This report discusses the internationalization process of Pfizer, the world’s largest

pharmaceutical company. The current internationalization and the future steps will be

discussed. The main topic is the current and future internationalization processes occurring

within Pfizer. Assignment from Prof. Dr. H.A. Ebbers from Nyenrode BU.

INTERNATIONAL BUSINESS

PFIZER PHARMACEUTICALS

Student Email Student number Track

Jeroen Dekker j.dekker@msc19.nyenrode.nl S10472 GM

Harm Kuiper h.kuiper@msc19.nyenrode.nl S10457 GM

Wilco de Crom w.dcrom@msc19.nyenrode.nl S10458 GM

Adriaan Rijkens a.rijkens@msc19.nyenrode.nl S10473 GM

1

INTERNATIONAL

BUSINESS

PFIZER PHARMACEUTICALS

1. Introduction

This report discusses the internationalization process of Pfizer, the world’s largest pharmaceutical company.

The current internationalization and the future steps will be discussed. The goal of this report is to the

answer the following question:

“Describe the current and future internationalization process within Pfizer”

This report has been written with the following frameworks:

Emerging markets which are relevant to the company

Obstacles of doing business abroad

Country attractiveness/competitive strength matrix

Eclectic approach Dunning

Motivation to go abroad: pull and push factors

Choice global strategy/ local strategy: Prahalad and Doz

Relationship head office and foreign subsidiaries: EPG framework of Perlmutter

Stages of international expansion: Uppsala model

Measuring internationalization: Transnationality Index

Modes of entry: Hollensen

Choice between concentration strategy (one country) and regional diversification (many countries) : Daniels and Radebaugh

At the end a conclusion can be found that summarizes all the frameworks and the implication it has for

Pfizer.

2

Contents

1. Introduction ........................................................................................................................................ 1 2. Emerging Markets, country attractiveness & competitive strengths .................................................... 3

China.................................................................................................................................................. 3 India ................................................................................................................................................... 4 Turkey ................................................................................................................................................ 4

Obstacles of doing business abroad ............................................................................................... 4 Country attractiveness/competitive strength matrix ......................................................................... 5 Country attractiveness .................................................................................................................... 5 Competitive strength ....................................................................................................................... 5

India ................................................................................................................................................... 6 Country attractiveness .................................................................................................................... 6 Competitive strength ....................................................................................................................... 6

Russia ................................................................................................................................................ 6 Country attractiveness .................................................................................................................... 6 Competitive strength ....................................................................................................................... 7

Brazil .................................................................................................................................................. 7 Country attractiveness .................................................................................................................... 7 Competitive strength ....................................................................................................................... 7

Turkey ................................................................................................................................................ 8 Country attractiveness .................................................................................................................... 8 Lack of regulation .............................................................................................................................. 8

Competitive strength ....................................................................................................................... 9 Mexico ................................................................................................................................................ 9

Country attractiveness .................................................................................................................... 9 Competitive strength ....................................................................................................................... 9

3. Eclectic Approach ............................................................................................................................ 10 Licensing ...................................................................................................................................... 11 Export ........................................................................................................................................... 12 FDI ............................................................................................................................................... 12

4. Motivation to go abroad: pull and push factors ................................................................................. 13 5. Choice global strategy/ local strategy: Prahalad and Doz ................................................................ 14 6. The relation between head-office and foreign subsidiaries: EPG Frame-work of Perlmutter ............ 14 7. Stages of international expansion: Uppsala model ........................................................................... 18 8. Measuring Internationalization: Transnationality Index ..................................................................... 19 9. Modes of Entry: Hollensen ............................................................................................................... 20

Internal Factors ................................................................................................................................ 20 Firm Size ...................................................................................................................................... 20 Pfyzer’s Product portfolio: ............................................................................................................. 20 Availability of the Resources: ........................................................................................................ 21 External Factors............................................................................................................................ 21 Licensing in China, Turkey and Russia ......................................................................................... 22 Indirect-Exporting in Brazil and India ............................................................................................. 22

10. Choice between concentration and regional diversification ............................................................ 23 12. Conclusion ..................................................................................................................................... 24 Sources ............................................................................................................................................... 25

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2. Emerging Markets, country attractiveness & competitive

strengths

The emerging markets for Pfizer is a main point in their strategy, in 2009 the Emerging markets made

14,2% of the Pfizer’s total turnover. Where in 2007 it was 12,5% of the total

turnover, the strategy of Pfizer is international orientated and foresees

growth in the emerging markets. The main emerging markets are in the

continents of Latin America, Eastern Europe and Asia. The main driver is

the Asian Pharmaceutical market where Pfizer has a market share of only

4%, in a total business of 47 billion USD. The relevant markets within the

continentals are mainly the BRIC countries that are emerging countries. The

main reason of these countries is their high turnover potential and high growth potential in the future. The

leading markets in 2009 were China, India, Brazil and Russia. Pfizer aims in these countries because of their

competitive position based on their historical presence and their current portfolio. Pfizer also likes to

establish strong relationships with local partners; in 2009 this concept produced a revenue growth of more

than 10%. According to Halof (CEO of Pfizer) 75% of the worldwide pharmaceutical sales growth will

come from emerging markets within the next 3-5 years, in these markets Pfizer wants to establish a market

leading position.

