End Case: AB Pharmaceuticals Finds Its International Markets for Exporting16

AB Pharmaceuticals (ABP) is a small but vibrant pharmaceutical enterprise located in industrially active zone of Ahmedabad (Gujarat), India. The enterprise came in to existence in the year 1970. With long credible existence exclusively in sector, the company won many awards from government to mark its competency in business. ABP believed in quality tenets of its founder Mr Vijoy Mehta throughout the decades of its existence and therefore earned good name in the market covering whole of India and the subcontinent. This way, till now, helped the company not only to develop loyal clientele in India but a number of companies from neighboring countries such as Bangladesh, Nepal, and Bhutan regularly imported products of the company. Recent years have seen the opening up of markets in many countries which have made the new generation owner of ABP, Mr Gautam Mehta, curious about the possibilities of sending products in to these markets. Mr Mehta, in recent management meeting, remarked, “exporting has been crafted as a policy level strategy to foster economic development of India, so ABP expect to get many sops from the government for being able to identify a good potential market for their products and successful marketing thereof”. In the meeting, he further advised his managerial team to identify country markets, beyond subcontinent, through following a systematic market selection process. According to him, “ABP can show better export performance than those that do not have a well knit export market identification and selection process” He advised his team not to put too much emphasis on the macro level analysis like PEST or PESTIL in the beginning. Rather, the export market selection should be started straightway with demand analysis for the products ABP produces in 220 country markets of the world and then look other aspects through PEST or PESTIL. “I understand that our small company will not be capable enough to break the regulatory shackles of developed country markets and PEST environment of other countries having demand for our product will not be much admirable. I like to see the demand oriented countries first, irrespective of their PEST environment” He quipped. Mr Mehta himself took the lead to initiate a systematic market selection process in the company. “Export Market Identification & Selection Process (EMI & SP), as I fondly call it, is an iterative process of market selection which can be completed in easily in our office. We will use this in the future years also for export market selection of our company”, he told his managerial team members. Mr Mehta then explained the process to the team in the following way.

THE EMI & SP
The EMI & SP can be taken up as a group work in the team. The ABP managerial team has an objective to explore different country markets for export opportunities not only for this year but continue to evaluate opportunities in the subsequent years. At first, consider all the 220 countries of the world as the possible countries to export out products. You can take a single or an assortment of quality products which are apparently in demand in the international markets, but as of now our company does not have the information about the optimally best 20 markets which are comparatively more attractive than the others. At this stage the EMI & SP starts with a series of steps which the team will execute till the optimum markets are identified for product/products. The following steps our team need to execute in each year to find out the possible countries of our best interest.

Step 1: Product Selection for Export
The step one of EMI & SP is for product identification and exportability development scenario where our team members will discuss amongst themselves about the export feasibility of the products which primarily surfaced as selected products for international markets. This step allows the members to judge exportability of the products in a threadbare manner for which international markets are being identified. This step is basically a brainstorming session wherein team members would try to develop consensus about product/products for which export markets are to be selected. Say, here at this stage, one member of the team identified pharmaceutical medicaments (put up in packaging for retail sale) as possible product that can be exported from our company in India. Efforts will be made to develop primary consensus within the team about projecting it as exportable product from our company, the next step automatically will be to develop an understanding towards competitive advantage of the selected product in the international markets.

Step 2: Assessing Product Competitiveness
Step two allows the team to understand the challenges of international markets where many comparable products will be competing for market share in the same country. So, step two will begin by accessing trade data (both export and import) country-wise and year-wise recorded by aggregators (like www.trademap.org) at the international level. He explained the team members about the International Trade Centre (ITC) website www.trademap.org and various features of it. Mr Mehta further helped the team member to download the annual export import time series data in respect of product medicaments (selected by the managerial team of ABP as foremost exportable product of the company) with the designated six digit HS code of 300490 from the trademap.org for all the countries of the world for the past years. Mr Mehta himself explained the process of calculating index like Revealed Comparative advantage (RCA) by using trade data downloaded from www. trademap.org website in the following way.

• Export of medicaments from India in 2008: 2605.582 million USD

• Total pharmaceutical exports from India in 2008: 5005.349 million USD

• Total export of medicaments from the world in 2008 : 244,382.089 million USD

• Total pharmaceutical export of the world in 2008 : 399,833.127 million USD

• So, the Revealed Comparative Advantage Index (RCA) for medicaments for the year 2008 will be (2605.582/5005.349)/(244,382.089/ 399,833.127) = 0.852

Similarly, proceeding in this way, the team members calculated RCAs for other years also as shown in the Table 5.16. It is 0.85 during 2008, 1.0 in 2009, 1.12 in 2010 and 1.10 in 2011. The RCA index has increased from 0.85 in 2008 to 1.10 in 2011. So, in this product category, the team members expected to enjoy increased competitiveness in the world market as the index value not only increased with time but also exceeded unity in the more current years.

