In these tough times, there are no sacred cows…

July 7, 2002

The Final Word Team:

Stella Forbes, Nitin Gaur, Jessica Giandomenico,

Jennifer Harper, Rhonda Helal, Sherry Ward

OMBA 606D

The University of Maryland University College

Executive Summary
Merck & Co., Inc. is a strong and innovative pharmaceutical company. They have stood the test of time and some might say they are “Survivors”. Merck discovers, develops, manufactures and markets a broad range of groundbreaking products in order to improve human & animal health. Merck’s foreign operations are completed directly and through joint ventures. In order for Merck to maintain their premier status, it is essential that they continue to grow at a steady pace. The growth of Merck operations must be managed in a well-calculated manner to maintain their positive brand recognition and financial standing.
For the purpose of this paper, our team was given the pleasure to provide the final word as to whether Merck should enter China or India for the expansion of their vaccine product line. We choose China as the country for Merck to enter due to the timeliness of activities within the country including their recent accession into the World Trade Organization. We recommend that the best method for Merck to enter China is through an international joint venture (IJV) with a Chinese partner.

Several factors were considered when determining which country to enter: tariff and non-tariff barriers, fiscal policies, “political/regulatory systems”, monetary policies, economic infrastructure, social infrastructure, business and workforce culture, and intellectual property. Throughout this paper our team provides supporting evidence justifying Merck’s entry into China. Comparative analyses of business risks in China versus India were completed as well as a breakdown for the basis of our selection of China as the country of expansion. This paper also examines some key economic and ecologic lessons that were learned from our readings.

Merck has a sound probability for success in China. Our paper shows that Merck’s strengths in research and development, training, and management practices coupled with the current situation in China indicate a high probability of success for their IJV entry into China. Our research shows that there is a demand in China for vaccine products and that Merck will participate in supplying the means to meet that demand.

Comparative Analysis of Business Risks in China versus India

India and China, two highly populated countries in the world, exemplify the striking similarities and vast differences that characterize the Asian region. Once considered difficult markets to enter, these countries have taken significant strides to attract foreign investment over the last decade. These efforts include liberalizing economic policies, expanding the role of private enterprise, and encouraging infrastructure development. India and China fall into the category of emerging markets in Asia given the steady growth in both of these countries since 1991. As in other countries, doing business in India and China involves risks, although one risk may be higher for one country than the other.

Tariff trade barriers

Tariff barriers have been traditionally put in place to control the amount of business outside companies conduct in a foreign land. Tariff barriers are a prime and real concern for any company that is entering a new country.

The accession of China into the WTO requires their continued reduction of trade barriers to meet internationally accepted practices, thus resulting in the reduced cost of doing business in China. Currently in China, the United States imports are assessed at the minimum tariff rate. China is looking to reduce its average tariff on pharmaceutical products by about 60%, from an average of 9.6% to 4.2% (U.S. Commercial Service, 2001). The reductions in tariff barriers have improved Merck’s possibility of success in importing vaccine products into China. It is imperative for Merck to establish a presence in the country due to the growth of competitors in this market (PhRMA, 2000).

The Office of US Trade representative on foreign trade barriers – India (2000) cites “India’s import policy is administered by the means of a negative list. The negative list is divided into three categories: (1) banned or prohibited items (tallow, fat and oil of animal origin); (2) restricted items which require an import license; and (3) canalized items importable only by the government trading monopolies and subject to cabinet approval regarding timing and quantity” (p. 157). Such a policy could restrict the import of pharmaceuticals, or the chemicals needed to manufacture them, through import license restrictions. Tariff levels in India are still very high by international standards. India has proposed a six-year phase-out to the WTO for removing import restrictions on the quantities for 2,700 items. Import licenses are still required for most pharmaceuticals and chemicals. “This licensing requirement serves in many cases as an effective ban on importation” (p. 157). India’s strict trade policy and complicated import polices and licensing could be limiting factors to the success of Merck operations in India.