978-0134324838 Chapter 6 Solution Manual Part 1

QUESTIONS

6-1. What is the nature of country and political risk in Russia?

(LO 6.5; AACSB: Application of knowledge)

■ Country risk is defined as exposure to potential loss or adverse effects on company

operations and profitability caused by developments in a country’s political and/or legal

6-2. How does country risk and corruption affect starting a business in Russia?

(LO 6.7; AACSB: Diverse and multicultural work environments)

■ Business ventures are subject to vague and overlapping regulations, dozens of

required government licenses, incessant bribery, criminal raids, seizure of independent

6-3. Why do foreign businesses hesitate to invest in Russia?

(LO 6.5; LO 6.6; LO 6.7; AACSB: Reflective thinking)

■ Russia is transitioning from a command economy to a market economy, creating

much uncertainty for foreign firms.

● SUGGESTED SOLUTIONS TO CASE QUESTIONS

6-4. Specify the types of country risks that pharmaceutical firms face in

international business. How do the political and legal systems of countries affect

the global pharmaceutical industry?

(LO 6.5; LO 6.6; AACSB: Analytical Thinking)

■ Country risk- every country is characterized by diverse political and legal systems that

pose significant challenges for company strategy and performance, as managers must

6-5. People need medications, but the poor often cannot afford them.

Governments may not provide subsidies for health care and medications.

Meanwhile, pharmaceutical firms focus their R&D on compounds likely to provide

the best returns. What is the proper role of the following groups in addressing

these dilemmas:

National governments,

Branded pharmaceutical firms, and

Generic manufacturers?

(LO 6.4; AACSB: Application of knowledge)

Source: http://www.cgdev.org/doc/ghprn/GHF_Background_Paper_FINAL.pdf

Accessed September 5, 2015

National Governments

National governments must be proactive in enforcing intellectual property

protection to branded pharmaceutical firms to encourage further research and

development of new drugs.

Governmental and private initiatives have begun to provide incentives and

Branded Pharmaceutical Firms

First and foremost, pharmaceutical companies are business which must cover

certain fixed costs in order to survive.

Thus, pharmaceutical firms target the most attractive markets- e.g. a drugs for

cancer and central nervous system diseases rather than poor country diseases.

The European traveler’s market

Private physicians/ upscale urban pharmacies in disease- endemic countries

Public sector via the government in disease-endemic countries (no profit pricing)

Instead of solely focusing on earning profits from developed countries, branded

Generic Manufacturers

Generic manufacturers might consider working with branded firms and national

governments to establish an ideal balance.

In order to improve the health conditions in developing countries, generic

manufacturers should establish collaborative relationships with major

pharmaceutical firms.

6-6. Consult www.phrma.org, The Pharmaceutical Research and Manufacturers of

America. What steps is the branded industry taking to address the various ethical

issues it faces, such as providing affordable drugs to poor countries?

(LO 6.4; AACSB: Application of knowledge)

Providing Affordable Drugs to Poor Countries

The economic burden of creating, developing and sustaining, potentially life-saving

medicines is the responsibility of the global community.

http://www.highbeam.com/doc/1G1-251671271.html

Accessed September 5, 2015

Excerpts from:

John J. Castellani on The Global Health Challenge

John J. Castellani

The Global Health Challenge: Innovative Approaches

●PhRMA member companies are global citizens with an increasingly global perspective.

●Member companies …. are directly concerned about and contribute to improving

global health.

●America’s biopharmaceutical research companies are keenly aware of growing global

health care challenges – especially those facing the developing world.

●… innovative medical research and development conducted to help meet health care

needs in the developed world also can help treat patients around the world.

●The G-Finder Report 2010 showed that the biopharmaceutical research sector is

the third largest investor in efforts to find solutions for global health challenges behind

the U.S. Government and the Gates Foundation.

Examples:

Merck has opened a research center in India in partnership with the Wellcome

Trust to focus on developing affordable vaccines to prevent diseases that

commonly affect low-income countries.

● The growing list of academic and NGO partnerships with the biopharmaceutical

research industry include the following partnerships:

54 HIV/AIDS prevention programs

●Today, there are over 90 projects designed to research medicines specifically to meet

the needs of the developing world, up from 32 in 2005.

●There are now 11 projects specifically focused on vaccines, up from 6, including the

testing of the first vaccines to treat malaria.

●Research-based biopharmaceutical companies are also playing an important role in

building the healthcare work force of developing countries- working with governmental,

intergovernmental and NGO partners to provide training for more than 220,000 health

workers- the equivalent of more than 1/3 of the total health work force in Africa.

