developing business strategy for mekophar chemical pharmaceutical jsc in the period of 2010 2015 pdf

vi LISTS OF TABLES Table 2.1: Output and, revenue of each group of products and services through years...13 Table 2.2: Revenue of each group of products and services through years...14

CAPSTONE PROJECT REPORT

DEVELOPING BUSINESS STRATEGY FOR

MEKOPHAR CHEMICAL PHARMACEUTICAL JSC

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION

CAPSTONE PROJECT REPORT

DEVELOPING BUSINESS STRATEGY FOR MEKOPHAR CHEMICAL

Ho Chi Minh City 2011

ACKNOWLEDGEMENT

Our group would like to express our thankfulness to the Directors and the Faculty from Center for Educational Technology and Career Development (ETC) – Vietnam National University; ETC‟s Southern Division and Griggs University for having created us the best study conditions and have encouraged us in all the time of research and writing this capstone

We have further more to thank the Directors of Mekophar Chemical Pharmaceutical JSC as well as its related Departments for their provided relevant information, data and their supports for our Capstone

We understand that due to our lack of experience and limited information, our Capstone would have some shortcomings However, we would really appreciate all comments and suggestions for improvement in order to make the Capstone become, somehow, more applicable and more meaningful to the current context of Mekophar Chemical Pharmaceutical JSC

Even though this Capstone is our first ever carried-out research, we know that what we learn from doing the research will help us a lot not only in our professions but also in our future academic pursuits, and we believe that all the theoretical and practical business strategies withdrawn from this Capstone will bring us with success in our career

ii

WORDS OF REASSURE

We affirm that the work of this Capstone is our own research and all the information and data used are true

