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National Diploma in Business
Unit Number and Title
Unit 1 Business Environment – GSK & AZ
In this Unit 1 Business Environment Assignment various aspects of the business environment of two global drug companies GlaxoSmithKline and AstraZeneca would be discussed in detail throwing light on important issues like global trade and the economic system of the country in which they are conducting their business.
GlaxoSmithKline is a UK based leading drug and health social care products manufacturer of the world. It is a for profit organisation whose sole aim is to provide the customers with high quality drugs, medicines , vaccines and other health related products at a premium price points. It is a private sector organisation having the latest technology in research and development to manufacture drugs that are used for the treatment of diseases. It has a huge body of share holders who have invested their money in the company so as to get a handsome return on the investments made by them (Cherunilam, 2010). Thus profit making is among its main aims, goals and objectives and with this end in mind it sells its products to the customers worldwide.
The NHS on the other hand is a non profit health organisation that is run by the funds and proceeds from the government of UK. They have a chain of hospitals and outpatient clinics where residents of UK can go for treatment of their diseases free of cost. The cost of the treatment procedures are borne by the government. Since it is a state run hospital it does not operate with the aim of profit making but rather for the welfare and benefit of the people of UK. Its mission and vision is to help people in curing their illness at a very effective cost. It does not compete with any other private bodies in terms of business value and profits (Welford, 2013).
The red cross is a United nations body that provides treatment and first aid to victims of war and other troubled parts of the globe where there is conflict leading to loss of blood and injuries. It has tie ups with leading hospitals that care for the victims living in war torn zones of the world. It is a humanitarian relief organisation of the United Nations and it does not consider profit making as its sole aim. It acts purely for the welfare of the people. The stop smoking scheme is a cooperative effort of the NHS that helps people in the UK to give up the smoking habit. It has a network of professionals who are trained in this regard and hold workshops and seminars.
The stakeholders are people or group of persons who are connected to the organisation in some way and are interested in the affairs of the company as this has a direct bearing on some aspect of their lives. The key stakeholders for GSK include the shareholders, the government, its employees, the customers and the suppliers. The company looks after the interest of the key stakeholders according to the power they wield and their vested interest in the company. The employees of the company have low power and high interest. They are concerned about having a stable and productive tenure at the company that will enable them to progress their careers and also they are concerned about the monetary benefits like salary and perks that are associated with the job. Thus naturally they are curious about what is going on in the company and how the company performs in relation to growth and profitability. Thus organisations behaviour of gsk keeps them informed about the activities of the company (Klapper et al.2009). The government on the other hand is concerned that the drugs sold by them are safe to be consumed by the patients and are priced reasonably so that many people could afford them. Thus the government has high power and low interest in the inside affairs of the company. Thus GSK keeps the government satisfied and tries to abide by the rules and regulations that have been framed and stipulated by the government. The customers are also its stakeholders who are looking to buy safe drugs at cheap prices with an aim to cure their disease. They have no interest in the affairs of the company and has very little power to influence the decision making process of its management (Hill, 2008). Thus GSK keeps them happy by supplying drugs continuously in the market through its distributors and retailers. The shareholders are people who have invested money in the company with a hope of getting decent returns and they have a high degree of interest and power to affect the decision making process of the top level management of the company. Thus GSK monitors their activities very closely.
GSK is committed to meet the aims, goals and objectives of all its stakeholders in such a manner that they become satisfied with the business operations of the company. The customers are as important as stakeholders to GSK as the shareholders. The customers look forward to GSK drugs and health care products as they are of high quality and help them to manage or cure their diseases. Thus the company tries to make its drugs and health care related products easily available to the customers through a wide chain of retailers at a very reasonable cost. In some cases when the patients are suffering from major diseases like cancer the company arranges for special drugs that are not easily available in the market. It also does a lot of research on vaccines of many diseases like AIDS and hepatits B that offers protection against these dreaded diseases.In this way it is responsible to the customers and due to this responsibility it has been able to win the support of a wide base of loyal customers (Welford, 2013). Similarly towards the government it fulfils all its responsibilities like it applies for permits and legal acceptance of the new drugs that are tested by it. It does not sell any medicines whatsoever in the market without the permission and the approval of the government. In this way it abides by the rules and regulations of the government. For the employees it assumes a similar position and thus it is able to retain the talented employees who help the company to achieve its profitability and growth objectives. The company pays good salary to all its employees and looks after their welfare. Thus with the employees it has fulfilled its contractual obligations by informing them of their job roles and responsibilities without any ambiguity in a clear cut and lucid manner (Klapper et al.2009). Towards the government it has fulfilled its legal obligations by abiding with the contract law of the medical council of UK.
