At the same time, one does not know whether they offer the workers any benefit or perk as is provided by Korean employers. These are reasons to cause a lot of pressure to the existing pharmaceutical companies as they will have to improve their total image and quality of their products. The separation of brands from doctors will cause a lower demand for particular brand names and this hurts the profitability of both pharmaceutical companies as also doctors. This is bound to cause industry re-structuring with only a few of the strongest now surviving the entire process. The process has already started with Cho-sun-mu-yak, the manufacturer of "Woo Whang Chung Shim Whan" or ox bezoar tablets going bankrupt due to the impact of this change. However the benefit will come through the dominance of quality and brand awareness of the medicine rather than the income of the doctor from the sales of a particular brand. (Survival strategy for pharmaceuticals)
This matter has to be sorted out by the Korean partner as the workers are more likely to trust him than Australians. He may also find it possible to offer the workers the same perks that are offered to his employees in other concerns. The hours of working and such details may also be fixed up early so that future conflicts of this are avoided in the future. The difficulties in culture will be very high for any Australian to come and work here, so the responsibility of recruiting the workers may be left to the South Korean partner. The only aspect that one can check is that he does not end up employing only his relatives and friends. This had cost many banks a lot of money as their loans had not been returned. For this purpose, a consultant may be appointed at the cost of the Australian company who will act as their representative during all such actions and send reports to the company. There are also some methods to be innovative and thus get the sympathy of local workers. These have been listed and may be discussed with the Korean partner before implementation, if thought appropriate.
The entire analysis can be summarized in the following statements:
It is not in the interest of the organization to set up a unit for catering to the requirements of the South Korean market immediately. It should be used for fulfilling the requirements of other markets initially and the product distributed in South Korea for awareness about the brand name. After the name becomes familiar, then the product may be sold in South Korea to any high levels.
It is also in the interest of the joint venture to have facilities for R&D as in South Korea 12% of the employees in South Korean pharmaceutical firms are in R&D. The pharmaceutical industries in South Korea are also interested in joint development as they feel it will be beneficial to them in the long run.
A very important part of getting quality and high production in South Korea is to continually provide a lot of training to the workers. This should be provided for.
Details of working hours and working days, perks in various forms should be decided at the earliest stage possible.
First Assessment: Information on South Korea
This is in an interesting position due to certain changes that have been carried out in Korean laws regarding medical practice. The law is called "Separation of Dispensary and Medical Practice. This has started from August 2000 and required many changes in hospitals and pharmacies. In the case of hospitals, the earnings have dropped by 35% as compared to previous years as they are no longer permitted to sell medicines to outpatients. The pharmacies have also lost sales by over 30% as they can not prescribe medicines without a prescription from doctors for the medicine. Further, the types of medicine that they have to store is from only one company under the previous rules and now there will have to be at least 10 times of brands of the same medicine and the doctors will be free to prescribe whatever they want to. (Survival strategy for pharmaceuticals) Thus the situation of existing manufacturers in South Korea is poor and they are finding it difficult to survive.
Regarding the producers in the industry, there are hundreds of medicine manufacturers in Korea who have almost the same product mix and rely on low prices to sell their products. When an analysis of the return on invested capital is done for the top 10 manufacturers in Korea, it reflects a return of only 7% and that is much lower than the international norm of 10%. The low returns are resulting in more and more manufacturers being unable to raise more money for the required research and development in the industry. When the competition is expected to intensify further, then this will certainly hurt the industry in Korea. The risks for a new entrant is even higher as the type of competition that goes on in Korea will be unknown to the new entrants and this will also make their situation even more difficult.
In future, the doctors will not concentrate on the price but will consider the quality and brand awareness, as ...
Distribution costs in pharmaceutical industry
There are also differences in distribution of medicines in Korea. In other countries there are specialized wholesalers who distribute 80 to 100% of all medicines, but in Korea, all manufacturers run their own distribution network. This is forcing manufacturers to make investments in logistical facilities like warehouses and for transportation. Even at the retail level they have to supply to a wide network of retailers and this causes bad debts for the manufacturers. The general attitude of the Korean pharmaceutical manufacturers have been to produce many medicines simultaneously, and this has led to a situation where at one stage one particular fever remedy was being produced by 100 companies. This ends up providing redundant and a competition mainly on price. This results in poor quality as they use inferior raw materials. This is reflected in their having very low provisions for Research and Development which in Korea is about only 3 to 4% of their turnover as compared to 12 to 20% of turnover in other countries. Even if a medicine is developed by a company after a lot of effort, then it does not have the funds for carrying out clinical tests through spending hundreds of billions of won, and ends up licensing the technology to foreign companies. Thus, one of the main problems of the pharmaceutical industry can be viewed to be the high logistics costs at about 10%. This is much higher than 2% which works out for the publishing industry and 3% for the machinery industry. For corrections to come in this area there has to be removal of redundant warehouses, transportation facilities and staff as also increase order volume so that the transportation cost will come down. (Survival strategy for pharmaceuticals)
Pharmaceutical research in South Korea
Companies here have been moving into innovative Research and Development and this effort has also received a lot of support from the government. Most of the South Korean companies going into R&D have chosen partnering to be the ideal method. The reflection of this in U.S. companies is high and local companies have been keen to partner foreign companies where there is joint investment in R&D as well as through licensing agreements. There are presently 79 local pharmaceutical companies and 86 research laboratories. R&D spending as a proportion of sales is still low, but R&D personnel are nearly 12% of the workforce. The number of projects that are going on is high and in 2002, there were 90 research projects that were being processed. Most of the projects are in the areas of cancer, anti-infection, metabolic diseases and immunology. Though these projects were being followed, local companies were still interested in partnerships as they felt that would help their commercial objectives.
Most of the manufacture that is going on is in the area of generics but there have been investments by some of the companies in the area of R&D for novel drugs. In 1999, SK Chemicals has launched Sunpla and that is a third generation platinum complex anti-cancer drug. This is proof that local R&D can innovate. The organization has since that time been concentrating on drugs for cancer, obesity, and erectile dysfunction. Daewoong Pharmaceuticals has launched Easyef for the treatment of diabetic foot ulcers, but has been trying for foreign collaborations since then. Another company, Choongwae has brought the flouoro-quinolone antibiotic called Balofloxacin to the market, and this was subsequent to Chagai and Ciba having stopped work on this compound in 1995 as they felt it was not effective. This drug is called Balofolxacin and has been approved by the Korean authorities for use in urinary tract infections.…
These are reasons to cause a lot of pressure to the existing pharmaceutical companies as they will have to improve their total image and quality of their products. The separation of brands from doctors will cause a lower demand for particular brand names and this hurts the profitability of both pharmaceutical companies as also doctors. This is bound to cause industry re-structuring with only a few of the strongest now surviving the entire process. The process has already started with Cho-sun-mu-yak, the manufacturer of "Woo Whang Chung Shim Whan" or ox bezoar tablets going bankrupt due to the impact of this change. However the benefit will come through the dominance of quality and brand awareness of the medicine rather than the income of the doctor from the sales of a particular brand. (Survival strategy for pharmaceuticals)
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