CHAPTER be supported by the tools and

CHAPTER II: BUSINESS ISSUE
EXPLORATION

2.1. Strategy

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Strategy
define as the creation of a unique and valuable position involving a unique set
of activities. The strategy translates the value of the company to have differentiation
compare to others. (Porter. 2006)

2.1.1
Definition of Scenario Planning

Scenario
planning is defined as a tool to guide organizational perceptions. What the
organization sees about the outside world is determined by the schemes and the
management language used. To ensure the effectiveness, the scenario planning
should be comprehensively developing and embed the technique as part of
strategic plans. The plans should be supported by the tools and the
infrastructure to overcome the challenges and opportunities in the future.

2.1.2
Prediction and Uncertainty

There
are several factors thus influence the implementation of the strategy. The
factors could provide certainty or uncertainty in the business, and should be
identify within the organizations. Below are some points that can be ascertain:

·        
Timeline approval

·        
System constrain

·        
Actor logic and motivation

·        
Laws of nature

On
the other side, there are some unpredictable factors such as:

·        
Risk

·        
Uncertainty

·        
Ignorance

Scenario
planning as one of the recommended method to identify the uncertainty with
causal principle after determine the principle of cause and effect.

2.1.3
Process of Scenario Planning

There
are some methods to build scenario planning. The scenario planning start with
business ideas and compared with the environment and situational conditions
which lead the results of the analysis of the organizations’ respond to the
future challenges and opportunities.

2.2 Conceptual Framework

To
build strategic plan and address the concerns, a conceptual framework is
important. Below is conceptual framework of this final project.

 

 

 

 

 

 

 

 

 

 

 

 

2.3. 
External Analysis

External
analysis 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 will
be the competition components in the industries.

2.3.1.
General Environment

PESTEL
analysis as an effective tool to identify the key external forces that affect
the industry

Political
forces

After 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.

In
terms of healthcare industry, the government intervenes the budget spending for
the investment and total spending. The ministry of Health influence the BPJS
regulations related to annual budget spending for drugs and treatment to cover
the population.

On
the other side, for new drug should be review and distributed after received
marketing authorization from local food and drug association (BPOM) and
regulated by the ministry of health to ensure the efficacy and safety for all
drugs thus will prescribe in Indonesia. Good manufacturing practices and good
clinical practices should comply by the companies before submitting the drug.

Tax
regulation also affect the drug price, with specific regulation for value added
tax. For outpatient drugs will be charged with 10% value added tax and paid by
the patients. While for inpatient drugs or patients whom treated at the
hospital, the drugs will not be charged with value added tax and the hospital
will responsible for the tax.

From
the list above, it is clear that political factors have an impact on
multinational pharma company on how to maintain their business and adjust the
company policy accordingly.

 

Economic
factors

Indonesia has growth 5.06 percent year-on-year
in the third quarter of 2017, The expansion was driven by
private consumption which increase firmly and net trade contributed positively
to growth. GDP Annual Growth Rate in Indonesia averaged 5.28 percent from 2000
until 2017.

 

 

Compare
to other south east Asian countries, Indonesia’s GDP better than Thailand and
quite similar with Malaysia. Based on the healthcare system in Thailand and
Malaysia, the system applied much better in terms of quality of healthcare
services compare to Indonesia.

http://www.adb.org/search?keywords=indonesia%20&page=1&source=suggest

Refer
to data on the expenditure side, exports went up 17.27 percent (3.36 percent in Q2) while imports
increased at a softer 15.09 percent (0.55 percent in Q2).  Also on the production
side, output expanded more
than in the preceding quarter for Manufacturing (4.84 percent from 3.54 percent
in Q2); water and waste management (4.83 percent from 3.67 percent);
construction (7.13 percent from 6.96 percent); wholesale and retail trade (5.50
percent from 3.78 percent); finance and insurance (6.44 percent from 5.94
percent); business services (9.24 percent from 8.14 percent); education (3.70
percent from 0.90 percent); healthcare (7.44 percent from 6.40 percent) and
other services (9.45 percent from 8.63 percent).

Healthcare has increase significantly after
BPJS era with almost 70% of the population covered in the universal healthcare
program since 2014.

Other
economic factors for multinational pharma company is currency rate, the value
of foreign currency compare to Indonesian rupiah determine the price of the
drugs which perceived expensive before VAT.

