In Pharma SA, there are total 110 subsidiaries functioning across the globe. As a matter of fact, more than fifty percent of the sales revenues are generated from the European chapters of the business operations in the shape of business subsidiaries. Also, the Pharma subsidiaries were given the responsibility of managing the registration processes for boasting local sales and marketing in the case of a new product is introduced under the company’s name. In some cases, these subsidiaries also have to look after R&D (Research and Development) and production centers which are operated under the supervision of Zurich – Corporate Head quarter of the Parent Company.
The core role of such establishment of subsidiaries of International Pharma companies like Pharma SA is to act as a local or national Sales and Marketing Association for the Parent Company. As in the case of Pharma SA, R&D and Production centers at subsidiaries are set up principally to add activities on clinical grounds that will benefit the organization’s global goals, which will ensure the company’s growth across the world by adding products and health services according to local needs and wants. On the other side of the coin, brand management of existing products and product life cycle management could also be given a niche look for continuous positive cash flows. These subsidiaries may also have helped the global expansion and development of Pharma SA to scrutinize any specific country in a clear and transparent manner to help getting the idea of market potential, specific diseases and infections, competitive analysis, medical track record of the company, number of hospitals and patients, etc.
Also, Business Development and Product Development functions in Pharma business through modern Sales and Marketing Techniques is another critical function of subsidiaries in Pharma SA. It includes scanning the local market, looking for potential areas and identifying the demands which lies latent. Also, conducting R&D activities locally and acting as a liaison with the corporate head quarter to formulate an effective product for the local market. This also includes getting done the licensing arrangement in the local setup and drug authorities in the countries. Next phase involves marketing research for distribution, sales and marketing of new and existing products. Subsidiaries lay major focus on this part of operations in the local markets to generate sales for the principle the company – Pharma SA. On the other hand, all the strategic decisions are to be made with the consent of corporate head quarter in Zurich. The head quarter in Zurich acts as a nucleus for 110 subsidiaries across the world in which all the forecasting, sales analysis, performance of subsidiaries, etc are monitored. So, the subsidiaries have to coordinate with the Zurich corporate head office in terms of marketing management, finances, and overall business reporting. However, day to day and managerial decisions are offered to the subsidiaries with limited and full autonomy; dependent on the circumstances.
- How had the British subsidiary managed to generate distinctive capabilities?
Pharma operations in the United Kingdom were one of the major cash-cows of the Pharma SA’s businesses across the globe. Pharma UK generated an accumulated sales figure of more than 85 Million Swiss France by FY 1992. Pharma UK sets its operations in all the business areas under the supervision of Pharma SA but focused majorly on hormone replacement and fertility control. This is because the technological and engineering expertise that Pharma UK possesses gives it a vantage point to excel and reap profits out of the field. As the marketing analysis revealed that Britain had a lot of opportunities to contribute to fertility control and hormone replacement therapies and a lot of sales potential are evident. Knowing the fact, Pharma UK exerted best efforts and assimilated all of their technological capabilities for finding best solution to meet the demand of women facing uncomfortable hormonal imbalances. As a matter of fact, Pharma UK managed to make more than fifty percent of the sales revenue generated from fertility control and hormone replacement products. Also, Pharma UK runs a small Research and Development facility in which the major role is to look after product registration and all the required testing requirements needed for the product. As a matter of fact, the facility also succeeded innovating new products of its own which also they intend to launch in the local market with the permission of the parent company. As a strategy, it is well commendable that the Research and Development and Testing Centers in the UK solved the problem by innovating new skin-injecting hormonal medicine in minimum budgets. Also, as explained by Allison, Marketing Manager at OPharma UK that the Britain market looked as an easy target which fosters the need for market penetration. This seemed much easier for the market to target by the company ensuring goodwill as well as profits in the long run in the domestic setup. Thus, Hormone Replacement Therapy gives optimistic forecasts in terms of sales.
