Title: The Impact of Globalization on Chinese Healthcare Reform: An

Analysis of Beijing Novartis Pharma Ltd’s Marketing Strategy.

Chapter 1

1.0 Introduction

This proposal seeks to describe on a step-by- step procedures of a business research

work, which aims at analyzing and evaluating how the new Chinese Healthcare Reform

influences the marketing strategies of multinational pharmaceutical companies in the

wake of globalization. In seeking to explore what, Beijing Novartis Pharma Ltd. can do

innovatively to maximize the benefits of this new system and how the relevant marketing

strategies can be formed and carried out.

At the beginning of this proposal, I will try to rationalize the topic, clarify the objectives

and design the research problems. Followed by a series of marketing strategies literature

review, an explanation methodology will be applied, and an outline of research methods

and data collection will be presumed.

This research will combine exploratory, descriptive and explanatory studies. The

objective of using three studies is to describe the current marketing environment from the

new medical reform and how it impacts on the marketing strategies of Beijing Novartis

Pharma Ltd. In this research, I will use quantitative investigations to collect the

secondary data from the marketing database, the company’s website and other relevant

archives. Also I plan to employ qualitative investigations to get primary data through

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semi-structured interviews and observation. Therefore, a design of how to interpret these

data and the limitation of studies will also be presented in this proposal.

After having gone through the different steps in the research process and research design

of both quantitative and qualitative studies, I will attempt to clarify the goal of this

research. The goal is to provide the facts and direction to Novartis and they need this to

make informed and effective marketing decisions to achieve better business excellence.

As Uma Sekaran pointed out “A grasp of research methods will enable managers to

understand, predict, and control their environment.”(Research Methods for Business,

1992).

1.1 Topic Rationalization

1.1.1 Aims and Objectives

The aims of this research is to identify efficient and effective marketing strategies from

the impact of globalization and the new healthcare reform on Novartis, and to ensure

sustained profit growth of their marketing project. The objectives will be achieved

through the literature survey of relevant marketing strategies, analyzing the marketing

environment of the pharmaceutical company in China.

1.2 Statement of the Problem

Nicholas Walliman said that one of the first tasks, therefore, on the way to decide on the

detailed topic of research is to find a question, an unresolved controversy, and a gap in

2
knowledge or an unrequited need within the chosen subject (Your Research Project,

2004). Therefore, I will design five major research questions as below:

1) What is the objective and principles of the new healthcare reform in the wake of

globalization?

2) What is the current marketing situation for pharmaceutical companies in China

after the enactment of the new healthcare act?

3) What factors will have an impact on Novartis’ marketing strategies?

4) How can Novartis capitalize on the reform and maximize their presence in China?

5) What effective strategies could be recommended for Novartis to match the new

opportunity?

With the introduction of the new healthcare reform, multinational pharmaceutical

companies in China are actively pursuing aggressive marketing strategies to face the

variable and turbulent marketing environment that will have an impact on their marketing

decisions. As Philip Kotler said international marketers encounter dozens, even hundreds,

of agencies set up to enforce trade policies and regulations. (International Marketing,

2004).

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Chapter 2

2.0 Literature Review

The 1990s marked the first decade in which companies around the world started to think

globally. Time and distance are shrinking rapidly with the advent of faster

communication, transportation, and financial flows. Products developed in one country

are finding enthusiastic acceptance in other countries (Kotler, 2003).

Getting accepted to become a member of World Trade Organization (WTO) in Dec 2001,

China has open their doors to the world and the foreign investors view China as a great

potential for international trade. However, understanding public policy in China for

international trade especially for multinationals is not a simple matter. As Philip Kotler

pointed out marketing decisions are strongly affected by development in the political

environment. Nations vary greatly in their political-legal environments (Kotler, 2003). He

also identified four political-legal factors that should be considered in deciding whether

to do business in a given country, and one of them is government bureaucracy. The host

government runs an efficient system or reform and this will directly influence the

corporate strategies of foreign companies.

Beijing Novartis Pharma Ltd is a Swiss Pharmaceuticals Company that has set up a joint

venture in China in the 1980s. Novartis has its target products to sell in China and also

has many potential marketing opportunities in the Asian continent.

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Mike Meldrum pointed out “A major concern for any producing organization is how it

can best make its products be available to the market place (Key Marketing Concepts,

1995). In China, there are no private physicians, almost no private hospitals and clinics.

