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    Specify The Types of Country Risks That Pharmaceutical Firms Face in International Business

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    Fidan Demir
    The pharmaceutical industry faces various political and legal risks in international business from country-specific factors. Some key risks include unstable governments, corruption, unfavorable regulations, weak intellectual property protection, and poverty affecting sales. To reduce these risks, a large pharmaceutical firm's management should pursue the following strategy: 1. Closely monitor political and legal environments in foreign markets to anticipate changes and risks. 2. Engage with governments and industry groups to advocate for intellectual property rights and favorable policies through lobbying and public policy efforts. 3. Consider diversifying manufacturing and clinical trial operations across multiple stable countries to mitigate risks from instability or policy changes in any single country. 4. Implement strong compliance programs and ethics training

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    Specify The Types of Country Risks That Pharmaceutical Firms Face in International Business

    Uploaded by

    Fidan Demir
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    The pharmaceutical industry faces various political and legal risks in international business from country-specific factors. Some key risks include unstable governments, corruption, unfavorable regulations, weak intellectual property protection, and poverty affecting sales. To reduce these risks, a large pharmaceutical firm's management should pursue the following strategy: 1. Closely monitor political and legal environments in foreign markets to anticipate changes and risks. 2. Engage with governments and industry groups to advocate for intellectual property rights and favorable policies through lobbying and public policy efforts. 3. Consider diversifying manufacturing and clinical trial operations across multiple stable countries to mitigate risks from instability or policy changes in any single country. 4. Implement strong compliance programs and ethics training

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    The pharmaceutical industry faces various political and legal risks in international business from country-specific factors. Some key risks include unstable governments, corruption, unfavorable regulations, weak intellectual property protection, and poverty affecting sales. To reduce these risks, a large pharmaceutical firm's management should pursue the following strategy: 1. Closely monitor political and legal environments in foreign markets to anticipate changes and risks. 2. Engage with governments and industry groups to advocate for intellectual property rights and favorable policies through lobbying and public policy efforts. 3. Consider diversifying manufacturing and clinical trial operations across multiple stable countries to mitigate risks from instability or policy changes in any single country. 4. Implement strong compliance programs and ethics training

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    © All Rights Reserved
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    112 views4 pages

    Specify The Types of Country Risks That Pharmaceutical Firms Face in International Business

    Uploaded by

    Fidan Demir
    The pharmaceutical industry faces various political and legal risks in international business from country-specific factors. Some key risks include unstable governments, corruption, unfavorable regulations, weak intellectual property protection, and poverty affecting sales. To reduce these risks, a large pharmaceutical firm's management should pursue the following strategy: 1. Closely monitor political and legal environments in foreign markets to anticipate changes and risks. 2. Engage with governments and industry groups to advocate for intellectual property rights and favorable policies through lobbying and public policy efforts. 3. Consider diversifying manufacturing and clinical trial operations across multiple stable countries to mitigate risks from instability or policy changes in any single country. 4. Implement strong compliance programs and ethics training

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    of 4

    5.

    4
    Specify the types of country risks that pharmaceutical firms face in international
    business.
    Country risk is exposure to potential loss or adverse effects on company operations and
    profitability caused by developments in a country's political legal environments.

    - Harmful or unstable political systems (e.g. civil war, mass riots)


    - Corruption and other ethical Blunders
    - laws and regulations that are unfavorable to foreign companies.
    - Bureaucracy and red tape
    - mismanagement or failure of the national economy
    - Inadequate or undeveloped legal system
    - financial factors such as currency controls
    - inadequate protection for intellectual property given by government
    - the poverty in certain countries represents operational risk.
    - High costs of research and development.
    - lack of knowledge, information and research (people my respond differently to the
    same medicine).

    Examples of country risk dimensions affecting the pharmaceutical industry are:

    State intervention / barriers to trade and investment


    In Indonesia, only pharmaceutical companies that build their own factories or sign a transfer
    license with a local manufacturer are allowed to sell their own medicines in the fast-growing
    market after a two-year transition period.

    Corruption and other ethical mistakes


    In Africa, drug manufacturers have been accused of testing dangerous drugs on children or
    testing drugs without informed consent.

