The entry mode decision framework

Appendix 1: Figures

Figure 1

The entry mode decision framework

NATION-SPECIFIC FACTORS

Government interventions (Bargaining power theory)

Government regulations/ policies (Bargaining power theory)

INDUSTRY-SPECIFIC FACTORS

Market size and growth (Uppsla model)

Consumer preference

FIRM-SPECIFIC FACTORS

Social network (Network theory)

Dissemination risk (Transaction cost theory)

ENTRY MODE DECISION

2 Figure 2

R&D costs in sample companies

0 1 2 3 4 5 6 7 8

2001 2002 2003 2004

YEAR

AMOUNT (USD BILLION)

pfizer Novartis GSK Roche Wyeth AstraZeneca

3

Appendix 2: Tables

Table 1

Per capita total expenditure on health at international dollar rate

Country 1997 1998 1999 2000 2001

Average Growth

Rate

China

Malaysia 237 237 257 297 345 10.0%

Viet Nam 92 108 113 128 134 10.0%

Ireland 1417 1439 1625 1797 1935 8.2%

Netherlands 1951 2164 2305 2358 2612 7.6%

Norway 2193 2438 2550 2755 2920 7.4%

Italy 1682 1786 1876 2047 2204 7.0%

Luxembourg 2239 2405 2631 2659 2905 6.8%

Finland 1978 2093 2230 2363 2532 6.4%

Spain 1273 1347 1428 1505 1607 6.0%

Belgium 1988 1969 2105 2272 2481 5.8%

US 3939 4095 4287 4540 4887 5.5%

Japan 1734 1730 1852 2002 2131 5.3%

Portugal 1339 1370 1457 1512 1618 4.9%

France 1881 1972 2070 2236 2259 4.7%

Singapore 834 926 947 925 993 4.6%

Denmark 2099 2238 2344 2398 2503 4.5%

Greece 1326 1407 1523 1553 1522 3.6%

Germany 2458 2515 2621 2766 2820 3.5%

Thailand 247 234 233 241 254 0.8%

Source: World Health Organization Database

Table2

The characteristics of different entry modes

Constructs

Entry mode Control

Resource

commitment Dissemination risk

Licensing Low Low High

Joint venturing Medium Medium Medium Wholly owned

subsidiary High High Low

Source: Hill et al. (2000)

4 Table 3

World Top 20 Pharmaceuticals: 2000-2003 Based on Sales Revenue

Company Parent country 2000 2001 2000 2003

Pfizer US 2 1 1 1

Glaxosmithkline UK 1 2 2 2

Merck Germany 3 3 3 3

Johnson & Johnson US 10 7 5 4

Aventis France 5 6 6 5

Astrazeneca UK 4 4 4 6 Novartis Switzerland 7 8 8 7

Bristol-Myers Squibb US 6 5 7 8

Pharmacia US 8 9 9 *

Roche Switzerland 9 12 13 9

Eli-Lilly US 12 10 11 10

Wyeth US 11 11 10 11

Abbott US 15 14 12 12

Sanofi-Synthelabo France 16 16 16 13

Takeda Japan 14 15 15 14

Schering-Plough US 13 13 14 15

Boehringer Ingelheim Germany 18 17 17 16

Bayer Germany 17 18 18 17

Schering AG Germany - 19 19 18

Sankyo Japan 20 - 20 19

Merck KGA Germany - - - 20

Akzo Nobel the Netherlands - 20 - -

Shionogi Japan 20 - - -

*On April 16, 2003, Pfizer acquired Pharmacia

Source: www.contractpharma.com & Company Annual Report

Table 4

Review of GlaxoSmithKline’s investment in China

Company Name* Entry Mode Registered Capital Foreign Share Domestic Share Established year

Tianjin SmithKline & French Labs Ltd. JV 29 55% 45% 1984

GlaxoSmithKline (Chongqing) Pharmaceuticals Co., Ltd.** JV 14.9 88.4% 11.6% 1988

GlaxoSmithKline (Tianjin) Pharmaceuticals Co., Ltd. JV 92 90% 10% 1995

GlaxoSmithKline Biologicals (China) Co., Ltd. JV 30 N.A. N.A. 1995

GlaxoSmithKline (Suzhou) Pharmaceuticals Co., Ltd. WOS 136 100% - 1997

GlaxoSmithKline (China) investment Co., Ltd. WOS 278*** 100% - 1998

* All names used are after the merger of Glaxo Wellcome and SmithKline Beecham in December 2000.

** Sold out to Chongqing Taiji Group in 2001.

*** This is the total investment amount in China since GlaxoSmithKline (China) investment Co.,Ltd. is the holding company.

Source: www.gsk.com and web news

Table 5

Review of Novartis’s investment in China

Company Name Entry Mode Registered Capital Foreign Share Domestic Share Established year

Novartis (Beijing) Pharmaceuticals Co., Ltd. JV 21 78% 22% 1987

Novartis (Shanghai) Animal Health Care Co., Ltd. JV 23 81% 19% 1990

Novartis (Shanghai) Nutritional Co., Ltd. JV 28 81% 19% 1993

Novartis Shi Kang (Shanghai) Contact Lens Co., Ltd. WOS 25 100% - 1995

Source: www.novartis.com and web news

Table 6

Review of Roche’s investment in China

Company Name Entry Mode Registered Capital Foreign Share Domestic Share Established year