Ho-Chi-Minh City, 10 th August 2011,

Group 4 - Class GaMBAC0110

TABLE OF CONTENTS

ACKNOWLEDGEMENT i

WORDS OF REASSURE ii

LISTS OF TABLES vi

LIST OF FIGURES vii

FOREWORDS 1

CHAPTER I: THEORITICAL FOUNDATION ON BUSINESS STRATEGY 4

1.1 Definition of Dertermining Strategy in Business 4

1.1.1 Defintion of Strategic Management 4

1.1.2 The roles of Strategic Management in Business 4

1.2 Competitive Strategies according to Michael Porter: 4

1.2.1 Low-cost leadership strategy 4

1.2.2 Differentiation Strategy 4

1.2.3 Segmentation Strategy 4

1.3 Planning Company’s Strategy Process 5

1.3.1 Determining the business task 5

1.3.2 Analyzing External Factors 5

1.3.3 Analyzing Internal Environment 5

1.3.4 Analyzing and Selecting Strategy 5

1.4 Tools to develop business strategies: 6

CHAPTER 2 BUSINESS ACTIVITIES OF MEKOPHAR 10

2.1.1 General Introduction: 10

2.1.2 Main business line: 10

2.1.3 History of establishment and development 10

2.1.4 Mission of MEKOPHAR 11

2.1.5 Organizational Structure of MEKOPHAR 11

2.1.5.1 Organizational Structure: 11

2.1.5.2 The Company’s Organizational Chart: Chart 2.1 12

2.1.6 List of partners 13

2.1.7 Production and Sales results of MEKOPHAR over recent 3 years 13

iv

2.2 Internal Environment Analysis of MEKOPHAR 17

2.2.1 Management Model 17

2.2.2 Human Resources 17

2.2.3 Marketing 19

2.2.4 Finance and Accounting 21

2.2.5 Production: 22

Image 2.3: Some images of the Company’s manufacturing equipments 24

2.2.5 Research and Development 24

2.3 External factors analysis: 25

2.3.1 Macroeconomic environment analysis 25

2.3.1.1 Political, Legal, Cultural and Social Factors 25

2.3.1.2 Natural Factors 27

2.3.1.3 Demographic Factors 27

2.3.1.4 Technological Factors: 27

2.3.2 Industrial environment analysis and development directions until 2015: 28

2.3.2.1 Customers 30

2.3.2.1.1 Indirect customers 30

2.3.2.1.2Direct customers: 31

2.3.2.2 Suppliers: 32

2.3.2.3 Substitute products: 32

2.3.3 Competitor analysis: 32

2.3.3.1 Factors determining the competitiveness in the industry: 32

2.3.3.2 Content of competitor analysis 33

2.3.3.3 Potential competitors: 35

2.3.4 Analyzing the distribution channels……… 36

2.4 Evalueted Matrix: 35

2.4.1 The External Factors Evaluation Matrix (EFE): (Table 2.7) 36

2.4.2 Competition Matrix: 378

2.4.3 The Internal Factors Evaluation Matrix (IFE): 39

CHAPTER 3: BUSINESS STRATEGY FOR DEVELOPMENT IN THE PERIOD OF 2010 – 2015 40

3.1 Goals and Objectives of Mekophar in the period of 2010 - 2015 40

3.1.1 Long-term Goals to 2015: (Table 3.1) 40

3.1.2 Foundation for goal and objective definition: 40

3.1.3 Specific objectives for each year in the Period of 20011-2015 (Table 3.2) 41

3.3 Strategy Selection Matrices: 42

3.3.1 The SWOT Matrix: 42

3.3.2 Strategic Position and Action Evaluation Matrix (SPACE): (Table 3.4) 44

3.3.3 The Internal – External Factors Matrix (IE): 46

3.3.4 Preliminary selection of the strategic plans: 47

3.3.5 The Quantitative Strategic Planning Matrix (QSPM): 47

3.4 Strategy Implementation: (Table 3.8) 50

3.4.1 Penetration and Development Strategy 50

3.4.1.1 Domestic Penetration and Development Strategy of Mekophar: 50

3.4.2 Product Development Strategy: 52

3.4.3 Vertical Integration Strategy: 53

3.4.4 Co-operating with international partners: 54

3.4.5 Cost Strategy: 55

3.4.6 Developing the Human resource 55

CONCLUSION 57

BIBLIOGRAPHIES 58

WEBSITES 59

APPENDICES 60

vi

LISTS OF TABLES

Table 2.1: Output and, revenue of each group of products and services through

years 13

Table 2.2: Revenue of each group of products and services through years 14

Table 2.3: Revenue of each group of products and services through years 15

Table 2.4: Statement of production and business results through years 15

Table 2.5: Product distribution market rate 20

Table 2.6: Production capacity of some products 23

Table 2.7: Matrix of external factors for pharmaceutical industry 36

Table 2.8: Matrix for competitive images for pharmaceutical industry of mekophar chemical pharmaceutical joint stock company 38

Table 2.9: Matrix to assess internal factors (IFE) 39

Table 3.1: Mission, strategic goals 40

Table 3.2: Goals of each year 41

Table 3.3: SWOT Matrix of pharmaceutical product line of Mekophar 42

Table 3.4: SWOT matrix of the pharmaceutical industry of Mekophar 44

Table 3.5 : Internal – External Factor Evaluation Matrix (IE) 46

Table 3.6: Proposed strategies in each matrix 47

Table 3.7: QSPM matrix of the pharmaceutical industry- Group of concentrated growth strategies 47

Table 3.8: Order of strategic implementation organization .50

LIST OF FIGURES

Figure 2.1: The organizational chart of the company 12

Figure 2.2: Products of Mekophar 23

Figure 2.3: Some pictures of the company‟s machines and equipments 24

Figure 3.1: Space Matrix……… 45

viii

FOREWORDS

1 The necessity of the research

Throughout the 20-year long of the country‟s renovation, Vietnam's economy has gained many important achievements, especially in the early years of the 21st century The economic growth of Vietnam has maintained relatively high with a GDP of 6.7% to 7.2%, which made Vietnam become one of the countries with fastest economic growth, just behind China Vietnam's economy increases integrated with the world‟s economy, its trade volume has exceeded the total domestic product, and foreign direct investment to GDP is also increasing

Together with great achievements in economic development, Vietnam‟s health care sector has won many achievements under the Government‟s supports and investment Some dangerous diseases and epidemics are initially controlled and eliminated, the rate

of infections and deaths declined substantially Vietnam was the first country in the world successfully controlled the SARS epidemic Grassroots health networks are strengthened, especially the formation of village health care systems, they are closer to the people and creating favorable conditions to access health care services Pharmaceutical sector has developed a very steady foundation of organizing, managing, manufacturing and supplying Basically, pharmaceutical industry has met the people‟s demand for drugs in term of quantity and quality

Besides the basic achievements it has achieved in recent years, pharmaceutical industry

is also facing difficulties and challenges The development of pharmaceutical industry and antibiotics is almost insignificant One of the hardest difficulties is that the raw materials are mainly imported Apart from that, the supply networks, the distribution of drugs develop slowly, dispersedly and monopoly Businesses and distributors are functioning in a very small scale with weak capacity and lacking of experience in the market mechanism

The current Pharmaceutical market is chaotic with unfair competition, that required government‟s intervention - this has changed the business environment In order

to survive and develop in that severe context, Mekophar Chemical Pharmaceutical JSC needs a better business strategy

For that reason, our group has chosen “Develop business strategies for Mekophar Chemical Pharmaceutical JSC in the period of 2010-2015” as our capstone research

We really hope that the jury member, our classmates as well as the professors of business strategy will support us with your comments and suggestions to make the Capstone become more persuasive and applicable

2 Objectives of the research

The Capstone focused on researching the following issues:

- Basic theories about strategy and strategy management

- Analyzing useful models used for the implementation and selection of the strategies

- The real situation of strategy implementation at Mekophar Chemical Pharmaceutical JSC

- Analyzing internal and external factors that affected the company‟s strategy implementation phase

- Suitable solutions for setting up the development strategy of Mekophar Chemical Pharmaceutical JSC

3 Beneficiary, scope and mode of researching

- Beneficiary and scope: The capstone focuses on researching strategic activities for

