YunnanBaiyao云南白药战略

ContentsIntroductionIssueidentificationProblemanalysisExternal5forcemodelPESTInternalVRIOVerticalintegrationDiversificationRecommendationsIntroduction1999-20031902-19551956-1998VerticalintegrationResearch&developmentreformsOrganizationalrestructuringEstablishnewstrategiesQuzhanghuanpanaceaState-owncompanyIPOin1993Integratetoagroupin1996FiststeptomoderncompanyProblemidentificationShould

YB

diversification

into

health

care

products

such

as

toothpaste?Should

YB

cooperate

with

3M

in

the

area

of

transdermal

products

and

internalization?Was

it

feasible

to

pursue

both?Threat

of

new

entrants（low）:Economic

of

scaleCapital

inputsHigh

standard

of

quality

controlIndustry

rivalry(strong):Foreign

companies

occupy

more

than

half

of

the

market

share

Threat

of

substitute

products(weak):Healthcare

products,

medical

instrument,limited

substitution

Bargain

power

of

suppliers（low）:decentralized

upriver

marketHigh

competition,resources

is

not

scarceBargaining

power

of

buyers（high）:Hospitals,

wholesalersRelative

high

bargaining

power

due

to

low

differentiation

productsChinese

pharmacy

Industry

analysisPorter’s

five

forces

modelPEST

AnalysisFactorsPoliticalNew

standard

and

medicine

supervision

network

established

by

the

governmentEconomicChinajoinedWTOin

2011Giantforeign

company

enterChinaIncreasing

raw

material

costRising

demand

especially

in

the

rural

market

SocialStrongaffinitytoherbalmedicineIncreasing

conscious

about

environment

protectionTechWesternpharmaceuticalmethodologyintroducedintotheherbalmedicinesystemR&D

ability

is

weakMarket

development

skillsResourceandCapabilitiesAnalysisResourcesCapabilitiesEvaluatingValue-chainapproachVRIOFrameworkResourceclassificationFirmResourceclassificationTangibleresources

°financialadvantage:listedonAsharemarket,broughtmuchneededfunds(1993)°corporategovernance:listingcompanyhavestandardizedoperation°formulaandmanufacturingprocesseswaslistedasatopnationalsecretandplacedundernationalprotectionIntangibleresource

°longhistoryandgoodreputation°R&D(2000)°bioactivityfingerprintstandards(herb-plantingbase)ValueChainSupportActivitiesFirminfrastructure:listingcompany(1993);

Margin

HRM:

compensationpointsystemTechnologydevelopment:R&DsystemProcurement:herb-plantingbase,InboundlogisticsqualityassurancesystemOperationsERPsystem&productionordersystem

MarketingCompetitionbasedonquality;unifiedmanagementandbrandingSaleVerticalintegrationindistribution;e-commercePrimaryActivitiesVRIOAnalysisValueThefirm’sresourceandcapabilitiesenabletocompeteinnichemarket.State-owncompanycouldnotrespondtotherapidlychangingmarket.resourceweremainlyallocatedtoproduction.RarityformulaandmanufacturingprocessesareprotectedSeveraldiversifiedandvertically-integratedpharmaceuticalcompaniesappeared.(1999)IimitabilityTheuniqueformulaishardtoimitate.Aweakcompetitionposition;diversificationcompetitionenvironmentanddecliningdrugpricesOrganizationThereforms,restructurings,productandmarketdiversification.Conclusion:YBsuccessesinthenichemarket,whiletheindustryconcentrationforceditfacingtheriskofbeingeliminatedthroughcompetition.VerticalIntegrationTypeofverticalintegrationForward-verticalintegration: IntegratedtheYunnanPharmaceuticalTradingCo.andoperationsofthedrugstorechain.Backward–verticalintegration:Integratedintoherbalplanting(Wudingplantingbase)RawmaterialProductionR&DDistribution(operationofdrugstore)MarketingandsalesIntegrationIntegrationofherbalresourcesBuilditsreputationoverseasthroughtheexportofgoodqualityherbsSecurethesupplyofherbalresourcestosupportitsowngrowthBuilditsinfluencepowerandmakeprofitfromtheless-matureherbalmedicineindustryAqualityassurancesystem&bioactivityfingerprintstandards:markettheherbalresources,ensuringconsistentquality,controlledqualityandcompliancewiththestandardsHelpfarmersplantherbsinquantityProtecttherareherbresourceIntegrationVerticalintegrationintodistributionGetbiggershareofthevaluechainandstrongercontroloverthechannelIndustrializationofR&DGainastrongpositioninherbalmedicineR&DItcanhelpYunanBaiyaotoconsolidateitsleadingpositionintheindustryEstablishedasociety-wideandopenR&Dsystemandmaximallyusingthesociety-wideresourcesandimplementinga“brain-borrowing”strategyChallengesofVerticalIntegrationManagingstrategicallydifferentbusinessTohelpfarmersplantherbsandestablishqualityassurancesystemisadifferentbusiness.BaiYaohaslittleexperienceinthedistribution.Theadministrativecostmayincrease.CompoundingriskThequalityoftheherbresourcemayinfluenttheproductionandeventhewholevaluechain.DiversificationRelatedDiversificationThetraditionalherbalmedicineofYunnanBaiyaomakesupmostofthefirmrevenue;