China

The total emerging countries that Pfizer foresees in the future is 70. These markets are divided in several

segments where the high potential and high growth countries are determined as focus and priority markets.

These priority markets are China, India, Russia, Brazil, Turkey and Mexico, in these markets China is market

with the highest priority, where in 2009 their where 2300 reps working in 177 cities, where in 2011 the total

number of representatives is 3200 located in 252 cities. Pfizer also located a research hub and a

manufacturing facility within china.

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India

In India the main focus is in the Private Sector, Pfizer’s strategy is aiming on the growth of the population

specialized in research with a high education. Pfizer plans to build preferred research centers to increase the

total research capacity. Next to these research facilities Pfizer’s released education and research league

training programs. On the other hand the sales of Pfizer’s have to be increased by supporting several public

health initiatives by starting up partnerships with local leading healthcare providers. Also Pfizer opened 600

smoking cessation clinics by 2010, to show their compassion with the health of the Indian population.

Turkey

The focuses on both public and private partnerships in Turkey are the key in strategy, the choice for Turkey

is also based on the Turkish possible EU-membership. The first point is investing in the research and

development to establish this point, Pfizer started up is a partnership with the Hacettepe University, and by

stimulating and supporting collaboration between academia and private sector in Turkey. Pfizer is in

combination with the Turkish government investing in techno parks within Turkey. The main key strategic

site is designated by driving excellence in clinical trials.

To boost the revenue in Turkey Pfizer is working on several Public Health partnerships, by supporting

several initiatives in the fight against cancer and supporting government cessation efforts. Pfizer also started

up a partnership for CV risk management with a local Turkish company. The reason for these countries is

based on both the turn-over potential in the future as the possible research facilities and knowledge the

emerging markets have to support Pfizer. For Pfizer this is a win/win situation where both the country as

well as Pfizer benefits from the investment. Pfizer is looking for optimizing their revenues within these

markets for their established products. To roll-out their strategy Pfizer focuses themselves on key

therapeutic areas, in the health-care branch

OBSTACLES OF DOING BUSINESS ABROAD Due to the large number of emerging market that Pfizer is targeting, Pfizer choose 6 key markets within

these countries, these countries are the key factors for the company’s future successful performance. Within

the world there are different procedures and rules and regulations to receive a permit to sell drugs to

healthcare organizations, these obstacles appear also in the emerging markets. The rules in the emerging

markets are even stricter to release medicines.

Due to these different procedures entering these new markets with the new medicines costs a lot of

registration time, during these registration procedure the new medicines do not add any revenue to Pfizer.

This is the main reason why Pfizer is currently emphasizing on optimizing their established products within

5

these markets. Another obstacle is the strong government interventions in China en India, this means that

Pfizer have to invest in research and education for the population.

Pfizer does not concur huge barriers for their current products. For the registration process of new products

the obstacles are high. Because of the positive reputation of Pfizer and they corporate governance the Pfizer

organization is a worldwide respected and well known organization, for Pfizer this decreases possible entry

barriers in the emerging markets. Pfizer is willing to invest in research and knowledge within the society to

increase the potential output of the country on the long time. And boosts the local economy, due to the

knowledge of the Pfizer organization, also the governments appreciate the products(medicines) of Pfizer.

Also related to the strategy the margins on the Pfizer products in these countries are lower due to the use of

only established products.

COUNTRY ATTRACTIVENESS/COMPETITIVE STRENGTH MATRIX

In the country attractiveness/competitive strength matrix for Pfizer we will analyze the key emerging

markets as they are formulated in Pfizer’s annual report and the presentation of the key emerging markets.

The competitive strength matrix will be used for the following countries; China, India, Russia, Brazil, Turkey

and Mexico. These countries will be reviewed on both their attractiveness and the competitive strength of

Pfizer within these companies.

COUNTRY ATTRACTIVENESS

China is the main target of Pfizer mainly because of the country attractiveness and their economic growth

through the years, the total turnover on pharmaceutical related preparates is by the Citi bank estimated from

a level of 40 billion USD in 2010 to a level of 100 billion USD in 2015 to a level of 200 billion USD in 2020.

The total retail pharmacy distribution is estimated to grow from 36.000 to 172.000 in 2012, this makes the

country the most attractive country within the emerging markets but most off all more attractive then

Pfizer’s how market the US.