Mekophar‟s products and proposes solutions and suggestion in the future

- Mode of researching: The capstone uses two main form of information: primary and

secondary information The secondary information was collected from different sources, but mainly from Mekophar‟s reports on business and marketing activities as well as open resource on the internet

4 Structure of the Capstone

Chapte 1: Theoretical foundation on business strategy

Chapter 2: Business and Manufacturing Activities of Mekophar Chemical

Pharmaceutical JSC

Chapter 3: Business Strategy for Development of Mekophar Chemical

Pharmaceutical in the period of 2010-2015 Conclusion: Briefly evaluating analyzing results and naming all major contents

of the research

CHAPTER I THEORITICAL FOUNDATION ON BUSINESS STRATEGY

1.1 Definition of Dertermining Strategy in Business

1.1.1 Defintion of Strategic Management

“Strategic Management can be defined as an art and science establishment, implementation and evaluation of decisions related functionality that allow an organization to achieve its assigned goals In this definition, strategic management focuses on integrating of management, marketing, finance and accounting, manufacturing, research and development, and information systems to achieve success for the organization” (Fred R David)

1.1.2 The roles of Strategic Management in Business

It helps the business to:

 Achieve the organization‟s proposed goals

 Take care of concerned parties in a larger aspect

 Integrate the short-term development in a long-term context

 Focus on outcome and productivity

1.2 Competitive Strategies according to Michael Porter:

1.2.1 Low-cost leadership strategy

This strategy creates competitiveness by:

 Low appreciating competitors in the industry, attracting target customers, who care about pricing in order to increase profit

 Control without fully reducing the price, satisfy with the current market share and using lower-cost tools in order to gain higher actual margin over each item sold

1.2.2 Differentiation Strategy

This focuses on manufacturing specific products or providing specific services in the industry, aiming at customers who are not sensitive with price difference

1.2.3 Segmentation Strategy

This focuses on manufacturing products and services that meet the need of a small group

of customers This narrow segment can be determined by geographical region, product and customer types

1.3 Planning Company’s Strategy Process

There are four main steps in this process

1.3.1 Determining the business task

Reports on business task are declarations the “existing reason” of an organization (Drucker) Therefore, the company needs to determine its business activities, goals to achieve, and finally planning a suitable business strategy of it

1.3.2 Analyzing External Factors

Environment of an organization are the factors, forces and institutions, etc, outside the businesses that the administrators could not control but has tremendous impact on the operation and performance of the organization External environment of an organization can be divided into two levels:

- Macro environment: has impact on ever kinds of business for instance economic environment, legal environment, social and cultural environment

- Micro environment (or industry environment) is determined through specific sector or business It can consist of (1) Competitors, (2) Customers, (3) Providers, (4) Potential Competitors, (5) Substitute products

Analyzing external factors will help the Company find out what its Opportunity (O) is and which is the Threats it has to face

1.3.3 Analyzing Internal Environment

The situation of the enterprise is often assessed through functions of Departments such as Finance, Human Resources, Executive Management, Organizational Structure, Marketing and Information Technology The analysis of external factor will help the business identify its Strengths (S) and Weaknesses (W) in order to have an appropriate business strategy

1.3.4 Analyzing and Selecting Strategy

Based on strategic objectives, vision and core values of the company as well as analyzed internal and external information, the company will evaluate and selecting the most feasible business strategies

1.4 Tools to develop business strategies:

According to Fred R David, there are three phases in developing business strategies, and therefore, different tools are used

* Phase 1: Collecting and Systemizing Information

This phase summarizes all collected information and then systematizes them in order to develop business strategies This phase uses three tools: The EFE Matrix, The Competitive Profile Matrix (CPM) and the IFE Matrix

- The EFE Matrix is built following these five steps

 List factors: Gather a list of external factors Divide factors in to two groups: Opportunities and Threats

 Assign a weight to each factor The value of each weigh should be between 0 and 1 0.0 means the factor is not important 1.0 is very important The total value of all weighs should equal 1.0

 Assign a rating to each factor Rating should be between 1 and 4 Rating indicates how effective the firm‟s current strategies respond to the factor 1= the respond is poor, 2= the respond is below average, 3= above average, 4= superior

 Multiply each factor weight with its rating This will calculate the weighted score factor

 Add all weights scores for each factor This will calculate the total weighted score for the company

- The CPM Matrix

This matrix shows a clear picture to the Company about their strong points and weak points relative to their competitors in the same industry This matrix is the extension of EFE Matrix with the weight for each factor, meaning of each weight and total weights score

- The IEF Matrix is set up through 5 steps:

 List from 10 to 20 factors including strengths and weakness that affect the company

 Classify the weight of each factor base on a scale 0.0 – 0.1

 Identify the weigh for each factor base on a scale from 1 to 4

 Multiply the weight of each factor with its rating to have the weighted score

 Sum the weighted score for each factor to have to total weighted score

If the total weighted score of the Matrix is below 2.5: the company is weak at internal factors and if it is above 2.5: the company is strong at internal factors

* Phase 2: Combination

This phase selects, organize and combines external factors and internal factors to come up with a feasible strategy This phase uses tools such as: The SWOT Matrix, The SPACE Matrix