    Political and legal framework for the pharmaceutical industry


    Pharmaceutical companies spend large sums on research and development (R&D) in the
    development and marketing of pharmaceuticals and have to charge high prices to cover the
    cost of capital and make profits, and in 1995 the pharmaceutical tariff elimination agreement
    was concluded between 22 countries, the more developed countries, to lower prices. Without
    this protection in less developed markets, large pharmaceutical companies have little
    incentive to finance research and development leading to new treatments for the diseases
    that plague the world.

    However, when political and legal systems are weak, intellectual property laws allow the
    production of cheap generics and counterfeit drugs.

    Facts about the counterfeit drugs


    In developing countries, where only a few countries have the regulatory and police powers of
    the United States and the United Kingdom, the problem of counterfeit medicines is much
    wider and more tragic. Counterfeit medicines are often manufactured in countries such as
    China and India. (Approximately 80% come from abroad).

    How do the political and legal systems of countries affect the global pharmaceutical
    industry?
    legal system as well as political systems of the countries may strongly affect the global
    pharmaceutical industry. they interplay among various societal Institutions, at both the
    national and international levels.

    Governments have the power to enact and enforce laws, they are influential in how firms
    enter host countries and how they conduct business there.
    Barriers to entry (example of South Africa vs. Manufactures of AIDS drugs).
    It may either be in favor to the pharmaceutical industry or not.

    5.5
    People need medications, but the poor often cannot afford them. Governments may
    not provide subsidies for health care and medications. Meanwhile, pharmaceutical
    firms focus their R&D on compounds likely to provide the best returns. What is the
    proper role of the following groups in addressing these dilemmas: national
    governments, branded pharmaceutical firms, and generic manufacturers?
    Government
    - The government should increase the protection of intellectual property by extending the
    period from the current 20 years to 30 years.
    - The government can remove trade barriers specifically for pharmaceutical products by
    reducing or eliminating tariffs and import duties.
    - National governments have budgetary and aid funds for the poor. It can also require
    insurance companies to reduce premiums based on the income of the poor. If the insurance
    and health insurance system is initiated by national governments, the poor can benefit
    greatly.

    Generic manufacturers
    - Manufacturers are able to produce on a larger scale without infringing the patent rights of
    the inventor. The economies of scale would allow them to sell to customers at a lower price.
    This would allow manufacturers to continue selling pharmaceutical products at lower prices
    as they would not have to incur high R&D costs.
    - Manufacturers are able to control pharmaceutical products more freely and efficiently.
    - Generics are cheap and readily available. They may not be effective, but they serve the
    purpose of the poor. Some generic drugs may not give the desired results, but the major
    diseases that poor people suffer from can be treated with generic drugs.

    Branded pharmaceutical companies


    - by increasing intellectual property protection, pharmaceutical companies can benefit from
    this measure as they have more time to cover their R&D costs. This in turn would allow them
    to burden consumers with lower prices. Furthermore, if this protection were in place, it would
    encourage innovation so that more medicines would be available on the market.
    -Pharmaceutical companies can enter into a joint venture with generic manufacturers by
    giving them the rights to produce their invented medicines for a certain royalty per year. This
    would indirectly reduce the companies' marketing costs.
    - Pharmaceutical companies can enter the international market and thus expand their market
    size. This would allow poor countries that do not have access and cannot afford to develop
    their own medicines to benefit.
    - Branded pharmaceutical companies account for more than 50% of global pharmaceutical
    sales. This makes them enormous profits. These profits can be used to finance hospitals in
    poor areas. This will give companies not only respect, but also good recognition.

    5.6
    Consult www.phrma.org, the Pharmaceutical Research and Manufacturers of America.
    What steps is the branded industry taking to address the various ethical issues it
    faces, such as providing affordable drugs to poor countries?
    Intellectual property
    enquire effective system by based on criteria:
    - they system must provide fair and effective incentives for innovators.
    - it must provide innovators certainty regarding their rights.
    - it must offer patent holders strong enforcement tools for defending infringed patents.
    Neglected Disease
    - involved cooperation with world governments and non- governments organizations (NGOs)
    - Donating fund as well as medicines and scientific research project.
    - Share expertise and drug discovery work to invent new medicines.