COMPETITIVE STRENGTH

Due to the strong historical competitive position of Pfizer in China, and the good contacts with the local

clients, the competitive strength is relative high, compared to their competitors Merck and Eli Lilly. These

competitors see China also as one of the main emerging markets for the future and are heavily scaling up

their activities within China.

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India

COUNTRY ATTRACTIVENESS

The country attractiveness of India is after China the highest, currently the market is estimated to be 19,6

million USD, McKinsey estimated the pharmaceutical market in India at 70 billion USD in 2020. This

increase is more than 400% in 9 years. This makes the Indian pharmaceuticals market the thirds world

market after China and the US.

The high growth is based on the increasing middle class with a higher income; this higher income will give a

potential boost of 8 million USD in the premium drug segment

COMPETITIVE STRENGTH

The Indian domestic pharmaceutical market is dominated by Cipla with a market share of 5,27% with

Ranbaxy flowing next. The Western companies are upcoming as is shown in the following table. Pfizer

growth is estimated to be 23,6% in 2010. In this market Pfizer is the main premium western pharmaceutical

companies within India. This including the current strategy of Pfizer based on investments in the local

economy and subsidies giving them a strong competitive advantage. Other leading companies in the Indian

pharmaceutical market in 2010 are:

Sun Pharma (25.7%)

Abbott (25%)

Zydus Cadila (24.1%)

Alkem Laboratories (23.3%)

Pfizer (23.6 %)

GSK India (19%)

Piramal Healthcare (18.6 %)

Lupin (18.8 %)

Russia

COUNTRY ATTRACTIVENESS

A recent report from Frost & Sullivan noted that, with total revenues of $15.3 billion in 2009, the Russian

pharmaceutical market is one of the largest in the world. The market is anticipated to remain on a path of

dynamic growth from 2010 to 2016 mainly due to multiple initiatives of the Russian Government. It

estimates the Russian pharmaceutical marker will reach a value of $37.15 billion in 2016. The ever growing

interest of majors in the Russian pharmaceutical market may not only be linked to its great prospects, but

also the efforts by the Russian government in recent years to attract investments in the domestic

pharmaceutical industry. Among these incentives is the introduction of 15% mark in state procurement of

drugs, which were produced in Russia and certain tax benefits.

7

COMPETITIVE STRENGTH

Within the Russian pharmaceutical market Pfizer is the main player and has more than 100 drugs registered

in Russia, and is the top selling pharmaceutical firm in the Russian market since 2008, where in 2009 sales

passed the 200 million. With this market share Pfizer is currently the biggest player within the Russian

premium pharmaceutical market.

Brazil

COUNTRY ATTRACTIVENESS

With total revenues of more than USD 26 billion in 2011, Brazil is one of the main emerging

pharmaceutical markets within the BRIC countries: The demand for pharmaceutical products rises by more

than 10% per year. This growth is based on the increase middle class in the Brazilian economy, the social

programs started up by the Brazilian government and the increasing logistics services. Also the market of

191 million potential customers, is a great opportunity for pharmaceutical companies. Brazil has a high

developed pharmaceutical industry there are more than 300 research locations within Brazil

The growth in the Brazilian pharmaceutical market is based on multiple factors, due to new regulations, and

the introduction of generics Brazilian gets more and more interesting as a research base. The Brazilian

government also offers development programs with credit facilities towards the pharmaceutical market to

invest in innovation of Brazil by the national development bank.

The regulations in the Brazilian market Regulations and technical standards enforced by the national health

surveillance agency (ANVISA) keep the industry under pressure to adjust their plants in Brazil to the state

of the art and thus to improve its competitiveness.

The total industry production within the Brazilian pharmaceutical market has maintained a growth of more

than 50% in the last 5 years, where the total production usage is at 74%. In the private sector is the idle

capacity even higher.

COMPETITIVE STRENGTH Pfizer is aiming at Brazil as one of their key countries for development in future growth, Pfizer’s own

competitive strength within Brazil is not really high. For these reason the bought a 40% share in the

Brazilian generics firm Teuto in 2010 to build up their competitive position and increase their turnover in

Brazil. By 2014 Pfizer owns a 100% share in Teuto, and have fully control over the company. Other

competitors within the Brazilian market are also partly owned by Western Pharmaceuticals. They bought

these share for the same reason, to increase their competitiveness and to make it easier to introduce their

8

products in Brazil, by a partnership with Teuto to use the existing Brazilian supply chain. The position of

Pfizer in Brazil is not as good as their position in China, India en Russia.

Turkey

COUNTRY ATTRACTIVENESS

The Turkish population is with 73 million accounting for 40% of the total Middle Eastern pharmaceutical

market. In 2009 the total turnover in this market reached 10 billion USD, where in 2020 the Turkish market

is reaching a total of 21 billion USD.

Due to the current low pharmaceutical consumption per capita there is a relatively high potential growth.