The majority consumption of an ethical medicine is from state owned hospitals. Every

hospital has its own pharmacy. According to the government reimbursement policy,

ethical medicine in reimbursement list can be reimbursed. However, there is a condition;

only the ethical medicine prescribed by hospital doctors and bought in hospital

pharmacies can be reimbursed. So that it is critical for any ethical medicine to get into the

hospital list. Hospital is the battle of competition. The traditional sales practice of

Chinese local pharmaceutical company is to sell its products to distributors without its

own hospital sales team. They do less academic and professional promotion. Every

organization needs to audit the environment(s) in which it operates, and for this they will

require a sophisticated research activity. (Barnes, 2007).

In 1998 the State Council formulated the new healthcare policy for employees working in

cities and towns, and thus kicked off the reform to the medical insurance mechanism. The

objective of the reform is to provide a remedy to the existing ailing medical insurance

system. It includes three principles: wider coverage and lower state/employer

contribution; shared contribution by state/employer and employee; separation of drug

from medical service.

The reform will impact mainly five aspects of the pharmaceutical companies: Financial,

Supply Chain, End user, Reimbursement and Marketing. The reform is to aim at reducing

5
medical expenses, particularly drug fee. The state will impose price limit to drugs.

Novartis will be forced to cut prices for some existing products which are their biggest

revenue generators especially the sales of bottom line products. Also, the price reduction

incurred by the reform will bring huge pressure on the financial control of Novartis.

Elizabeth Barnes said that without doubt, a financial objective will be a key objective and

this will influence the type of pricing strategies used. (Barnes, 2007).

Kotler also said marketers need to know the laws affecting price and make sure their

pricing policies are defensible. Soon the impact will be felt by other players in the supply

chain. Every member of the supply chain will be under tremendous pressure in terms of

stock management, account receivable and cost management, etc. to protect the

shareholder value, operation margin and cash flow.

The level at which the price of a product is set has to be a careful balance between the

cost of production and the price that wholesalers, retailers and consumers are prepared to

pay (Barnes, 2007). Price will become a sensitive issue after the implementation of the

new healthcare reform. Competition among wholesales and retailers will be intensified.

Their profit margin will fall significantly and this will lead to consolidation in

distribution. This trend will lead to the rise of powerful super-wholesalers, which will

have bigger national coverage, deeper penetration into retailers and better services. Also,

the trend of wholesales consolidation, hospital alliances and retail chain store operation

will result in a smaller voice of Novatis in the supply chain. The end user -patients also

6
will be motivated to control their medical expenses, and will have higher awareness of

health and drugs.

In reimbursement aspect, due to this reform, each province or municipality will only

develop one catalog. There won't be city-specific catalog any longer. The good part about

it is that pharmaceutical companies will be able to focus resources in their marketing

efforts. However, the barrier of entry will be higher. Competition among pharmaceutical

companies will be increased, and winning the support of government officials and the

recognition of the review committee will be more critical than ever. Therefore, product

entry into the catalogs is the key to the survival and future growth of pharmaceutical

companies. The biggest involvement in a foreign market comes through direct investment

– the development of foreign-based assembly or manufacturing facilities. Generally, a

firm develops a deeper relationship with government, customers, local suppliers, and

distributors, allowing it to better adapt its products to the local market. Finally, the firm

keeps full control over the investment and therefore can develop manufacturing and

marketing policies that serve its long-term international objectives. (Kotler, 2009). Due to

this reform, the marketing strategy of Novartis has to be changed to adapt to the new

situation. Managers, of course, need to evaluate the situation, since in certain

circumstances the best policy is to keep still, to merge into the background. (Barnes,

2007).

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Chapter 3

3.0 Methodology

3.1 Quantitative and Qualitative Research Methods

Quantitative research is typically taken to be exemplified by the social survey and by

experimental investigations. Qualitative research tends to be associated with participant

observation and unstructured, in-depth interviewing. (Bryman, 1998, p.1)

When appropriate, a mixture of quantitative and qualitative research is possible (see

Bryman and Burgess, 1994, Charpter 5 for a discussion of linking qualitative and

quantitative data analysis). This research will combine quantitative and qualitative

approach to investigate the marketing strategy adopted by Beijing Novartis Pharma Ltd.