OtherproductslikeBaiyaoBandage,BaiyaoPlasterandetc.sharethevaluechainandsomecommonattributeswiththeprincipalMotivesforDiversificationEconomiesofScopeSharingResourcesandCapabilitiesRiskDiversificationReducingRiskofbeingeliminatedEconomiesfromInternationalizingTransactionsReducedTransactionCostEnhanceMarketPowerExtensionofBrandEquity--TangibleResources:wildherbalresources,manufacturingfacilities,herbplantingbase,distributionchannel,--IntangibleResources:corporatestrategy,intellectualproperty,brandimage,R&D,newmedicinecertificate,GMP,GLP,GAP--Capabilities:salesnetworkfordomesticmarketing,internationalproductdevelopmentwiththehelpof3M--GeneralManagement:OverallmanagementoffiveU’s--ProductDiversification:Cooperationwith3Montransdermalproduct,developmentoftoothpasteandotherhealthcareproductMarketDiversification:FirstinternationalizeYBproductbyenteringintoSoutheastAsiancountrieswithlowculturaldistanceandentrybarriers,targetinglargemarketsinEUandtheUS--IndustryIntegration:verticalintegrationforresourceconcentration--OrganizationRestructuringandManagementReform:managementandresourcecostreduction,workmotivationandproductionflexibility--EconomiesofScope:sharingandtransferringresourcesandcapabilities--EnterpriseSystemReform:transformationfromstate-ownedcompanytoamarket-orientedonethroughintegration--FunctionalDistribution;

Specializethefunctionalstructureintodifferentsubsidiaries--ProductandmarketDiversification:extendYB’slifecycleandstabilizeprofitPorter’s3essentialtestsTheAttractivenessTest--Tocompetewithmultinationalshomeandabroad,YBdevelopsitsaffiliatesofhealthcareproducts--Toexpandtotheinternationalpharmaceuticalproductmarket,YBcooperateswith3MtogaineasieraccesstotheUSandbrandsynergyforotherYBproductsTheCostofEntryTest--ThetoothpasteproductsharesomevaluechainactivitieswithYB’soriginalones,fulfillingeconomiesofscope--Toachieveinternationalization,YBisexpectedtocooperatewithinternationalexpertisetoreducethecostonregistrationandtimeonregulationprocessTheBetter-offTest--Enteringintothetoothpasteproductisabletosharecommonresources,suchasbrandreputationandbuildcapabilities,suchasgeneralmanagementskillsbyYB,whiletargetingthehigher-ends--Cooperationwith3MwillmakeYBafastentryintotheinternationalmarketwithtransdermal

productasthefirststepSustainingDiversificationAdvantageRarityofdiversification--Alliancewith3Mtoshareresourcesandcapabilities:1)3M’stransdermalsolutions2)Proposedproductprovenfrombothside3)Relyon3M’sR&D,lesscostandtimeconsuming4)3M’sglobalpresence,reputationandexpertiseinregistrationandregulationprocess--Developmentofaffiliatedhealthcareproduct

1)Sharesomeofthecommonvaluechain2)Brandextensionforgreaterproductionandmarketingefficiency

3)CapabilitydevelopmentSustainingDiversificationAdvantageImitabilityofDiversification--Allywith3Mtoachieveproductandmarketdiversification,whilehealthcareproductdevelopmentisanotheroptionforbrandextensionandcompetitionwithindustryleaderswithinthecountry;--Bothareadoptedtoraisecorecompetencywithproductdiversification,brandsynergyandincreasemarketsharehomeandabroad;--StrategicalliancebybackwardandforwardintegrationtoenhanceoverallcompetitivenessRecommendationProduction

DiversificationProductlinediversificationonitsownMaximizethevalueofitsbrandandgrowin