Also looking to a possible membership of the EU, which will increase the GDP per capita. The main

problem for growth is linked with their reformatting and the continuity of the reformation of the Trade

Related Aspects of Intellectual Property Rights within the Turkish markets. Turkey will have to implement

all TRIPS provisions as part of the larger regulatory reform necessary to become part of the EU.

At this movement there is a lack of regulation within Turkey the total market is mainly based on generics

who are produced local which counts for 75%. The local generics producers are increasing their production

with more than 15% per year.

LACK OF REGULATION

Patent reforms will help the multinational companies within turkey to introduce and invest in innovating

products. The government already introduced new rules and regulations for the Turkish market. These new

rules and regulations declared by the Ministry of health are not validated by the EU.

Because of this reaction of the Euro Turkish minister published more strict requirements for western

pharmaceutical to register new products, what makes it harder to import of the pharmaceutical products to

Turkey. The current active western companies have to be aware of the continuous changing Turkey’s

pharmaceutical industry. The total power of the Government in Turkey is extremely high, they have to

power to make rules and also accounting for 70-80% of the total Turkish pharmaceutical markets revenue

due to the system of government insurance programs.

Due to this extreme situation the industry has to make choices about their marketing strategy because of

current restrictions for advertising by the Turkish government for the pharmaceutical market.

9

COMPETITIVE STRENGTH

Pfizer is one of the main Western pharmaceuticals within Turkey, with competitors as Merkx and Johnson

and Johnson. This makes the competitive strength of Pfizer high in the premium market. Pfizer is active on

both the Turkish research market as the healthcare market.

In their main emerging market strategy Pfizer is aiming for investment opportunities with universities and

health insurances to establish their current competitive position and make future growth possible by take-

overs and joint ventures within the Turkish market.

Mexico

COUNTRY ATTRACTIVENESS

Mexico is the main emerging market within Latin America, currently the

total pharmaceutical market reached a total value of 9,1 billion USD.

This growth only the startup phase, in 2014 the Mexican pharmaceutical

market is expected to growth to a total turnover of 14,9 billion USD.

On the other hand the Mexican pharmaceutical market is counterfeiting, illegal sales and production that

cost the legal market almost 1.9 billion a year. This is 12% of the total sales and is a serious problem for the

market. The illegal medicines also create a lot of unrest within the market because of the high change of

buying illegal medicines. The reason for this pattern is also related to Mexican drugs cartel who are shifting

more and more towards the shadow pharma market. The reason for this shift is the high margin on the

medicines and a significant lower risk then their current drug related activities. For Pfizer Mexico stays an

attractive market because of the upcoming economic middle class within Mexico and the need for premium

pharmaceutical products within the Mexican healthcare sector. Also increase of more than 60% in the

period 2010-2014 combined with the increase in growth in the premium market makes Mexico a very

attractive emerging market.

COMPETITIVE STRENGTH

Within Mexico Pfizer is at this moment one of the main western player in the pharmaceutical market, this is

mainly because of Pfizer’s American attitude and the logistic service. Pfizer is using Mexico as an export

company to trade too American via the NAFTA agreement. In the upcoming years the Mexican

pharmaceutical market will growth with 60% the current competitive position of Pfizer in this Emerging

economy will increase their turnover with more than 60% because of their current investing strategy in

Mexico to increase their Goodwill by the population and the government to create an even more

Competitive advantage in the future.

10

Based on this information we set up the Country Attractiveness/Company Strength Matrix, where the

countries are reviewed on their attractiveness, and on the other side the competitive/company strength of

Pfizer in the country. We see that the best way to approach the emerging markets for Pfizer is by investing

in the countries by using their own brand or doing acquisitions to become and stay the leading player in

these emerging pharmaceutical markets in the future.

3. Eclectic Approach

John Dunning created a model in which various market entry methods were directly related to their inherit

advantages. For example, when a company licenses their service it does not make use of locational

advantages. Pfizer is a large company with vast amount of resources. Pfizer is actively researching and

producing medicine. The types of research and production processes employed are of a sensitive nature and

Pfizer will need to enforce very strict licensing terms and control.

11

In the current situation, post-merger with Wyeth, there are six main research locations, each with sub-

locations. Five of these are in the United States and there are three sub-locations in the United Kingdom.

The research plant in the United Kingdom provides Pfizer with the chance to make use of European

external research parties, such as GlaxoSmithKline. In March of 2009 Pfizer added a new research center in

Aberdeen to further strengthen its research abilities in Europe. The OLI model lists three distinct

advantages. The ownership advantage is critical for Pfizer, since it bring trademark and production

processes advantages. Luckily all three entry modes bring ownership advantage.

