Managing Multinational Firms
Lundbeck is a multinational firm dealing in the provision of pharmaceutical products globally. It is headquartered in Copenhagen, Denmark. The senior managers steering the Company are Michael Andersen, Asif Rajar and Jin Ho Jun. Michael Andersen is the Vice President of the Company, Asif Rajar Regional Vice President and Jin Ho Jun Managing Director of South Korea.
There are a number of priorities that the top managers Jun, Rajar and Andersen had in striving to achieve the growth of Lundbeck Company. The three managers were focused and goals oriented. They had developed strategies geared at achieving the overall goal of the company. All aspects of the business were embraced in the specialization strategy (Michael, 2010). The company was able to improve efficiency of its products, business procedures were simplified while target for growth in the CNS industry was set. The managers had developed cost effective procedures in the distribution and marketing of its new products.
One of the economic factors affecting the company was competition. The market was characterized by intense competition from new pharmaceutical firms. Moreover, the industry experienced emergence of generic competitors. The management was responsive to threats arising due to competition. Thus, Lundbeck had developed strategies aimed at neutralizing effects posed by external aggression in the market. Decision making process of the company had been shortened to warrant involved parties execute fast decision to counter any emerging threat of the competitor. The company was able to nullify risks associated with competition while still maintaining adherence to ethical practices and liability of its products categories.
The business faced some major political hurdles that the management had to prioritize. The pharmaceutical firms were given a number of years of exclusivity in which no generic drug could be manufactured by the firm. Exclusivity and patent protection depended on the area of jurisdiction which meant exclusivity in the Asian countries varied from what was exercised in the United States. There were variations in the way rules and regulations were exercised whilst different countries were largely affected by political concern.
Exclusivity affected the industry economically where the price of the products dropped significantly after the expiry of the period. The decline in sales was affected by the expiry of the patent period of a product. In this regard, Lundbeck had to develop strategies (specialization) to counter the arising factors. The price in the industry was highly dependent on the government controls and pressure. The buyers were largely restricted on their purchase. The type of drug administered was restricted by the fact that the consumer lacked ease of access of the medical doctors who were the main decision makers. Therefore the market size was restricted.
The cost implication arising from risk in the industry was curbed through embracement of insurance policies. Various categories of insurance were undertaken in the Asian region. For instance, in Japan insurance policies were undertaken with both the government and private agencies. But some of the countries such as China and Thailand had no insurance programs and any cost arising were taken up by the individuals.
The priority to be taken up by the management in the South Korean region and Japan was aimed at improving the market conditions. For instance in Japan there was no product that was launched due to the exclusivity hurdle. The management was to offer guidance, control and support in the Asian region to counter the existing political factors.
Korea was faced by harsh economic upheaval prior the year 2000. In this periodoreign multinational corporations were curtailed from investing in the region. Any multinational firm wishing to venture into the Korean market had to merge with a Korean company via Joint venture ship. Strict legal requirements and regulations were exercised. The market was opened up after year 2000 and many multinational firms including Lundbeck (2005) ventured in the market.
The Korean market was characterized by major Hospitals and Public Universities. Lundbeck Company considered staff at these Hospitals to be more experienced. Despite the fact that its market was small in the region, the company gained reputation by exercising mutual collaboration with the hospitals.
There were abundant social factors that the company had to consider especially while launching it products. In his marketing strategy, Lundbeck manager Jun put out into account the needs of the community in the Korean region. The community involvement while launching the products ensured that the company excelled in the market. For instance the market for Ebixa product was weak in the region. The community involvement while promoting the product uplifted the market to an extent of recording substantial sales. A combination of social and economic factors affecting the company’s operations and how they were solved was depicted by the two managers on how they performed their tasks Lundbeck (2005).
These managers acted as an example of the others. They were motivators. They had developed very good working relationship with the employees. Rajar directly attached himself in the planning function. He was a good planner; a vital quality exhibited by a leader. He was able to have a direct interaction with his subordinate staff. He involved himself in the decision making of the subsidiary companies under him (Michael, 2010). He developed efficient communication channels between the company and its customers. The manager was focused on ensuring that sales target was met despite existence of strict ethical and practice procedures. He was able to conger the market by proper analysis of its strength and weaknesses (Michael, 2010).
Rajar was obliged to guide June in making decisions. He disseminated information in an effective manner. He was tasked at defining the corporate strategy for the whole company. His managerial skills were a vital asset for the company. He made review of all proposals presented by June and issue advice in line to the company set goals and strategies. His success was realized at bringing mutual collaboration at the management level. He played a very important role in offering guidance to June in managing the staff of the respective subsidiaries. His experience in management equipped him with problem solving skills, skills in programs and practice development. Rajar gained respect of the other staff through his successful efforts of bringing them as a team.