The economic system comprises of organisations and companies that decide what to produce, for whom and how to control the production mechanism. The four main types of economic systems are command economy, mixed economy, traditional economy and free market economy (Klapper et al.2009). The market economy deals with the objectives of business groups, private entities and individuals as regards the strategy that is used by them to manufacture some valuable goods and services for the consumers to consume. The major decision making process of production in a traditional economy like what quantity to produce and for whom to produce is controlled by social customs and external conditions prevailing in the market in which the business is being conducted. Factors of production in a free market economy are controlled by private enterprises and the forces of demand and supply prevailing in the market decides the prices of goods and services (Cherunilam, 2010). Thus a free market economy is characterised by healthy competition among the various companies operating in the market wherein each is trying to establish market supremacy in terms of larger market share of the goods and services sold. In a command economy the major production decisions as to what to produce and for whom is controlled by the government of the country in which the business is situated. In a mixed economy the natural resources like electricity, coal and oil are in the hands of the government while the rest is controlled by private groups. Thus the economic system prevailing in the country is responsible for the strategic allocation of the vital resources. The economic system helps to plan the efficient use of all the resources of production like time, money and the raw materials so that optimal use would be made of them.
The main objective of the UK government is to foster economic growth by giving impetus to trade and commerce and top control inflation and reduce unemployment. After the recession of 2009 thousands and thousands of people lost their jobs and they were in need of affordable drugs and health care products to cure their diseases. Thus GSK in the interest of the general public had to cut down the prices of its most essential drugs that were needed by the people in their day to day lives (Hill, 2008). Also the fiscal schemes like taxation benefits for corporate were withdrawn and it had to pay more money in the way of taxes. The company was losing a lot of money due to taxation and hence its operating profit margin decreased considerably. Thus it had to change its business strategy and cut down on its marketing and advertising campaigns expenditures. Also the monetary policies of UK was not conducive at that time. The central bank of UK raised the interest rates so as to absorb the excess liquidity and thus created a strain on the business of GSK and AZ.
EU policies of employment have affected the business of GSK. Now the company has it mandatory to train people from across the European Union to work in their organisation. This means that the company now has to hire people not only from the UK but also from other member nations of the European Union like Poland and Hungary who are not as qualified as the trained people of UK (Klapper et al.2009). The company has the onus on itself to create employment opportunities for these people of the Second World. The competition policies of EU call for fair trade opportunities of the member nations of EU with the UK. Since many EU companies have invested in the lucrative and promising UK market with the hope of making money and giving employment to the people of UK, similarly the UK companies also has to invest in the member nations of the EU so that people of those regions could get jobs to support their family members (Welford, 2013). Also UK has to provide a free market for EU based drug companies which could set up difficult competition for GSK and AZ from companies like Roche which is based in Switzerland.
The market structures have a say in the prices and quality of goods and services produced in a given country within a given system of economy. The prices charged for the products and services by the businesses cannot be as per their whims and fancies but has to be in line with the regulations and laws prevailing in the country in which the business is being conducted. In a state of perfect competition prices reflect the trends in the demand and supply forces and business fix the price accordingly but not crossing the limit set by the regulatory bodies and the government (Hill, 2008). These should be near about the prices that the competitors are using to sell the goods and services. In an oligopoly the prices are set by the top few players who are in the business of selling the goods and services. In a monopoly there is a single player who sells the goods and services at a premium price due to the absence of other market player and hence the consumer has no choice but to buy them from that company. The consumers do not enjoy any bargaining power as there are no other company that sells the same goods and services. The output decisions in a such an economy is dependent on the factors of production like availability of raw materials and other resources like energy etc. If the market is growing the producers may increase the volume of production and when the market gets saturated the production is streamlined to cut losses and reduce wastage of the resources.
GSK is a seller of medicines and health care products known all over the world for its high quality products that are priced competitively. The prices of its drugs are determined by a lot of factors such as costs of production and marketing as well as the forces of demand and supply prevailing in the market. According to the law of demand higher the price of the drug lower will be the quantity demanded. But the company realises that costs of some life saving drugs like cancer medicines, TB drugs would be higher since a lot of investment have been made by the company in research and development of those drugs (Klapper et al.2009). Also when selling these drugs in the emerging markets the customers have to pay import duty. Similarly when the prices fall the demanded quantity of drugs like other goods does not fall that rapidly. Some of the drugs have a relatively inelastic demand like drugs for diabetes and the common antibiotics that are prescribed for day to day use. Also a lot of sales and promotion activity is required to sell certain drugs and health care products and thus prices sometimes are not the reflection of the forces of demand and supply. As regards the supply law the higher the price greater is the quantity supplied (Cherunilam, 2010). And hence if the prices of some drugs go up the retailers order more and more quantity of the drug and hence more quantity of the same has to be supplied by the company warehouses. Thus it can be seen that the price of the drugs follows a complicated trajectory and cannot be decided beforehand. After taking into consideration of all the factors the pricing and the sales decisions are to be taken.