LICENSING

Pfizer can license the production process to third parties. This will allow a third party to independently

produce a product owned by Pfizer. Nearly all of the research is done in-house or as a joint-venture with

external partners. Pfizer is a big advocate of licensing, going as far as calling it part of its core business:

“At Pfizer, we view licensing and collaborations as core business activities. And, we expect licensed and partnered products—as

well as out-licensed products—to contribute to our aggressive growth targets in both the near and long terms”i

The experience Pfizer has with licensing would suggest that it is Pfizer’s norm entry method. Licensing gives

a third party to produce Pfizer’s products under Pfizer’s name, but it has to abide by certain rules as set by

the licensing contract. This allows Pfizer to maintain control over the production process without having to

make a capital intensive investment. Pharmaceutical companies will want to focus on new R&D project

rather than making heavy foreign direct investments. Licensing does reduce the benefits of marketing

performed by Pfizer.

12

EXPORT

Exporting products is another option to enter new markets. The advantage, according to Dunning, is that it

brings internationalization. This would save Pfizer from setting up domestic production facilities in each

country it operates in. Produced goods in one country would be sold to various importers. Exporting will

also mean Pfizer is still in full control of patents and the production processes.

Exporting is also a very established method of entering new markets. Few foreign direct investments have

to made. Most costs associated with exporting are those of additional transport costs and marketing. Pfizer

would only have to target large resellers and governments, which are often clearly established. It will also

allow Pfizer to benefit of not having to build up local contacts and expertise.

FDI

The last entry method covered in the Eclectic approach is foreign direct investments. Pfizer is very active in

reducing the reliance on key-products and want to diversify so that no single product accounts for more

than 10% of total revenue. In March of 2009 Pfizer acquired Wyeth was helped towards achieving this goal.

Pfizer would have to allocate its scarce resources, mainly capitol, from research and development programs

to make investments. In the case of production it seems that Pfizer is not very keen on acquiring new

production plants through FDI. Dunning would argue that locational advantages would allow Pfizer to

enjoy lower wages, the possibility of better tax systems, tariffs, and even cheaper raw materials.

To conclude Pfizer already has a strong preference in using licensing as the primary method of market entry.

This is supported by Dunning’s eclectic approach. Pfizer focuses on attaining ownership advantages.

Licensing provides the lowest cost and risk entry method for achieving this advantage.

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4. Motivation to go abroad: pull and push factors

There are various reasons to go abroad. Some of these factors force Pfizer to look and enter new markets,

these factors are the push factors. Other factors lure Pfizer to enter foreign markets, these are the pull

factors.

Risk diversification is an important factor for Pfizer. Currently it aims to have no more than 10% of its

revenues to come from a single product in 2012ii. Entering markets allows the revenues from products to be

further diversified. Saturation in domestic markets is a real problem for all pharmaceutical companies. Once

the patent for a drug expires competitors are free to start producing the drug. This means that the market is

quickly flushed with drugs of competitors and the market saturates. This makes it important for Pfizer to

earn back the expensive R&D costs the patent protected period. To lengthen the product life-cycle of a drug

Pfizer can enter new markets which are not saturated.

Pfizer is also affected by the economic difficulties in domestic markets, some markets are heavily affected by

economic difficulties which reduced revenues and profits for Pfizer. This can push Pfizer to look at foreign

markets which are less affected by economic turmoil. Finally there may be excess capacity or inventories in

established markets. This pushes Pfizer to enter foreign markets to benefit from efficiency and scale

advantages.

There are also pull factors which entice Pfizer to enter foreign markets. One reason is to increase sales and

hopefully revenues. By entering new markets Pfizer can also enjoy greater economies of scale and extend

the product life cycles. Finally Pfizer has the personal ambition to enter new markets and help people who

are in need of its products.

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International

Strategy

Multidomestic

Strategy

Global Strategy Transnational

Strategy

Co

st

Pre

ssu

re

Pressures for local responsiveness Low

Hig

h

5. Choice global strategy/ local strategy: Prahalad and Doz

Prahalad and Doz used other theories to create the integration responsiveness grid. When looking at the

previous findings of the report it is clear that Pfizer has little pressure to respond to local wishes. This is also

due to the fact that Pfizer cannot apply adaptations to a product which has costs years to develop and has

costs millions to market. This is also supported by the fact that Pfizer licenses their products on very strict

terms which do not allow any changes to the drugs.

According to the grid this would mean eliminating the transnational strategy and the Multidomestic strategy.

The transnational strategy is applied by large firms such as car-manufacturers, they have to adopt the cars to

local wishes or they will not sell. Car manufacturers also have to be very competitive which puts a lot of

pressure on their costs. The Multidomestic strategy often involves having very different lines of products,

yet there is no real cost pressure. Both strategies do no really apply to Pfizer so the model seems to

checkout in the sense that Pfizer is correctly placed in the horizontal axis.

