For any company that considers operating internationally, there are many alternatives to select from for the mode of entry in the foreign markets. While foreign direct investment (FDI) is considered most pervasive form of entry mode by transnational corporations, smaller firms often consider partnering with a local firm or exporting their merchandize to the foreign destination country. By exporting and partnering with local firms, small and medium enterprises (SMEs) better understand the political, economic, and regulatory environment of destination country. As a beginning point, the U.S. Department of Commerce (DOC) provides effective guidance for the U.S. firms investing abroad. The website of DOC publishes 'country commercial guide' for each country, thereby making it easier for local investors to select potentially lucrative industry sectors to invest abroad. We have selected Costa Rica as destination country for our marketing and sales activities of clinical-pharmaceutical product called 'drug testers', these are FDA approved drug testing cups. With the help of 'country commercial guide' of U.S. DOC website, following is a comprehensive analysis of market of destination country.
Company name: Pharma Plus (Assumed)
Product Category: Drug Screening Cups
Product Name: Pharma Drug Screeners
II- Destination country: Costa Rica
Costa Rica is situated in Central America and happens to be the second largest economy of the region with $48.843 billion GDP in 2011 and $58.6 billion in 2012 (IMF, 2012). The average GDP growth of Costa Rica was 4%-5% in 2012 and carried out an estimated $16.2 billion tow-way trade with the U.S. In 2011 (Export.gov, 2012). FDI increase in the country was 8% in 2012 and commercial banks charged interest rate of 16% annual. The transparency international (TI) corruption index of Costa Rica is 5.3. Costa Rican economy is services based, with 72% of economy being composed of services sector whereas agriculture and industry are 7% and 21% of the economy respectively.
The main rationale to export our company product to Costa Rica is the close geographical proximity of the country to the U.S. And Canada, two countries where the company already operates. There are trade specific benefits as well that can be reaped by the exporting firms under the Central American Free Trade Agreement-Dominican Republic's (CAFTA-DR). Thus, our product will have 80% of the duty waived under this agreement. 80% of non-agricultural duties are exempt under CAFTA-DR. Pharma Plus (assumed company name) can also participate in all government bids without being discriminated on basis of country of origin. Further, Department of State (Export.gov) recommends U.S. companies to invest in drugs, pharmaceuticals, medical and dental equipment. Costa Rica's global competitive index is also favorable at 39 out of 139 as announced by World Economic Forum (WEF). With healthy business environment (represented by large U.S. companies such as Intel, HP, P&G, Western Hemisphere starting operations in Costa Rica with several hundred employees) and institutionalized business incentives in form of preferred trade partnership, Metro Free Zone of Heredia in Costa Rica where the company plans to open her export office. Increasing number of private hospitals and medical centers also necessitates our company not to ignore this potentially lucrative market of Central America. Currently, Costa Rican Social Security System (Costarricense de Seguro Social: CCSS or CAJA) buys 905 of the medical equipment in Costa Rica. However, the government in Costa Rica is under severe public pressure to replace obsolete medical equipment with competitive equipments available from the U.S. companies. Further, we have assessed through the commercial guide that 'medical tourism' in Costa Rica belonging from the U.S. And Canada is high with tourists coming to the country for "orthopedics (hip, shoulder and knee replacement); surgery (bariatric surgery and gastric bandages placement); dermatology (skin stein and wrinkle removal through laser application); plastic surgery (liposuction and face lifting); and dentistry (several procedures). The influx of medical tourism increased in 2011" (U.S. Commercial Service, 2013; P. 31). The total market size for medical and dental equipment industry has increased manifold in Costa Rica along with imports of this medical equipment from the U.S. (See Exhibit I). Thus, healthy macroeconomic prospects, trade liberalization and business incentives, as well as recommendation of U.S. Commercial Service provides strong case for exporting our company's drug testing cups to Costa Rica.
III- Aspects of product needing change in Costa Rica
Principally, our company product will require undergoing little procedural changes as the main hurdle in exporting such medical and health related equipment is the acquisition of licenses to sell in the said country. Further, undergoing labeling and packaging is also not required as instructed by local drug and health regulators. Since July 2011, Costa Rican Ministry of Health (MOH) has exempted the U.S. medical devices and equipment to obtain approval or licenses from MOH and drugs as well as equipment approved by Federal Drug Agency (FDA) of USA is allowed to be sold and distributed directly in Costa Rican market. There is no language barrier as well and labels as well as instructions manual 'Drug Testers' will be in native English.
The only visibly challenging task will to be to select an appropriate local partner as distribution agent of our drug testing cups. Since out product is primarily used in clinical laboratories, specialized healthcare hospitals, and operation theatres, the company will need to establish business level relationship with our potential distributor as well as customers.
IV- Emerging markets entry
Trade in health services has increased manifold during past one decade. There are four main entry modes for the healthcare firms such as foreign direct investment through facility development, cross-border supply of product/services through exports, consumption of services abroad, and movement of health professionals across borders (Smith, Chanda & Tangcharoensathien, 2009). As far as expansion of our business is concerned, we plan to cover the Central American market that includes Costa Rica, Panama, and Honduras. After establishing export operations in these three markets, the company plans to tap the potential of Latin American countries. It has been observed that usually the MNCs fail to tap the real business potential of emerging economies by not understanding the markets properly (Dawar & Chattopadhyay, 2002). For instance, our company will require cheaper prices to offer for the Latin American market to able to sustain market conditions and achieve higher returns to investment. In a phased format, the company intends to follow the sequence of entering emerging markets as follows.
Costa Rica Panama Honduras Brazil (Latin America)
V- Special services requirement
Pharma Plus will require few investments in specialized arrangement for making the product available to the target market in Costa Rica. This is because the company has chosen Metro Free Zone of Heredia as the destination where an 'export office' will be started. However, the company will require arranging warehouse for storing the product being imported from the U.S. Being in the technology corridor of the country; Heredia offers efficient system of telecommunication, electricity, internet, and other technology related resources that make business processes efficient. The only change in product will be an instruction manual in Spanish language as Spanish is the native language in Costa Rica. This will help communicate product features more effectively.
VI- Decision making
The locus of control regarding marketing and channel development will rest with 'country manager' to Costa Rica. The country manager will be no less than a person serving as 'Senior Sales or marketing manager' in the home market of the U.S. Since the company relies heavily on establishing export facility at Costa Rica, to be able to develop the regional market of Central America for our drugs testing cups, the decision making will be exercised by the country manager. Although it would have been more cost-effective to designate a mid-level officer in-charge at Costa Rica, our company aims to have the focal person develop sound relationships with local distributors and resellers and companies engaged in health services. This will help the company to penetrate the market comprehensively.
VII- Forms of investment
Foreign direct investment (FDI): Pharma Plus can adopt the method of FDI as well. This will involve committing more in capital and human resources. The company will have to delegate more number of people and senior officers in case the FDI is made. In the short run, from 6 months to 2 years, it is not feasible as the market is not developed yet for the drug screening cups. Company's current financial standing also does not allow investing directly as it involves committing more financial and human resources, legal fees, due diligence costs, and financial advice from consultancy service firm.
Joint venture: JV is another option for Pharma Plus as it will involve selecting local partner firm and share the capital costs of establishing the brand in Costa Rica.
Exports: Exporting to the Costa Rican market is another market entry mode that our company can consider. This will involve setting up an export office at any destination trade zone in Costa Rica…