CHAPTER be supported by the tools and
CHAPTER II: BUSINESS ISSUEEXPLORATION2.1. StrategyStrategydefine as the creation of a unique and valuable position involving a unique setof activities.
The strategy translates the value of the company to have differentiationcompare to others. (Porter. 2006)2.1.1Definition of Scenario PlanningScenarioplanning is defined as a tool to guide organizational perceptions.
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What theorganization sees about the outside world is determined by the schemes and themanagement language used. To ensure the effectiveness, the scenario planningshould be comprehensively developing and embed the technique as part ofstrategic plans. The plans should be supported by the tools and theinfrastructure to overcome the challenges and opportunities in the future.2.
1.2Prediction and UncertaintyThereare several factors thus influence the implementation of the strategy. Thefactors could provide certainty or uncertainty in the business, and should beidentify within the organizations. Below are some points that can be ascertain:· Timeline approval· System constrain· Actor logic and motivation· Laws of natureOnthe other side, there are some unpredictable factors such as:· Risk · Uncertainty· Ignorance Scenarioplanning as one of the recommended method to identify the uncertainty withcausal principle after determine the principle of cause and effect. 2.1.3Process of Scenario PlanningThereare some methods to build scenario planning.
The scenario planning start withbusiness ideas and compared with the environment and situational conditionswhich lead the results of the analysis of the organizations’ respond to thefuture challenges and opportunities.2.2 Conceptual FrameworkTobuild strategic plan and address the concerns, a conceptual framework isimportant. Below is conceptual framework of this final project. 2.
3. External AnalysisExternalanalysis as an overview of the macro-environmental factors that should be considered.The analysis could be used to see the competitiveness in the market, what willbe the competition components in the industries. 2.
3.1.General EnvironmentPESTELanalysis as an effective tool to identify the key external forces that affectthe industryPoliticalforcesAfter the government applied BPJS system, the national program covers almost 70% of the populations. The government policy responded by the market, any person, including a foreigner who works at least 6 (six) months in Indonesia able to join the universal health coverage. Interms of healthcare industry, the government intervenes the budget spending forthe investment and total spending. The ministry of Health influence the BPJSregulations related to annual budget spending for drugs and treatment to coverthe population. Onthe other side, for new drug should be review and distributed after receivedmarketing authorization from local food and drug association (BPOM) andregulated by the ministry of health to ensure the efficacy and safety for alldrugs thus will prescribe in Indonesia. Good manufacturing practices and goodclinical practices should comply by the companies before submitting the drug.
Taxregulation also affect the drug price, with specific regulation for value addedtax. For outpatient drugs will be charged with 10% value added tax and paid bythe patients. While for inpatient drugs or patients whom treated at thehospital, the drugs will not be charged with value added tax and the hospitalwill responsible for the tax. Fromthe list above, it is clear that political factors have an impact onmultinational pharma company on how to maintain their business and adjust thecompany policy accordingly. EconomicfactorsIndonesia has growth 5.
06 percent year-on-yearin the third quarter of 2017, The expansion was driven byprivate consumption which increase firmly and net trade contributed positivelyto growth. GDP Annual Growth Rate in Indonesia averaged 5.28 percent from 2000until 2017. Compareto other south east Asian countries, Indonesia’s GDP better than Thailand andquite similar with Malaysia. Based on the healthcare system in Thailand andMalaysia, the system applied much better in terms of quality of healthcareservices compare to Indonesia.
http://www.adb.org/search?keywords=indonesia%20&page=1&source=suggestReferto data on the expenditure side, exports went up 17.27 percent (3.36 percent in Q2) while importsincreased at a softer 15.09 percent (0.
55 percent in Q2). Also on the productionside, output expanded morethan in the preceding quarter for Manufacturing (4.84 percent from 3.54 percentin Q2); water and waste management (4.
83 percent from 3.67 percent);construction (7.13 percent from 6.96 percent); wholesale and retail trade (5.
50percent from 3.78 percent); finance and insurance (6.44 percent from 5.
94percent); business services (9.24 percent from 8.14 percent); education (3.70percent from 0.90 percent); healthcare (7.
44 percent from 6.40 percent) andother services (9.45 percent from 8.63 percent). Healthcare has increase significantly afterBPJS era with almost 70% of the population covered in the universal healthcareprogram since 2014. Othereconomic factors for multinational pharma company is currency rate, the valueof foreign currency compare to Indonesian rupiah determine the price of thedrugs which perceived expensive before VAT.