- The SWOT Matrix: is a tool combines Strengths (S), Weaknesses (W),

Opportunities (O) and Threats (T) to come up with four kinds of strategies as below:

Listing all the Threats S-T Combination W-T Combination

In order to set up the SWOT Matrix, the Administrator has to go through eight (8) following steps:

Step 1: Listing all main Opportunities from external environment (O1, O2…) Step 2: Listing all main Threats from external environment (T1, T2…)

Step 3: Listing all Company‟s Strengths (S1, S2…)

Step 4: Listing all Company‟s Weaknesses (W1, W2…)

Step 5: Combination of Strengths and Opportunities (SO)

Step 6: Combination of Weaknesses and Opportunities (WO)

Step 7: Combination of Strengths and Threats (ST)

Step 8: Combination of Weaknesses and Threats (WT)

- Strategic Position and Action Evaluation Matrix (SPACE)

SPACE Matrix shows what strategy a Company should choose: Aggressive, Conservative, Defensive, or Competitive The axes mean as follows:

In order to set up a SPACE Matrix, these steps need to be followed:

(CA), industry strength (IS), environmental stability (ES), and financial strength (FS)

Rate competitive advantage (CA) and environmental stability (ES) using a rating scale from -6 (worst) to -1 (best) Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6 (best)

(IS), environmental stability (ES), and financial strength (FS)

appropriate axis

dimensions This will be your final point on axis X on the SPACE Matrix

and financial strength (FS) dimensions to find your final point on the axis Y

the SPACE Matrix to your point This line reveals the type of strategy the company should pursue

- The Quantitative Strategic Planning Matrix (QSPM):

This matrix used to evaluate the ranking of feasible strategic plans; therefore we have foundation to choose the best strategy This matrix uses all the inputs from all developed matrices (EFE & IFE Matrix, competitive image matrix, SWOT Matrix, SPACE Matrix)

Weighted score of the important factors rank from 1 to 4: 4: very important, 3: important, 2: relatively important, 1: unimportant

The scores of attraction in each strategy are given on a scale rank from 1 to 4; 1: completely unattractive, 2: less attractive, 3: fairly attractive, 4: very attractive

Success factors‟ affecting the choice of strategy has no point

CHAPTER2 BUSINESS ACTIVITIES OF MEKOPHAR

2.1 Introduction about MEKOPHAR Chemical Pharmaceutical JSC

 Headquarter:297/5 Ly-Thuong-Kiet street, Ward 15, District 11, Ho-Chi-Minh City

2.1.2 Main business line:

- Producing and exporting pharmaceutical products and materials, raw materials for

medicals, medical equipment

- Producing pharmaceutical packages (plastic bottles, boxes, cartons)

- Producing and trading technological food (except producing and processing raw food)

- Leasing buildings and offices

- Leasing apartments

2.1.3 History of establishment and development

Mekophar was founded in 1975 with the initial name “National Pharmaceutical

Enterprise 24”, a subsidiary of Vietnam Pharmaceutical Corporation

On 19th December 2001, Mekophar was equities officially changing its name to

Mekophar Chemical Pharmaceutical Joint Stock Company (JSC)

In 2003, our company funded to build AN SINH hospital and the hospital came into

operation on 7th May 2006

In June 2006, our company first issued Initial Public Offerings (IPO)

In 2009, we invested in Mekong Pharmaceutical Company

The initial chartered capital of Mekong Pharmaceutical Company at the time of equity is

36 billion VND of which Government owns 45% On 15th September 2008, the chartered capital reached 92.1 billion VND, of which Government owns 29%

GMP Workshop producing antibiotic BetaGMP Lactam with 2 units: raw material unit and product unit

- Chemical pharmaceutical workshops

- Workshops with units such as Infusions, powder antibiotic for injections, Betalactam antibiotics, Non-betalactam antibiotics, liquid mixture and ointment

- Stem cell bank unit

- GLP quality control department

- GSP-standard stock system

At the moment, our company is waiting for more than 300 products to be licensed MEKOPHAR‟s products have been produced with updated processes and equipment, ensuring the standard quality we registered with Ministry of Health

At the same time, we are under the progress of building new GMP-WHO standard factory as the Government plans to move industrial factories far from residential areas The new plan will be located in Binh Duong industrial zone with the area of more than

 Address: 297/5 Ly-Thuong-Kiet street, Ward 15, District 11, Ho-Chi-Minh City With the area of 18.600 m2, the headquarter is the office of general director, vice general directors and professional divisions such as: Administrative Division, Planning and Sales department, Quality Assurance Department (QA), Quality control Department, Research and Development Division (R&D), Accounting Division, Stem cell ban and main workshops

We have 3 branches located in 3 main regions of Vietnam:

1 Hanoi Branch :95 Lang Ha street, Dong Da district, Hanoi

2 Central Branch: 70 Phan-Van-Nghi street, Thanh-Khe District, Danang city

3 Can Tho Branch: 17A CMT8, Binh-Thuy District, Can-Tho City

Our company has 5 stores located in districts which has a lot of hospitals, drug stores and private clinics in Ho Chi Minh City (District 3, District 10, District 11, Phi Nhuan District)