On the vertical axis Pfizer has two distinctly different moments. During the patent-protected time of a drug

the company enjoys low cost pressure. Once the drug is out of the patent protected life-cycle stage there is

increased cost pressure. Since Pfizer needs to maximize returns during the patent protected time of its

products it should use an International strategy.

High

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6. The relation between head-office and foreign subsidiaries: EPG

Frame-work of Perlmutter

The importance of the EPG Frame-work of Perlmutter is mainly in the company’s awareness and

understanding of its specific focus. Due to the fact that a strategy is mainly based on one of the three

elements can mean significant different cost or benefits to the company. The three elements of the EPG

framework are shortly highlighted in the table below:

Table 1: Three types of headquarters orientation toward subsidiaries in an International enterprise

Organization Design

Ethnocentric Polycentric Geocentric

Complexity of organization

Complex in home country, simple in subsidiaries

Varied and independent

Increasingly complex and interdependent

Authority; decision making

High in headquarters Relatively low in headquarters

Aim for a collaborative approach between headquarters and subsidiaries

Evaluation and control

Home standards applied for persons and performance

Determined locally Find standards which are universal and local

Rewards and punishments; incentives

High in headquarters, Low in subsidiaries

Wide variation; can be high or low rewards for subsidiary performance

International and local executives rewarded for reaching local and worldwide objectives

Communication; information flow

High volume to subsidiaries; orders, commands, advice

Little to and from headquarters; little between subsidiaries

Both ways and between subsidiaries; heads of subsidiaries part of management

Identification Nationality of owner Nationality of host country

Truly international company but identifying with national interests

Perpetuation (recruiting, staffing, development)

Recruit and develop people of home country for key positions everywhere in the world

Develop people of local nationality for key positions in their own country

Develop best men everywhere in the world for key positions everywhere in the world

Source: Transnational Management

16

It is very hard to indicate which headquarter orientation Pfizer has. Pfizer’s executive leadership team and

her supervisory board mainly consist out of Americans. Due to this fact we can conclude that on the top of

the company the nationality of employees of Pfizer are Americans. Therefore we would say that Pfizer’s

policy is ethnocentric.

From the other perspective Pfizer looks more a region-centric company, because they divided their global

market in several regions, namely:

1. United States 2. Europe 3. Japan/ Other Asia 4. Canada/Latin America/Africa/Middle East

In figure 1 the policy of Pfizer is shown. The blue circle makes clear that Pfizer is a global enterprise,

however they stated also that Pfizer has a local policy (orange circle). This is a recently development to

approach emerging markets by using local processes, resources and talents. The emerging markets are

important due to the fact that they are the fast growing areas for Pfizer. Therefore they made an acquisition

with Wyeth with as purpose an enhanced leadership in Latin America and Asia. Pfizer works with many

partners to develop social responsibility, sustainability and commercially viable health care solutions. This

indicates that Pfizer is more and more tend to Geocentric orientated.

Figure 1: Pfizer Global Hub

iii

17

Pfizer has an ethnocentric background, due to the fact that Pfizer is founded in the United States they are

still largely depended on the American market. In 2009 43,5% of the revenues came from the United States.

Since 1950 Pfizer expanding their view over the rest of the world and divided their global market in several

regions, however these markets were still mainly managed from the United States. In the last years Pfizer is

more and more focusing on the emerging markets and changed their strategy. In 2009 Pfizer has an

Ethnocentric- Regiocentric attitude due to the fact the executive board consists still mainly out of

Americans and focus more on regions in the world. In the future it is possible that Pfizer becomes more

Geocentric when the emerging markets are of greater importance.

Figure 2: Perlmutter four elements Figure 3: Where Pfizer revenues came from

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7. Stages of international expansion: Uppsala model

The Uppsala model shows how Pfizer first gain experience from the domestic market before they move to

foreign markets. This theory explains how Pfizer expand their activities in foreign markets.

Figure 4: Pfizer Uppsala model in 1951

Pfizer is founded in 1849 (New York). From that moment Pfizer quickly expanded in the United States.

Pfizer opened worldwide offices, subsidiaries and production plants since 1951. Pfizer became a powerful

international company with a constant evolving portfolio of innovative products. Because Pfizer opened a

growing number of foreign branches, they divided the world into four regions:

- Europe

- Western Hemisphere

- Middle East

- The Far Eastiv

Since 1950 Pfizer mainly focuses on the foreign developed countries. Therefore Europe was and is still the

biggest foreign market for Pfizer. There seems to be a change in this development on this moment, due to

the fact that Pfizer is more and more focusing on the emerging markets (BRIC countries): Brazil, Russia,

India and China. The proof of this development is the acquisition of Wyeth, with this investment they are

able to reach 170 cities in developing countries. Further they made collaborated for research with Shanghai

Institutes for Biological Sciences (SIBS).