Social-culturalFactors Thelifestyle and education level of the Indonesian, shows the consumption level ofthe population. The rise of the middle class in Indonesia also shows customers’level in healthcare spending and health consciousness. Less people aware theimportance of health insurance and rely on universal healthcare coverage. Alsotheir awareness on early detection and prevention of the chronic andnon-infectious diseases. Theage distribution of Indonesian population, almost 50% of the population inproductive age.
Population with age 25-54 years: 42.35%, and elderlypopulation start form 55-64 years: 8.4% and 65 years and over: 6.79% fromtotal population. This shown that the population will have more issue in healthstart from chronic and non-infectious disease caused by lifestyle worker peoplewith long hours work time and fast food consumptions. Indonesiaknown as the biggest Muslim population and the Halal logo or manufacturingprocess on the drugs has become major issue for certain company whom produces innovativedrugs such as vaccine, cancer drugs and others. Technologicalfactors Theinternet technology supports the people to learn the newest health technologyand also the latest update on treatment of the disease.
The most importantvalue to sustain the business of multinational pharma company is to have drugspipeline so the company will have more value and certainty for the future. Thecompany should also develop new way to produce and communicating the goods andservices to the customers, included the healthcare professionals and also thegovernment (Ministry of Health and BPJS). They should find new way to marketand sell the products.2.3.
2.Industry AnalysisKotler2006. Porter’s Five Forces Model Threatof New Entrants (High)Thecommitment from the government to provide universal healthcare coverage to allIndonesia people give pressure for the industry.
The payers govern pricing andgive restriction for prescribing the drugs which may lead decreasing revenue ofthe company since the declining of volume after price reduction. Government hassome issue with budget constraint and as multinational pharma company not ableto fulfill the price reduction, there will be opportunity for cheapmanufacturer from India, China or South America to enter the market.Threatof Substitutes (High)Thelimited knowledge of people about healthcare and update on treatment lead toalternative treatments such as herbal, physical treatment and etc. The overclaim treatment easily adapts by the customer especially if the price lower andpromoted with word of mouth marketing without evaluating long term efficacy andsafety.IndustryRivalry (High)Indonesiagovernment encourage local manufacturer to produce biotechnology and othercommodities drug whereas cost effective drug become one of the concern from ministryof health. Also there are possibilities for investor to build manufacturer inIndonesia as long as they have mutual collaboration with our local governmentand invest on local resources to build the economy. Whereas most of the multinationalpharma company limited the investment on manufacturing due to maintain theprofit and loss for business sustainability.Bargainingpower of suppliers (Low)Businessto business model applied by the multinational pharma company to distributetheir drugs.
Most of the drug produced outside and only repackage in Indonesia,thus lead to the supplier’s bargaining only for inventory and distribution tothe outlets.Bargainingpower of Buyers (High)Thegovernment applied policy and code of conduct for the implementation ofuniversal health coverage therefore if the multinational pharma company wouldlike to list the drugs, they should able to fulfil the requirements and followthe negotiations. The government set Harga Perkiraan Sementara for guidance,unfortunately based on Kemenkes No 524/ 2017 there is no further explanationrelated to drugs cost ration compare to benefit. The guidance did not explainon how to calculate the price and the benefit, thus may lead misperception fromthe industry itself.
Forthe regular market, there are unclear regulations related to drugs retail pricewhereas the hospital or pharmacy could sell the drugs more expensive depends onthe setting of revenue in each outlets. From the regulation, stated maximumretail price for drugs is 28% before tax. In fact, drugs listed in thehospitals cost more than the cap. 2.4. Internal AnalysisAninternal environment determines the company’s business process, code of conductand visions. There are some points influenced the business process of the companysuch as sales and marketing strategy, the company’s values and seniorleadership managements.
The analysis will describe the internal competenciesand desirable improvements to ensure the sustainability of the business andsolve the unmet needs of the market.Toensure the continuity of the business process, multinational pharma company hasto develop its resources, capabilities and core competencies also known as theinternal analysis of the company from the company’s resources and capabilitiesalso to find the most suitable connection of resources and capabilities tobuild the company’s core competencies especially the competitive advantages tosustain the business for long term profit. 2.4.1.Resources Resourcesas an inputs to strengthen the organization to achieve the company’s missions. Themultinational pharma company have similar resources to run their business and willbe differ based on the business core of the company. Resources could beclassified as tangible or intangible as the company competitive advantage forenterprise development.