Social-cultural
Factors

The
lifestyle and education level of the Indonesian, shows the consumption level of
the population. The rise of the middle class in Indonesia also shows customers’
level in healthcare spending and health consciousness. Less people aware the
importance of health insurance and rely on universal healthcare coverage. Also
their awareness on early detection and prevention of the chronic and
non-infectious diseases.  

The
age distribution of Indonesian population, almost 50% of the population in
productive age. Population with age 25-54 years: 42.35%, and elderly
population start form 55-64 years: 8.4% and 65 years and over: 6.79% from
total population. This shown that the population will have more issue in health
start from chronic and non-infectious disease caused by lifestyle worker people
with long hours work time and fast food consumptions.

Indonesia
known as the biggest Muslim population and the Halal logo or manufacturing
process on the drugs has become major issue for certain company whom produces innovative
drugs such as vaccine, cancer drugs and others. 

Technological
factors

The
internet technology supports the people to learn the newest health technology
and also the latest update on treatment of the disease. The most important
value to sustain the business of multinational pharma company is to have drugs
pipeline so the company will have more value and certainty for the future.

The
company should also develop new way to produce and communicating the goods and
services to the customers, included the healthcare professionals and also the
government (Ministry of Health and BPJS). They should find new way to market
and sell the products.

2.3.2.
Industry Analysis

Kotler
2006. Porter’s Five Forces Model

 

Threat
of New Entrants (High)

The
commitment from the government to provide universal healthcare coverage to all
Indonesia people give pressure for the industry. The payers govern pricing and
give restriction for prescribing the drugs which may lead decreasing revenue of
the company since the declining of volume after price reduction. Government has
some issue with budget constraint and as multinational pharma company not able
to fulfill the price reduction, there will be opportunity for cheap
manufacturer from India, China or South America to enter the market.

Threat
of Substitutes (High)

The
limited knowledge of people about healthcare and update on treatment lead to
alternative treatments such as herbal, physical treatment and etc. The over
claim treatment easily adapts by the customer especially if the price lower and
promoted with word of mouth marketing without evaluating long term efficacy and
safety.

Industry
Rivalry (High)

Indonesia
government encourage local manufacturer to produce biotechnology and other
commodities drug whereas cost effective drug become one of the concern from ministry
of health. Also there are possibilities for investor to build manufacturer in
Indonesia as long as they have mutual collaboration with our local government
and invest on local resources to build the economy. Whereas most of the multinational
pharma company limited the investment on manufacturing due to maintain the
profit and loss for business sustainability.

Bargaining
power of suppliers (Low)

Business
to business model applied by the multinational pharma company to distribute
their drugs. Most of the drug produced outside and only repackage in Indonesia,
thus lead to the supplier’s bargaining only for inventory and distribution to
the outlets.

Bargaining
power of Buyers (High)

The
government applied policy and code of conduct for the implementation of
universal health coverage therefore if the multinational pharma company would
like to list the drugs, they should able to fulfil the requirements and follow
the negotiations. The government set Harga Perkiraan Sementara for guidance,
unfortunately based on Kemenkes No 524/ 2017 there is no further explanation
related to drugs cost ration compare to benefit. The guidance did not explain
on how to calculate the price and the benefit, thus may lead misperception from
the industry itself.

For
the regular market, there are unclear regulations related to drugs retail price
whereas the hospital or pharmacy could sell the drugs more expensive depends on
the setting of revenue in each outlets. From the regulation, stated maximum
retail price for drugs is 28% before tax. In fact, drugs listed in the
hospitals cost more than the cap.

 

2.4. Internal Analysis

An
internal environment determines the company’s business process, code of conduct
and visions. There are some points influenced the business process of the company
such as sales and marketing strategy, the company’s values and senior
leadership managements. The analysis will describe the internal competencies
and desirable improvements to ensure the sustainability of the business and
solve the unmet needs of the market.

To
ensure the continuity of the business process, multinational pharma company has
to develop its resources, capabilities and core competencies also known as the
internal analysis of the company from the company’s resources and capabilities
also to find the most suitable connection of resources and capabilities to
build the company’s core competencies especially the competitive advantages to
sustain the business for long term profit.