June had a wide range of experience in pharmacy. The fact that he had concentrated much in this profession throughout his career gave him a notch in the pharmaceutical industry. June was an excellent policy and strategy implementer (Michael, 2010). He had gained past experience in Korea which means that he was well conversant with the market. He penetrated the market and made Lundbeck Korea attain an enormous growth.
The level of staff commitment had been one of the most important priorities for these managers. June was focused at developing his local level. He had developed social working relationship of the employees meaning that he was a motivator (Michael, 2010). He was able to set an example of the others. He was a role model to his junior managers. He was able to diagnose problems arising within the organization. He strived to problem solve. The approach exhibited by these manager made Lundbeck develop a well-motivated staff (Julian & Neil, 2001)
Michael Andersen was the driver of the company. Being the vice president of the firm, he was tasked with the strategic decision of the company at the senior most level. The failure or success of the firm was bound to be attributed to him. He was mandated to gauge the growth of the parent company as well as the subsidiaries.
In 2005 Lundbeck adopted the specialization strategy that fused on positioning the main products in the market aimed at achieving growth in the pharmaceutical industry. The two managers had conflicting opinions about the strategy implementation. June believed that to achieve the overall growth, Lundbeck should concentrate on the channel that yielded optimum revenue. On the other hand Rajar was on the opinion that to achieve growth all the subsidiaries ought to be involved and be familiar with the company’s range of products (Michael, 2010)..
Conflict of interest existed regarding the product trial and positioning. Lexapro product was well known in the Asian region. The market for this product was already at the optimum level. The manager involved (Rajar) was on the verge of undertaking a switch over strategy. The manager was very confident that the company had achieved the growth required and hence changeover was necessary. Jun was indifferent about the introduction of Lexapro drug in the market that would phase of Cipram. He argued that Cipram had not obtained the necessary market niche in his Korean region. From his side of view the drug was new in the Korean market. He therefore opted to embrace a different corporate strategy for the Korean region. The manager asserted that the best practice was to establish Cipram before introduction of Lexapro product.
Korean potential corporate strategy was rejected by the fact that Rajar being an overall vice president in the region was deemed at introducing and implementing the corporate strategy of the company. Rajar based his argument that Lexapro would be treated as a generic product not only for the Korean market but for the region as a whole.
The introduction of Lexapro product led to the withdrawal of Cipram product from the Korean market. This decision was not welcomed in Korea. Cipram product was very popular in Korea and produced an optimum profit margin levels. Despite the fact that the product led to an influx in the profits for the whole company, it was felt that the strategy of specialization that concentrated on new and innovative products was to be assumed.
The decision assumed failed to consider the needs of the market as it led to the withdrawal of a product that was at the growth stage in Korea. It weighed heavily on the market representatives by an abrupt stoppage of the rising sales margin. The situation was not welcomed by the health psychiatrists. It concentrated on the regional dimension and failed to consider the interests of the locals.
The concept of regional division was well illustrated in Lundbeck Company. Regional division embraces and appreciates cultural values. This is the fact that employees are able to share the same culture with the locals who are the customers (Michael, 2010). The personnel are bound to put more emphasize on the local customs and practices relating to the entire business as well as the applicable rules and procedures.
The set up allows a cordial relationship between the employees, personnel and the clients. The client is likely to feel more secure and comfortable and appreciative getting the service from his neighbor as opposed to receive the service from foreign officials from a distant state (Julian & Neil, 2001).
This concept mandates growth of team building structures. Working relationship of employees is enhanced. Groups geared at solving problems are formed. The relationship in the groups is harmonized. Ideas are developed within the organization while goals and strategies are achieved. The company is compelled to embrace the culture of the employees into its culture. As a result high quality service is disseminated to the customers.
Communication among the representatives in this setup is more enhanced. The employees tend to converse in a more personal manner (Michael, 2010). This is as opposed to the development of communication channels where employees transfer information and data via use of internet, email and the telephone system. Regional division warrants the employees to communicate to their personnel directly in obtaining required solution.
This set up allows the senior level management of a Company offer leadership to those who are conversant with the local business ecosystem, the climatic condition of the region as well as the legal requirements. The marketing manager is able to known what really is required in the market and what drives the locals in making a purchase (Julian & Neil, 2001). The local Finance manager is able to advise the management about the prevailing tax requirements in his area of jurisdiction as well as the financial reporting standards that are mandated in the region, the staff managers are conversant of the local staff practices that exist in the locality.