The approach will be descriptive, explanatory and exploratory.

Enquiries can be classified in terms of their purpose as well as by the research strategy

used. The classification most often used is the three folds, exploratory, descriptive and

explanatory. In the same way as you may employ more than one strategy in your research

project, so you may have more than one purpose. (Saunders et al., 1997) In this research,

I will combine the descriptive, explanatory and exploratory studies.

3.2 Descriptive and Explanatory Studies

Research is only concerned with “what is” and, sometimes, “what might be”. “What is”

includes both description and explanation. The objective of descriptive research is to

portray an accurate profile of persons, events or situations. I will use this approach to

8
collect data and describe the current pharmaceutical marketing situation before and after

the Chinese Healthcare reform, and the extent to which factors might impact upon the

marketing strategies of pharmaceutical companies in China. In conclusion, I will explain

the reason from those factors.

3.2 Exploratory Studies

The objective of this research is to explore what existing theories and concepts might be

used or adapted and to discover whether or not a problem exists. In this research, I will

explore in depth to see if Novartis has any problems in their marketing strategies post

reform period and how they can innovatively capitalize on this new reform.

3.3 Data Collection

The major designed data collection methods will be applied as below:

3.3.1 Primary Data Collection

Semi-structured and in-depth interviews: I will use interviews to explore topics and

explain other findings regarding marketing strategies adopted by other pharmaceuticals

post reform. In an exploratory study, in-depth interviews can be very helpful to “find out

what is happening [and] to seek new insights” (Robson, 1993:42). Interviews will be

scheduled and pre-designed to be conducted among employees at different levels,

including the vice-president, marketing and sales director and some sales representatives.

Also, face-to-face interviews can be carried out in a variety of situations-in at home, at

9
work, outdoors or while traveling. The other reason of choosing interviews is that I found

managers are more likely to express and discuss topics relevant to their own current work

in interviews rather than complete a questionnaire.

Questionnaire can therefore be used for descriptive or explanatory research (Saunders et

al., 1997). In this research, I will use personally administered questionnaires to collect all

the completed responses from the marketing and sales department within a short period

of time, possibly 3-5 months. Through the questionnaire I hope to collect information on

how Novartis will fare from the new healthcare reform and plans adopted. It is hoped that

this kind of information collected will not be specific with detailed coding but rather

serve as a quick base for semi-structured interview preparation.

3.3 Secondary Data Collection

Secondary data are indispensable for much of organizational research (Flick, 1998, p255)

Secondary data include both quantitative and qualitative data and can be used in both

descriptive and explanatory research. (Saunders, 1997, p159).

• The website of the company: On-line searches provide a number of advantages

such as saving enormous amounts of time. The internet, sometimes describes as

the information superhighway, is a worldwide network of computers which can

provide access to a vast range of literature and other resources stored on

computers around. Some of the resources may be of use either for your literature

review or as secondary data. (Saunders, 1997, p56). I can find much useful

10
 information from Novartis’ homepage and also can get quantitative data such as

the annual report, database of the financial department or relevant marketing

research of the marketing department. It's convenient for me to analyze the

current marketing situation and to know what they have done since the new

reform formulated.

• Organizational internal archives: Most organizations collect and store a variety of

data to support their operations, such as copies of letters, minutes of meetings and

other business related documents. All these are very wealthy data for reading and

analyzing the real marketing situation of the company.

• Official statistics: to understand the principle of the new reform, industrial

overview, and competitive market trend.

• Books, newspapers and journals: I will read some books and journals relevant to

business news, marketing information, and regional development such as Harvard

Business review, Academy of Management journal and some journals in China,

because I need get some information about The New Healthcare Reform. These

books and journals will help me to collect the background and supportive data and

they are helpful to answer my research questions.

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3.3 Data Analysis

Little sense can be made of a huge collection of data; therefore an essential part of

research is the analysis of the data. This data must be carried out in relation to the

research problem. (Walliman, 2001). Because research is not a linear process, the only

way to help us to judge the type of and amount of data is to decide on the methods which

we will use to analyze them to obtain a feel for the data, establish reliability and to

understand how the results are interpreted.

3.3.1 Quantitative Data Analysis

The features of quantitative data are: based meanings derived from numbers; collection

results in numerical and standardized data; analysis conducted through the use of

diagrams and statistics (Robson, 1993). In searching through a secondary data source, the

authors would have analyzed and interpret findings. As I still need to collect quantitative

raw data, I need to consider the type, format of the data that will be undertaken with care

to avoid misinterpretation.