2.4.1.
Resources

Resources
as an inputs to strengthen the organization to achieve the company’s missions. The
multinational pharma company have similar resources to run their business and will
be differ based on the business core of the company. Resources could be
classified as tangible or intangible as the company competitive advantage for
enterprise development.

Tangible
resources have a clear and easily determined market value, or known as physical
assets thus utilized by the company as physical resources, financial resources
and human resources. While for intangible resources consist of intellectual
such as originator drug, formula of the drug, drugs patent and the innovative
culture which inherit in the company and build the company image as the market
leader.

Based
on the theory above, tangible resources for the multinational pharma company
resources 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

 

For
the intangible resources, the multinational pharma company has their skills and
knowledge to manage the company’s assets and understand the market to compete
by differentiation or enhance the marketing strategy while maintain the company
values.

The
sales and marketing team should build harmonious collaboration and minimized
the conflict which may occur during business process with internal or external
stakeholders. The management will hire expert people with strong
self-motivation to contribute for the company and sustain the business with
continuous innovative ways of thinking.

 

2.4.2.
Capabilities

The
company will have access to use their appropriate capabilities to support the
business. Capabilities are a firm’s capacity to deploy resources.

The
multinational company has several experiences that shown that they are capable
doing business. The company supported by the expertise with broad background
and experiences within the industry in so many years and really know how to
overcome the issue and optimize the potential in the market.

Oncology
market is very niche and specialized, there are only a few pharma company had
innovation drugs for example targeted therapy, immunotherapy. This specific
drugs have unique selling points for example mechanism of action, delivery of
the drugs, dosing and etc. For the company, the expertise in oncology need
continuous learning and huge investment. Therefore, most of the company put big
investment for the oncology pipeline.

2.4.3
Competencies

Competencies
are defining by the various components such as observable and measureable
knowledge, skills, abilities and personal attributes that contribute to
enhanced the company’s resources and ultimately result in the successful of the
business strategy to achieve the missions. The multinational company has more
prestige value and capability to assigned a team of experts who knows exactly
what they are doing with the market to win the competition.

The
senior leadership mostly from local and expatriate experts whom worked in the
industry for years of experiences with good quality and already has their own
credibility. The sales and marketing team strengthen their skills with
continuous training and development program so they could optimize their
potentials to strengthen the company.

2.4.4
Resources 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

 

2.4.5
Value Chain Analysis

 

 

 

 

 

 

Support
Activities. 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

Value
chain analysis for multinational pharmaceutical industry

2.4.6.
SWOT analysis

As
strategical method to analyze the internal and external factors before next
step of implementation. The analysis as follows:

Strengths

·        
Multinational company with basic research
and innovation products

·        
Advanced pipeline products with good
sustainability

·        
Strong work culture and comply with local
business ethics

Weakness

·        
Overall price of the products is medium to
high

·        
The products semi-finished goods or
imported

·        
limited advocacy with the government in
terms of healthcare policy and regulations related to drugs listing

Opportunities

·        
The growth of Indonesia population
especially medium-high class income

·        
Collaboration with third party to support
healthcare system in Indonesia

Threats

·        
Limited published information related to
drugs listing and price negotiation

·        
The decision maker in government
structures has limited collaboration related to universal healthcare coverage
implementation

·        
Government endorsement for cheaper drugs
which lead local company to produce generic drugs

·        
Uncertainty of universal healthcare coverage
after President’s election

2.5. Root Cause of the Problem

Based
on internal and external environment analysis above, could be summarized and
concludes the main causes of the business problem. The major issue of the
multinational pharma company is how to sustain the business in BPJS era with
not yet establish regulations and policy. Also there are some other factors
such as not yet establish data registry in Indonesia related to oncology and
the suboptimal healthcare infrastructure may lead to suboptimal treatment for
patients. It is clear that the multinational pharma company should build their
values and differentiation to sustain the business and the product portfolio
for the future.

The
innovative drugs are the main business source for multinational pharma company,
there should be continuous collaboration with the government to prepare and establish
the market. The life-enhancing medicines that will change the treatment
landscape from current standard of care which offer better survival and improve
quality of life for patients and caregivers.

The
beneficial effect of universal healthcare coverage contributes to improve
health indicators in Indonesia and stronger economic development for the future.