Multinational companies face many challenges. According to Welford (2016), although there are major challenges associated with international business, there are still a number of companies which have extended their operations across boundaries with an aim of making higher profits. One such company is Dr. Reddy’s Laboratories. The company started in India and over the years, it has extended its business in other countries outside India. Today, the company has a flourishing business in countries such as South Africa, Venezuela and China. It is interesting to investigate the challenges faced by a company from a developing country such as India. Its main products, drugs, are also very sensitive and the expectation is that the company faces many challenges in the process of manufacturing and convincing the foreign customers.
Dr. Reddy’s Laboratories was started in the year 1984 as a pharmaceutical company in India. Sixteen years later, the company started its operations in South Africa (Paul, 2014). In the early years of operation, the company concentrated on two major products with Triomed Company being its major marketing partner. In the year 2004, the company entered into a joint venture with two South African companies; the Pharmaplan Company and Venturepharm. It was after these two alliances that Dr. Reddy’s Laboratories started commercialization of all its products in South Africa and today, it’s one of the leading pharmaceutical companies in the country.
Factors of Influence
As stated in the introduction, there is quite a number of aspects which affect the operations of an international company. One major challenge that Dr. Reddy’s Laboratories faced is from a legal perspective. In this regard, it should be noted that drugs are critical products which must be regulated by the government. Different government have different regulations regarding drugs and any company intending to conduct business in their country must first comply with those policies. Another major factor of influence for the company is from a cultural perspective. Before the introduction of the new modern drugs by the company, South Africans already had their traditional medicines. Convincing them to purchase the new type of drugs must, therefore, be very challenging.
In most cases, there those traditions which are embraced by the target customers. According to Welford (2016), companies base their businesses based on the environment of a place. In this regard, it can be deduced that Dr. Reddy’s Laboratories started its operations based on the Indian traditions and culture. However, after going to South Africa, it had to restructure its operations in order to fit into the local people’s traditions and social values something which is quite challenging.
Religion is an important aspect in life. In this case, South African’s believe in different religions which mainly include Christianity and African traditional religions. Some of these people’s believes do not advocate for usage of modern drugs and instead advocate for alternative ways such as usage of indigenous traditional medicines. Bearing in mind that the main products offered by this company include modern organic drugs, then it must have been very challenging to convince the believers to start taking these new drugs and abandon what they believe is the best.
International companies always pay a close attention to the political stability of a country. Countries experiencing political instability can hardly attract foreign investors (Daniels et al., 2012). Governments must, therefore, strive to ensure peace in the country and a conducive environment for businesses. In this case, Dr. Reddy’s Laboratories don’t seem to have faced major challenges in terms of political instability. Since its independence, South Africa has been largely peaceful with minimal political interruption.
The economic stability of a country largely determines the stability of a business. There are several ways through which economic instability can affect a business. One is the fact that when there is economic instability, the demand for products since the target customers lack the financial potential to purchase the products being offered. Two, the cost of business operations such as transportation of medicine to the designated outlets, in this case, rise thereby reducing the overall profit. However, in this case, there has been economic stability in the host country. Therefore, this cannot be termed as a major challenge being faced by Dr. Reddy’s Laboratories.
There are different legal obligations which a business need to meet. As stated before, drugs are critical and strict regulations have been enacted by the South African Pharmacy Council (SAPC) over the years as noted by Gray and Suleman (2015). Such regulations include; transparency in pricing by the manufacturers which include the Dr. Reddy’s Laboratories, employing only qualified pharmaceutical practitioners and regulations on pharmacy education. Therefore, this can be termed as a major challenge facing Dr. Reddy’s Laboratories in the country since it must comply with all the set regulations failure to which all its licenses are revoked by the government.
Every business demands the owner to practice ethics. However, the field of pharmacy is a bit demanding since drugs are critical as indicated before; the wrong prescription can even cause death. In this case, business ethics demands that all Dr. Reddy’s employees observe due diligence in their cause of duty. For instance, they need to produce drugs with an ultimate aim of helping the patient rather than maximizing their profits. In the same line, they need to treat every patient professionally and with respect. Noting the fact that the company has recruited many local employees, it’s therefore quite challenging to ensure that each one of them upholds the set business ethics.
How an external organization is affected by the environment
The environment has several aspects which have a direct effect on an organization. Some of these important aspects include; competitors, employees and the unions safeguarding the rights of those employees (Daniels et al., 2012). Each aspect directly impacts the success of an international company. For instance, in the case of competitors, the company has to keep a close eye on their operations and ensure that they devise brilliant strategies to counter them. It is even challenging since the competitors in the most cases are locals who are most likely to be preferred by the customers who are also locals.
Issues Regarding Foreign Direct Investment
Home and Host Government
An international company needs support from both the host and home governments. If there is insufficient support from anyone of them, then that becomes a big challenge and a hindrance to the company. In this case, Dr. Reddy’s Laboratories faces major challenges since both India and South Africa are developing countries as noted by Paul (2015) which means that they must demand huge taxes from the set businesses in order to sustain their huge populations. Failure to pay what is demanded can lead to revoking of the company’s business permits and ultimately result in its downfall in the long run.
The sector of organic drug and manufacturing and distribution is mainly controlled by the same entities. It means that those companies which produce the drugs are also tasked with the roles of distributing to the intended consumers. The pharmaceutical industry is strictly regulated by different regulations to ensure that they do not overprice their products. It’s challenging for Dr. Reddy’s Laboratories comply with the pricing regulations and at the same time effectively coordinate all its operations as required.