• From China government and industrial journals and reports for marketing

development and changing trend.

• From the company archives for marketing, sales and financial records in the last 3

years, I will analyze the marketing quantification, market share and growth,

products price, etc.

• From the company’s website to find the data for the last 3 years about the

quantitative objective of the company, then compare the data to get the result on

12
 which aspects of marketing situation had become better or worse after the New

Healthcare Reform.

All these data will be collected and analyzed based on relevant corporate strategies and

marketing strategies. Attentions will also be paid on the reliability, validity and the

goodness of the data.

3.3.2 Qualitative Data Analysis

Qualitative data are based on meanings expressed through words. It results in the

collection of non-standardized data which requires classification, and is analyzed through

the use of conceptualization. (Saunders, 1997). In this research, I plan to get some

qualitative data through a number of qualitative analysis, including in-depth interview,

document and interim summaries, self memos, etc.

To find the primary data from semi-structured interviews of different levels of staffs in

the marketing department and to ask them which aspects of the new reform they do not

like and why. What (if anything) they might have been done to prevent the problem from

arising after reform? Then, I will classify the data into meaningful categories. The

identification of these categories will be guided by the purpose of my research, as

expressed through my research questions and objectives. The categories, which I devise,

will be part of a coherent set so that they provide me with a well-structured, analytical

framework to pursue my analysis.

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To find the primary data from case study such as successful and failed emergent strategy

formed of similar situations in other organization. Uma Sekaran stated that case studies

are also qualitative in nature and are useful in applying solutions to current problems

based on past problem-solving experiences. (Uma Sekaran, 2000).

I will also use information from company archives as secondary data and analyze the

changing nature of Novartis’ marketing strategy. After data have been collected through

the above-mentioned ways, and through sources, I will edit first. Then, the blank analysis,

if any, will be handled and noted. Moreover, I also plan to study some relevant business

theories and apply them to certain conditions, and to achieve a good research result from

analyzing the target company.

Therefore, the dependent variable is the variable of primary interest to the researcher. The

researcher’s goal is to understand and describe the dependent variable, or explain its

variability, or predict it. Through the analysis of the dependent variable, it is possible to

find answers or solutions to the problem. (Uma Sekaran, 2000). Here again, she also said

an independent variable is one that influences the dependent variable in either a positive

or a negative way. So, I will use a systematic explanatory and exploratory research and

focus on those dependent variables. The relationships of the variables will be designed in

detail, based on the understanding of the independent variables of Novartis.

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3.4 Limitations of the Study

Feasibility and practicability need to be taken into account when formulating research

questions and these questions also have to be feasible in terms of time and resources

available for the research. In conducting face-to-face interviews, there are geographical

limitations and surveys need to administered nationally or internationally. There are

always respondents who might feel uncomfortable about their responses in a face-to-face

interview. Assuring their confidentiality and anonymity to the responses will be

challenging for the researcher in a face-to-face interview. Administering questionnaires

personally to respondents will be time consuming and expensive.

3.5 Conclusion

As Uma Sekaran pointed out business research can be described as systematic and

organized effort to investigate a specific problem encountered in the work setting, that

needs a solution (Uma Sekaran, 2000).

This research proposal is a primary work of an in-depth investigation of the marketing

strategy development after a new reform in the target company-Beijing Novartis Pharma

Ltd, and to illuminate the marketing circumstance through Chinese New Healthcare

Reform according to perceptions of views and interpretations.

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The researcher has identified the research aim and objectives with well designed research

questions. A series of literature review focusing on relevant business studies, marketing

strategies and operational system management area is described. The researcher plans to

highlight the current marketing situation on pharmaceutical companies in China to

achieve an actual research of the targeted company, Novartis.

Also, as defined and decided by the process of this research, both quantitative and

qualitative research methodology and related data collection and analysis are designed

and presented. Finally, limitations of study are also addressed after structure and outline

of the research. The researcher will adopt a more critical and effective research after

analyzing the current marketing situation in the healthcare industry in China. In

conclusion, this proposal aims to investigate the marketing strategy adopted by Beijing

Novartis Pharma Ltd after the healthcare reform.

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