Regional division offers strategic advantage. The company is enabled to carry out an analysis of the individual market or work group. Thus, it is easy to gauge performance of each area of specialization. The company is able to do cost benefit analysis. The revenues and cost as well as profitability levels of each division is ascertained. The company is thus obliged to issue measures to be put in place to spur growth (Julian & Neil, 2001). The managers concentrated in the region are able to offer strategic guidance and input as far as product positioning and implementation is concerned. The manager is able to advice on the best category of product to introduce in the market, where research of the product should be optimum and the categories of products to emphasize in different regions.
Regional division is also bound to encourage democratic form of leadership. The leadership is concentrated on the lower level before responsibilities are assumed by the management. The junior employees are mandated to give an input about a certain issue. Therefore the employees feel as part of the decision making team (Michael, 2010). The managers are involved later on; whereby they make the decisions from the point of view of the junior employees.
From my opinion, Andersen should not separate Lundbeck Asia from Lundbeck Korea. The two should work together. The main challenge faced in this scenario is the conflict of interests. The scenario depicted in the case study, showed Rajar as the main innovator of the new products. Jun had very well-articulated policies for implementation. What if the new product were innovated at the subsidiary? There were other challenges that the senior management of this company needed to anticipate and solve. Many subsidiaries blame the overall management of sidelining their operations. They cry foul when the parent company fails to honor the interests and plight of its customers. The most fundamental issue in this respect is to look for a solution that would make the subsidiaries managers realize and appreciate the immense contribution they have for the company.
Innovation may stem up from the subsidiary. Multinational managers should develop ways to encourage innovators at the subsidiary level. In most of the cases, most multinational firms find themselves relying on an idea that arose from the subsidiary (Julian & Neil, 2001). The main challenge that the company faces is developing ways of liberalizing the system of the subsidiary and delegation of authority. The major solution to encourage innovation at the subsidiary level is the provision of incentives and the additional support. This is achievable through the approaches discussed below (Julian & Neil, 2001).
Providing seed money to the subsidiaries is an approach employed by the parent company to provide extra funding to the subsidiary in pursuit of new ideas. The company must demand results from the subsidiary. Freedom should be given. The company should gauge on the utilization of the seed fund. If no provision of funds is made, the subsidiary is likely to report less profit in a bid of creating reserves. If too much money is disbursed the subsidiaries are bound to develop strategic projects whose results fall below the target of the company’s requirements. The company should thus develop budget lines in the implementation of new ideas. Local firms should then be left at ease to test new ideas.
‘Formal requests for proposal’ is another approach employed by multinational firms. Any passive manager won’t obtain results even if a substantial amount of money is at his disposal. The company needs to develop ways of accelerating the demand in which the seed money is assumed by the subsidiaries. Thus, local firms should be treated as hub for innovation of new or specific products. Different proposals should be formulated, taken up, implemented and gauge them to ascertain which proposal yield the best idea (Michael, 2010). The introduction of Lexapro product by Rajar depicted the best idea. The product emerged as an edge for the company and was bound to counter external threat. The product was destined to offer stiff competition to any product that would crop up in the market.
Encouraging the subsidiary managers to be incubators is another approach employed by the multinational firms. The firms receive a lot of complaints from the subsidiary managers that distance from the headquarters always hamper them from achieving recognition (Julian & Neil, 2001). The managers should embrace the long distance advantage and concentrate more on various projects that would be achieved with ease because of the speed factor. Another concept emerging in this respect is the ability of the subsidiary managers to act as idea brokers. This arise from the fact that the wit of the brokers is realized when he is able to bring the seller and the buyer together (Julian & Neil, 2001). The subsidiary manager is very conversant with the local market. He understands well what the market want and will hence be able to broker a deal between the company and the market.
The final concept is allowing the subsidiary company build international networks. The parent company should realize of the essentials of underlying platform to enable the subsidiary access potential professional and non-formal networks. The major challenge however that arose from this scenario is if the concerned party is not hard working enough in his foreign assignments (Julian & Neil, 2001).
In light of the above discussion, Andersen should retain Rajar as the regional vice president. He should continue guiding the subsidiaries where necessary. What the company should devise are ways of making June less dependent of Rajar. The company should invest more on Korean subsidiary and make it a center of innovation. What this would entail is the development of new products by the Lundbeck Korea that would be assumed by the Asian region. This would bring more satisfaction at the local level. Rajar would continue using the wealth of experience he possess to guide Jun. Jun would concentrate on the Lundbeck Korea and achieve more growth in sales and profitability levels having the mindset that he is the developer of his own products. The concept will present a win win situation for the company.
References
Julian, B., & Neil, H. (2001). Best practice: Unleash innovation in foreign subsidiaries. Harvard business review
Michael, R (2010). Lundbeck Korea: Managing an international growth engine. Ivey Management Services