●In addition, since 2002, the Abbott Fund has provided technical assistance and

●Tibotec, a Johnson and Johnson subsidiary, has granted multiple, non-exclusive

●Regarding the costs and challenges of researching and developing new drugs:

●… the complexity and difficulty of the science doesn’t change as we seek to inspire

and motivate new research into medicines needed to treat neglected tropical diseases

6-7. Consult the TRIPS agreement at the WTO portal (www.wto.org). What are the

latest developments regarding this treaty? What types of protection does this

treaty provide to pharmaceutical firms? What enforcement mechanisms does

TRIPS provide for ensuring that these protections will be carried out?

(LO 6.4; AACSB: Application of knowledge)

TRIPS: Trade-Related Aspects of Intellectual Property Rights, one of the WTO’s

agreements, and applies to all WTO members.

Types of intellectual property covered by the TRIPS Agreement:

Copyright and related rights

https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm

Accessed September 5, 2015

■ Prior to the 1986–94 Uruguay Round negotiations, there was no specific agreement

on intellectual property rights in the framework of the GATT multilateral trading system.

■ Inventors are allowed patent rights in order to promote research and development.

■ TRIPS Agreement objectives include the reduction of distortions and impediments to

The three main features of the Agreement are:

Standards. The Agreement sets out the minimum standards of protection by

requiring, first, that the main conventions of the WIPO, the Paris Convention for the

Protection of Industrial Property (Paris Convention) and the Berne Convention for the

Enforcement. The second main set of provisions deals with domestic procedures and

remedies for the enforcement of intellectual property rights. The Agreement lays down

Dispute settlement. The Agreement makes disputes between WTO Members about

the respect of the TRIPS obligations subject to the WTO’s dispute settlement

procedures.

With specific attention to five broad issues:

How basic principles of the trading system and other international intellectual

property agreements should be applied;

https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm

Accessed September 5, 2015

New Developments

See TRIPS news archive

https://www.wto.org/english/news_e/archive_e/trips_arc_e.htm

Accessed September 5, 2015

For example:

WHO, WIPO and WTO to reflect on lessons of 20 years of TRIPS and public health

Five years after they launched a stepped-up programme of trilateral cooperation, the

Protection for Pharmaceutical Firms

■ TRIPS has to deal with intellectual property rights which include copyrights,

trademarks, patents, etc.

◘ The area that most affects pharmaceutical firms is patents.

◘ Patents provide legal protection to the patent owner by preventing others from

producing, selling, or using for a certain amount of time.

■ The TRIPS agreement also provides “procedural limitations” on when countries are

allowed to issue compulsory licensing

◘ Compulsory licensing occurs when a government permits another party to

produce the patented product or process without the consent of the patent

owner.

Enforcement Mechanisms

● Under the TRIPS agreement, member countries must provide 20 years (from

the date when the application is first filed) of protection to patent owners.

6-8. Recommend a strategy that management at a large pharmaceutical firm

should employ to reduce the likelihood of political and legal risks that such firms

face. What steps should management take to minimize its exposure to such

risks?

(LO 6.5; LO 6.6; AACSB: Reflective thinking)

■ Intellectual Property (IP) Protection Strategy– To enhance IP protections and

■ Proactive Environmental Scanning

target countries.

■ Image Strategy– As pharmaceutical firms target the most attractive markets- e.g. a

drugs for cancer and central nervous system because as a business, must charge high

V. END OF CHAPTER QUESTIONS

● TEST YOUR COMPREHENSION

 6-9. What are the components of political systems? What are the components of

legal systems? How do these systems lead to country risk?

Visit MyManagementLab for suggested answers.

(LO 6.1; LO 6.2; LO 6.3; LO 6.7; AACSB: Application of knowledge)

6-10. Distinguish between totalitarianism, socialism, and democracy. What are the

implications of each for internationalizing firms?

(LO 6.2; AACSB: Application of knowledge)

■ The three existing major political systems are totalitarianism, socialism, and

democracy.

■ These systems are the frameworks within which laws are established and nations are

governed.

■ Socialism occurs as communism or social democracy. Communism proved to be

How Political Systems Influence Economic Systems

■ Generally:

Totalitarianism Command economies

Socialism Mixed economies

Democracy Market economies

Implications of each for internationalizing firms:

Command economy (centrally planned economy)

■ The state is responsible for making all decisions:

■The state owns all wealth, land, and capital, and allocates resources based on which

■ Command economies were common in the twentieth century; they proved so

■ Central planning is less efficient than market forces in synchronizing supply and

demand.