To start and successfully manage an international business, one has to pay a close attention to the competitors. In South Africa, there are other well established pharmaceutical companies which present a major challenge to Dr. Reddy’s Laboratories. Some of the top pharmaceutical companies in South Africa include; Aspen Pharmacare, Adcock Ingram, and Sanofi Limited. Aspen has a market share of 15.3%, Adcock Ingram has 8.9% and Sanofi has 7.2% market share (Gray and Suleman, 2015). In overall, the three top companies show a market growth rate of 7.8% which is above the average growth rate of 7.5%.
Company Competitive Analysis
Although Dr. Reddy’s Laboratories has marked a remarkable growth in South Africa, is still has a lot to do in order to obtain a substantial market share. In the year 2017, the company had a revenue of over nine million dollars. The amount is too low when compared to that of Aspen which generated $33.1 million the same year. However, Dr. Reddy’s Laboratories has the intentions of extending its business in the country by opening other selling outlets which is quite demanding.
Country Competitive Reports
Comparing South Africa with other countries across the globe, South Africa is not in a good position in terms of supporting international business. In a list of sixty countries by the Institute of Management Development (IMD), reports published last year the country is ranked in the 53rd position. In a different report by the World Economic Forum, one can note that some developing countries in Africa such as Mauritius are doing better in terms of international trade than South Africa. From the two reports, it is clear that Dr. Reddy’s Laboratories faces challenges as an international company and has to devise proper strategies for overcoming the same.
Dr. Reddy’s Laboratories sells a product which many people do not have a choice rather than to buy when the need arises; drugs are basic needs when someone is sick. The demand for drugs in South Africa has been growing at a consistent rate of 12% over the last decade and this is anticipated to continue. In terms of pricing, there are regulations which determine the prices of drugs in the country hence there are no major price disparities among different companies. Therefore, there is a huge market for Dr. Reddy’s Laboratories product’s in South Africa and this cannot be termed as a challenge.
Investment Climate, Risk
The investment climate is an important aspect which every international company must observe keenly. As stated before, South Africa has not experienced major political instability in the recent past. The country has been largely peaceful and therefore this aspect does not pose any challenge to Dr. Reddy’s Laboratories. However, economic wise, the country has not shown great progress since independence thereby becoming a major challenge for Dr. Reddy’s Laboratories. From a social perspective, different from the past, nowadays, people are accepting modern drugs as a means for treatment and therefore this cannot be termed as a major challenge being faced by Dr. Reddy’s Laboratories.
Host Government conditions
Every business is regulated by the government of the host country. There are different measures which the South African government has put in place to regulate business taking place. One such regulation is the tax regulation which demands every business enterprise pay a certain amount of money which can be used to fund the development projects of the country. In a law that was enacted in 2008 by the South African government, companies like Dr. Reddy’s Laboratories are bounded to pay 26.67% of their total income. Other general regulations that guide the company are passed by the South African Pharmacy Council. It is a challenge for Dr. Reddy’s Laboratories since it has to comply with all these regulations accordingly.
People in that Country
People tend to support local companies more than international companies. According to Czinkota and Ronkainen (2013), one of the major challenges experienced by foreign companies is gaining full acceptance by the locals. If there are similar alternative products offered by home companies, then there is a high likely hood that people would go for the products offered by the local companies. Therefore, this is a major challenge faced by Dr. Reddy’s Laboratories and partly explains why local companies like Aspen are doing better.
Other factors to be considered
As mentioned in the introduction, a multinational company faces many challenges. Apart from the challenges that have been discussed in the above research, there are still other factors which Dr. Reddy’s Laboratories ought to consider. One such factor is practising corporate social responsibility activities. Such activities might include things such as sponsoring local football clubs. That way, locals can, in turn, support the company can easily overcome major challenges such as lack of support by the local people.
The Dr. Reddy’s Laboratories communication process is quite complicated and demanding. The company operates many selling outlets in South Africa. There must be effective systems put in place to ensure that the company carries its operations successfully. A simple error in the system can make the company experience huge losses. To overcome the challenges of system failure, it is recommendable for the company to set a special department that specifically deals with such.
International companies face a major challenge in terms of getting employees with relevant skills, especially in the developing countries. As a result, they are left with no option rather than getting qualified employees from their home countries. Management of this process is quite challenging due to several aspects. First, the host government does not support the move since they need the foreign companies to employ the locals. Two, the foreign employees take time before fully adopting the new environment in the host country which affects their productivity negatively. To overcome this challenge, it is recommendable for Dr. Reddy’s Laboratories to have an effective human resource management department that can recruit and train the locals with the potential to learn and deliver quality services.
From the above research, it is evident that an international company faces numerous challenges. In the case of Dr. Reddy’s Laboratories, some of the major challenges it faces include; stiff competition from the local companies like Aspen which are already well established, strict regulations enacted by the South African Pharmacy Council and lack of qualified employees from the local communities. Several recommendations have been given which can help the company handle these challenges. For instance, in the case of employees, it has been recommended that the company should have a well-organized human resource department which has the capacity to recruit persons with the potential to learn and deliver high-quality services. By following such recommendations, the company can overcome most of the challenges it experiences and performs better in future.