Roche (Shanghai) Pharmaceuticals Co., Ltd. JV 45 56% 44% 1994

Roche San Wei (Shanghai) Vitamins Co., Ltd.* JV 17 25% 75% 1995

Roche Tai Shan (Shanghai) Vitamins Co., Ltd. * JV 30 25% 75% 1995

Givaudan Luo Ya (Shanghai) Co., Ltd.** JV 14.5 25% 75% 1995

Roche Xin Ya (Shanghai) Vitamins Co., Ltd. * JV 29.6 25% 75% 1997

Roche Zhong Ya (Wuxi) Citric Acid Co., Ltd. JV 54.5 N.A. N.A. 1997

Roche (China) Investmetn Co., Ltd. WOS 30 100% - 1997

Roche (Shanghai) Diagnostics Co., Ltd. SWOS N.A. 100% - 2000

Roche (Shanghai) Vitamins Co., Ltd.*** JV 76.6 25% 75% 2001

Roche (Shanghai) Fine Chemicals Co., Ltd. *** JV N.A. N.A. N.A. 2001

R&D center in shanghai WOS N.A. 100% - 2004

* Merged into Roche (Shanghai) Vitamins Co., Ltd. in 2001.

** Independent from Roche in 1999.

*** Sole out to DSM in 2003.

Source: www.roche.com and web news

Table 7

Interviewee Information

Company Corporate/Public relations Department Sales/Marketing Department R&D Department

Interviewee Ms. D. Feng Interviewee Ms. W. Tang Interviewee -

Pfizer Position Corporate Affairs Director Position Senior Sales Position -

Interviewee Ms. R. Bi Interviewee Mr. X. Ma Interviewee -

GSK Position Government Affairs Supervisor Position Marketing Director Position -

Interviewee Mr. X. Wang Interviewee Mr. M. Yue Interviewee N.A.

Astrazenaca Position Corporate Affairs Manager Position Markeing Manager Position N.A.

Interviewee Mr. X. Fu Interviewee Mr. Z. Wang Interviewee -

Novartis Position Ex-Government Affairs Supervisor Position Senior sales Position -

Interviewee Mr. B. Zeng Interviewee Mr. G. Hu Interviewee Mr. C. Chen

Roche Position Ex-Corporate Affairs Supervisor Position Senior Sales Position R&D Director

Interviewee Ms. Y. Yang Interviewee Mr. H. Bao Interviewee -

Wyeth Position New Drug Registration Supervisor Position Senior sales Position -

Table 8

Summary: entry mode and the empirical evidence for the propositions

Pfizer GSK AstraZeneca Novartis Roche Wyeth

Entry mode summary

Joint venture, with the increase of the foreign share

Joint venture in four companies, wholly owned in the latest one

Wholly owned subsidiary

Joint venture in three companies, wholly owned in the latest one

Joint venture in two companies, wholly owned in the latest one

One was joint venture originally, changed into wholly owned after 9 years, the other is wholly owned subsidiary

Price control

Less alarming without OTC

Price control over key developments is significant

Less affected with only one OTC

Less affected with only one OTC

Less alarming without OTC

Influenced evidently by price control

Government intervention

Pricing cuts

Price was cut with the lowest range

Profits have been cut badly

Affected least without key depreciation drugs

Affected less Price was cut with the lowest range

Affected less

Pharmaceutical Law

GMP regulations in pharmaceutical law is not the obstacle for foreign pharmaceuticals

Government

regulation

Compete with local substitutes

Most of the products are in the list

N. A. Some key products still waiting for enter the list

Compete with local substitutes

Only the fist product in the list

Market growth (In the past five years)

Average growth rate of 26%

Average growth rate of 17%

Average growth rate of 40%

Average growth rate of 30%

Average growth rate between 20%-30%

Average growth rate of 13%

Consumer preference

Few competitions from Traditional Chinese Medicine

Some kinds of drugs have local competitors

Few competitions from Traditional Chinese Medicine

One drug has local competitors

Few competitions from Traditional Chinese Medicine

One drug has local competitors

Social network

Status of corporate citizen in China

Lack of social network to some extend

Corporate

responsibility as the main policy

N. A. Government affair

department covers every province

Key person in key position

Dissemination risk High High Low Medium Medium Low

Table 9

Summary: propositions and empirical studies Propositions:

Other things being equal, foreign pharmaceutical companies prefer joint venture to wholly owned subsidiary if

Proposition 1:

the investment disincentive government

intervention is high

Proposition 2:

the level of government regulations/ policies is high

Proposition 3:

the market is expanding dramatically

Proposition 4:

the target market’s consumer preference is hard to be changed

Proposition 5:

the companies are lack of social network

Proposition 6:

the dissemination risk is high

Results

:

Pfizer Mixed result Moderate influence Not related Not related Strong influence Related

GSK Strong influence Strong influence Moderate influence Moderate influence Strong influence Related

AstraZeneca Moderate influence N. A. Strong influence Not related Strong influence Related

Novartis Opposite result Strong influence Not related Moderate influence N. A. Related

Roche Opposite result Moderate influence Moderate influence Not related Strong influence Related

Wyeth Moderate influence Opposite result Moderate influence Moderate influence Strong influence Related

Supported relations:

Not supported generally, but is confirmed in 4 companies out of 6.

Not supported generally, but is confirmed in 4 out of 5. Besides, investment regulations are regarded to be important.

Not supported generally, but is confirmed in 4 companies out of 6.

Not supported generally, even with some influence, this factor is not a key issue for entry mode decision.

Supported generally, and the influence is strong.

Supported generally in each case.

1

For detail information of the result, please refer to table 8.