Download Word Format Social Infrastructure: Tara

Global
Edge
Consultants
Foreign Trade Opportunities: Japan or Mexico
Lisa A Bartha
Tara Camp
Sonya Kinch-Monyem
Amy M Marks
Kenneth A Willis
Lindsay B Yacavone
AMBA606, Section 9011
Professor Jane Ross
July 30, 2006
Infrastructure and foreign market entry
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Table of Contents
Table of Contents .......................................................................................................................... 2
Part 1: Team statement ................................................................................................................ 4
References:................................................................................................................................. 7
Japan: Political and Regulatory Implications ............................................................................ 8
Executive Summary .................................................................................................................. 8
Introduction ............................................................................................................................... 9
Political Stability ....................................................................................................................... 9
Research and Development .................................................................................................... 11
Legal Infrastructure ............................................................................................................... 12
Worker Entitlements .............................................................................................................. 13
Pricing – Regulatory Implications ......................................................................................... 13
Regulatory Constraints Marketing and Production ............................................................ 14
Conclusion ............................................................................................................................... 15
References ................................................................................................................................ 16
The Impact of Social Infrastructure on Entering the Japanese Market ............................... 19
Executive Summary ................................................................................................................ 19
Introduction ............................................................................................................................. 20
Social Structure ....................................................................................................................... 20
Demographics .......................................................................................................................... 21
Education ................................................................................................................................. 22
Health ....................................................................................................................................... 23
Marketing ................................................................................................................................ 23
Conclusion ............................................................................................................................... 24
References ................................................................................................................................ 26
Japan: Business and Workforce Culture .................................................................................. 28
Executive Summary ................................................................................................................ 28
Introduction to Business and Workforce Culture in Japan................................................ 29
Forest Laboratories in Japan: Workplace Requirements and Operating Mindset ......... 29
Japan’s Value-System, Work Ethic, and Business Practices .............................................. 29
Value-System ....................................................................................................................... 30
Work Ethic .......................................................................................................................... 30
Business Practices ............................................................................................................... 31
Forest Laboratories in Japan: Challenges and Ethical Concerns ...................................... 32
Forest Laboratories in Japan: Future Market Entry and Expansion ............................... 33
References ................................................................................................................................ 34
Mexico: Political and Regulatory Implications ........................................................................ 35
Executive Summary ................................................................................................................ 35
Mexico’s Political Environment............................................................................................. 37
Regulatory Environment ........................................................................................................ 39
Conclusion ............................................................................................................................... 42
References ................................................................................................................................ 43
Mexico: Social Infrastructure .................................................................................................... 44
Executive Summary ................................................................................................................ 44
Introduction ............................................................................................................................. 45
Infrastructure and foreign market entry
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Role of Family and Gender .................................................................................................... 45
Work Ethic .............................................................................................................................. 46
Health and Socio-economic Class .......................................................................................... 47
Religion .................................................................................................................................... 48
Conclusion ............................................................................................................................... 49
References ................................................................................................................................ 51
Mexico: Business and Workforce Culture ................................................................................ 53
Executive Summary ................................................................................................................ 53
Introduction ............................................................................................................................. 55
Business and Workforce Culture in Mexico: Cultural Differences ................................... 55
Business and Workforce Culture in Mexico: Labor Relations ........................................... 56
Business and Workforce Culture in Mexico: Staffing Approach ....................................... 58
Business and Workforce Culture in Mexico: Infrastructure .............................................. 58
References ................................................................................................................................ 60
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Part 1: Team statement
The interrelatedness of economic and social infrastructure functions directly tie to the
economic growth and prosperity of a nation’s residents. Relevant data suggests that the more
developed a country’s infrastructure, the greater chance of sustained economic
growth. Therefore, nations must develop their infrastructure if they wish to be targets for foreign
investment. The correlation is clear. Without a sound infrastructure, goods and services cannot
be developed, imported or exported efficiently, nor can consumers utilize them. In addition,
without sufficient healthcare and education resources, a nation cannot develop a skilled labor
force, which is critical to firms seeking foreign investment opportunities. Additionally, Sullivan
(1999) says a country cannot meet their needs without both managerial and technical capability;
a financial system that function effectively to attract and circulate investment; well-functioning
judicial system that protects rights of ownership; and a private sector with the ability to furnish
resources and services.
A country’s infrastructure is comprised of two elements: economic and social.
Sullivan (1999) defines economic infrastructure the services that foster business activities,
production and consumption. Social infrastructure helps the human resources of a country to be
suitable for productive work which is the cornerstone on which advance in well-being rest” (p.
475). Table 1 shows how components of infrastructure are categorized.
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Table 1. Infrastructure Components
Economic or Hard Infrastructure
Utilities
Telecommunications
Water
Sanitation
Solid waste collection
Roads
Dams
Canals
Transportation systems
Financial Services
Social or Soft Infrastructure
Healthcare
Education
Demographic Conditions
Differences in infrastructure among trading countries often require local customization.
Traditional practices are another cause for local responsiveness. For example, in England people
drive on the left hand side of the road, whereas in the rest of Europe they drive on the right (Hill,
2007). The implications of infrastructure and traditional practices are that some products will
work in foreign markets as a straight product extension and others will not. Product extensions
do not require customization, additional R&D expense for retooling, or promotional modification
(Kotler & Keller, 2006). A country's hard infrastructure, such as transportation, communications
networks and utilities, affect how products or services are marketed and distributed. Soft
infrastructural issues or traditional practices will influence how new products or services are
perceived as well as received in foreign countries.
Regarding Forest’s ambition to establish operations and launch Lexapro in the Mexican
or Japanese pharmaceutical market, the importance of a developed infrastructure cannot be
underestimated. Forest will need a skilled labor force and the use of hard infrastructure to massproduce and distribute its product to its targeted consumers. Prior to establishing itself within
Japan or Mexico, Forest Laboratories must ensure that each of these countries has the proper
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degree of infrastructure to support its current and potential activities. An example is the need for
Forest to take into consideration the logistical aspects of receiving products for manufacturing as
well as the distribution methodology of the finished product. Depending on the country’s
infrastructure, this can add time and additional costs to the manufacturing of these drug, which
ultimately will be past down to the consumer.
Mexico is transitioning from a developing country to a developed country and has
significantly upgraded its hard and soft infrastructure to attract foreign investments. Its roads,
telecommunications, transport, and banking networks have all been upgraded and there is an
increased focus on reforming healthcare, education, and the need to develop a skilled labor force.
Market entry into Japan places Forest in front of an excellent opportunity to expand its
global reach in a developed nation, with a stable political regime and substantial infrastructure.
If either of these markets begins to fall short of meeting infrastructure needs, Forest must
consider that market's future ability to meet those needs and make a strategic business decision
as to whether or not that market is a viable option.
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References:
Kotler, P. & Keller, K.L., (2006). Marketing management 12e. Pearson-Prentice Hall.
Upper
Saddle River, N.J.
Sullivan, J. (1999) What is infrastructure? In Sullivan, J., Exploring international business
environments (pp. 475-506). Boston, MA: Pearson Custom Publishing.
Infrastructure and foreign market entry
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Japan: Political and Regulatory Implications
Lisa Bartha
Executive Summary
This white paper provides the board of directors with an overview of political stability
and regulatory issues that could impact Forest Labs in Japan. This is important because political
and regulatory agendas have a direct correlation to the nation’s economic and social
infrastructure. Infrastructure has a direct impact on the Japan’s ability to support Foreign Direct
Investment.
Market entry into Japan places Forest Labs in front of an excellent opportunity to expand
its global reach in a developed nation, with a stable political regime and substantial
infrastructure. Positive political endowments include the current administration’s support of
foreign investment through deregulation, protection of intellectual property rights, cooperation
with industry and interest in research and development. Forest must weigh these positive factors
against the legacy of traditional business practices that continue to constrain FDI in Japan.
Additionally, costly worker entitlements, worker demographics, and the potential political shake
up of a new Prime Minister are all watch factors for Forest Labs in this market. Forest has the
potential to overcome these challenges through localization of their approach to the market.
Infrastructure and foreign market entry
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Introduction
Forest Labs must examine Japan’s political stability and the impact of regulatory issues
on profitability when evaluating location as a strategic choice in its play for market expansion.
Political agendas have a direct correlation to the nation’s economic and social infrastructure.
Economic infrastructure includes the efficiency and access of utilities, telecommunications
water, sanitation, roads and ports for distribution, public transportation and banking. Social
infrastructure refers to access to healthcare and education (Sullivan, 1999). Of direct importance