Hormone Replacement Therapy proved to be the best source of affirmative sales figures in the Great Britain. Hormone replacement therapy majorly consisted of two hormones: Oestrogen and Progesterone. Both the hormones were synthetically produced to deal with the problem of Menopause: A period in women’s life between the ages of 45 – 55 in which menstruation ceases permanently. This is a time of great discomfort for such a women going through menopausal phase. This includes frequent headaches and hot flushes. The gravity of the problem itself claimed the company of generating positive cash flows if adequate Research and Development is done and proper product is established. With the expansion of Hormone Replacement Therapy Industry in The Great Britain, Pharma UK managed to generate huge profits out of the own generate product ‘Vexa’ while ‘Zanta’ was marketed by the Parent Company across the Europe through special permission acquired by Pharma UK subsidiary from corporate head quarter Zurich. This also enabled Pharma UK to establish an individual brand name in the UK. Having their own product name and gave a distinction from other products of Pharma SA. It proved out to be a big product innovation in the local market and gave huge monetary profits as well as goodwill to Pharma UK as well as Pharma SA. This is the time to make effective marketing and strategies for the newer addition in the brand portfolio of Pharma UK in terms of Vexa TD.
- What were the barriers to these capabilities contributing to the MNC?
The biggest barriers to such positive capabilities throughout the Multinational Pharma SA are the centralized hierarchy of the company. Every big step has to be reported to the corporate head quarter on immediate basis. The biggest misfortune is the provision of limited budget allocated to the subsidiaries for conducting Research and Development and testing in the local laboratories. In many cases, the subsidiaries are taking positive steps and have been doing operations successfully which the Parent Company has been failing to do so. For example, Pharma UK with the collaboration of Morton Limited came out with a better technological advancement in Hormone Replacement Therap; which Pharma SA could not do with the association of 3M which is a renowned and Million Dollar organization .Every subsidiary in different countries has to face a different set of problems for business development. Also, every market requires dissimilar sales and marketing techniques. For example, Pharma UK has expertise in hormone replacement and fertility areas of health. Also, the market situation looks promising in the UK. Yet, In this regard, any strategic decision taken by Pharma UK for their domain needs to get an approval from the Parent Company. This puts a major question to the execution of drives and capabilities to the local context by the subsidiaries. On the other hand, constructive works by subsidiaries are brought to an end by financial constraints by the corporate head quarters in Switzerland. These stakeholders generate more than fifty percent of revenue only in the European zone. Though the hierarchical transformation in 1900s to include more Strategic Business Units (SBUs) for better coordination but still were based in Zurich. European Marketing Board was another major breakthrough in the system but did not work properly as members of this board were rejected whenever they raised their voice. All these gives negative vibes to all other key subsidiaries to step forward for anything innovative. This has put a direct threat to the Parent Company as in future the cash-cow of today can become a problem-child for survival on corporate grounds.
- How should Pharma SA respond to Allison's proposal?
Pharma SA did not respond to Pharma UK well at any phase of communication regarding their Research & Development in the field of Transdermal technology which involved easy transfer of hormones to body through the skin. Effective operations in such Multinational companies are only possible when strategic decision are taken having an equal consent of all the major operational subsidiaries and Strategic Business Units working across the globe. Keeping all their reservations, market factors, exogenous and internal factors in mind, a proper strategic decision making mechanism is to be followed fulfilling Mission and Vision of the company.
Pharma SA Zurich had an alliance signed with 3M which were renowned of having sound expertise in transdermal technology. 3M and Pharma SA failed to provide an effective solution in providing solutions for transdermal technology after R & D of several months. On the other hand, in 1993, Tom Allison, Sales and Marketing Director of Pharma UK started giving a niche look at the problems regarding Transdermal technology. He thought that there are major look-holes in product development phase and started screening local companies in the UK which might provide them with concrete R & D and product testing services for the purpose. Soon, on the local level, Tom found out Morton Limited which had an annual turnover of 25 Million pounds – A small scale and high risk the company to get involved in a serious and large scale business like Pharma SA. Presenting the idea of having an alliance with Morton Limited in the UK for introducing Vexa TD was rejected by the Parent Company in Zurich on the grounds that 3M is a well established name in the market which is providing ample services to launch successful Transdermal technology. No matter the reservations shown by the Germans and Swiss where serious, but the latent demand in the market and technological breakthrough calls for a little flexibility in favor of Pharma UK and Morton.
