKline, a research-based British multinational with offices all around the world. Established in the year 2000 with its headquarters in Brentford; London, GSK is engaged in the creation and discovery, development, manufacture and marketing of pharmaceutical products including vaccines, prescription medicines and health-related consumer products. Today, it proudly stands as the third largest pharmaceutical company (in terms of revenues) on this planet after Johnson and Johnson and Pfizer; and is also one of the very rare pharmaceutical concerns that researches both medicines and vaccines for the World Health Organization’s three priority diseases – HIV/AIDS, tuberculosis and malaria. Having developed and still expounding some of the leading global medicines in these fields as well as other major disease areas such as cancer, asthma, anti-virals, infections, mental health, diabetes, cardiovascular, digestive conditions etc, GSK is rightly honoured as a leader in the vital sphere of vaccines. (GSK annual report, 2010)

Mission and Vision Statement:

The founders of GSK, American pharmacists Henry Wellcome and Silas Burroughs quote, “We have a challenging and inspiring mission to improve the quality of human life by enabling people to do more, feel better and live longer.” Their long term vision is to make their entire value chain, from raw materials to product disposal, carbon neutral by 2050. (Employee Guide to Business Conduct, 2011)

GSK Global Highlights:
The success of this Public Limited Company is clearly visible from the following facts: (GSK At a glance, 2011)
? Around a hundred thousand employees in over hundred countries worldwide and around thirteen thousand people working in research teams towards the discovery of new medicines.
? A Leader with first rank in both Access to Medicine Indexes in 2008 and 2010; and also in Dermatology with a market share of 20% and an annual growth rate of 15%.
? GSK vaccines included in immunisation campaigns in a hundred and eighty two countries worldwide and 1.4 billion vaccine doses delivered to a hundred and seventy nine countries in 2010.
? Commitments to convey certain medicines at preferential and discounted prices to even the poorest and the neediest in the developing and underdeveloped countries.
? Revenue of £28.392 billion, operating income of £5.128 billion and net income of £1.853 billion last year.
? Possession of around 5% of the world’s pharmaceutical market share. (IMS Health, 2011)
? Moreover, GSK’s primary listing (ordinary shares of 25p each) is on the London Stock Exchange, secondary listing (ADS) on the New York Stock Exchange and is a constituent of the FTSE 100 Index.
GSK International Activities

Product Market:

While GSK covers almost the entire range of products and services existing in the pharmaceutical arena, it classifies its product into four groups:

1. Prescription Medicines – Medicines prescribed by qualified doctors and other healthcare professionals for various health conditions. GSK provides Patient Information Leaflets or Prescribing Information with country or region specific information as well as offers Safety Data Sheets for their products marketed in US and UK.

2. Vaccines – One fourth of all vaccines used in the world are from GSK, 80% being in the developing world; and are pursuing more new ones. Among more than thirty varieties of vaccines in its robust pipeline, GSK’s best brand is six-in-one combination infant vaccine Infanrix Hexa. It is proud to develop the first probable malaria vaccine with phase III trials ongoing in seven African countries.

3. Consumer Healthcare – Through its leading presence in three consumer healthcare global categories, GSK demonstrates revolutionary potentials in both scientific innovation as well as excellent marketing of a wide range of market winning offerings like (OTC) over-the-counter medicines including Gaviscon, Panadol and Alli; nutritional healthcare drinks such as Lucozade, Ribena, Horlicks (every year c.1bn units manufactured in the UK); oral health products such as Aquafresh, Sensodyne (world’s fastest growing toothpaste brand over the last five years); smoking control products Nicorette/Niquitin as well as skincare products marketed by Stiefel Laboratories to people across the globe. Also, GSK At a Glance (2011) reports new Consumer Healthcare Research and Innovation centres opened in China and India and that India saw 20% rise in the consumption of Horlicks last year.
Source: GSK Consumer Healthcare Business Review, 2009
Top GSK Brands:

Bactroban (mupirocin calcium cream), Betnovate (betamethasone valerate), Cutivate (fluticasone propionate) and Dermovate (clobetasol propionate) are the topmost brands in GSK’s dermatology portfolio, its emollient Emoderm being the latest addition. Augmentin (amoxicillin/clavulanate potassium), GSK’s foremost brand which has been a leading brand in anti-infective therapy for the past twenty five years is also the largest selling pharmaceutical brand in Sri Lanka’s private retail market. GSK has made significant advances towards anti-asthma and chronic obstructive pulmonary diseases with its productions like Seretide (fluticasone propionate and salmeterol inhaler). Some other long term GSK hits include a variety basket of its branded cough syrups and vitamins. (superbrands.com, 2011)

Geographic Market:

GSK offices are spread across 44 countries in Europe, 14 in Central and South America, 3 in North America, 3 in Caribbean, 13 in Asia and Australasia, 8 in South East Asia, 6 in Africa and 4 in Middle East. It’s thus not hard to believe that its products and services are easily retailed to everyone in every corner of the world. GSK not just exists, but exceeds in many such as being one of the largest pharmaceutical entities in Sri Lanka etc.