to Forest Labs is market infrastructure. Global Consultants uses this term to refer to regulatory
controls placed on pharmaceutical pricing, marketing, production, research and development and
patent protection. This discussion will focus on the impact of these factors to Forest’s success in
the Japanese market and their impact on local responsiveness on the part of Forest Labs (Hill,
2007).
Political Stability
Forest Labs must assess the political stability of Japan in terms of ownership risk,
operating risk and transfer risk before entering the market. Ownership risk involves the threat of
confiscation or expropriation of private property (Griffin & Putsay, 2003). Forest has little risk
regarding the confiscation or expropriation of property in Japan. The stable, representative
democracy government of Japan promotes cooperation with industry. There are no outstanding
cases of expropriation or nationalization in the country. Nor are there any outstanding investment
disputes between the government of Japan (GOJ) and foreign investors (Country Watch, 2006).
Infrastructure and foreign market entry
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Operating risk involves the safety of employees due to changes in laws, environmental
standards, terrorism or insurrection (Griffin & Putsay, 2003). Expatriates and Japanese
employees could be endangered by political instability in the region should tensions with North
Korea become more heated. Global Edge Consultants find no evidences that terrorism concerns
are greater in Japan than in other developed nations.
Transfer risk arises from governmental interference in a firm’s ability to transfer funds in
and out of the country (Griffin & Putsay, 2003). Japan as a developed nation, has a banking
infrastructure organized around the Bank of Japan (BOJ). The Foreign Exchange Yen Clearing
System (FXYCS) facilitates the payments of cross boarder transaction such as foreign exchange,
yen denominated bond and export/import payment transactions (IFM, 2006). The mechanics of
the market are in tact. Sullivan (1999) encourages us to ask a deeper question. Are Japan’s
markets growing and will they continue to grow? After more than a decade of stagnant growth
and deflation, the Japanese economy is growing. This economic growth bodes well for Forest in
terms of expanding markets, capital investment in the private sector and increased R&D
spending. The BOJ has acted to further stand-up the economic recovery by raising interest rates
above zero and shrinking the supply of money, thereby increasing the value of the Yen (Jubek,
2006). The GOJ is attempting to tighten fiscal policy by curbing government spending on public
works and subtle tax increases. If Japan’s infrastructure weakens, production costs will increase.
However, in the past bloated levels of government spending on public works increased
government debt and misdirected the use of resources contributing to economic stagnation
(eiu.com, 2005) and (Sullivan, 1999). The Bank of Japan (BOJ) and the Government of Japan
(GOJ) are inextricably linked. Now that the economy is back on track, politically motivated
interference would disrupt the delicate balance of rightsizing inflation, government debt and
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interest rates. Since Koizumi has seeded key parliamentary seats with a number of likely
successors from the Liberal Democratic Party, it is likely that political stability will continue
after he steps down from office in September (eiu.com, 2005).
Research and Development
Biotechnology firms of all sizes in Japan are inclined to in-license drugs from foreign
companies. Japanese companies tend to source clinical trials to Contract Research
Organizations, focusing more on distribution, marketing and sales capabilities (Collinson, Kato,
Yoshihara, 2005). This is good news if Forest plans to license Lexapro in Japan as a first step
to market entry since a Japanese partner will have insight into marketing and distribution
practices.
As a next step, if Forest decides to expand operations to include the R&D of novel
molecules, the Japanese TLO laws, “Promoting University-Industry Technology Transfer”
(Taplin, para. 7) will help Forest establish strategically advantageous relationships with Japanese
research universities. It may also attract a strategic partner within the industry that does not
currently have this capability (Taplin, 2006). This assertion is supported by a survey conducted
by Collinson, Kato, and Yoshihara (2005), which suggests that Japanese drug companies rate
themselves as weak in basic research. Unlike American and European drug companies, they do
not have strong connections to research-active universities (2005). Such a partnership might
provide a springboard for a university start –up, wholly owned subsidiary of Forest Labs. This
would provide Forest with an access door to further product expansion in the region as well as
broaden its product pipeline for export or expansion to other markets. Forest’s strategic target of
expanding research and development capabilities as a key for building future competitive
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advantage conveniently aligns with Japan’s desire to enhance national endowment factors
through research and innovation (Solomon, 2006).
Legal Infrastructure
Prime Minister Junichiro Koizumi has been active in creating legal infrastructure called
The Intellectual Property Strategic Council to promote and protect intellectual property. As a
result, patent litigation has become faster, decreasing the cycle time from filing suit to decision
to approximately 1 year. Injunctions can be set into motion much more quickly now. This aspect
of Japanese law supports Forest in defending patents and the import of knock-off drugs to the
market. Japan has also carved out a special IP High Court that has developed considerable
expertise in these types of lawsuits. As a result, costs to initiate litigation have been lowered
which may open the door to illegitimate claims against Forest’s intellectual property. A
redeeming feature is that that there is no evidence of bias against foreign litigants in Japan’s IP
High Court (Iwase, 2006).
Forest’s access to optimal legal advice to establish operations in Japan is a concern.
There is a small base of Japanese law firms with actual expertise in international business. There
are strict limitations placed on foreign lawyers practicing or advising in these cases. Japanese
lawyers cannot join foreign law firms. These laws are strictly enforced with no changes in sight.
Global Edge Consultants recognizes this as a hard infrastructural constraint on Forest’s ability to
establish operations and protect itself from boundless patent infringement lawsuits
(CountryWatch, 2006).
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Worker Entitlements
Forest should factor location advantages such as wage levels into their decision on where
to enter foreign markets (Hill, 2007). This means measuring the impact of worker entitlements to
anticipated returns on investment in the Japanese market (Sullivan, 1999). Forest must contend
with contributions to pensions, health insurance, workers compensation and unemployment
insurance that add up to one third of the per capita wage costs in Japan. This is much higher than
in other countries (The Economist, 2005). Unemployment lingers around 4% due to the aging
workforce and generous unemployment benefits (IMF, 2006). In Japan, retirement benefits are
payable as early as age 60. Employers and employees equally pay 13.58% of annual pay into the
nationally funded pension program. Recent legislation will increase this amount to 18.30% by
2017. This is a big concern because the elderly population in Japan is on the rise and rising and
the population of working age citizens is contracting (IMF, 2006). Global Edge Consultants
asserts that this will increase the financial costs related to worker entitlements in years to come.
This could also place upward pressure on wages and make increase difficulties in attracting and
retaining talent experienced local managers, who can navigate established Japanese business
networks and Japanese business traditions (Hill, 2007).
Pricing – Regulatory Implications
Since order and cooperation are important cultural values, Japan’s Fair Trade
Commission (JFTC) is fixated on maintaining market order. As a result, price cartels, resale,
price, maintenance agreements and captive distribution networks proliferate, retarding market
expansion (Herbig & Palumbo, 1994). The Japanese Government forces price reductions on
original drugs as soon as the generic version becomes commercially available. New pricing
Infrastructure and foreign market entry
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standards will factor market share into the prices of original and generic drugs bringing the price
differential closer (Manufacturing Chemist, 2006). Government intervention in drug pricing
directly influences profit margins for Forest.
Regulatory Constraints Marketing and Production
In developed nations just-in- time, production helps to make markets more efficient by
eliminating waste and reducing inventory costs (Sullivan, 1999). Japanese production
efficiencies are a positive factor endowment. Toyota, a Japanese firm, pioneered just-in-time
manufacturing. This methodology is well entrenched in Japanese production processes. Forest
will be able to leverage hard infrastructure and production capabilities in Japan (Chase, Jacobs &
Aquilano, 2006).
Restrictions placed on Japanese drug advertising will require Forest to localize its
marketing approach. Drug companies are permitted to provide educational advertising about
medical conditions. Companies cannot engage in the pull strategy that U.S. advertisers employ
because they are prohibited from naming specific products. Forest will have to couple awareness
campaigns with targeted sales efforts aimed at medical service providers. It may not make sense
for Forest to employ expensive television media campaigns but rather to redirect its advertising
spend. Other drug companies have capitalized on corporate health programs to increase product
awareness. Due to the structure of Japan’s healthcare system, direct to consumer, mass-market
advertising is not effective (Akira, 2003). This may require a larger investment in distribution
and sales channels to achieve geographic reach and critical mass.
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Conclusion
Market entry into Japan places Forest Labs in front of an excellent opportunity to expand its
global reach in a developed nation, with a stable political regime and substantial infrastructure.
Forest must balance the positive factors endowments against the legacy of traditional practices
that continue to constrain FDI in Japan. Costly worker entitlements, an aging population, fiscal
and monetary policy as well as the potential political shake up of a new Prime Minister are all
watch factors for Forest Labs in this market.
Infrastructure and foreign market entry
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References
Akira, S. (2003) Pharma goes direct in Japan. The McKinsey Quarterly. 00475394 Issue 2.
Retrieved June 10, 2006 from Business Source Premier Online Database.
Black, W.K. (2004). The dango tango: Why corruption blocks real reform in Japan.
Business Ethics Quarterly. 14 (4). Retrieved June 5, 2006 from Business Source
Premier online database.
Chase, R.B., Jacobs, F.R. and Aquilano, N.J (2006). Operations management for competitive
advantage 11th ed. McGraw-Hill Irwin. Boston, MA.
Collinson, S., Kato, H., Yoshihara, H. (2005). Technology strategy revealed: patterns and
influences of patent-licensing behaviour in Japanese firms. International Journal of
Technology Vol. 30, Nos ¾. Retreived June 10, 2006 from Business Source Premier
Online Database.
(2005) Japan at a glance: 2006-07. Country Report November 2005. The Economist Intelligence
Unit Limited. Retrieved July 26, 2006 from Business Source Premier Online Database.
Friedman, T. L. (2004). The other side of outsourcing. Retrieved from
http://polaris.umuc.edu/~acreed/AMBA606-Toolbox2/themesAV/Week11av.htm
Griffin, R.W., & Putsay, M.W. (2003). Political Risk. In R.R. Griffin & M.W. Putsay,
International business: A managerial perspective (pp. 72-82). New Jersey: Prentice-Hall.
Hill, C.W.L. (2007). International business with Global Resource CD, Power Web and World
Map (6th ed.). New York: McGraw Hill
International Monetary Fund (July, 2006). Japan: selected issues. IMF Country Report No.
06/276 Retrieved July 29, 2006 from IMF.org
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Country Commerce (2005). Human resources Japan. The Economist Intelligence Unit
Limited. 2005, p80-88, 9p, 2 charts; (AN 18369128)
Jubek, J. (2006). How Japan sank the U.S. market. Jubek’s Journal, MSN Money. Retrieved
July 29, 2006 from
http://articles.moneycentral.msn.com/Investing/JubaksJournal/HowJapanSankThe
U.S. market.aspx. (March, 2006). Japanese government to reduce drug prices. Manufacturing
Chemist, 77 (3) p12. Retrieved June 4, 2006 from Business Source Premier Online
Database.
Mintzburg, H. (2004). The fall and rise of strategic planning. In J. Kurtzman, G. Rifkin &
V. Griffith, MBA in a Box, practical ideas from the best brains in business
(pp.119-133). New York: Crown Business. (2006).
Investment overview. Japan Country Review, p69, 7p; (AN 19653242). Retrieved July 25, 2006
from Business Source Premier Online Database. (2006).
Politics. Country Profile. Japan, 2006, p4-4, 1/3p; (AN 19989287) Retrieved July 25, 2006 from
Business Source Premier Online Database.
OECD (September, 1998) Competition policy and intellectual property rights. Retrieved, June
15, 2006 from
http://www.oecd.org/searchResult/0,2665,en_2649_201185_1_1_1_1_1,00.html
Solomon, Howard (2006). Chairman’s message. Forest Labs.com Retrieved July 14 from
http://ir.frx.com/phoenix.zhtml?c=83198&p=irol-chairmanMessage
Sullivan, J. (1999) What is infrastructure. In Sullivan, J., Exploring international business
environments (pp. 475-506). Boston, MA: Pearson Custom Publishing.
Infrastructure and foreign market entry
Yoshikazu, I. (May, 2005). Seven good reasons to sue in Japan. Managing Intellectual
Property. 09605002 Issue 149. Retrieved from Business Source Premier Online
Database June 3, 2006.
World Bank (2006) Doing business explore topics. Retrieved July 25, 2006 from
http://www.doingbusiness.org/ExploreTopics/HiringFiringWorkers/
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The Impact of Social Infrastructure on Entering the Japanese Market
Sonya Kinch-Monyem
Executive Summary
This report was prepared to allow the board of directors at Forest Lab’s to examine the
importance of social infrastructure in analyzing the feasibility of entering Japan’s pharmaceutical
market.