19

8. Measuring Internationalization: Transnationality Index

The transnationality index is calculated of the following three ratios:

- the ratio of foreign employment to total employment

- the ratio of foreign sales to total sales

- the ratio of foreign assets to total assets Table 2: The World top 100 non-financial TNCs (2008)

Assets Sales Employment

Corporatio

n

Home

economy

Industry Foreig

n

Tota

l

Foreig

n

Tota

l

Foreig

n

Tota

l

TNI b

(percent

)

Pfizer Inc. United

States

Pharmaceutica

ls

49 151 111

148

27 861 48

296

49 929 81

800

54.3

Johnson &

Johnson

United

States

Pharmaceutica

ls

40 324 84

912

31 438 63

747

69 700 118

700

51.8

Roche

Group

Switzerlan

d

Pharmaceutica

ls

60 927 71

532

42 114 42

590

45 510 80

080

80.3

Sanofi-

aventis

France Pharmaceutica

ls

50 328 100

191

22 636 40

334

69 990 98

213

59.2

Novartis Switzerlan

d

Pharmaceutica

ls

43 505 78

299

40 928 41

459

48 328 96

717

68.1

Astrazeneca

Plc.

United

Kingdom

Pharmaceutica

ls

36 973 46

784

29 691 31

601

54 183 65

000

85.4

Source: http://www.unctad.org/sections/dite_dir/docs/wir2010_anxtab_26.pdf

Pfizer is not much more internationalized in comparison with her competitors. This due the fact that still an

enormous amount of their revenue came from the United States (figure 3). Therefore a great proportion of

Pfizer their assets, sales and employment are still domestic. Over the coming years the transnationality index

will probably increase due to the fact they acquisition of Wyeth. Pfizer has much invested in the emerging

markets in 2009. This development will be continued in the future, which will lead to a higher

transnationality index.

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When we compare the TNI of Pfizer with the companies Astrazeneca Plc. and Roche Group, then we can

conclude that these companies are much more internationalized. These companies their foreign sales are

about 95% of the total sales. This derives from the fact that these companies are established in relative small

countries in comparison with Pfizer. Thereby they are enormous global focused.

When we compare the TNI of compatriot Johnson & Johnson with Pfizer, then we can conclude that these

companies look very similar on internationalization. The revenues of Pfizer are higher than Johnson &

Johnson, however the proportion of foreign assets, sales and employment are almost the same. Johnson &

Johnson is more internationalized then Pfizer when we look to the amount of countries they are

represented. Johnson & Johnson is represented is 175 countries, while Pfizer is represented in 150 countries.

9. Modes of Entry: Hollensen

The Modes of Entry by Hollensen are mainly determined by the internal & external factors. First the

Internal factors of Pfizer will be discussed, for these will be the same regardless of the country that will be

entered. After this analysis the external factors of China, India, Turkey, Russia, Brazil and Mexico will be

presented. According to these factors there will be a conclusion on which entry mode suits Pfizer the best.

Internal Factors

FIRM SIZE

As discussed in the previous chapter Pfizer is the biggest company in 2008 and remains this with a turnover

of 67 .81Billion US dollars in 2010v.

2010 Equity Assets Sales Employment

Corporation EQUITY ASSETS Turnover Income Total

Pfizer Inc. US$88.265

billion

US$195.014

billion

US$67.809

billion

US$8.257

billion

110,600

PFYZER’S PRODUCT PORTFOLIO:

Pfizer main source of income comes through the discovery, development and production of medicines for

people and animals. The Health care portfolio includes human and animal biologic and small molecule

medicines and vaccines, as well as nutritional products and many of the world's best-known consumer

productsvi. As can be seen in the figure on the left, Pfizer has a very diverse business. This decreases its

financial risks. The most sold products are also shown (g.e. Advil is a very commonly known aspirin).

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AVAILABILITY OF THE RESOURCES:

Pfizer has reduced its cost by 5 billion in order to raise capital that it

wants to spend on Emerging markets , Established products, In-line

product support and Expected new product launchesvii.

Globalization strategy and internationalization experience of the

firm; Pfizer had created an emerging market business unit. The goal of this unit is to seize opportunities in

the fastest growing biopharmaceutical markets in the world.

Pfizer has a very strong position due to the previously discussed factors. It has the possibility to invest its

capital in the current emergent markets. However the external factors are a very important indication on

how Pfizer should enter these markets.

EXTERNAL FACTORS

Based on the external factors presented by Hollensen a Table has been made. This table gives insight in the

differences between the emerging markets that are relevant for Pfizer.

