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Emanuel Baisire G00397918 Introduction: Globalization and the need to be competitive in the ever changing market place has

forced many forward looking businesses to either move their production process to strategic locations or simply widening their supply-chain. Unlike traditional methods of exporting and green-field foreign direct investment (F !"# many companies have adopted cross boarder mergers and ac$uisition (%&'s" and strategic alliances as a preferred form of extending their businesses globally (()* # +,,-". !t is argued that many businesses tend to outsource their production process due to reasons ranging from skilled labor force# technology and market capture. !t has been argued that for companies to continue growing and increase their profits# they should take advantage of available opportunities to expand globally. .hen a company embarks on a strategic decision of going global# it is always faced with uncertainties of selecting a market entry strategy. *ompany executives are often faced with the task of determining which foreign market to enter# whether to export from the home base or set up a plant in another country# to enter into a /oint-venture or making an ac$uisition in the foreign market (0ill# +,,-". 1he uncertainty is minimized by technology and easy flow of information. *ompany2s entry strategy to a foreign market is driven by efficient markets# opportunity to recover costs# access human and physical capital# research and development capabilities# technology and the availability of capital and financial resources (!%F# +,,3".
Overview of the European nion!s "edical #echnolo$% "ar&et: 1he )uropean Union is a composition of +- member countries that have come together under different sets of agreements to share a common political# economical and social policy. inan (+,,-" has acknowledged that the desire to diffuse long standing rivalry between Germany and France became a driving force to )urope2s regional integration. 'fter the collapse of the 4oviet Union# the )uropean Union decided to extend its influence to the eastern and 4outhern boarders of )urope to incorporate several former communist countries and others into the )uropean Union. 1he vision for expansion is attributed to )uropean Union desire to extend its economic and political influence to the new independent states.1he expansion of the )U has created exciting

opportunities for pharmaceutical companies to expand into new territories and take advantage of these high growth emerging markets countries like the *zech 6epublic# )stonia# 0ungary# 7atvia# 7ithuania# 8oland# 4lovakia and 4lovenia. )uropean Union9s ()U9s" ongoing efforts to transition to a single )uropean market continue to present the pharmaceutical and medical technology industry with unprecedented opportunities and challenges. 1he ).U2 expansion to the )ast and 4outh is estimated at tapping a pharmaceutical and medical technology market of over U.4. : 5,.; billion (8harma !ntelligence# +,,3". %edical related companies trying to enter the ).U market faces a lot of challenges. ue to the nature of ).U2s health system# member countries have different methods of controlling pharmaceutical and medical technology related costs. ).U control of pharmaceutical and medical technology companies includes price controls# profit controls# reference pricing# medical technology approval guidelines and marketing approvals (()* # +,,-". %ember countries set medically related sale prices or sometimes enter a deal with a manufacturer to sale at an agreed price (()* # +,,-". %ember governments indirectly determine medical related product2s price by imposing low reimbursement prices. 'nother method commonly used by ).U member countries to control pharmaceutical companies# involves the use of reference pricing. 6eference pricing compares the sale price of medical e$uipment to the price of the similar product in other countries (()* # +,,5". 1he problem with this approach is that it does not take into consideration the difference in income levels and other factors that can not easily be compared for the purpose of price determination. <efore determining our entry strategy to the ).U market# it is important to understand how we can overcome the issue of profit controls for pharmaceutical products in the ).U. 4everal member states limit pharmaceutical and medically related company2s profit. %ember states determine how much a medically related firm can make in profits through the sale of a specific product at a given period of time (Foreign Government 8harmaceutical prices# +,,3". !n case of violation# the *ompany is re$uired to pay back the respective excess profits to the government (()* # +,,-". ).U member2s medical industry is not influenced by free market forces# rather each member has its own guidelines and policies as far as medical technology pricing and device approval is concerned in each country. !t is therefore crucial to analyze each entry point in our strategy to determine which option will minimize our contact with ).U2s regulatory and bureaucratic market barriers.

"ar&et Entr% 'trate$%: 1he prevailing market conditions for medical technologies and pharmaceutical companies in the ).U are so complex and need a well thought strategy. 1he possibility of manufacturing in the