Social infrastructure results from cultural values interacting with demographic
conditions, health conditions, education conditions, and labor productivity, and all
lead to economic growth (Sullivan, 1999).

Group membership and position impact of all factors in Japan’s social infrastructure,
and Confucian ideology shapes personal and business systems like keiretsu.

Japan’s population is both declining and ageing and this may lead to a decrease in
GDP, decreasing the patient base and employee pool, and increasing in operating
costs.

Mental illness may be considered shameful to groups, and this stigma means patients
are less likely to report it and physician’s may be reluctant diagnose and treat it.

The use of push communications strategy is mandated by regulations and the
distribution system; this will require a large number of MR’s and an established
distribution channel.
In the overall analysis, Japan presents a higher risk due to its demographic and cultural issues
that may prevent its economic growth. The current political tension between Japan an N. Korea
may impact the immigration trend of its largest group of immigrants, Korean’s. If the workforce
and the population decrease and those suffering from depression either do not seek help or are
not diagnosed, the long term sustainability of Forest entering the market with Lexapro® is
questionable.
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Introduction
In analyzing Japan, as a possible market for Forest Laboratories to enter, Global Edge
Consultants recognizes the importance of understanding the infrastructure of that nation. This
report to Forest Labs Board of Directors is for the purpose of examining the impact of the
Japanese social infrastructure on entry into their pharmaceutical market. Social infrastructure is
“soft” infrastructure such as health, education, and welfare that result from governmental policies
that the culture and relationships have created (Sullivan, 1999). These factors create the labor
force and the resulting business environment that Forest will have to operate in, and will shape
the strategic role the firm must take in order to market Lexapro® in Japan. If Japan is to be the
market of choice we must understand not only the infrastructure, but also it’s effect on their
overall strategy, supply chain management, marketing and R&D, and standards and regulatory
issues.
Social Structure
In order to understand Japan’s social infrastructure, it is first necessary to understand the
basics of how Japan’s society is organized, or its social structure. Cultural norms and value
systems directly impact a countries social structure. These norms and value systems are a result
of the interaction between religion, political and economic philosophy, and education. In Japan
the group is the primary social unit, and an individual’s social status comes from the position
they hold within the group (Hill, 2007). The importance of the group and loyalty to the group is
reinforced by Confucian ideology, valuing loyalty, reciprocal behavior, and honesty, which has
been the foundation of the business ethics system operating there.
As a result of the importance of group status, the work ethic of the Japanese people is
linked towards constant improvement for the group or company and therefore by default the
Infrastructure and foreign market entry
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improvement of self (Hill, 2007). In speaking about the close relationship between individuals
and companies, Hill (2007) stated, “This found expression in the widespread diffusion of selfmanaging work teams within Japanese companies (e.g., among manufacturing, marketing, and
R&D), and the cooperation between a company and its suppliers on issues such as design,
quality control, and inventory reduction” (p. 95). In the previous reports on trade barriers and
entry strategies we discussed the role of Keiretsu (corporate conglomerate) in the Japanese
market. This is a result of the strong group loyalty that has traditionally been instilled in the
Japanese people. For years the U.S. and Europe protested this practice as an unfair advantage and
Japan was trying to downplay it as a trade barrier, but now it appears as though many new
companies are being reassembled from previously dismantled Keiretsu companies as a cost
cutting measure (WebJapan, 2005). Forest’s ability to manage its supply chain will be greatly
impacted by Keiretsu and the complex distribution system that exists. These are also some of the
key factors that make entrance to the pharmaceutical market in Japan a challenging one and
hiring locals may help to overcome this.
Demographics
Understanding Japan’s demographics is essential to understanding their social
infrastructure. The most recent information from the CIA World Fact Book (2006) indicates that,
20% of Japan’s population is aged 65 or over and overall the population has declined 0.02% in
2005. They have a very low fertility rate of 1.25 children per woman, declining for the second
year in a row (Reuters, 2006). Chief Cabinet Secretary Shinzo Abe contended, “The trend
towards having fewer children will have grave impact on the economy and society as it slows
economic growth, increases the burden for social security and taxes, and reduces the vitality of
regional society” (Reuters, ¶. 6). Presently the GDP per capita is $30,039 and total health
Infrastructure and foreign market entry
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spending was 7.9 percent of the GDP (WHO, 2006). A decrease in population traditionally
points towards a decrease in GDP. If unchecked, Forest may face an eventual decline in Japans
potential employee pool, and the heavier burden on the diminishing population may decrease
government healthcare expenditures, meaning more stringent approval requirements and lower
levels of reimbursement. With a graying society as a pro for market entry Forest will need a
strategy in place to overcome the long-term impact a shrinking population will have on the
human capital.
Education
Sullivan (1999) asserted “Educational attainment is the most important social
infrastructure indicator, since it is most closely tied to labor productivity and GDP growth” (p.
496). Japan has a literacy rate of 99 percent. This is largely due to their 6-3-3-4 system that has
9 years of Gimukyoiku (free compulsory education), comprised of 6 years of Shogakko
(elementary school) and 3 years of Chugakko (junior high school), and attendance in Koko (high
school) is 96 percent nationwide and 46 percent go on to Daigaku (university) (MEXT, 2006).
School reinforces Japanese traditions such as respect for society and emphasizing the importance
of the group over that of the individual, and it is a prerequisite for success in business and society
(CountryStudies, n.d.).
As discussed in the report Japan’s non-tariff trade barriers, Forest must account for the
fact that as the population declines the labor market will continue to tighten and attracting
educated qualified employees will become more competitive and therefore more costly.
Additionally, Japanese women typically leave the workforce to raise their children and don’t
return until they enter school, and may leave again to care for aging parents. As of 2002, there
were 48,000 more female pharmacists than male, and the question is what impact would a
Infrastructure and foreign market entry
23
shrinking population and maternal and family leaves of absence have on Japan’s pharmaceutical
industry? With the average pharmaceutical company in Japan having 600 to 1000 MR’s
(medical representatives), that they normally recruit straight out of college, Forest must be aware
that a Greenfield entry strategy will present a myriad of staffing challenges and greatly increase
costs (JETRO, 1998).
Health
We have previously established that Japan’s current health care system controls pricing
and reimbursement, and that the graying population, with a life expectancy of 82 years, presents
an opportunity for Forest. In the Joint Venture report it was determined that there are a very
limited amount of drugs on the Japanese market to treat depression. What may be of greater
importance is the social stigma that is attached to mental disorders in Japanese culture.
Traditionally in Japan, mental illness of any type is considered the result of supernatural
contamination or a shameful condition of weakness and is still considered Haji, a form of social
shame (Lehavot, 2001). For this reason, both the individual and the family or group may not seek
medical attention in illnesses such as depression, feeling it brings shame and weakness on the
entire group. Also, as result, physicians may be reluctant to diagnose milder forms of mental
illness such as depression so as not to stigmatize the patient and their family/group. So while a
graying population and high stress lifestyle may provide a growing base of patients suffering
from depression, those patients may not materialize for Forest as individuals strive to protect
their group’s social status rather than their own mental health.
Marketing
The ramifications that the cultural perceptions of mental illness will have on the
marketing strategy will need to be considered. Push communications strategy is required as they
Infrastructure and foreign market entry
24
are not selling to the masses but rather on an individual basis as is facilitated by the MR’s
educating the consumer, the physicians and treatment centers. While pharmaceutical advertising
and marketing is strictly regulated in Japan, Forest must recognize that with the mental illness
stigma in place, approaching the masses could be counterproductive or damaging. The network
of MR’s to distributors and wholesalers makes for a long distribution channel and Hill (2007)
stated, “Using direct selling to push a product through many layers of a distribution channel can