The Political factors which affect the production decisions of GSK include the rules and regulation of the country in which it is doing business. For example the Indian government has opened up its markets for foreign pharma companies to invest and set up production facility and also to sell their medicines in the country. But this comes with certain restrictions like use of generic names of drugs and conducting the marketing campaign on ethical lines. The economic factors are that the markets of the emerging nations are booming and growing at a fast pace and hence more and more people are falling sick. Hence there is a market for GSK in the emerging nations of India and China (Welford, 2013). The social factors are that UK has an ageing population which justifies the stepping up of production and sales activities in the pharmaceutical sector. With the advent of technology more and more new medicines and vaccines could be produced.
The cultural factors do affect the decision making process of GSK, like for example, in the emerging economies the fast food eating culture is catching up fast and hence more and more people are suffering from gastric and stomach related ailments (Hill, 2008). Hence there is a huge market for such medicines in the emerging economies of India and China. Also there is a cultural fad among dark skinned girls of India to look fairer and hence there is also a huge market for beauty and fairness creams that are manufactured by GSK. Many young girls in the sub continent are beauty conscious and hence the company had to step up production of these category of medicine segment.
International trade has become a lucrative prospect for western companies after globalisation since the markets of the western world has become saturated while those of the developing countries like India and China are growing at a rapid pace with less tighter regulations and legal impediments. The government of India has opened its doors to foreign pharmaceutical companies since they offer better quality drugs which the Indian firms are not in a position to manufacture due to technical and infrastructural hurdles. The drugs of GSK and AZ are widely renowned to cure many diseases or at least effectively keep them under control. Thus there is a huge market opening up for the products of GSK in the emerging economies of India and China which are growing at a rapid pace (Welford, 2013). Due to unprecedented growth and unable to keep up with the modern lifestyle more and more people in these countries are falling victim to mental ailments and thus there is a huge market for psychiatric drugs of GSK And AZ in the countries like India and China where it has been estimated that 20% of the population suffers from such ailments. Also the fact that in their home countries these companies face a lot of legal hurdles to get their drugs approved which is not the case in the emerging markets and hence international trade is of great importance to these companies. Plus the emerging markets have a huge population base which is 10 times more than their home countries and so there is a huge potential for the consumption of a wide variety of drugs and medicines of GSK in India and China (Klapper et al.2009). It is for these reasons companies like GSK and AZ should expand their operations globally.
The global political, economic and social factors impact the decision making process of companies like GSK and AZ. Due to the economic reforms and change in the foreign direct investment rules in India and China these companies have been able to make their foray into these promising and lucrative markets. For example in India during the coalition government of UPA reforms were stalled and thus these companies could not fully expand their operations here. But after the Modi government won the election by absolute majority there have been less hurdles from the opposition parties and the socio economic reforms have been passed swiftly with the result that these companies can now set up their manufacturing base In India. Due to the boom of economy the purchasing power of the Indian consumers have increased by leaps and bounds over the decade and this has made its possible for them to afford medicines of foreign companies like GSK and AZ (Cherunilam, 2010). Also there are social factors like many people here have fallen prey to mental disorders due to the fast paced lifestyle and hence there is a huge scope for psychiatric drugs in these countries.
The policies of EU have made to possible for GSK and AZ to freely sell their products in the member nations without any discrimination and trade barriers. For example there is a centralised drug approval centre which approves all the drugs that could be sold anywhere in the EU. The licensing regimes have loosen their tight holds on the products of these companies (Klapper et al.2009). Also these companies have been given the right to hire talented scientists and researchers from any member countries of the EU without any sort of restrictions. There is now a uniform code for the safety standards of the drugs and medicines manufactured by GSK and AZ and other pharmaceutical companies of the EU countries.
Thus in this report we have looked into the various aspects of business environment of GSK and AZ in terms of global trade, the type of economic system that they operate in and also the impact of the culture on the business. It has been seen that GSK and AZ have been now able to consolidate their position in the global markets.
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