Balancing Philanthropy and Profit in Third World Nations

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Abstract

The need to expand marketing operations and hence boost profit margin for business firms is often affected by a myriad of macro and micro factors. When the market is integrated, the process of globalization may affect it either positively or negatively. Globalization is usually characterized by remarkable harmonization of marketing activities regardless of the location of a business organization.

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Furthermore, business units can take advantage of the good tidings brought about by the process of globalization in order to increase the volume of business. As such, businesses are struggling to reach the new global market that is filled with opportunities. Cardinal Health Company is a case example of one of the business firms which is venturing into the global market. It is currently aiming at registering its presence in global commerce to improve its level of operation from the present status. This is particularly important for Cardinal Health Company especially if it has to remain relevant and competitive in the dynamic market.

The Cardinal Health Company is based in America and it engages itself in the provision of medical products to a wide variety of clients ranging from clinical laboratories to pharmacies and hospitals (Cardinal Health, 2010). The company also engages in the provision of high-technology medical devices such as those devices used in respiratory care and in intensive care units. The rationale behind Cardinal Health’s expansion and its subsequent successes to date is the fact that access to the needed drugs is fundamental to the proper performance of any nation’s health care system (Govindaraj, Reich & Cohen, 2000).

Currently, Cardinal Health boasts of having a consumer base in over 100 countries. Considering the fact that developing nations rely on foreign pharmaceutical companies for up to 93% of their medical projects, Cardinal Health should focus on tapping into this market (Cultural Survival Quarterly, 2010).

This essay paper gives an in-depth analysis of the business activities in which Cardinal Health Company is involved in as well as some of the potential challenges which this company is likely to encounter even as it pursues to stretch its marketing horizons. The hallmark of this analysis will investigate the successful act of striking equilibrium between the need to make a profit as the key business goal and engaging in philanthropic activities by a business firm (Govindaraj, Reich & Cohen, 2000).

Background, Problem and Purpose

Cardinal Health Company engages in the supply of pharmaceutical products. One of the major deterrents to Cardinal Health even as it targets the developing world market is the bare fact that most governments in the developing countries are often not in the right position of vetting the standards of pharmaceutical products which find their way into their countries and areas of jurisdiction.

There seems to be laxity coupled with a lack of stringent legislative measures which can sufficiently control the influx of low-quality pharmaceutical products. Consequently, there are widespread cases of counterfeit drugs and poor manufacturing procedures as well as the presence of unregulated prescriptions and a platform for informal drug sales (Govindaraj, Reich & Cohen, 2000). The third world population equally embraces low-quality health products which are usually cheap and also affordable to most users. This is especially an issue for cardinal Health since the company subscribes to Advamed’s code of Ethics.

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The latter clearly stipulates elaborate ethical business activities which the member companies are allowed to engage in (Advamed, 2010). Cardinal Health is a member of this code of ethics and may not at any given time break the statutes as provided for by Advamed. As a result, this poses a landmark challenge to Cardinal Health Company which is aiming at diversifying its business activities through geographical expansion.

The purpose which the Healthcare sector serves cannot be overemphasized because it speaks out by itself. In addition, it is imperative to acknowledge that Health care is a capital-intensive industry and companies that deal with health care such as Cardinal Health invest millions to billions of dollars in the sector. The different shareholders of the company expect to be rewarded for their investments by having their capital restored and profits made. It is particularly cumbersome to achieve some of these economic targets in developing countries due to the fact political instability is rife in most third-world countries.

Widespread political wrangles cannot in this case allow a cohesive business environment and this has led to foreign multinational companies quitting or adjusting their business operations accordingly. Most nations especially in Africa are plagued by civil wars, political unrest and an occasional coup. While some of these phenomena do diffuse amicably with relatively limited losses, some lead to wanton destruction and therefore untold losses for pharmaceutical investments.

Furthermore, another major issue that could affect any attempts by Cardinal Health in its attempts at penetrating developing nations is patent laws. In the United States and other developed nations, strict patent laws exist that ensure that pharmaceutical companies are able to recoup the huge amounts of money that they used in research to come up with new drugs (Balasubramaniam, 2000).

Patents ensure that companies are protected from having their products copied and sold off at relatively cheaper prices by other companies. This encourages pharmaceutical companies to engage in research for better and more effective drugs. On the same note, it also ensures that high-quality drugs are delivered to the consumers. This protection is a mirage in most countries in the developing world. Pharmaceutical companies in the developing world find themselves in such a fix they find it difficult to profitably run their businesses.

Under the banner of the “Essential Drugs Programme” (EDP) started by the WHO to ensure that developing nations were capable of meeting the need for essential drugs by their population, developing nations have a significant growth in generic drug markets at the expense of the patented drugs (Balasubramaniam, 2000). Cardinal Health would therefore be unprotected from these generic drugs which would significantly decrease its market

Additionally, most third-world country governments are infamous for their high levels of corruption. A report by CSQ reveals that some corrupt governments give contacts to companies who sell banned or restricted drugs to the population. These companies also disregard safety standards and regulations and in most cases recommend the wrong dosages to people so as to increase their sales (Cultural Survival Quarterly 2010). Most third-world politicians and planners also come up with policies that do not take into consideration the long-term well-being of the people. In such an environment, Cardinal Health may be forced to offer bribes to corrupt officials so as to obtain contracts in the country. This will be against the ethical conduct for which the company is well known.

