2. PEST Analysis
Factors So What?
Political Reform of China social healthcare The market grew rapidly and
system the competition escalated
Economic China joined WTO and more Big MNC further escalated the
MNC entered China competition, and the
requirement for scale enhanced
Social Local Chinese has strong affinity Herbal medicine market in
to herbal medicine and Baiyao, China is still promising, but not
however the affinity is weakening guaranteed. The concept of
among the younger generation “herbal drug” and “Baiyao” is
great asset for branding
Tech Western pharmaceutical New coherence in scale and
methodology introduced into the product innovations can be
herbal medicine system achieved.
3. Five Forces Analysis Competitor: few
really powerful
players from
local and
Suppliers: low abroad
bargain power. For
herbal resources,
there are loose Purchaser: end
regulation and few user not very price
big private owners. sensitive but
distribution
channel, bargain
power.
Substitute: few.
Despite
traditional
Entry Barrier: high.
non-drug several permits to
methods, manufacture
drugs prescription medicine.
acceptable difficult to educate
market and to
convince channels
and users to try)
4. SWOT Analysis
S: Wide brand awareness and strong brand fidelity W: The core product, Baiyao, is only for a very niche
Good relationship with government market, No international experience
R&D capability within herbal medicine industry The scale is small compared to MNCs
O: Spending on healthcare growing fast, More western T: The brand is weakening among younger generation of
customers using herbal Medicines and MNCs are willing to Chinese, Big MNCs entered China, Over exploit herbal
collaborate to expand to other countries resources
5. Issues Identification
More competitive market with
local competitors and MNC
Original YB for Niche, need to
diversify products and services
Products are reaching maturity
6. Focal Strategic Issues
Rapid growth in scale
becomes extremely important in
pharmaceutical industry
7. Options
Expansion
Product line diversification
On its own
Collaboration
Internationalization
On its own
Collaboration
Integration the value chain
Industrialization of herbal resources
Vertical integration into distribution
Industrialization of R&D
8. Expansion
Product Line Diversification
Increase our economy of scope and scale due to
shared resources
Bring greater production and marketing efficiency and
lower promotion costs
Further strengthen core business
Offers us the opportunity to build or own capabilities
first and get on par with MNCs
Potential Product Cannibalism: toothpaste could be
used for external purpose
Potential Brand Contagion: toothpaste is not our core
competency; failure could damage overall reputation
Only few value chain activities could be shared and
new production facilities would have to be built
9. Expansion
International Expansion
Opportunity for product diversification
Opportunity for market diversification
Opportunity for internationalization of products
Increase market share and better serve customers needs
High marketing expenses and lack of international
marketing experience
Cultural distance and different customer behaviors causes
the need for scientific proof and education on products
Difficult to manage overseas sales force
Regulatory barriers could cause difficulties for entry
10. Integration
Industrialization of herbal resources
Secure the supply of herbal resources to support
its own growth
Industrialize this less-mature sector, build its
influence power and make profit from the whole
herbal medicine industry
BaiYao’s brand can help market the herbal
resource
To help farmers plant herbs and establish quality
assurance system is a different business
11. Integration
Vertical integration into distribution
Get bigger share of the value chain and stronger
control over the channel
Totally different business and BaiYao has little
experience in it
Potential conflict with other brand
Industrialization of R&D
Already has a strong position in herbal medicine R&D
It can help Yunan Baiyao to consolidate its leading position
in the industry
Potentially It can generate better margin
It is technology-intensive and investment-intensive
The margin may be not as high as expected because of the
intellectual property protection is weak in China
12. Recommendation
First Priority: Product line diversification on its own
Maximize the value of its brand and grow in scale
Second Priority: Industrialization of herbal resources
• Secure the supply of its own need
• Enter this less-competitive market and make profit
from other medicine companies
Third Priority: Industrialization of R&D
• Strengthen its competency
Forth Priority: Internalization through Collaboration
• Test-drive through collaborating with MNCs to gain
valuable experience