2.1.5.2 The Company’s Organizational Chart: Chart 2.1

ORGANIZATIONAL CHART

Chart 2.1: the Company’s Organizational Chart

2.6.1 List of partners

- AnSinh Hospital, stock holding 22%

- Mekong Pharmaceutical Company, stock holding 22%

Main suppliers and material producers are prestigious European, American and Asian material producers, domestic producers, etc (Appendix 1); domestic and foreign distributors

Some main distributors, wholesalers of MEKOPHAR:

- Youth Hospital 1; Tu Du hospital, People Hospital 115

- Saigon Pharmaceutical Company – Sapharco, Mekong Pharmaceutical JSC, National Pharmaceutical Company 2 – Codupha

- Stores and agencies

2.1.7 Production and Sales results of MEKOPHAR over recent 3 years

a Consumption and sales Output of some product groups over the years

Table 2.1: Consumption and sales Output of some product groups over the years

„Com” (is being highly

appreciated in the market) 1.000pack 41.625 41.858 49.904

Source: Mekophar Chemical Pharmaceutical JSC

b Turnover of each product group over the years: (Table 2.2)

Table 2.2: Turnover of each product group over the years

Unit: Million Vietnam Dong

Value Proportion Value Proportion Value Proportion

Source: Mekophar Chemical Pharmaceutical JSC

(*) Other revenues of our company are from materials, packages sold to other enterprises, leasing factories, offices and stem cell bank Those revenues are insignificant and not regular

c Revenue of each product group over the years

Table 2.3: Revenue of each product group over the years

Unit: Million Vietnam Dong

0 71,47%

„Com” (is being highly

appreciated in the market) 11.707 13,72% 10.545 13,15%

Source: Mekophar Chemical Pharmaceutical JSC

(*) Comment: Total revenues before tax of 2009 is 80.918.143.384 VND representing an increase of 743.724.078 VND from 2008 This can be considered as an achievement for our company since a lot of other pharmaceutical companies are deleteriously affected by economic crisis Despite unfavorable economic situation, our company still operated stably and maintained high compound interest rate The inflation rate in 2009 increased significantly which resulted in the increase of input and labor costs However, the increase in expenses of our company stayed relative with inflation rate in 2009 This is because MEKOPHAR imposed tight control over input costs:

d Export quota

From 2007 to 2009, average annual export revenue made up 17% of total revenues Export quota in 2009 reached 100 billion VND while other companies experienced effects of economic depression Some of traditional export markets are Laos, Cambodia, Myanmar, Malaysia, Congo, Nigeria, etc

Table 2.4: Results of production and business of years 2007, 2008 and 2009

Unit: Thousand Vietnam Dong

TARGET Year 2007 Year 2008

Proportion

of 2007 and 2008 (%)

Source: Audit Report of years 2007, 2008 and 2009

(*) Dividends from An Sinh Hospital in 2008 and 2009 were 1.054.368.322 and 1.676.000.000 VND respectively Until 31th December 2009, Mekophar owned 22% of 38.1 billion VND chartered capital of An Sinh Hospital

In spite of many fluctuations in the economy, MEKOPHAR achieved positive results:

- Net Sales was 646,8 billion VND representing an 8,53% increase from 2008

- Profit before tax was 80,9 billion VND representing an 0.92% increase from 2008

- Profit after tax was 61.2 billion VND, completed 108.93% plan of 2009

(*) Comment:

- Total assets on 31st December 2009 were 447.382.505.024 VND, representing an 11.43% increase from those of 31st December 2008 The most remarkable one was an increase in fixed intangible assets and cash item in Balance Sheet (Appendix 5: Balance Sheet and Financial Ratios) Liquidity rate remained high as the company had high volume of cash and didn‟t use loan This fact demonstrated our company‟s financial independence and sustainable development According to audited financial report on 31stDecember 2009, profit after tax was 61 billion VND, completed 108.93% plan of 2009

- If our company keeps the same pace of development and macroeconomic situations are stable, the use of “financial leverage” will become more effective, contributing to the increase in total revenues and profits from expansion activities

2.2 Internal Environment Analysis of MEKOPHAR

2.2.1 Management Model

MEKOPHAR Chemical pharmaceutical JSC follows the model below:

- Shareholders‟ Committee: Shareholders‟ committee is the bodies with utmost decision right Our shareholders have voting right Shareholders‟ meeting is held

at least once a year

- Board of trustee: MEKOPHAR has 8 members; maximum term of each member is

5 years Head of Board of Trustee is the legal representative of the company

- Controlling Department: includes 3 members, term is 5 years Controlling board is independent of Shareholders‟ Committee and Board of Directors

- Board of Directors: includes 1 General Director and 2 Vice General Directors (Vice General Director of Production and Vice General Director of Administration)