be expensive” (p. 597). For this reason Forest must consider a market entry method that will
facilitate access to an established network of distributors and MR’s.
Conclusion
Japan is a country that is deeply seeped in culture and Forest’s board of executives needs
to understand that the social infrastructure would impact almost every aspect of entry and
operation in that pharmaceutical market. The importance of group membership impacts the
education, work ethic, health issues, and the manner in which business is conducted such as
keiretsu and the complex marketing and distribution system. This same group loyalty prohibits
many from shaming the group by wearing the stigma of mental illness, and thus avoiding
treatment. Examining the social infrastructure has also brought to light the fact that the declining
population indicates three things; a declining GDP, a decreasing potential client base, and the
increased cost of competing for qualified employees in a smaller employee pool (Hill, 2007).
Because Japan has traditionally maintained a closed society with a largely homogenous
population, depending on a political response to increase immigration to offset the decline in
population may not be realistic. Jung argued, “the Japanese national character, including national
pride, national identity and perceptions toward foreigners, intervene, thus making for a difficult
transition from a closed society to an open multicultural society” (as cited in Nomiya, 2004 p. 4).
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The Ministry of Justice (MOJ) indicated that Koreans currently comprise 30.8 percent of
registered foreign nationals while the Chinese represent 24.7 percent, the two largest immigrant
groups (MOJ, 2006). Tension between Japan, N. Korea, and China, resulting from the current N.
Korean missile crisis, might negatively impact this trend in immigration. Taken all together,
these factors indicate that there is a greater risk involved with Forest entering the Japanese
market than was previously indicated.
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26
References
CIA .gov. (2006). World Fact Book: Japan. Retrieved on July 26, 2006, from http://www.cia.gov
CountryStudies. (n.d.) Japan Education. Retrieved on July 27, 2006, from
http://countrystudies.us/japan/77.htm
Hill, C., (2007). International business with Global Resource CD, PowerWeb and World Map
(6th ed.). New York: McGraw Hill
JETRO. (1998, June). The Survey on Actual Conditions Regarding Access To Japan
Pharmaceuticals Retrieved on June 6, 2006, from
http://www.jetro.go.jp/en/stats/survey/access/e_iyakuhin.pdf
Lehavot, K. (2001). Mental Illness in Japan: A Need for Change. Retrieved on July 22, 2006
from, http://www.artsci.wustl.edu/~copeland/keren.html
MEXT (2006) Retrieved on July 26, 2006, from http://www.mext.go.jp/english/
MOJ. (2006). Immigration Bureau. Retrieved on July 30, 2006, from,
http://www.moj.go.jp/ENGLISH/IB/ib-01.html
Nomiya, D. (2004, November). Japan and Asia in a Globalizing World: An Introduction.
International Journal of Japanese Sociology. Retrieved on July 26, 2006, from the
ABI/Inform database.
Reuters (2006, June). Japan fertility rate hits record low in 2005. Retrieved on July 23, 2006,
from http://www.msnbc.msn.com/id/13083122/print/1/displaymode/1098
Sullivan, J. (1999) What is infrastructure. In Sullivan, J., Exploring international business
environments (pp. 475-506). Boston, MA: Pearson Custom Publishing.
WebJapan, (2005, September). Keiretsu Comeback. Trends in Japan: Web-Japan. Retrieved on
July 21, 2006, from http://web-japan.org/trends/business/bus050905.html
Infrastructure and foreign market entry
WHO. (2006). World Health Organization: Japan. Retrieved on July 27, 2006, from
http://www.who.int/countries/jpn/en
27
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Japan: Business and Workforce Culture
Lindsay Yacavone
Executive Summary
As Forest Laboratories continues to deliberate foreign expansion within Japan it must
keep in mind the numerous managerial and operational challenges that are likely to emerge. The
most prominent complications involve the divergence between American and Japanese culture,
work ethic, and business practices. In an effort to minimize these distinct differences and to
maximize success, Forest must recognize the fact that difficult choices and trade-offs might be
necessary. After thoroughly examining the value system, work ethic, and business practices
present within the Japanese culture, it is evident that several challenges and ethical concerns may
accompany the firm’s decision to establish an international presence within the country. The
first challenge is related to the Japanese ideal focusing on counseled decision-making. The
second challenge is related to the dissimilar values governing social relationships of the
American and Japanese cultures. Despite the rather bureaucratic tendencies that are associated
with Japan as well as the drastic differences in value systems, it is our feeling that management
has the ability to successfully navigate the medical regulatory environment, to overcome social
and communication barriers, and to formulate an effective long-term strategy that is consistent
with the future goals of the firm.
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Introduction to Business and Workforce Culture in Japan
This presentation seeks to identify the similarities and differences that exist between the
workforce culture, system of values, work ethic, and business practices of the U.S. and Japan.
After identifying these factors, Global Edge Consultants will explain the various ways in which
these factors might impede the operations of Forest Laboratories in Japan. In addition, we will
discuss the ways in which the identified factors might positively or negatively influence the
firm’s future market presence and expansion with Japan.
Forest Laboratories in Japan: Workplace Requirements and Operating Mindset
As Forest continues deliberating foreign expansion within Japan it must keep in mind the
numerous managerial and operational challenges that are likely to emerge. The most prominent
complications involve the divergence between American and Japanese culture, work ethic, and
business practices. In an effort to minimize these distinct differences and to maximize success,
Forest must recognize the fact that difficult choices and trade-offs might be necessary.
The culture and customs of Japan have a substantial impact on the ways in which
business must be conducted. For instance, Brooks (1998) explains, “when an organization sets
out to achieve its strategic objectives, thought has to be given to how resource inputs such as raw
materials, people and capital are to be best acquired and organized and the business conducted.”
By adhering to Japanese ideals, Forest will find itself in a much more powerful position within
the global pharmaceutical market.
Japan’s Value-System, Work Ethic, and Business Practices
The potential success of Forest Laboratories in the Japanese pharmaceutical market
depends largely upon the firm’s understanding of the existing relationship between the country’s
value-system, work ethic, and business practices. As we examine this subject matter, it is
Infrastructure and foreign market entry
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important to remain mindful of one critical question: In what ways does Japan’s current value
system, work ethic, and business practices facilitate or impede Forest’s potential operations in
Japan? The following is a brief overview of these three topics; however, further analysis will
take place later in the discussion.
Value-System
The key values associated with the Japanese workforce culture are ‘wa’ (harmony), ‘kao’
(face), and ‘omoiyari’ (empathy and loyalty) (Gorrill, 2004). In a business setting, 'wa' is
“reflected in the avoidance of self-assertion and individualism and the preservation of good
relationships despite differences in opinion” (Gorrill, 2004). ‘Kao’ is a sign of personal pride
and the foundation of reputation and social status. The Japanese seek to ‘save face’ by avoiding
confrontation and direct criticism unless it is absolutely necessary. It is important to keep in
mind that the embarrassment of a Japanese businessman can result in adverse business relations.
Lastly, ‘Omoiyari’ literally means, “to imagine another's feelings” (Gorrill, 2004); therefore,
success in the Japanese market will depend largely upon building a strong relationship that is
based on trust and mutual respect.
Work Ethic
The principle core values, or moral codes of conduct, upheld by the Japanese culture
include diligence, loyalty, integrity, frugality, and dedication to the group. Generally speaking,
“the majority of men (and an increasing number of women) dedicate long hours to their
company, the majority of children and parents respect the value of a hard-won education, the
majority of the elderly still believe that hard work and dedication leads to great success, and the
majority of society believes in the common good of society” (Stewart, n.d.). The most
significant difference between the workforce culture of the U.S. and that of Japan is the value
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31
that is placed upon the success of the individual versus that of the group. In general, U.S.
workers are more focused on individual achievement and success; whereas in Japan, workers are
more dedicated to the success of the group or community. It is evident that the Japanese values
that have been discussed would prove beneficial to the success of Forest’s operations; however,
Forest must ensure that the strong sense of group focus and dedication does not impede
innovation and creativity on the individual level. Forest may need to delegate addition resources
to marketing and R&D, where innovation and creativity are crucial to success.
Business Practices
EXCHANGE OF
BUSINESS CARDS