Bratislava – Bucharest – Budapest – Prague - Warsaw

Table 4: Simplified Grid to Compare Countries for a market entry strategy

External Factors City

Bratislava Bucharest Budapest Prague Warsaw

1.Target Country Production

factors

a. Building cost

b. Tax Rate

c. Labor Cost

d. Quality of Labor

e. Infrastructure

f. Quality of Life

2. Environmental factors (1-5)

a. Political

b. Export policies

c. Foreign investment policies

d. Governmental laws

3

1

2

2

2

3

1

2

3

3

3

1

2

3

3

2

2

1

2

1

3. Cultural Distance HIGH MEDIUM HIGH MEDIUM HIGH

Entry Strategy Licensing Indirect-

exporting

Licensing Licensing Indirect-

exporting

Source: Business Monitor International

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LICENSING IN CHINA, TURKEY AND RUSSIA

The best emerging markets to license the products of Pfizer are China, Turkey and Russia. These countries

have a high quantity and quality of labor. The growth of these countries (except for Turkey) is the highest of

the emerging markets. Pfizer should keep a close eye on the environmental factors when producing in these

countries. Due to biased preferences of pharmaceutical companies by the government it can be difficult to

compete with native pharmaceutical companies. The intellectual property laws are also still being developed

which shows that the company has a high risk of losing its formulas to competitors.

INDIRECT-EXPORTING IN BRAZIL AND INDIA

In both Brazil and India the quality of the labor force and the pharmaceutical infrastructure is very low.

Brazil is the largest market and India is the second fastest growing pharmaceutical market. It is therefore

interesting for Pfizer to sell their products in these countries. The best way to do this is by indirect-

exporting.

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10. Choice between concentration and regional diversification

Pfizer can choose for two strategies to gain size and commitment in the emerging markets. The

diversification strategy describes when a company moves rapidly into many foreign markets. With a

concentration strategy a company moves to one or a few foreign countries until it develops a strong

involvement and competitive position there. In the table below the market factors are shown per emerging

market.

Table 5: Product and market factors affecting choice between diversification and concentration strategies

Product or Market Factor Country

China India Turkey Russia Brazil

1. Growth Rate of Each Market

HIGH HIGH MEDIUM HIGH MEDIUM

2. Sales Stability in each Market

HIGH MEDIUM HIGH MEDIUM MEDIUM

3. Competitive Lead Time SHORT SHORT SHORT SHORT SHORT

4. Spillover Effects MEDIUM LOW LOW LOW MEDIUM

5. Need for product Adaption LOW LOW LOW LOW LOW

6. Need for communication and distribution adaption

LOW MEDIUM LOW LOW MEDIUM

7. Program control requirements MEDIUM MEDIUM MEDIUM MEDIUM MEDIUM

8. Extent of constraints HIGH MEDIUM MEDIUM MEDIUM HIGH

The table shows that the growth rate and sales stability are medium to high. This would indicate a

Concentration strategy. In the previous chapter it was discussed that Pfizer should use licensing & indirect-

exporting in order to sell its products in other countries. The partners and agents of Pfizer will know how to

produce and sell the Pfizer products in the emerging markets. Therefore the company should choose for

diversification strategy, so it can grow in all the emerging markets.

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12. Conclusion

Entering the emerging markets is a main point in the International Strategy of Pfizer. Currently it has a 4%

share in these markets, but in the future Pfizer would like to take a leading role in these markets. The

company relies on licensing to take this leading role, this is supported by Dunning’s eclectic approach.

Therefore the strength of Pfizer is to create strong relationships with partners.

By entering new markets Pfizer can diversify the revenues of products. This reduces the risk and supports

Pfizer’s aim to have no more than 10% of its revenues come from a single product. By entering new

markets the efficiency and scale advantages will increase.

At the moment Pfizer has a Ethno- Regiocentric attitude due to the fact that the board is all American and

the focus is on regions in the world. In the past Pfizer focused on the developed countries, this focus is now

changing to countries like Brazil, Russia, India and China. In the future Pfizer will have to adopt a more

geocentric approach to effectively expand in the emerging markets. By doing this the company will increase

internationalization and will increase its position on the Transnationality index.

Pfizer has enough resources to enter the emerging markets. It uses a diversified strategy to enter these

markets through licensing and indirect-export. This also makes it easier to compete with native

pharmaceutical companies that the governments within these markets prefer. Pfizer should keep a close eye

on the rules and regulation within these markets. Competitors could imitate products of Pfizer due to low

intellectual property laws.

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Sources

i http://www.pfizer.com/research/partnering/our_partners.jsp ii Annual report 2009 iii http://media.pfizer.com/files/investors/presentations/bernstein_presentation_050509.pdf iv http://www.pfizer.nl/sites/nl/wiezijnwij/historie/1950-1959/Pages/1951.aspx v http://www.forbes.com/lists/2010/18/global-2000-10_The-Global-2000_Sales_2.html (11 March 2011) vi http://www.pfizer.com/about/leadership_and_structure/company_fact_sheet.jsp (11 March 2011) vii http://www.pfizer.com/files/investors/presentations/2009_annual_meeting_042210.pdf