2.2.2 Human Resources

Number of staff is stable over years and according to the Human Resources Department, structure of staff in education group is as follows: Total number of staff is 823 people of which 5 people (0.61%) have graduate degrees, 137 people (16.65%) finished undergraduate studies, 155 people (18.83%) have college diploma, 526 people (63.19%) completed high school education and basic courses about production Our Research and Development division has 12 people with Pharmaceutical Undergraduate Degree or higher and pharmaceutical specialist collaborators

In contrast with Economics, Pharmacy industry doesn‟t many staff has pharmaceutical undergraduate degrees However, the percentage of pharmaceutical undergraduate degree holders is relatively high This percentage will change due to the change in educational plan of Ministry of Education and Training (Appendix 4: Labor Structure from 2007 to 2009)

Policies to workers:

a Working conditions:

Number of working hours: 9 hours/ per day, 5 days / per week Workers rotate in 2 shifts/ day With some specialist units, there are 3 shifts/ per day When there is any sudden requirement about production or sales, staff will be required to work extra hour

b Recruitment and training policies:

Our company gives careful attention to staff training, cultivation, especially GMP skills, management skills for management staff, expert skills, professional skills for workers and staff in the factories Training process includes training and retraining meeting requirements of GMP factories Training process also has sum-up and overview to assess and to propose next course of trainings, measure effectiveness of the means and methods for improvement Our company has implemented the effectiveness assessment system and started to educate staff about organizational culture Moreover, Mekophar is concerned about training professional skills for employees; retain excellent people, sending staff back to schools for higher studies (company covers tuition fees) Our company gives opportunities in terms of time and working environment for employees

to develop Our company realizes that the most valuable asset is stable and qualified staff Strong staff will help the company to accomplish its mission “Take care of people‟s health” with the motto “Always for your health”

c Remuneration, welfare and insurance policies:

The company design suitable remuneration policy depending on the characteristics of jobs The policy ensures the right of workers according to the law What is more, upon the sales, our company will offer rewards to staff, group of staff with contribution to business activities by giving 1 month to 4 month salary bonuses in the end of the year It‟s our company tradition to organize domestic as well as abroad holiday trips depending

on the achievements and positions Maintaining diverse extracurricular activities is our unique cultural trait Monthly average salary in 2009 is 5.100.00 VND/per worker/per month Our company monthly average salary is higher than other companies in the same business field

Brain drainage in Pharmacy Industry has become a major concern for a great number of Pharmaceutical companies in Vietnam It poses a big challenge for training and retaining activities Nevertheless, Mekophar always demonstrates steadiness with appropriate human resources policies With the above analysis, it‟s easy to realize the effectiveness

of human resources management of MEKOPHAR

2.2.3 Marketing

a Branding

Mekophar pays a lot of attention to branding activities to build Mekophar as a strong Vietnamese brand Mekophar promotes its brand to consumers through radio, charitable activities, its branches, stores and drug stores all over Vietnam Our company constantly popularizes its brand by joining trade promotion program abroad such as Myanmar, Moldova, Nigeria, etc

With domestic market, Mekophar promotes its brand by participating in trade fair, high quality Vietnamese goods, activities held by Department of Pharmaceutical Control and Vietnamese Association of producing and trading Pharmaceutical products To reaffirm the quality of products, from 1999 to 2007, Mekophar was continuously rewarded as high quality Vietnamese goods The award is voted by consumers and conducted by Saigon Marketing Newspaper Furthermore, MEKOPHAR received the certificates from Saigon Economy Times as Strong Vietnamese Brand 2008, from Commercial Magazine and Association of Vietnamese Intelligence Property

b Product

Our products are diverse in kinds, fine packages The quality of our products is ensured

as the registered one so that our products will produce effective treatment and save costs According to the research, our market share is 7%

c Distribution system

Our products are mainly delivered to the consumers through distribution channels of national pharmaceutical companies, local pharmaceutical companies, hospitals all over Vietnam The distribution channel has been expanded to Private pharmaceutical companies in regions Our company has established and developed a group of collaborators They are qualified pharmaceutical representatives to support distributors in

offering medicines and receiving orders Our products have been exported to some European countries, African countries, South East Asian countries such as Moldova, Myanmar, Laos, Russia, Ukraine, Nigeria, Congo, etc

The 1st-level distribution system consists of three branches in Hanoi, Danang and Can Tho, not to mention five showrooms in Ho Chi Minh City

Proportion of distribution market share 2009 (table 2.5)

Table 2.5: Proportion of distribution market share

Can Tho and the Mekong Delta Region 6%

Source: Mekophar Chemical Pharmaceutical JSC

We can see, through the mentioned branches and showrooms, Mekophar still have some limitations:

- The existing distribution system fails to cover the market, namely: there are only five stores among 20 districts There is one branch for each Hanoi, Danang, Cantho, but the performance is very low due to small amount of staff that lack of professional manner and are unable to locally represent the company Another point that we can add to the low coverage is that Mekophar does not have any showroom in the Central Highlands of the country yet

- In the Central and Cuu-Long Delta, due to weak distribution system, the revenue of the two regions is very low (around 5% and 6%)