Business cannot officially begin until the exchange of
business cards or 'meishi' has been completed. It is
necessary to present business cards (which should be
printed in both English and Japanese) with both hands.
When receiving a business card from the Japanese, it should
be carefully examined and handled (Gorrill, J. R., 2004).
GIFT GIVING

In the past, the act of gift giving was considered a very
important business practice. In the current Japanese
business culture, this practice is not required, yet it is
appreciated. It is important to make sure that the gift that is
being given is not too large, otherwise it may be viewed as a
form of bribery (Gorrill, J. R., 2004).
NEGOTIATING

It is good business practice to engage in small talk before
negotiations. In general, Japanese businessmen will ask
questions regarding your education, family and social life,
but nothing that is too personal (Gorrill, J. R., 2004).
CONTRACTS

A contract does not always signify a final agreement or an
end to business. Long-term relationships are encouraged,
thus it is important to look after business partners long after
the conclusion of a deal (Gorrill, J. R., 2004).
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32
Forest Laboratories in Japan: Challenges and Ethical Concerns
After thoroughly examining the value system, work ethic, and business practices present
within the Japanese culture, it is evident that several challenges and ethical concerns may
accompany the firm’s decision to establish an international presence within the country. The
first challenge is related to the Japanese ideal focusing on counseled decision-making. For
instance, in the U.S., most businessmen prefer a one-on-one relationship where decisions can be
made rather directly and quickly. In a number of countries, such as Japan, a committee of
businessmen works to make final decisions together, with group consensus. This may prove to
be particularly frustrating for Forest management, especially if the firm is in need of rapid
decision-making within its foreign manufacturing facility, subsidiary, or joint venture project.
Although this is not a tremendous challenge, it is still something that Forest must consider.
The second challenge is related to the dissimilar values governing social relationships of
the American and Japanese cultures. For instance, Americans value independence and
individuality, while the Japanese value shared dependency and interconnectedness. These
distinct differences may lead to communication barriers and unstable relations between our U.S.based management and that of Japan. In many cases, “Western management teams are illprepared to succeed in Japan…often, drastic changes in thinking, management methods, and
personnel changes at headquarters [are] necessary to succeed in Japan, [yet] there are not many
Western companies which act on this knowledge” (Eurotechnology Japan, 2003). If Forest
chooses to establish a subsidiary, manufacturing facility, or joint venture in Japan, it must
carefully consider the negative aspects associated with communication failure that may arise
from such differing value systems.
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Forest Laboratories in Japan: Future Market Entry and Expansion
Historically, Japan has been classified as a highly bureaucratic nation with a very
intricate network of regulations, certifications, and official procedures, thus making direct
investment within the nation very complex for foreign-based firms. In addition, the drastic
differences between U.S. and Japanese value systems, work ethic, and business practices
contribute to these challenges. Nevertheless, if management is successful in navigating the
medical regulatory environment, working to overcome social and communication barriers, while
also formulating an effective long-term strategy that is consistent with the future goals of the
firm, it is very possible for the firm to achieve a large degree of sustainable success.
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34
References
Brooks, L. J. (1998, March). Doing business in foreign cultures. Canadian Centre for Ethics and
Corporate Policy. Retrieved July 25, 2006, from
http://www.ethicscentre.ca/html/rscArticlesLbmar98.html
Eurotechnology Japan K. K. (2003). Business in Japan. Retrieved July 26, 2006, from
http://www.eurotechnology.com/doing-business-in-japan/index.html.
Gorrill, J. R. (2004). A Japanese culture overview. Retrieved July 24, 2006, from
http://www.communicaid.com/japan-business-culture.asp.
Stewart, G. L. (n.d.). The dynamics of the Japanese work ethic. Keizai Koho Fellowships.
Retrieved July 25, 2006, from http://static.ncss.org/workethic.html.
Infrastructure and foreign market entry
35
Mexico: Political and Regulatory Implications
Kenneth Willis
Executive Summary
The political climate and regulatory systems of a country, which include its laws and
regulations, can either facilitate of impede a firm’s business operations in the host country.
Regime stability, the protection of private property and foreign assets as well as worker
entitlements and the regulation of products, prices, production, marketing, and research and
development are factors that must be analyzed when expanding into a foreign country. The
board of directors at Forest must realize that political environments and regulatory systems vary
greatly from market to market and must weigh all of the aforementioned factors to determine
whether to establish operations and launch Lexapro into the Mexican pharmaceutical market.
Mexico’s current political climate is somewhat unsettled because of its most recent
presidential election held on July 2, 2006, which initially ended in a technical tie. Felipe
Calderon of conservative National Action Party was eventually declared the winner. However,
Andres Manuel Lopez Obrador of the Party of the Democratic Revolution is challenging the
legitimacy and legality of the election results. In this regard, a full political risk assessment will
be conducted to determine the impact on Forest.
Mexico is transitioning from a developing country to a developed country and has the
economic and social infrastructure to support more economic growth. Through NAFTA and
other regulatory reforms, Mexico’s laws and regulations and provide sufficient protection of the
firm’s intellectual property and assets. Despite some unsettledness in the political climate and
the need to navigate the regulatory environment, Mexico is a viable option for expansion.
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36
Introduction
The stability and predictability of a nation’s political landscape and regulatory
environment affect a firm’s decision on whether to expand into foreign markets. Laws and
regulations, which are influenced by a nation’s political climate, also impact the business
operations of firms seeking opportunities from foreign expansion. Griffin & Putsay (2003)
assert, “Laws and regulations passed by any level of government can affect the viability of a
firm’s operation in the host country” (p. 72). Therefore, transitions in government and changes
in laws and regulations pose risks to organizations. Such is the case for Forest who is
considering launching Lexapro into the Mexican pharmaceutical market at a time when the
nation’s conservative and liberal parties are in disagreement over the direction of the country.
A comprehensive understanding and analysis of a nation’s laws and regulations as they
relate to business operations is required as part of the foreign expansion process. In addition, the
direction of a nation’s laws and regulations should be assessed when changes occur in the
political climate. This is important in that the degree of changes in any laws and regulations
passed by a nation could either impede or facilitate foreign business operations and has a direct
impact on a foreign firm’s strategy.
To this end, this analysis will examine the current political landscape and regulatory
environment in Mexico and relate its impact on Forest’s ability to establish successful
operations. It will also examine the different types of political risks that Forest might face as it
considers establishing operations in Mexico. In doing so, the issues of regime stability,
protection of private property and foreign assets, and worker entitlements will be discussed.
Lastly, the analysis will examine the appropriateness of Mexico’s legal structure governing
products, prices, production, marketing, and research and development (R&D).
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37
Mexico’s Political Environment
Mexico’s current political climate is somewhat unsettled as a result of its most recent
presidential election held on July 2, 2006. The unsettlement stems from the fact that its
presidential election initially ended in a technical tie, with both parties claiming victory. The
two candidates, who represent opposite political parties, Felipe Calderon of conservative
National Action Party (PAN) and Andres Manuel Lopez Obrador of the Party of the Democratic
Revolution, are in dispute over the election results. Their public dispute over elections results
has polarized the country, pitting the conservatives against the liberals. Although an official
recount declared Calderon of the PAN the winner by less than one percentage point, Lopez
Obrador is challenging the legitimacy and legality of the election. This has led supporters of
both political parties to express their frustration with the election by demonstrating in the streets
by the masses, adding to the instability of the country (Economist, 2006).
The candidates have different political ideologies regarding the direction of Mexico’s
economic growth. Calderon, the conservative candidate, is believed to support the concept of a
free market, which is also consistent with the previous regime, while Lopez Obrador is believed
to favor greater government intervention. Knowledge@Wharton (2006) reports “…Lopez
Obrador rejects the logic of leaving things entirely to the free market” (p.1). This would suggest
that Lopez Obrador, if elected president, would support the idea of increased government
intervention, which could lead to tariff, and non-tariff trade barriers, increasing the cost of
international trade. In speaking of Lopez Obrador’s political views, Whalen (2006) states,
“…the period of stability will be over” (p. 40). It is also widely reported that Lopez Obrador has
no respect for the United States or Mexico’s agreements with Washington (Whale, 2006, p. 64).
Infrastructure and foreign market entry
38
Conversely, Calderon is seen as the candidate that will continue to work toward
continuity and stability in policies to improve economic growth, and is considered a friend of the
United States. Clearly, in its expansion planning, Forest must assess their ability to establish
operations under either regime, taking into account how laws and regulations may potentially
change.
The current political climate in Mexico illustrates how different political ideologies can
impact a firm’s foreign operations and emphasizes the importance of conducting a political risk
assessment. Forest must engage in such a political risk assessment to determine any risks that
may adversely impact the value of the firm’s business activities. In this writer’s opinion, it is
clear that Lopez Obrador poses a greater threat to Forest’s ability to operate successfully in
Mexico than Calderon, based on the their political ideologies. Notwithstanding the political