U.4. and export through a wholly owned subsidiary in )urope or entering into a contractual agreement with an existing distribution system will not be effective. 1he problem with the export strategy is that we will not be able to take advantage of the relatively cheap and skilled human capital in the newer ).U member states. <y exporting bulky medical e$uipments from the U.4. to the ).U involves high transport costs thus undermining the firm2s ability to compete with other medical technology producers based in the )uropean market. 1he other compelling reason not to export complete medical e$uipments to the ).U is its complex tariff and non-tariff barriers imposed on foreign products entering the )uropean market. 's clearly indicated in the over-view of the )uropean Union# member countries have different guidelines and regulations to manage importation and sale of foreign medical e$uipments in the ).U market. 1hese rules and regulations tend to be time consuming and expensive to handle thus straining the competitiveness of our firm. 1he pursuit of this strategy will increase our vulnerability to local marketing and distribution partners in the ).U market. 'ccording to 0ill (+,,-"# the local marketing or distribution agents usually sell other competitor2s products and the partner may not commit the needed effort in promoting our products due to differences in sales commissions and other interests. 1he source of financing under this initiative will also be relatively expensive. 4ince most of our operations will be based in the U.4# our cost of capital will range between ;-=> compared to the )uro bond market of about ?>. 4ince our presence will be limited in the ).U market under the export strategy# financial institutions in )urope may be reluctant to provide us with favorable loans to finance our expansion in )urope. 1he only advantage we may have under the export strategy is the depreciation of the U.4. dollar against the )uro. 1he depreciation of the U.4. dollars would provide us with a competitive edge against medical e$uipments produced within
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the )U6( zone. 0owever# this will be advantageous only if ).U governments did not determine sale prices of medical e$uipments and other pharmaceutical products. Given the nature of ).U2s nationalized health system# member governments are the primary buyers of medical e$uipment and pharmaceutical products. !n case of no price intervention by )U member states# a weaker U.4 dollar would have made our exports more competitive and affordable in the )U market. ue to the pitfall of the above entry strategies in the ).U market for medical e$uipments# strategic alliance with a )uropean firm to manufacture medical e$uipment seem to be the most effective strategy. 'ccording to 0ill (+,,-"# strategic alliance refers to competing firms agreeing to cooperate on specific tasks in order to achieve their respective strategic goals. 4trategic alliances involves a variety of inter-firm linkages that covers /oint research and development (6& "# /oint manufacturing# /oint marketing and long term sourcing agreements (()* # +,,5". For the case of the ).U# probable alliance with a )uropean firm may cover marketing# research and development# distribution and production agreement. 1he terms of the agreement will press special attention to distribution and production costs. ue to the complexity of the ).U medical technology and pharmaceutical market# it is evident that we will need a local partner who is familiar with the ).U.2s business and government environment and who has an established marketing and distributional channel. <y entering an alliance with a )uropean firm we will avoid going through ).U2s rigorous approval process for foreign manufactured medical e$uipments. 1he approval process of foreign medical e$uipment in the )uropean Union sometimes takes years before being approved for the ).U market# thus an alliance with an established ).U firm will save our product from undergoing such delays. .e will also take advantage of the already established distribution and marketing channels for medical e$uipments thus avoiding duplication of resources in the ).U and U.4 market. 1he alliance agreement will include a clause stating that our )uropean partner will provide us with unlimited access to its marketing and distribution within the ).U in return we will also guarantee the use of our distribution channels in the U.4. for differentiated products.

1he strategic alliance with a )uropean firm will help us share costs associated with setting up a plant in )urope and will spread our risks of developing new medical e$uipments. ' /oint venture with a )uropean firm will ensure that our )uropean partner will access financial resources from the ).U banking institutions with lower interest rate compared to the U.4 rates. <y accessing favorable loans from ).U financial institutions will reduce our cost of capital. 1he /oint venture will reduce our cost of capital by accessing favorable loans to be used in the manufacturing process. %ed-1ech !nc# will maintain the core competence of research and development and design of medical e$uipments in the United 4tates# and the ).U partner company will be responsible for manufacturing the e$uipments and marketing in the entire ).U market. 1he depreciation of the U.4. dollar will be an advantage to %ed-1ech !nc# if most of our sales are in the ).U market. 1he strategic alliance will mean that our revenues will be reflected in the )uro currency of which when converted to the U.4. dollars show a positive financial gain to both out our company and shareholders. 1herefore# if the U.4 .dollar continues to weaken in relation to the )uro our medical e$uipments manufactured in the ).U will not be profitable if exported to the U.4. or any other country because they will appear expensive. 1he appreciation of the )uro will be significant to the alliance if most of our inputs are sourced from non-)uro zones and all our products sold in the )uro-zone. 'nother important reason we should form a strategic alliance with a )uropean firm is that we will consider an alliance as learning process of the )uropean medical e$uipment market. 1he alliance will help us learn )uropean Union2s business and government environment. 1he gained skills and market knowledge may be crucial for our future pro/ects in )urope. 'fter ac$uiring sufficient knowledge and understanding the marketing dynamics and the distributional channels of medical technologies in )urope we may decide to break away from the alliance and undertake the market solely.

(onclusions: .hen firms start developing entry market strategy to foreign markets# there are usually faced several challenging options. 1he challenges range deciding whether to manufacture in the home and export through contractual arrangements with existing distribution systems# export through a wholly owned subsidiary in another country# enter into a strategic alliance or setting up a Greenfield. !n the analysis# ! considered the complexity of the ).U2s market place for medical e$uipments and pharmaceutical products# access to financial resources and the penetration of ).U2s marketing and distribution channels for medical e$uipments. 4trategic alliance seemed to be the most favorable entry strategy in the ).U2s pharmaceutical and medical e$uipment market. 6eferenceA inan# . (+,,-". Ever Closer Union : An Introduction to European Integration# @rd )d. <oulderA *(A 7ynne 6ienner 8ublishers. 0ill# *. (+,,-". International Business: Competing in the Global Market Place, Bew CorkA BCA %cGraw-0illD!rwin.
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!%F.(+,,3" %ergers and Ac!uisitions: Balance o" Pa#ment and International Investment $tatistics, 8aper 3# .ashington *. 8harmaceutical 6esearch 'ssociation and %anufacturer2s 'ssociation, %oreign Government Price and Access Control, Federal 6egistry Botice 4ubmission# F6 oc. ,3-5++,(Euly 5# +,,3"# 8.55. ()* .(+,,-". &e' Patterns o" Industrial Globali(ation: Cross)boarder Mergers and Ac!uisitions and $trategic Alliances, ()* # 8aris.

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