- Ratio of products for bidding at the hospitals hold a small portion, therefore the

revenue for this is also very low

- The supporting and encouraging policy for doctors working at the hospitals are not too attracting, therefore, the amount of Mekophar‟s prescribed edications is low The

Company needs to improve this in the near future

- The quality policy needs to be equivalent to the commission policies applied for

resellers and big distribution agents Private clinics and doctors have not been well taken care of

d Pricing

Our company has a single consistent pricing system all over Vietnam We exerted tight control over the production costs As a result, our products have lower prices as a competitive advantage over other domestic products with the same purposes thanks to strong brand

After analyzing marketing activities, we realized that we hadn‟t put enough focus on some regions such as Middle Part, Cuu-Long delta Export segment is still limited and needs more development in the future Product differentiation is crucial; market segmentation for different product lines is necessary to create lower price as a competitive advantage Marketing campaign must be effective and suitable for target audiences to avoid unwise investment

2.2.4 Finance and Accounting

Financial situations are transparent and stable Accounting department abides by Vietnamese and International Accounting Standards

Our company settles its debts before deadlines Based on annual auditing reports 2007,

2008 and 2009, our company settled all debts before deadlines This indicates the financial potentials, stability and control of our company

As our company doesn‟t use any loan, we don‟t have to pay for it Even though we show promising financial potentials, we haven‟t had any plan of financial leverage in current business strategies This is the reality of the industry Most of companies don‟t use loan except for emergency cases due to high risks This will be analyzed in macroeconomic environment later in the report Pharmaceutical industry is susceptible and greatly dependent on society, law, both direct and indirect customer psychology

Posting its stock on Ho Chi Minh securities market created a competitive advantage in mobilizing invested capitals by issuing bonds

(Appendix 2: Monthly business efficiency ratio from 2007 to 2009; Appendix 3: Financial ratios of MEKOPHAR 2009 and other companies having stock posted on Ho Chi Minh securities market, Appendix 5: Financial ratios)

2.2.5 Production:

Our company produces 5 main types of medicines: Infusions, powder antibiotic for injections, Betalactam antibiotics, Non-betalactam antibiotics, liquid mixture and ointment

Our medicines such as antibiotics, anti-inflammatory, antipyretics, specific medicines, tonics are the ones having high competitiveness in the market domestically and internationally However, we only produce modern products in extended treatments Besides, we produce raw materials for antibiotic, chemical pharmaceutical materials to make our own finished products and to provide for other domestic and foreign pharmaceutical companies

Our products are diverse with more than 200 different types with high quality, fine packages, and reasonable prices We always gain customers‟ trust, especially domestic hospitals and retailing market in Ho Chi Minh City

Some images of the Company’s Featured Products: (Image 2.2)

AMPICILINE AUGBACTAM CEFOTAXIM1G MEKOZINCEF

GLUCOSE LACTAT RINGER MEKOAMIN- SORBITOL 3.3%

MEKO MORIVITALMEKOBC-COMPLEXMEKOLACTAGIL MYCOCID NAJATOX

Image 2.2: Some Image of Mekophar Chemical Pharmaceuticals JSC

* Manufacturing Capacity: (Table 2.6)

Table 2.6: Manufacturing Capacity of some Product Groups

2 Powder Antibiotics for Injections 20 millions phials

3 Betalactam Antibiotics 1.700 millions tablets-packs

4 Non-Betalactam Antibiotics 300 millions tablets-packs

7 Raw-materials for Antibiotics 400 tons

Source: Mekophar Chemical Pharmaceutical JSC

With the current production capacity, we are confident that we have strengths in comparison with our competitors However, we need more investment to develop new

medicines, increase capacity and install modern production lines so that we can take up a high proportion of market, become preeminent company in the industry It‟s important for our company to find partners to strengthen competitive advantages and absorb new production technology of developed nations

TABLET COVERS TABLET PACKAGE DISSOLVE MEASURE

DRYER EXPRESS MIXER ANTIBIOTICS

MANUFACTURE

Image 2.3: Some images of the Company’s manufacturing equipments

Source: Mekophar Chemical Pharmaceutical JSC

2.2.5 Research and Development

Research and Development division has 12 people of which two are master holders and other pharmaceutical research collaborators

Annually, aside from proposals of branches, after conducting research about product consumption, treatment trends, R&D division actively do market research, consumers‟ preferences and indications of products in accordance with consumers‟ needs to initiate from 20 to 40 new medicines Approximately from 15 to 20 of them are actually sold to the market

Now, we focus on new products with high precautions; simultaneously conduct intensive research to improve quality of existing products

In order to make new unique products, it‟s a must that we have excellent and enthusiastic staff Unfortunately, MEKOPHAR seems not to have enough such R&D staff in

comparison with Domesco, Imexpharm, and Sanofi-Arventis For this reason, we have to put more efforts in this area in the future