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From this report, it is clear that Cardinal Health will face some significant obstacles in its efforts to provide pharmaceuticals and medical supplies to third-world countries. Most of these problems are a result of poor governance and lack of stability in most developing countries. For Cardinal Health to reach into the new global market that is filled with opportunities, ways of mitigating or eliminating these problems will have to be identified and subsequently implemented.

Proposal, plan and Schedule

As the Cardinal Health Company plans to expand its operations to third world countries, there are quite a number of business proposals which this pharmaceutical company can successfully incorporate into its plan. Objective observations of Cardinal Health’s scale of operations in the pharmaceutical industry against the international trade of medical products reveal salient issues which are worth noting. There are salient issues that pertain to multinational companies which cannot be ignored at all especially if business success is to be achieved. The key proposals can vary but they ultimately achieve the same business goal.

To begin with, it is important to note that Cardinal Health Company does not only engage in pure profit-making activities. It is also instrumental in social corporate responsibility by regularly giving back to the society it serves. Cardinal Health Inc. contributes to philanthropic activities within various nations in the world. Its global donations to local and international charity organizations since the launch of its foundation have exceeded 100 million U.S dollars.

These forms of support focus on programs aimed at providing basic healthcare, individuals’ well-being, and Corporate Social Responsibility networks that promote the relevance of its employees (Cardinal Health 2010). The company works only in liaison with approved humanitarian relief organizations carefully selected to meet specific criteria of operations similar to the one it has. The organizations include IRS-approved charities that have a proven record of accountability and management of their legal and financial liabilities (Cardinal Health 2010).

The company supports its employees and partners in their efforts to improve the conditions of people adversely affected by disasters. Further, Cardinal Health Company employees are encouraged to contribute to key relief aid organizations while the company itself donates a 50% match of the amount already contributed. There are proposals that can indeed help the Cardinal Health Company to strategically place itself in the international business profile even as it implements its business growth plan.

In the face of corruption, Cardinal Health has the leeway to use its own partners while distributing donations to its target groups and individuals otherwise deemed as needy by its observers. This way, Cardinal Health Inc. establishes a lasting rapport with its target clients in the developing world because it deals with hospitals and pharmacies, providing the necessary pharmaceutical and medical supplies.

The effect of strong federal laws and regulations on the business restricts its affiliations to organizations worthy of its approval. Hence, Cardinal Health Inc. needs to pursue alliances with leading pharmacies in the world through its charitable organizations. The alliance should further strategize through social networks affiliated with predisposes the company’s product to be appealing to a wider class of people as the company serves distinct market segments. This affiliation can be extended to other potential partners like government agencies that deal with pharmaceutical products. Moreover, these partners may prove to be potential sources of funding incentives to Cardinal Health Company.

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A case example of an agency which Cardinal Health Inc. can partner with is the Advanced Market Commitment (ACM). This agency has a long-term commitment to the improvement of pharmaceutical vaccine supply to poor countries in order to reduce the high mortality rate of children. Due to the prevailing impediments in its mission which includes the high cost of vaccines and unavailability of the same in poor nations, the Advanced Market Commitment has so far opted to work hand in hand with the pharmaceutical companies in order to facilitate the supply of these important drugs.

As a prerequisite in its mission initiative, the Advanced Market Commitment has opted to give financial incentives to pharmaceutical companies so that they can supply cheap and affordable pharmaceutical products to the dying millions in third-world countries (Anon. 2010). The donor partners who work with AMC have committed substantial funds for this low-cost drug initiative. These funds are then channeled to vaccine manufacturers with the aim of lowering the overall cost of drugs. In so doing, pharmaceutical companies like Cardinal Health Inc. have the opportunity to secure potential markets both for the present and future pharmaceutical markets.

In March 2010, the development donor partners of Advanced Market Commitment applauded the first contract between ACM and the pharmaceutical companies of supplying affordable pneumococcal vaccines to third world countries. Among these donor partners was the Bill & Melinda Gates Foundation. One of the pharmaceutical companies under this long-term supply agreement is GlaxoSmithKline (GSK).

Due to the financial incentives given to these companies by the Advanced Market Commitment, the pneumococcal vaccines will be accessible in the third world market towards the end of this year at a minimal price compared to the actual market cost in the developed countries. This will be in accordance with the initial strategic mission of the Advance Market Commitment. Indeed, the Cardinal Health Company can equally benefit from this financial incentive from Advanced Market Commitment.

In mid of 2009, the donor partners of AMC namely the Gates Foundation, Italian, UK, Norway governments and the Russian Federation made a huge funding pledge amounting to 1.5 billion U.S dollars which would help boost the Advanced Market Commitment plan of giving financial incentives to pneumococcal vaccine manufacturing companies. Additional funding of slightly over 1 billion U.S dollars was channeled by GAVI. This will help lower the mean cost of these pneumococcal vaccines for a considerable length of time.