Step 3: Identifying countries with import demand
Once the product was assessed for competitive advantage in the world market, Mr Mehta drew attention of the team members towards market identification for the product next. Here, the team members downloaded yearly time series data of import (in USD terms) in respects of the identified product for approximately 220 countries of the world freely available in www.trademap.org for previous 8 years. The team applied a simple mathematical technique like Shift Share Method on the downloaded time series import data for isolating relatively better country markets in terms of import demand for the product under HS Code 300490. The Table 5.17 given below was the result of the analysis where in accordance with the descending order of net shift, the top 10 countries got highlighted. The top countries had shown more growth in demand relative to the other countries of the world for the product, i.e., medicaments and hence ABP team prima facie considered these 10 countries as the possible target country for exportation of the selected product.

Step 4: Assessing Trading Relationship
Through the ABP team focused, at this stage, on the ten countries selected in the step 3 as comparatively better countries in terms of growth in import demand but remained undecided as to which of these ten countries needed to be targeted more. Mr Mehta introduced the requirement of understanding the strength of trade intimacy between India as exporting country and the emphasised ten countries at this stage. He went on then in explaining the concept of Trade Intensity Index (TII) which can be computed using a trade data and utility of the index in grading the emphasised ten countries. The member used the following import data downloaded from trademap in calculating the index TII.

• Export of medicaments from India to Germany in 2009: 103,098 million USD

• Total pharmaceutical export of India in 2009: 151,268 million USD

• Total import of medicaments by Germany from the world in 2009: 172,03,458 million USD

• Total pharmaceutical import of Germany in 2009 from the World: 446,76,014million USD

So, the trade intensity Index (TII) calculated out to be: (103,098/151,268)/ (172,03,458/446,76,014) = 1.77

In this way the TII of the countries under consideration were plotted as shown in Table 5.18 Mr Mehta explained that those trading partners of India with TIIs greater than unity could be termed as ‘intensively related countries and ABP could consider these countries as “comparatively easy countries for exporting” and accordingly rearrange the team’s preference. When TII related exercise was completed the members rated altogether eight countries such as Germany, Japan, Russia, Saudi Arabia, Ireland, Italy, Switzerland, and Panama as to be the better countries where ABP must send its product under consideration. The ABP team rated Saudi Arabia as the best country to focus its export attention.

Step 5: Assessing Competition
At this stage Mr Mehta reminded the team members that it was not enough to understand attractiveness of the countries by looking at TII only because there would be other strings attached like competition. He casted doubt whether a small company like ABP could actually break in to these countries by thawarting the competition. In order to understand

the countries in terms of level of competion likely faced by its product, the team members again visited www.trademap.org data base and found out who are the other countries presently exporting to the identified countries and position of India there. The ABP team worked it out and readily came out with Table 5.19 which indicated India’s position as exporter to the top ten countries for the years 2009 to 2011. The team member easily understood from the table that India, as exporter, improved its competitiveness in medicament export only in Germany and Japan. In Russia, it maintained a very stable position. Presence of India in Switzerland was almost negligible against the competition. At this stage, based on the competitive position of India, the ABP team opined that five country markets seems to be attractive, viz Russia, Japan, Germany, Ireland and Australia from competition point of view.

Step 6: Understanding the Market Access Requirements
Pleased with the progress, Mr Meheta further drew attention of the team members to the fact that possibly India could improved its position as exporter to many of these ten country markets had there not been various barriers to export. He them emphasised on the requirements of knowing these short listed countries in respect to tariff and non tariff barriers imposed by them while importing from India. He demonsrtated, then, to the team members how to use Market Access Map (MacMap) of the trademap data base and World Bank’s “Doing Business Index” in order to understand the level of tariff and non tariff barriers faced by an Indian exporting company. The ABP team understood and explored the websites as told by Mr Mehta and further ratified the shortlisted countries with new information on expected tariff and non tariff barriers. The Table 5.20 was the resultant table prepared by the ABP team in respect of all the ten countries considered. While analysing the result, the ABP team felt that that Russia and China were charging higher tariffs while importing medicament than the other countries under consideration. Also, Russia’s ‘doing business rank’ gone down in the recent years along with clumsy ‘trading across the border’ procedures casting doubt on it as possible importing country.

Step 7: Final Selection of Target Market
Mr Mehta was very happy with the progress of the team. He joined the team to finally decide on the countries which offered ABP best exporting opportunity based on four parameters such as trade intimacy, competitiveness, tariff and non tariff issues, and rank them in terms of export attractiveness. They looked at the shortlisted countries again and assigned scores. It was decided that if a country found to be as most attractive country comparatively on account of any of the four parameters, the country would be awarded three stars (***) which means excellent country, followed by two stars (**) for very good country, and one star (*) for good country. If assessed as a ‘bad country,’ it would be marked with a # mark. For every * mark assigned, the country would get one mark as score. In this way the ABP team scored the shorted listed countries and presented the result to Mr Mehta in tabular form (Table 5.21) for his final comment.

Mr Mehta was delighted to see the efforts put by his team in the matter of export market identification and remarked, “Let us then prepare ourselves to export out the product medicament to Ireland, Italy, and Germany as the company’s first export consignment out of Indian subcontinent”.

Case Questions

Q1. Do you think that the international market identification process adopted by ABP was capable enough to identify the best possible export destinations? Why or why not?

Q2. What are the merits and demerits of the market identification process adopted the company ABP?

Q3. Can you suggest a modified process of market identification to make the selected countries as the best in terms of export destination?

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