climate, Forest must also consider other political stability of Mexico in terms of ownership risk,
operating risk, and transfer risk (Griffin & Putsay, 2003, p. 72).
Ownership risk involves the potential confiscation or expropriation of property. Forest
has little risk in this area, as Mexico’s regulatory environment is supportive of industry.
Ownership risk involves the degree of safety of a firm’s operations or safety of its employees
resulting from changes in laws, environmental standards, tax codes, or terrorism. Forest faces
moderate risk in this area, as a shift in political parties could impact regulations that govern a
foreign firm’s operations. Lastly, transfer risk involves the interference of a firm’s ability to
transfer funds in and out of the country. Forest faces little risk in this area, as it is widely
believed that despite the unsettled political situation, Mexico’s economy is strong, including the
value of its currency.
Infrastructure and foreign market entry
39
Through the political risk assessment, executives at Forest must weigh all of the risk
variables and determine the ultimate impact on their ability to successfully operate in Mexico
and achieve long-term profitable growth. It should be noted that while the contested election is a
nuisance, it poses little risk to Mexico’s economy. In spite of the election, the Economist
reports, “Macroeconomic stability has been achieved and maintained over several
years…because of sound monetary policy and inflation-fighting skills of an independent central
bank, Banco de Mexico” (p.1).
Regulatory Environment
In determining the impact of operations in Mexico on its business, Forest will have to
consider how Mexico’s laws and regulations will provide sufficient protection of its private
property, foreign assets, and how it will comply with worker entitlements. In this regard,
Mexico’s regulatory environment has undergone significant reform to improve its
commercial/trade treaty network; including signing the North American Free Trade Agreement
(NAFTA) and consolidating its tax treaty network (Barrett & Mercado, 2005, p. 1). As a result,
the Mexican government passed tax legislation in 2005 to decrease corporate tax rates and
amend certain sections of the tax code to attract foreign businesses. Mexico’s regulations afford
protection of assets and private property to a number of ownership structures, including firms
that are registered as a stock (Forest) or limited liability corporation. The combined affects of
NAFTA and changes to the Mexican tax code will safeguard Forest’s assets and enhance its
operations in Mexico.
Forest can be assured that its intellectual property will also be is safeguarded, as
Mexico’s laws governing intellectual property have evolved over the years to provide greater
protection. Mexico updated its patent legislation in 1991 and continues to refine its intellectual
Infrastructure and foreign market entry
40
property law so that it is aligned with the many trading agreements is has, particularly NAFTA.
The alignment has resulted in tougher penalties on those that pirate intellectual property,
streamlined registration processes, and decreased cycle times for approved patents. This bodes
well for Forest, as the use and licensing of intellectual property is key to their business model.
From a legal perspective, Forest must also consider how labor laws and worker
entitlements could potentially impact its business operations in Mexico. Mexico’s Constitution
requires that worker’s rights be protected through the nation’s Federal Labor Law (FLL), which
was codified in 1970. Transitional and temporary amendments have been made since to bring
the FLL current with the changing business landscape. The premise of the law is to prevent
abuses of workers rights, poor working conditions, and exploitation of child labor. Under the
FLL, workers are entitled to seventeen different types of benefits and protection, some of which
include standard work hours, daily overtime, worker training, protection for minors, equal pay
for equal work, mandatory profit sharing, and the right to join a union. According to the Labor
Law Journal (2001), “These provisions are often much more specific than any protection
provided to workers under the U.S. Constitution” (p. 96). Accommodating the enhanced worker
entitlements to comply with the FLL will require Forest to adapt its business operations, and may
increase the cost of doing business in Mexico.
Similarly, Forest will need to consider Mexico’s laws governing products, prices,
production, marketing, and research and development (R&D). The Ministry of the Economy of
Mexico has jurisdiction in these areas and continues to implement polices and programs to
facilitate foreign investment and sustained growth. With regard to products, pricing, and
production, the legal framework is similar to that of the U.S. because provisions in NAFTA serve
as the underlying structure.
Infrastructure and foreign market entry
41
Forest will need to reconcile the complexities of Mexico’s legal structure with NAFTA
moving forward. In addition, Forest should devote time and attention to understanding the
implications of Mexico’s Maquiladora program, which is available to legal entities formed in
Mexico. Regulated by the Ministry of the Economy of Mexico, Maquiladora programs are
assembly plants that manufacture, assemble, and process goods for foreign firms for export.
Their primary benefit to firms is the ability to reduce the cost of production because workers are
paid lower wages. Maquiladora’s are an important sector of Mexico’s economy and play a
leading role in politics. Mongelluzzo (2006) reports, “…the fastest growing sectors will be
automotive parts and components, aerospace, electronics, software, machinery, medical and
hospital instruments, pharmaceuticals and upscale consumer goods for just-in-time delivery” (p.
1). Maquiladora programs are growing in sophistication and skills; therefore, Forest must
consider them as an option in their supply chain management.
With regard to advertising and R&D, Mexico has a well-developed legal structure in
place that Forest must adhere to in order to establish operations. Mexico’s regulations and
advertising laws center on moral values and consumer protection and allows several federal
agencies jurisdiction over advertising. The agencies have the authority to issue finds and orders
for noncompliance (Arochi, Tessmann, & Galino, 2005, p. 82). Federal laws extend to radio and
television, health code, consumer protection, and codes of conduct. Forest will need to comply
with the federal laws, while ensuring that Lexapro is appropriately positioned in the
marketplace, so that consumers can perceive its value. Because Forest is primarily a licensor of
pharmaceuticals in various stages of development, how the R&D function is regulated in Mexico
is of lesser concern.
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42
Conclusion
The board of directors of Forest must be cognizant of the political landscape in Mexico
and weigh it in context with the firm’s ability to establish successful operations in Mexico
relative to risks and rewards. Mexico’s developed economic and social infrastructure, reformed
regulatory environment, expanded tax treaty and NAFTA, and potential for macroeconomic
growth make it a potential suitable location to establish operations. However, the direction of its
political environment and the amount of resources needed to successfully navigate the laws and
regulations will need to be considered.
Infrastructure and foreign market entry
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References
Arochi, R., Tessman, K.H., & Galindo, O. (2005). Advertising to children in Mexico. Young
Consumers (6), 4, 82-85.
Barrett, F. & Mercado, A. (2005). Mexico works on bringing benefits for foreign investors.
International Tax Review: Mergers & Acquisitions, 16,40-44.
Economist Intelligence Unit. (2006). Mexico Politics: acting presidential. Retrieved July 27,
2006, from http://www.viewswire.com/index.asp?
Griffin, R.W., & Putsay, M.W. (2003). Political Risk. Reserved Readings. International
business: A managerial perspective, 72-82. New Jersey: Prentice-Hall.
Knowledge@Wharton. (2006). Mexico’s split vote: what will it mean for sustainable economic
growth? Retrieved July 27, 2006, from http://[email protected].
Mongelluzzo, B. (2006). Maquiladoras rebound. Journal of Commerce, 1-3. Retrieved July 29,
2006, from http://proquest.umi.com.ezproxy.umuc.edu/pqdweb?
Posthuma, R.A., Dworkin, J.B., Torres, V., & Bustillos, D. L. (2000). Labor and employment
laws in Mexico and the US: An international comparison. Labor Law Journal, 95-111.
Whalen, C. (2006). Washington’s potential mexico problem. The International
Economy, 40-64.
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Mexico: Social Infrastructure
Tara Camp
Executive Summary
Social infrastructure is the composition of the social organization of a market and
understanding that composition is critical to Forest’s success with Lexapro in Mexico. The
board of directors must realize that social infrastructure varies greatly from market to market and
strategies related to operations and marketing must be adjusted to sustain a foreign venture.
Group values dominate Mexican social infrastructure. One of the most critical social
institutions in Mexico is the family. Nepotism is standard practice and families rely heavily on
each other for support. Similarly, Mexicans tend to be tied to their land; therefore, remain loyal
to an employer and are unlikely to move from one company to another in search of a better
career opportunity. Lastly, the country enjoys a strong Roman Catholic tradition and it is not
uncommon for the church to involve itself in the affairs of state. Forest must consider the impact
of this relationship in terms of product offerings or corporate strategy that may be at odds with
the values of the church.
Social components such as education, health, and socio-economic class are also
important considerations. The percentage of the population seeking secondary education is
steadily increasing as is access to healthcare. This means that there is an expanding skilled labor
force available to Forest and that labor force is a productive one as a result of access to adequate
healthcare. These social components also indicate that the market potential for Lexapro is
growing as the population becomes more educated and is more likely to have access to and seek
treatment. Global Edge Consultants has prepared the following report for Forest’s Board of
Directors, which shows that the social infrastructure of Mexico indicates that it is a viable market
for expansion.
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45
Introduction
Understanding the social structure of your market is critical to success, both in terms of
establishing foreign operations and product sales. Social structure refers to the social
organization of a market. The companies that maintain successful global operations understand
social differences in their markets and respond accordingly with appropriate products and
marketing strategies. As the board of directors for Forest, this understanding is critical to your
decision of whether or not to expand into Mexico with Lexapro. For example, Nestlé’s Lean
Cuisine line does well in North America and the Western European countries; however, there is