With the passage of time, the local, small-scale Morton managed to provide successful solution of providing Transdermal technology by Transdermal patch injecting hormones in the skin easily in the right dosages. This was a great achievement by Pharma UK with small Research and Development Budgets; and also on Morton Limited’s part which did something extraordinary which 3M being a million dollar organization could not deliver. Obviously, it is point where Pharma SA should put their trust in the favor of Morton SA for their wonderful research work.
On strategic level, Tom Allison wanted to market Vexa TD throughout the Europe, which was the biggest mistake drowning the entire innovation in the product development. It was difficult as the same medicine was marketed by the brand name of Zanta across Europe. Obviously, the newer innovation should be marketed and distributed with the name of “Zanta TD” in Europe. But, as highlighted by Pharma SA, it will be difficult for the Parent Company to get new licenses by national drugs registration authorities across Europe with the new brand name Vexa TD instead of Zanta TD causing problems for the doctors getting confuse which medicine brand name to prescribe. This would also damage the goodwill of the company in other European countries. The best solution was to market the new innovation with the Brand name Vexa TD in The Great Britain only by Pharma UK and distribute the same with the brand name Zanta TD across other countries of Europe where Zanta is a reliable brand name. This would also enable Pharma UK and Morton getting royalty and rights reserved to their innovation which is to be market with the name of Zanta TD across Europe. This seems to be a noble way of having a win-win strategy for all the stakeholders involved.
- How should Pharma SA change its structure and strategy to benefit from subsidiary development of new capabilities?
The subsidiary unit in the Great Britain, Pharma UK has been showing a tremendous growth in its market screening, product development, business development, Research & Development also have been maintaining good sales record through excellent supply chain in the region. Marketing efforts were excellent led by Tom Allision; which gave huge chunks of earnings to the company. Yet, Pharma SA has been reluctant giving authority to its subsidiaries across the globe to have operations according to the local needs and wants. No matter how much Pharma SA had invested in their Research and Development in the corporate head quarter in Zurich, there are many instances and major kind of business needs which require ‘decentralization’ and shifting the nucleus of decision-making to the business subsidiaries. Like in the case of Pharma SA, the corporate decision making was done in Zurich head office. Also, researching for particular drugs takes eight to twenty years in Research and Development and cost around $ 200 Million for each major breakthrough. This means that ‘breakeven’ is possible only by involving further stakeholder in different countries which will ensure boosted sale figures. This also calls for autonomous and independent policy-making right to the subsidiaries according to the local circumstances and demand patterns. As a matter of fact, drug registration processes are also not same in every country Pharma SA moves its operations into. Thus, decentralization is the need of time in the current scenario. Also, the case of Pharma UK; where they have founded better technological solutions for Hormone Replacement Therapy having Morton Limited under the strategic alliance. Yet, any expenditure more than ten thousand pounds for research and development and testing has to be approved from the Parent Company. Such a business and R & D without an ease of adequate funds for drug testing puts a serious question on the long run viability and profit making capability of the company. These compulsions on Pharma SA’s subsidiaries and lack of voice in strategic decision have big time implications in future including decreased sales as local bodies are not allowed to act in accordance to the domestic needs. Business subsidiaries should be given independence of involving local bodies who understands the market well and can provide better technological solution; as in the case of Morton Limited. So, Pharma SA should restructure its business hierarchy in which more decentralization should be injected with more independence for conduction of R & D with allocation of more funds to the subsidiaries. The sum of twenty million Swiss francs should definitively be endowed to Tom Allison and his team in Pharma UK to conduct research of their own and flourish the product base relating to Transdermal Technology.