2.3 External factors analysis:

2.3.1 Macroeconomic environment analysis

According to the statistics of Ministry of Planning and Investment, GDP in 2010 increases 6.5% And as it is stated in the Objectives of Central Committee of Vietnamese Communist Party, from 2010 to 2015, GDP growth rate will reach 7-7.5%, GDP per capita in 2015 will be 2000 USD, increasing 1,7 times of 2010; productivity in 2015 will double from that of 2010 These goals will provide us ground to predict the development

of Vietnam economy from now to 2015

The economic development will bring about the increase of needs in taking care of health which will influence Pharmaceutical Industry as well as business activities of MEKOPHAR

Even though export activities are more favorable since currency rate of USD/ VND is adjusted more than 2%, MEKOPHAR faces difficulties as 80% of raw materials are imported

2.3.1.1 Political, Legal, Cultural and Social Factors

Representatives from many pharmaceutical companies have mentioned the inadequacy in governmental regulations of marketing expenses While foreign pharmaceutical companies can spend 30% of revenue for advertising, domestic pharmaceutical companies can spend only 10%, if exceed, companies will be requested to pay more taxes Advertising has been proved to be one of the essential elements for success Nonetheless, governmental regulations of advertising expenses have erected barriers for companies, leading to the lack of interest in domestic medicines in the market

According to the detailed commitment to join WTO, Vietnam has to impose 0%-5% tax instead of 0%- 10% previously for pharmaceutical products The average tax rate will be 2.5% after 5 years from official joining date (in 2012, Vietnam will become an official member of WTO) On the other hand, the opening market will reinforce the commercial presence of foreign companies who have stronger potential with brands Those companies together with the remove of barriers will be a great challenge to domestic pharmaceutical industry, including MEKOPHAR

To face with this situation, Vice Prime Minister has requested Ministry of Public Health

to implement preferential financial program for domestic pharmaceutical producers, make forecast report about market, use more domestic medicines and take full advantage

of equipment, domestic raw materials instead of preferring foreign products These actions will be driving forces promoting Domestic Pharmaceutical industry to the orientation of 2020

In addition, in the future, Government and Ministry of Public Health will assist domestic pharmaceutical companies in adopting more favorable policies to create best environment for “3 stakeholders”: Companies- Scientist-Farmers to produce highly effective and sustainable medicines, to build closed distribution channels, to satisfy the needs of people Reducing the dependence on imported raw materials will open up new developmental opportunities for Pharmaceutical Industry (90% of raw materials are imported)

A majority of Vietnamese are not confident in domestic medicines It‟s their perception that “foreign medicines are expensive, they must be good” Most of them don‟t know that the production technology in Vietnam has been updated, more or less the same as other countries in the world

Another important factor is the limited knowledge of consumers about medicines If the medicines have the same ingredients but different medicine‟s names from prescription, they will not buy

It‟s the case that doctors prefer to prescribe patients with foreign medicines as they are paid more commissions This tendency will cause many difficulties for Pharmaceutical Industry in general and for MEKOPHAR in particular

In the modern life with rapid economic development, people are more concerned about their health since they are still strong Following the belief “Prevention is better than cure”, developed countries have a trend of preferring dietary supplements to medicines More and more women care about their beauty Consequently, when income increases, life gets busier, to save time and take care of health, beauty, prevent diseases, people start

to use dietary supplements This is the opportunity for pharmaceutical companies to meet the demands of customers MEKOPHAR is investing a big amount of money in R&D for

dietary supplements and pharmaceutical cosmetics Thanks to smooth distribution system, our company can take full advantage of this opportunity

2.3.1.2 Natural Factors

Vietnam is located near equators with high temperature and humidity giving good conditions for flora to grow in various kinds Plants and fungus are a rich source of raw materials for Pharmaceutical industry in the future

With the rapid economic development, especially industrial development, a massive amount of waste has been dumped into the environment such as: residential waste, industrial waste These wastes have negatively contaminated the air The pollution along with climate changes will become a threat to human lives and health A number of diseases related to respiration, heart, digestion, etc will be worsened This is the foundation to develop the Pharmaceutical industry in the future

2.3.1.2 Demographic Factors

Vietnam‟s population has 83 million people, ranked the 13th in the world As lives have been improved, there has been a considerable increase in medical services, health care services This has given chances to expand the distribution system of MEKOPHAR throughout Vietnam In his speech, Vice Prime Minister expressed that Vietnam‟s population 100 million people and ASEAN population 500-600 million people by 2020 will become potential markets to develop pharmaceutical industry, oriented towards exported products AS being a top company in the industry, MEKOPHAR can take best use of this opportunity

Moreover, in Vietnam, elderly population (more than 60 years old, 6.3 million people, making up 7.5% Vietnam population) tends to increase thanks to the improved living conditions and medical services For the elder, health is crucial and needs enough care Understanding this segment of the elder will be a good opportunity for MEKOPHAR to research and develop new suitable products attached with other health care services

2.3.1.4 Technological Factors:

From 2001 to 2009, Science and Technology Department has been revolutionized The Fund for science and technology development was founded with the aim of supporting companies in implementing domestic research, research results with commercial values, promoting applications of science research, developing technology, transferring