no market for the product line in other areas of the world (Hill, 2007). This is likely due to
differing attitudes and needs related to health and diet.
Theodore Levitt (Best of HBR, 2004) wrote in 1960 that organizations should view their
businesses as a “customer-satisfying process, not a goods-producing process” (p. 148). The
author argues that too many companies approach product development in the opposite way,
asking customers about their preferences for products the company designed, rather than
attempting to uncover their needs and responding with customized products.
A number of key components of Mexico’s social structure that effect both Forest’s ability
to establish successful operations and our ability to successfully market Lexapro. Those factors
with the most significant impact are discussed below.
Role of Family and Gender
Hill (2007) notes that one of the most important dimensions of social structure is the
emphasis of the individual versus the group. This is most notable in Mexico when we look at the
family unit. Mexicans generally regard family as the most important social institution. It is not
uncommon for several generations to live together and share responsibilities, and sometimes
Infrastructure and foreign market entry
46
income. This close-knit familial structure extends into the workplace as well. Hanratty (1996)
points out that certain obligations and expectations are upheld with extended family. It is
common practice that a hiring manager would look first to his or her relatives first. This accepted
nepotism must be understood and addressed by Forest if we choose to expand into Mexico and
set up local operations. If Forest can effectively manage the social values of a local workforce,
the company can avoid country of origin effects. Hill (2007) notes that many international
companies try to avoid image issues due to negative impressions of the source country by
deemphasizing the business or product’s country of origin.
Mexico has traditionally been viewed as a culture that defines men as the wage earners
and women as the homemakers and caregivers. In recent years, this has changed. Women are
increasingly entering the workforce and men are increasingly sharing domestic responsibilities.
While Mexico may still be lagging slightly behind the United States in terms of gender equality,
changing sensibilities make gender issues of little concern for Forest as they enter the Mexican
market and employ a domestic work force (Hanratty, 1996).
Work Ethic
One element of Mexico’s social structure that makes it an attractive market is the
generally low turnover rate among the workforce. Russell (1994) notes that the Mexican people
are very loyal to their families and their land. As such, they are not very mobile. This provides an
advantage to a company that wishes to utilize a domestic labor force, especially if there is an
investment of training and development involved. Forest will be able to capitalize on this level of
dedication and invest resources in training and development with less than average risk.
Infrastructure and foreign market entry
47
Education
In addition, as we reviewed in our week four paper, one of Mexico’s factor endowments
is a reasonably skilled labor force. Higher education in Mexico consists of universities,
technological colleges, and teacher training schools. According to the Encyclopedia of the
Nations, the percentage of population attending secondary schools has steadily increased above
80% since 1996 (http://www.country-data.com/cgi-bin/query/r-8772.html). Sullivan (1999)
states that education is the most important indicator of social infrastructure because it is most
closely related to growth of labor productivity.
The state of education of the population in the developed areas of Mexico indicates two
things. First, that there is a skilled local workforce available to support Forest’s operations at a
managerial level and below; and second, that there is growing market potential for Lexapro.
Wagner, Gallo, and Delva (1998) studied the issues of depression in Mexico. While their focus
was an elderly population, the authors noted that there has historically been a problem
diagnosing and treating depression in Mexico because of both a lack of understanding of mental
disorders among the population and a general fear of treatment. It would follow that attitudes
may be different among a new generation of more educated individuals. It would follow that this
new generation of more educated consumers would more readily recognize and seek treatment
for historically under-diagnosed illnesses like depression. Therefore, the future market for
Lexapro in Mexico looks promising.
Health and Socio-economic Class
Sullivan (1999) notes that analysis of the healthcare situation of a given market indicates
the level of workforce productivity. In our case, attitudes about and access to healthcare in
Mexico is also relative to the market potential of our product. In week four, we examined the
Infrastructure and foreign market entry
48
demand conditions for healthcare in Mexico. We uncovered that there is a significant demand for
medical therapies as a result of recent healthcare reforms and increased life expectancy.
Not only do these advances promote a healthy, more productive workforce, they also help
increase access to diagnostic care and medications. As we quoted in our initial discussion of
demand conditions in week four, Kermani (2006) notes, “…Mexican society has become the
largest consumers of pharmaceuticals in Latin America and the ninth largest consumers
worldwide”(p. 21).
The challenge Forest faces is in the vast disparity between the class segments of the
population. The upper and upper-middle classes, primarily Mexico’s business executives and
government officials account for 10% of the population. The middle class accounts for
approximately 30%. These are the managers, office workers, and other non-manual
professionals. This class enjoys healthcare system, retirement, and disability benefits. The final
segment, the largest portion of the population at 60%, is the industrial workers and peasants
(Hanratty, 1996). In terms of product marketing, this indicates that a large segment of the
population may not have a favorable level of awareness or positive image toward the treatment
of depression. Further, this means that Forest will be competing against other pharmaceutical
manufacturers for the smaller percentage of educated professionals and skilled labor.
Religion
Mexico is a predominantly Roman Catholic nation. Unlike the U.S. policy of separation
of church and state, the Catholic Church plays a role in government affairs in Mexico, although
the Church hierarchy says their involvement is limited to maintaining an “interest” in political
affairs (Hanratty, 1996). According to the Encyclopedia of the Nations; however, in the 1980’s
clergy were very active in condemning fraud in the voting system and threatened to refuse to
Infrastructure and foreign market entry
49
celebrate masses until the votes of the election at the time were recounted. In a highly religious
society, this threat holds great power (http://www.country-data.com/cgi-bin/query/r-8772.html).
This example illustrates that the church has power over government operations. It seems
that they have exercised that power to prevent corruption, but there is always a possibility that
power could be used to further a religious agenda. Forest is currently looking to expand into
Mexico with an anti-depressant product; however, we must consider how religious values could
impact the acceptance of additional product lines into the market. For example, Forest produces a
vaginal insertion product called Cervidil® (dinoprostone, 10 mg) which is used in patients near
term to induce labor. This product is generally used to induce women with problem pregnancies
(http://www.frx.com/products/cervidil.aspx). The church could take a negative stance on this
type of therapy and create problems for Forest with the government.
Conclusion
Understanding and leveraging the social infrastructure of Mexico is very important for
Forest to be successful in this market. Pharmaceutical products almost exclusively are sold with
a push strategy, meaning the focus is on direct selling as opposed to advertising (Hill, 2007). In
order to be successful, a pharmaceutical sales force must know the customer, just as the company
must know the market.
As we reviewed in week 9, free trade agreements and proximity make Mexico an ideal
candidate for foreign expansion. The country’ social structure also provides some benefits. While
it is clear that Mexico is still developing, social indicators are moving in a positive direction and
the country, as a whole, seems eager to see continued growth and foreign investment. For
example, Alejandro Elizondo, vice president of the Mexican Investment Board, noted that
Mexico’s social assets must be further developed in order to become a significant advantage of
Infrastructure and foreign market entry
50
the market. He explains that when business and investment pours into a market, it is important to
remember that people come with it. This means there will be a need to improve the social
infrastructure by building better schools, better hospitals, and increasing the availability of
recreational activities (Russell, 1994). If Forest pays close attention to the social infrastructure in
Mexico as it relates to both operations and product marketing, this could prove to be a strong
market for the Lexapro brand.
Infrastructure and foreign market entry
51
References
Cervidil. Forest Laboratories, Inc. Retrieved on July 22, 2006 from
http://www.frx.com/products/cervidil.aspx
Friedman, T. L. (2004). The other side of outsourcing. Retrieved on July 22, 2006 from
http://polaris.umuc.edu/~acreed/AMBA606-Toolbox2/themesAV/Week11av.htm
Hanratty, D. M. (1996). Mexico: Country studies. Library of Congress country Studies.
Retrieved on July 24, 2006 from http://lcweb2.loc.gov/cgi-bin/ query /r?frd/ cstdy:
@field(DOCID+mx0006)
Hauser, M. (2005). Global business practice and the need for clarity of concept and effective
use of time. UMUC video clip. Practical insights on Week 11. Learning from Maurice
Hladik, Executive-in-Residence.
Hill, C.W.L. (2007). International business (6th ed.). New York: McGraw Hill.
Kermani, F. (2006, February). The emerging but complex Mexican market. Pharmaceutical
Technology Europe, 20 – 22.
Levitt, T. (2004). Marketing myopia. Reprinted in the Best of HBR, 1960. Harvard Business
Review, 82(7/8). Retrieved on July 22, 2006 from the Business Source Premier database.
Mexico. Encyclopedia of the Nations. Retrieved on July 24, 2006 from
http://www.country-data.com/cgi-bin/query/r-8772.html
Russell, J. (1994). Comparatively speaking…how countries compete. Business Mexico, 4(1/2),
35-36. Retrieved on July 20, 2006 from the ABI/INFORM global database.
Sullivan, J. (1999) What is infrastructure. In Sullivan, J., Exploring international business
Environments, 475-506. Boston, MA: Pearson Custom Publishing.
Wagner, F. A., Gallo, J. J., & Delva, J. (1998). Depression in late life: A hidden public health
Infrastructure and foreign market entry
problem for Mexico. Retrieved on May 17, 2006 from
http://www.scielosp.org/pdf/spm/v41n3/41n3a06.pdf
52
Infrastructure and foreign market entry
53
Mexico: Business and Workforce Culture
Amy M. Marks
Executive Summary
There are many considerations prior to making a decision to expand Forest’s business
into Mexico.