    Counterfeit Drug
    - Promote safe online buying.
    - Look for Websites that have verified Internet pharmacy practices sites (VIPPs) seal.
    - Root out criminal networks.
    - stop the global counterfeit medicine trade.
    - work with public or private partners to fight against the growing counterfeit drug issue.

    Rescription Abuse
    - Promote secure storage of prescription medicines.
    - Educate about safe disposal of unused or expired prescription medicines.
    - strengthen low enforcement penalties for the diversion of prescription drug to unintended
    person.
    - Assess the effectiveness of Prescription Drug Monitoring Programs (PDMPs)

    5.7
    Consult the TRIPS agreement at the WTO portal (www.wto.org). What are the latest
    developments regarding this treaty?
    The World Trade Organization’s (WTO) TRIPS Agreement is an attempt to narrow the gaps
    in the way intellectual property rights are protected around the world, and to bring them
    under common international laws. It establishes minimum levels of protection that each
    government has to give to the intellectual property of fellow WTO members. It strikes a
    balance between the long-term benefits and possible short-term costs to society.

    What types of protection does this treaty provide to pharmaceutical firms?


    They wanted to make sure that adequate standards of protection exist in all member
    countries.
    They followed the same guidelines for protection from the World Intellectual Property
    Organization (WIPO)
    Flexibilities such as compulsory licensing are written into the TRIPS Agreement, but some
    governments were unsure of how these would be interpreted, and how far their right to use
    them would be respected.
    TRIPS agreement doesn´t and shouldn´t prevent members from taking measures to
    protect public health.

    What enforcement mechanisms does TRIPS provide for ensuring that these
    protections will be carried out?
    Governments have to ensure that intellectual property rights can be enforced under their
    laws, and that the penalties for infringement are tough enough to deter further violations. The
    procedures must be fair and reasonable, and not unnecessarily complicated or costly. They
    should not entail unreasonable time-limits or unwarranted delays. The agreement describes
    in some detail how enforcement should be handled, including rules for obtaining evidence,
    provisional measures, injunctions, damages and other penalties. It says courts should have
    the right, under certain conditions, to order the disposal or destruction of pirated or
    counterfeit goods. Willful trademark counterfeiting or copyright piracy on a commercial scale
    should be criminal offenses.

    Patent
    - 20 years protection.
    - Cannot discriminate between different fields of technology in nor the place of invention.
    - fulfill three criteria to pattern.
    - disclose the details of the invention to public.

    Compulsory license
    - Article 31b: license applicant must have first attempted and unsuccessful. It is waived in the
    case of national emergency or extreme urgency.
    - Article 31h: compulsory for the license holder to pay adequate remuneration to the patent
    holder.

    5.8
    Recommend a strategy that management at a large pharmaceutical firm should
    employ to reduce the likelihood of political and legal risks that such firms face. What
    steps should management take to minimize its exposure to such risks?
    Since large pharmaceutical firms face many political and legal risks, such as the backlash
    and negative publicity from the AIDS problem in South Africa, management of
    pharmaceutical brand-name companies need to employ strategies that will reduce the
    potential of risks such as these from occurring.

    Strategies:

    Proactive Environmental Scanning


    Managers develop a comprehensive understanding of the political and legal environment in
    target countries.
    Helps the company identify any potential risks and threats to the firm, through the process of
    scanning. Allows the firm to improve practices in ways that conform to local laws and political
    realities. Creates a positive environment for business success.

    Strict Adherence to Ethical Standards


    Ethical behavior helps protect firms from some country risks that they may encounter.
    Companies that engage in questionable or potentially unethical practices and/or operate
    outside of the law will inevitably cause more skepticism from the governments of the host
    countries where they do business.

    Alliances with Qualified Local Partners


    A practical approach to reducing potential country risks that entails a collaboration with a
    knowledgeable and reliable local partner in the target market. Qualified local partners are
    better informed about local conditions and better situated to establish and maintain stable
    relations with the local government.

    Protection through Legal Contracts


    Legal contracts spell out the rights and obligations of all parties involved. Especially
    important when relationships of parties undertake unexpected changes. Since contract law
    varies widely from country to country, firms must obey local standards.

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