Source: GSK At a glance, 2011
With R&D centres worldwide (4 in US, 3 in UK, 2 in Europe and 1 in China) GSK performs its mainstream vaccine R&D activities at GlaxoSmithKline Biologicals in Rixensart, Belgium. Apart from over sixteen hundred research scientists, GSK also uses external collaborations to introduce new and better cost-effective and convenient combination vaccines, already having fostered one of the strongest development pipelines of the industry’s potential new medicines. (gsk.com, 2011)
Historical Developments, Transaction Modes and Subsidiaries:

The roots of GSK can be traced back to 1715 (Refer appendix 1). The brand GlaxoSmithKline is a product of the merger between Glaxo Wellcome and SmithKline Beecham in 2000.
Year Transactions Nature of Subsidiary Product Development
2001 1. GSK house – 4 5-story building and a 16-storey tower block with internal fully glazed street.
2. Reorganise R&D efforts into Centres of Excellence for Drug Development
3. Sensodyne
4. African Malaria
5. Aspen Pharmacare – Africa ? London Headquarter established
? Small Business Units

? Acquisition
? Partnership
? License
Twinrix
Advair – US
2002 1. 100 million Albendazole tablets
2. 120 preferentially-priced HIV/AIDS medicines supply arrangements to 50 poorest countries Donation 20 million Avandia prescriptions – US
2003 1. 10 million free Albendazole doses – Sri Lanka
2. Fundação Oswaldo Cruz (Fiocruz) – Brazil ? Donation
? Technology transfer, suppy and License agreement Wellbutrin XL – US
2004 33 million preferentially-priced Combivir – Africa Shipment Clinical Trial Register (Website)
2005 1. Flu vaccine production facilities
2. Vaccine production facilities
3. Medicines and vaccines to Asian Tsunami disaster and Hurricane Katrina – US ? Investment
? Acquisition
? Donation Candidate Pandemic Flu vaccine
Rotarix
Fluarix
2006 1. CNS Inc
2. 600 million Lymphatic Filariasis treatements ? Acquisition
? Donation 10 million packs Relenza
Rotarix – Europe
2007 1. Domantis
2. Praesis Pharmaceuticals
3. Reliant Pharmaceuticals
4. US OTC Marketing rights to Mevacor (Lovastatin) from Merck & Co. Inc
5. New R&D – China
6. Globorix to European Medicines Agency – Africa ? Acquisition
? Acquisition
? Acquisition
? Acquisition

? Establishment
? Submission
Alli – US
Tykerb – US
Cervarix – Europe
2008 1. Sirtris Pharmaceuticals Inc
2. Biotene ? Acquisition
? Acquisition Avamys – Europe
Treximet
Requip XL
2009 1. Aspen, Dr Reddy’s and UCB
2. Stiefel
3. Viiv Healthcare
4. World Health Organization ? Agreements
? Acquisition
? Joint Venture – Pfizer
? Donation Agreement Alli – Europe
Cervarix – US and Japan
Synflorix – Europe
Lucozade – China
Pandemrix – Europe
2010 1. Laboratorios Phoenix – Latin America
2. $1.4 million medicines – Haiti earthquake
3. Global Vaccine Alliance
4. Nanjing Meirui Pharmaceuticals – China
5. Flocruz ? Acquisition
? Donation
? Membership
? Acquisition
? Innovative Collaboration
Duodart – Europe
2011 1. Envronmentally friendly building – Philadelphia US
2. Human Genome Sciences ? Establishment
? Partnership Synflorix – Kenya
Benlysta (Belimumab)
Sensodyne Repair and Protect
2011+ Maxinutrition Group Anticipated Acquisition

Company Behaviour

GSK Strategy – Company Goals: (gsk.com, 2011)

Since 2008, GSK has concentrated its business on the delivery of three strategic priorities, which aim to increase growth, reduce risk and improve their long-term financial performance:

? Grow a Diversified Global Business:
GSK lies on the bottom right grid of the Ansoff’s matrix, i.e. augmented investment/diversify into new/emergent markets like Consumer Healthcare (up 5% in 2010), Vaccines, Dermatology and Japan (up 15%, 6% and 14% respectively on pro-forma basis) with a better well-adjusted product portfolio having new/related products instead of depending on conventional ‘white pill, western markets’ which has reported a decreased sale from 40% in 2007 to 25% in 2010.