Cultural Differences


Importance and focus on family

Incorporation of family in corporate sponsored events

Acknowledgement of family and personal life prior to business discussion
Need to blend both the Mexican and American culture to establish a well-balanced
and diversified organization

Labor Relations

Trade Unions in Mexico are very widespread and very political

It is highly advised to work with a union rather than operated as a non-unionized
organization

They tend to be corrupt and often times represent employees without their
knowledge


A decentralized approach would be most fitting for Forest at this time
Staffing Approach


Ethnocentric Approach

Key management roles filled by local citizens

Beneficial to Forest for knowledge of local and business culture
Polycentric Approach
Infrastructure and foreign market entry

54
Local nationals to fill subsidiary positions, but U.S. citizens continue to run
operations in Forest headquarters

This approach is only an option if Forest chooses a decentralized structure for this
venture


Geocentric Approach

To hire based on qualification rather than nationality

Most ideal approach for Forest, as it focuses on the successful operations
Infrastructure

Social refers to the human resources aspect

Economic mainly focuses on the country provided services
Infrastructure and foreign market entry
55
Introduction
As the Board of Directors for Forest Laboratories (Forest), you are all well aware that
there are many variations in the workforce expectation and business culture throughout the
world. As Forest moves forward in developing a tactic to grow business globally, these things
must be considered. There are and will be many differences which will cause potential barriers
to the successfulness of our operations in Mexico. These hindrances need to be clearly identified
and addressed prior to any expansion decision, as they may impede Forest’s operations. Most
obviously, the cultural differences need to be considered. Thorough research and evaluation
must be performed on the manner in which Mexican business is conducted as well as how
differing cultural aspects in their personal lives play into the way they do business. A second
consideration is the labor relations established in Mexico. Unlike the United States unions, the
Mexican unions can cause potential obstructions with employment. This is a serious concern
that Forest needs to address prior to any expansion movements.
Business and Workforce Culture in Mexico: Cultural Differences
According to the Passport to Mexican Business Culture website (n.d.) “culture is what is
shared among people in a country or region. Their values, customs, traditions, and attitudes
shape the way they live and conduct business”. This is important to keep in mind when
expanding into a foreign market, such as Mexico. As the Board of Directors, this issue is one to
take great consideration of. If Forest, as a company as well as its individual employees, does not
have a solid true understanding of these differences, it will be detrimental.
The main cultural difference in Mexico is the emphasis put on family and groups. This is
traditionally not seen in the American workplace and must be addressed when employing
Mexican citizens. “In comparison with the US, Mexico’s culture is more group or family
Infrastructure and foreign market entry
56
oriented.” By incorporating these aspects into an employee’s daily routine, Forest will help build
strong foundations that will help guarantee dedicated employees. This can be achieved fairly
easily on the part of Forest by expanding on a tradition that already exists in the U.S.; company
sponsored events. By expanding typical corporate events to include the families of employees
would help demonstrate how Forest understands the importance of family to their employees.
Hosting an annual company picnic, for example, where the company invites all employees and
family to attend, offering lunch and entertainment both for adults and children is a fantastic way
to show appreciation and establish team building. Along the same lines, it is often customary for
employees in Mexico to start off a business meeting with a quick discussion of one’s family and
life (Adler, 2001). This is important to note, as generally speaking most American businessmen
tend to be very pointed with the subject matter at hand. When a meeting is called it is expected
that the topics identified will be addressed as quickly as possible and usually side notes and
discussions are considered rude and inappropriate. However, the opposite is true in Mexico: It is
a sign of interest and consideration that shows an employer cares about workers as people, not
just employees. Forest managers would need to be cognizant of this and make an effort to
display that interest, as it will not come naturally due to the environment managers are used to
working in.
Of course the most beneficial approach for Forest is to utilize the best aspects of each
culture to form a solid diversified organization. This can be achieved by establishing a true
understanding of the cultural aspect of the Mexican lifestyle and finding equilibrium.
Business and Workforce Culture in Mexico: Labor Relations
Labor relations are another area in which Forest needs to fully understand and appreciate
prior to making a move into the Mexican marketplace. As with the United States, Mexico has a
Infrastructure and foreign market entry
57
strong labor union presence however; its operation is significantly different, potentially causing
Forest roadblock in successfully managing employee operations.
Trade unions are highly visible and very politically powerful; they are often times linked
to the Mexican government. Although there are decisions that an organization needs to make
with regards to participating, many have argued the risks of running a non-unionized
organization can be detrimental to the success of that operation. “…it is neither viable nor
intelligent to try and run a non-unionized operation.” (Anonymous, 1996) This is not advised
due to the governmental influences however for the same reason it is difficult to overcome these
hurdles as an employer. The Confederacion de Trabajadores de Mexico (CTM) is the most
influential of the labor federations and benefits tremendously on the development and success of
trade unions (Greer, 1996). Greer goes on to say that it is often the case where Mexican workers
do not feel they are being represented despite what the union is communicating to the company.
The lesson here ties back to cultural differences, and Forest needs to be sure they understand that
just because it is called a union does not necessarily mean it functions in the same manner as
those unions in the U.S.
As Hill (2007) points out there are two approaches to labor relations when moving into a
foreign market: centralized or decentralized. Historically, decentralized management was most
common as it was thought to be too difficult to manage labor relations in different environments
under one centralized office. However, due to the high costs many firms are moving towards a
centralized approach. Forest would benefit financial utilizing the centralized approach, although
I do not believe that would be most beneficial to the over success of the organization. As a firm
new to the Mexican market and having various workforce and cultural differences looming, it
would be a better decision for Forest to operate using a decentralized style. If, in a few years,
Infrastructure and foreign market entry
58
this proves to be successful, it can and probably should be reconsidered to determine if the
organization as a whole has gained enough knowledge and understanding of this culture to work
towards a centralized system.
Business and Workforce Culture in Mexico: Staffing Approach
Hill (2007) identifies three types of staffing policies: the ethnocentric approach, the
polycentric approach, and the geocentric approach. The ethnocentric approach is one that in
which a firm would fill all key management positions with citizens of that country. This
approach could be beneficial to Forest, as having local citizens employed in such positions could
help the organization with a better overall understanding of how to be successful in Mexico. The
polycentric approach employs nationals to fill key positions in subsidiaries but maintains original
structure in the firm’s headquarters. This could be helpful to Forest only if they chose to follow
a decentralized structure, otherwise the key roles would be positioned in the headquarters
location of New York State. Lastly, the geocentric approach focuses more on qualifications of
an employee in all key positions rather than limit employment based on nationality. Ideally, this
approach would be most fitting for Forest, as the benefits speak for themselves in hiring some
Mexican nationals but also putting the operation of the organization first and foremost.
Business and Workforce Culture in Mexico: Infrastructure
According to Sullivan (1999), there are two distinct types of infrastructure: social and
economic. Social infrastructure refers to aspects of human resources that determine countries
suitability for productivity. Whereas economic infrastructure mainly concentrates on services
the country provides. (Sullivan, 1999) When relating business and workforce culture to
infrastructure it is apparent that type of infrastructure is soft. Human resource issues relate to the
social infrastructure of a county as identified above. Therefore, as the Board of Directors for
Infrastructure and foreign market entry
59
Forest, it is important to take all the information above into serious consideration prior to making
a decision to expand into Mexico. Although the position of this paper focuses primarily on the
social infrastructure of Mexico the economic aspect should not be overlooked. Sullivan (1999)
tells us that without a solid and functioning economic infrastructure, the social tasks will not
perform well.
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60
References
Adler, I.(Nov, 2001). Cultural hybrid. Business Mexico. Retrieved on July 26, 2006 from
http://proquest.umi.com.ezproxy.umuc.edu/pqdweb?index=7&did=90134262&SrchMode
=1&sid=7&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1154
014472&clientId=8724&cfc=1
Anonymous. (1996). Moving to Mexico. International Journal of Physical Distribution
& Logistics Management. Retrieved on July 27, 2006 from
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de=1&sid=7&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=11
54042116&clientId=8724
Greer, C.R. & Stephens, G.K. (1996). Employee relations issues for U.S. companies in
Mexico. California Management Review. Retrieved on July 26, 2006 from
http://proquest.umi.com.ezproxy.umuc.edu/pqdweb?index=3&did=9659947&SrchMode
=1&sid=9&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1153
959208&clientId=8724
Hill, C.W.L. (2007). International business (6th ed.). New York: McGraw Hill.
Passport to Mexican Business Culture (n.d.) Retrieved on July 25, 2006 from
http://www.global-recruiters.com/passport/passport.htm#Why
Sullivan, J. (1999) What is infrastructure. In Sullivan, J., Exploring international business
environments (pp. 475-506). Boston, MA: Pearson