Tangibleresources have a clear and easily determined market value, or known as physicalassets thus utilized by the company as physical resources, financial resourcesand human resources. While for intangible resources consist of intellectualsuch as originator drug, formula of the drug, drugs patent and the innovativeculture which inherit in the company and build the company image as the marketleader. Basedon the theory above, tangible resources for the multinational pharma companyresources based views are: Human resources Senior leadership management, sales and marketing team Sufficient amount Financial resources Cash flow Sufficient amount Physical resources Building, company vehicle Sufficient amount Technological resources Laptop, IPad for sales and marketing team, office equipment Sufficient amount Forthe intangible resources, the multinational pharma company has their skills andknowledge to manage the company’s assets and understand the market to competeby differentiation or enhance the marketing strategy while maintain the companyvalues. Thesales and marketing team should build harmonious collaboration and minimizedthe conflict which may occur during business process with internal or externalstakeholders. The management will hire expert people with strongself-motivation to contribute for the company and sustain the business withcontinuous innovative ways of thinking. 2.4.2.
CapabilitiesThecompany will have access to use their appropriate capabilities to support thebusiness. Capabilities are a firm’s capacity to deploy resources. Themultinational company has several experiences that shown that they are capabledoing business. The company supported by the expertise with broad backgroundand experiences within the industry in so many years and really know how toovercome the issue and optimize the potential in the market. Oncologymarket is very niche and specialized, there are only a few pharma company hadinnovation drugs for example targeted therapy, immunotherapy.
This specificdrugs have unique selling points for example mechanism of action, delivery ofthe drugs, dosing and etc. For the company, the expertise in oncology needcontinuous learning and huge investment. Therefore, most of the company put biginvestment for the oncology pipeline.
2.4.3CompetenciesCompetenciesare defining by the various components such as observable and measureableknowledge, skills, abilities and personal attributes that contribute toenhanced the company’s resources and ultimately result in the successful of thebusiness strategy to achieve the missions. The multinational company has moreprestige value and capability to assigned a team of experts who knows exactlywhat they are doing with the market to win the competition.
Thesenior leadership mostly from local and expatriate experts whom worked in theindustry for years of experiences with good quality and already has their owncredibility. The sales and marketing team strengthen their skills withcontinuous training and development program so they could optimize theirpotentials to strengthen the company.2.
4.4Resources Based View Resources Valuable Rare Difficult to imitate Organized to capture value Competitive advantage Tangible · Product Quality · Product Innovation & Certification · Distribution Yes Yes Yes Yes Yes No Yes Yes No Yes Yes Yes Sustain Sustain Partly Intangible · Company image · Brand Awareness · Price · Educational activities · Corporate social responsibility Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes No No No Yes Yes Yes Yes Yes Sustain Sustain Parity Temporary Temporary 2.4.5Value Chain Analysis SupportActivities. Kotler (2006) Step 1 – Customers’ value-creating activities Product quality Promotion Educational activities Step 2 – Differentiation strategies for improving customer value Product innovation with features to add value and provide solution for the unmet needs Give value to all stakeholders by providing one stop solution for healthcare Scientific activities to update knowledge for the healthcare professionals to build engagement and partnership Step 3.
Best sustainable differentiation Novel drug with good efficacy and safety and also build partnership with government and institutions to open access for all eligible Indonesia patients Valuechain analysis for multinational pharmaceutical industry2.4.6.SWOT analysisAsstrategical method to analyze the internal and external factors before nextstep of implementation. The analysis as follows:Strengths· Multinational company with basic researchand innovation products · Advanced pipeline products with goodsustainability · Strong work culture and comply with localbusiness ethics Weakness· Overall price of the products is medium tohigh· The products semi-finished goods orimported· limited advocacy with the government interms of healthcare policy and regulations related to drugs listing Opportunities· The growth of Indonesia populationespecially medium-high class income· Collaboration with third party to supporthealthcare system in IndonesiaThreats· Limited published information related todrugs listing and price negotiation · The decision maker in governmentstructures has limited collaboration related to universal healthcare coverageimplementation· Government endorsement for cheaper drugswhich lead local company to produce generic drugs· Uncertainty of universal healthcare coverageafter President’s election2.5. Root Cause of the ProblemBasedon internal and external environment analysis above, could be summarized andconcludes the main causes of the business problem.
The major issue of themultinational pharma company is how to sustain the business in BPJS era withnot yet establish regulations and policy. Also there are some other factorssuch as not yet establish data registry in Indonesia related to oncology andthe suboptimal healthcare infrastructure may lead to suboptimal treatment forpatients. It is clear that the multinational pharma company should build theirvalues and differentiation to sustain the business and the product portfoliofor the future. Theinnovative drugs are the main business source for multinational pharma company,there should be continuous collaboration with the government to prepare and establishthe market. The life-enhancing medicines that will change the treatmentlandscape from current standard of care which offer better survival and improvequality of life for patients and caregivers. Thebeneficial effect of universal healthcare coverage contributes to improvehealth indicators in Indonesia and stronger economic development for the future.