These financial incentives to vaccine manufacturers have gone a long way in assisting the latter in facilitating research work, capacity building and training of its employees as well as expansion of vaccine manufacturing plants. Hence, there is a need for developing countries to have access to safe vaccines which are also effective when used.

The funding mechanism for the Advance Market Commitment is carried out by donor partners who involve governments, federations and foundations. In this funding, Italy, United Kingdom, the Russian Federation, Norway, Canada and the Bill & Melinda Foundation have already set aside a total of 1.5 billion U.S dollars which is aimed at expediting the process of acquiring cheap and effective pneumococcal vaccines to poor countries. On a similar trend, the Cardinal Health Company has the opportunity of enjoying the benefits of financial incentives offered by Advanced Market Commitment. The chart below shows the supply agreement between AMC and pharmaceutical companies.

AMC Supply Agreement

In attempts to establish significant markets in war-torn areas and regions susceptible to civil unrest because of unstable governments, the company should broker peace negotiations through aid campaigns by its strategic partners such as AmeriCares, Map International and Oxfam. This way, it may scale down the volatility of civil wars in the third world, especially in Africa and Latin America. Ultimately, this policy may offer the best chance to serve and sell in the third world.

In extending its philanthropy program to third-world countries, it is important for Cardinal Health Company to strike a clear balance between its charitable activities and the profit being generated. Consumers have in the recent past increased their expectations on how many business firms can plow back to society. A survey carried out by McKinsey Global (McKinsey Quarterly 2008) revealed a lot on the significance of corporate social responsibility towards business advancement.

Most respondents who were inquired during the survey unanimously agreed that philanthropy is a vital strategy for companies that want to demarcate their presence in the market. However, most business enterprises may not be utilizing the noble role played by social philanthropy for the fear of losing focus and hence negatively affecting the profit margin.

According to the McKinsey Global Survey (McKinsey Quarterly 2008), it is possible to strike a balance between philanthropic activities and broader business goals through adopting a different like collaborating with other like-minded organizations as well as maintaining charitable activities which are in line with the operations of the company. This will boost the reputation and more so the brand name of the company. Several answered questions lie beneath the rationale of giving back to society.

However, the survey indicated that achieving social goals is part and parcel of business success because the social factor is directly proportional to the profit margin any given company can make (Le Goff 2005). Therefore, Cardinal Health Inc. can still venture into the world market with such considerations put into mind. The graph below illustrates the employee-driven strategy (McKinsey Quarterly 2008) which can be used to create a balance between charity and profit margin within an organization and which is equally

Employee-driven philanthropy

Similarly, the chart below illustrates the surveys which were carried out on different Chief Executive Officers.

Somewhat relevant

Staffing and Budget

The company has a team of dedicated workers who go beyond the call of duty during emergencies. This group is comprised of the company’s partners and regular workers. They devote extra effort and time to the company’s services that promptly meet the needs of patients in their respective locations (Cohen, Govindaraj & Reich, 2000). There are two main divisions within Cardinal Health Inc. that deals with the staffing needs and budgetary requirements of the organization.

The pharmaceutical segment has the responsibility of bridging the gap between the pharmaceutical companies and the lower category of users who are the final consumers of the products. These include the hospitals and individual clinical officers. This segment generated a total of 87.9 billion U.S dollars in 2009 in terms of income while a profit margin of 1.04 billion U.S dollars was obtained as profit (Annual Reports 2009). Moreover, this division of the Cardinal Health Company employs a total of 11,500 working forces that forms part of the formidable staff of the organization.

On the other hand, the medical section realized a total of 8.2 billion U.S dollars in terms of income while at the same time generating a profit of 384 million U.S dollars. This segment employs a total of 15,500 workers who are responsible for undertaking the Company’s business interests to the next level (Annual Reports 2009). In order to extend its operations to third world countries, the Cardinal Health Company can as well seek grants especially from the U.S government which can then be used to subsidize the services offered (U.S Department of Health &Human Services 2010).

In summing up this paper, it can be observed that it is indeed a demanding task to strike a balance between philanthropy and profit-making in an organization. However, proper planning and strategic delivery of social goals can go a long way in making sure that the Cardinal Health Company achieves its plan of geographically expanding to third-world countries.

Reference List

AdvaMed (2010). Code of Ethics. Web.

Annual Reports (2009). Essential Focus. Web.

Anon. (2010). About Us. Web.

Balasubramaniam, K (2000). A Healthy Drug Policy for the Third World. Web.

Cardinal Health (2010). About Cardinal Health. Web.

Culture Survival Quarterly (2010). Medicinal Drugs in the Third World. Cultural Survival Quarterly Issue: 5:4. Web.

Govindaraj, G., Reich, M. R. and Cohen, C. J. (2000). World Bank Pharmaceuticals. Health, Nutrition and Population (HNP). Web.

Le Goff P (2005). The Canadian and American Health care systems: Funding and Effectiveness. Web.

McKinsey Quarterly (2008).The state of corporate philanthropy: A McKinsey Global Survey. Web.

U.S Department of Health &Human Services (2010). News Release. Web.

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