? Deliver More Value-Products:
The above strategy is to be enhanced by their reinforced core business as per their objective of nourishing their industry-leading development pipeline with around 30 late-stage assets. This aim is accomplished by a versatile strategy involving amplified research externalisation, pipeline progression and convergence on rare/untapped concerns.

? Simplify Operating Model:
The Global Restructuring Program cuts GSK’s costs and complexities and improves savings and efficiencies which are re-invested in more profit yielding bustles. (Refer appendix 2 for detailed plans under each strategy.)

GSK Business Model and culture:
The following diagram depicts GSK’s crux pharmaceutical R&D being braced by a synergistic and well-stabled business with several growth drivers. (GSK At a glance, 2011). Another newer GSK business model composed of a team of experts is known as The Emerging Markets R&D Group. They strive to achieve and enhance regional product development by spotting product development opportunities both internally and externally. This group focuses on developing a medicinal pipeline especially to suit and strengthen GSK’s already well-established footprints in emerging markets and Asia Pacific countries by expanding their manufacturing capabilities and sales forces and venturing into product partnerships with selected determined parties having the required resources and expertises related to these markets. (GSK Worldwide Business Development, 2011) Also, GSK instigates only a small amount of concise, but more generic behavioural guides in a solitary set of ‘high level’ competencies; using the same everywhere and across several cultures throughout the world without any changes. This enables the local GSK managers to mould their understanding of these capabilities across different regions.
International Business Pattern:

The GSK President International – Ian McPherson (2009) put forth some strategic measures which GSK employs to triumph over the challenges of internationalization:

? International footprints and financials:
Having captured more than 70 markets and 80% of the world’s population, GSK is successful in building and maintaining a strong growth track record with 11% sales growth in 2007, 13% in 2008 and 15% in 2009. Geographically, GSK targets an 8% sales growth in North America and European Union, 13% in Brazil, 11% in Africa, 22% in India and China and 15% in other parts of Asia and Australia. These countries originally account for 16%, 7%, 16%, 20%, 8% and 33% respectively of GSK’s total sales. Expanding their footprints and investments in North America and European Union is certainly a winning deal since these countries contributed to 58% of their sales growth, 69% total sales and 70% profits in 2008. According to Euromonitor Data and GSK analysis (2008), GSK already leads the OTC sales in emerging markets followed by Bayer, Johnson and Johnson, Novartis and Wyeth as well as ranks first in OTC and Indian Nutritional beverages and second in Oral Care internationally. (Refer appendix 3)

? International Potential:
GSK optimally utilizes its R&D power to strengthen its international potentials .i.e. going global not only in terms of maximum sales, but also with regards to maximising opportunities. According to the World Health Organization (2005), 24% of the 1.2 billion smokers and 29% of the 1.6 billion obese/overweight people of the world are in North America and European Union; thus offering great scope to GSK’s brand and business. Also, GSK prefers operations in countries with regional advantage and promoting globalisation; like Singapore where the government offers incentives like concessional tax etc.

? Geographic Expansion:
GSK’s primary target is the BRIC and Satellite markets since they believe in ‘investing where growth is higher’. According to EIU World Data; McKinsey Global Insight (2011), 91% of the 200 million new consumer households that emerged between 2006 and 2010 were from BRIC alone. Also in 2008, Brazil and Latina reported a sales growth rate of 8%, Russia and other CEE 20%, India and its sub-continents 19% and China and other Asian countries 15%; each of these having a total sales ranging from £250 million to £300 million. (Refer appendix 4) Another belief is ‘invest in large proven brand concepts’ to enhance global brand platforms and acquire brands with global potentials. The following table constructed from McPherson (2009) demonstrates the Global Brand Portfolio Footprints:

Brand Number of Markets Expansion
Breathe Right From 7 to 57 2006 to 2009
Panadol 83
Pro Namel 41 3 years
Sensodyne 87

GSK uses various routes modified to suit and access different markets such as geographical coverage to benefit from the large size of China, retail coverage and in-store visibility to take the advantage of India’s massive population and traditional retailing system, flexible pricing initiatives across emerging markets as well as using the world’s best sales force, consumer preferred; expert recommended products and services, superior advertising, 360 communications digital multimedia to achieve marketing excellence etc. Other modes used are alliances such as option-based collaborations, acquisitions and late-stage licensing; GSK having signed the most late-stage collaborations in the industry last decade. (GSK Worldwide Business Development, 2011)
GSK challenges:

? With the merger of Glaxo, Burroughs Wellcome, Beecham, SmithKline Beckman and Block Drug, their operations, strategies and identities also have to be amalgamated.
? The short life expectancy and market dynamics calls for vital creativity and innovation for its multifarious product portfolio.
? Different markets in multiple locations have diverse customers with varied needs and various sources/suppliers posing dynamic operational, product design and regulatory/legal/country specific challenges; especially with larger numbers of collaborations.
? Managing multiple cross-border suppliers is difficult; like Aquafresh Floss‘N’Cap’s custom designed sub assemblies outsourced to three cross Atlantic suppliers.
? Back-up plans and crisis management, if not cared for, may impair GSK’s goodwill and business; like it did a decade ago when its sole resin supplier’s plants exploded and it had no alternate suppliers.
? GSK also faces technological dilemmas. If it first adopts a new technology, it faces high risk of failure. Conversely, its competitors may out-perform if it does not upgrade its technology early. (casestudyinc.com, 2011)

GSK’s responses:

? With Late Pack Customisation Program, GSK conducted automatic country specific online labelling, leaflets and inspections in the retailing/importing countries.
? GSK’s Global Pack Management comprises of change standardisation, pack catalogue, central artwork and uniform and centralised technology.
? To solve the problem of frequent label/leaflet changes, GSK instigated paperless labelling/electronic leaflets for quick and convenient updating.
? To manage multiple suppliers at distant locations, GSK employs electronic CAD package which prompts any minor details, subsequent or ongoing review to every component.
? GSK limits the sources of equipments to foster better comprehension of the equipment functions, healthier supplier relationships and minimise costs and downtimes.
? GSK utilises central TIPS production management system, vision cameras, online inspection via barcode scanners and integrated assembly and packaging lines to enhance its productions, performance and quality. (supply-chain-case-studies.blogspot.com, 2011)

BCG Matrix:

If plotted on a Boston Consulting Group’s Market share/Market growth rate matrix, GSK (for the period 2008 to 2011) can be certainly placed on the star performing position owing to its robust product portfolio which demonstrates a favourable cash flow position and this consecutively has provoked on a meaningful gearing by GSK management. According to Research and Markets (2011), GSK has heavy probabilities of attaining a double-digit earnings growth out to 2011 as a result of its $23.5bn worth of assets accumulated within three years after 2009. This would sequentially result in a mid-digit growth in 2012 bearing on the generic competition.

To conclude, this report on GlaxoSmithKline’s international business is summarised with the application of Dunning’s OLI framework:
Ownership Advantage: Section 1 of this report clearly lays down the numerous products (several prescription medicines, OTC products, 30 vaccines and many more being developed constantly) and patents GSK is proud to own and employs in its process of internationalisation to strengthen its global reputation. This ownership advantage enabled GSK to attract the several successful alliances mentioned in the table of transactions and subsidiaries and all these collaborations in turn have contributed to empowering the GSK brand.
Locational Advantage: With its operations predominantly in about 117 countries and its products being manufactured in around 37 countries and sold in more than 140 countries, it is needless to say that GSK makes the most of its powerful R&D to exploit each countries locational benefit to its advantage explaining why it chose certain locations as discussed earlier.
Internalization: In spite of being diversely globalised, GSK has its own established principles, procedures and clear standards of the way they work. GSK’s internal control framework consists of financial, compliance and operational controls and risk management, the board policies on which are implemented by the management through the CET. It comprises of central direction, resource allocation and risk management of the key R&D activities, manufacturing, marketing and sales, legal, human resources, information systems and financial practice as well as policies and practices encompassing suitable authorisation and consent of transactions, application of financial reporting standards and reviews of significant judgements and financial performance. Its effectiveness and adequacy are evaluated and endorsed by the board. The vital policies which determine how the Group conducts business are identified, monitored, approved, and enforced by the CET. This framework is supported by a thorough planning system with an annual budget sanctioned by the Board. Internal auditors examine extensive financial, regulatory and operational controls, procedures and risk activities. Nevertheless, responsibilities are visibly assigned to local business units, backed by a regional management structure. This builds an environment of central leadership along with the local operating autonomy as a framework for the exercise of accountability and control. ‘Risk Management and Legal Compliance’ policy mandates that business units institute processes for monitoring and managing risks significant to their businesses and the Group. (GSK Annual report, 2010) Thus GSK has optimally exploited its ownership and locational advantages to maximise its international business while following and constantly revising its internal codes of conduct.

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