"Not an Option to Even Consider:" Contending With the Pressures to Compromise (A)

School of Business, Simmons University, Boston, MA

Ajith sighed as he hung up the phone. Once again, the health ministry had failed to move his registration application forward so that his company, Laurent Pharmaceuticals, could begin selling prescription medications in the Southeast Asian state of Kamaria. Though this new delay wasn't entirely unexpected, Ajith, a seasoned pharmaceutical executive, was still disappointed. Ajith's primary goal ever since arriving in Kamaria a year earlier to serve as director of operations and chief resident representative overseeing Laurent's in-country businesses, had been to obtain these registrations. Laurent's existing businesses included personal care products and over-the-counter medications. Laurent hoped to enter the pharmaceutical and vaccine markets but without the registrations, Ajith knew that the firm could not enter the market, restricting the firm's ability to grow the small but promising Kamarian business.

His disappointment was not only due to the delays themselves, but also to the reasons for them. The products that Laurent Pharmaceuticals intended to introduce specifically addressed growing major health concerns in the country. Ajith suspected that if his application could get past the first gatekeeper and into the hands of the health ministry's review committees, he could make a compelling case for introducing Laurent's products into Kamaria and dramatically improving the health of its citizens. Yet other companies appeared to be getting priority over Laurent. "What was quite amazing to us at the time was that companies who came with files six months later or three months later, were getting registrations extremely quickly," Ajith recalled. How were his competitors achieving these results? "They were basically bribing the gatekeeper and their files quickly ended up in the review committees, and they then probably met up with the review committee people and starting doing the same," Ajith realized. "They were getting quite a few registrations, so what we finally saw was that all sorts of registrations were coming through for our competitors and none for us."

Every day, the pressures on Ajith increased. Both his commitment to uphold the official policy of the company, which stated that compromise was unacceptable, and his strong sense of personal integritya source of professional and personal pride for Ajithwere being tested. Externally, the competitive pressures were mounting as other companies' mangers compromised and obtained registrations. Internally, Ajith's Laurent managers were becoming impatient with the obstacles to progress and were beginning to think that policy or no policy, compromise was the only way forward. Ajith disagreed, but he knew that he needed to articulate a better way.

To make matters worse, further difficulties had arisen in the over-the-counter market that Ajith also oversaw in Kamaria. Laurent Pharmaceuticals produced a widely used over-the-counter painkiller under the brand name Theradil. At first, this product was quite successful in Kamaria, achieving over 50% market share by 2008.But Ajith had recently begun to notice that Theradil's market share was eroding. Cheap, locally produced imitation products of inferior quality had begun to pop up in the pain relief market, decreasing Laurent's market share considerably. In investigating further, Ajith discovered that the factories producing the fake Theradil were run by former generals of the Kamarian army, who had been awarded these factories as rewards for their years of service and as spoils of war. Any attempt to shut them down could further impact Laurent Pharmaceuticals' ability to operate in Kamaria, and could potentially pose personal dangers for Ajith, due to the powerful nature of the individuals who ran these operations.

Ajith remained calm in the face of these challenges, reflecting that "these were standard issues that go with the terrain of operations in this part of the world, and especially the developing nations." Still, he acknowledged, "the situation after one year of operations in Kamaria was grim."How could he obtain registrations for the pharmaceutical products without compromising his integrity? And what strategies could he use to combat the growing problem of imitation Theradil without impacting Laurent's ability to do business in Kamaria?

Historical context

Kamaria is a small, single-party state located in Southeast Asia. A former European colony, Kamaria suffered through decades of brutal civil war in the 20th century and finally achieved independence in 1987. Though it remained a closed market through the end of 1998, Kamaria began to open its markets to the outside world the following year, establishing a small private sector dominated by small- and medium-sized businesses and encouraging foreign-owned enterprises to set up local operations. By 2008, Kamaria was recognized as a fast-growing and export-driven emerging economy. The government of Kamaria was seeking to use their new status on the world stage to negotiate favorable trade agreements with the UK, the United States, and other developed nations to ensure the continued success of their exports. As in other developing countries, however, corruption was a problem that impaired Kamaria's ability to attract significant foreign direct investment, in spite of the attractiveness of its rapidly growing markets and manufacturing sector. Another issue facing Kamaria in trade agreements was the general lack of control they exerted over intellectual property, which was a concern to Western companies across a diverse set of industries, from entertainment and electronics to consumer goods and pharmaceuticals.

Laurent Pharmaceuticals was originally founded in the late 18th century as the first compounding pharmacies were beginning to appear throughout Europe. During the 19th century, Jean-Philippe Laurent inherited the firm and under his leadership, the company expanded into industrial manufacturing of chemical agents and early forms of pharmaceutical products. Though business suffered during the turbulent first half of the 20th century, Laurent recovered and became one of the first manufacturers of antibiotics, developing into one of the leading manufacturers of antibiotics and vaccines in the world by the 1970s. Today, they have evolved into a multinational, research-driven pharmaceutical and chemical company with operations in over 40 countries, including the United States, the UK, the EU, Australia, and dozens of emerging and developing nations. Producing and selling prescription medications for a variety of indications, as well as over the counter medications and personal care products, Laurent Pharmaceuticals is now one of the largest pharmaceutical companies in the world, earning $42 billion in revenues worldwide in 2008.

Growing a business

In 1988 Ajith began his career in marketing, working for a large multinational firm in his home region of South Asia. After moving to Laurent Pharmaceuticals in 2000, he accepted several international posts, which took him to the Middle East and East Africa. Working in these challenging markets honed his talent for management of in-country operations in developing countries, attracting the attention of Laurent's regional management is Southeast Asia.

In 2008, Ajith was recruited to serve as director of operations for Laurent's business in Kamaria.

Initially, Ajith managed Laurent's operations in Kamaria from Singapore, introducing over-the-counter medications and personal care products. In a short period of time, Laurent achieved a 50% market share in the lucrative pain relief market in Kamaria on the strength of its huge Theradil brand, an over-the-counter analgesic, creating a small but profitable (approximately $60,000 USD annually) operation. The next step in growing Laurent's Kamarian business was to enter the pharmaceutical market. To facilitate this new venture, Ajith was tasked with starting up a local office in Kamaria:

Basically, when I went down to Kamaria, my first task, besides setting up the office, was to try and meet with the ministry of health officials and all the registration files for all the vaccines that we needed to register and all the antibiotics we needed to register and accelerate the registration process.

By about mid-2006, we had set up operations and we had started building a small team. We had probably about 15 to 20 medical delegates on board now, who were mostly qualified doctorsmedical doctorswho were on the team as medical delegates. The pay that they were getting in government hospitals was pretty low, and I think that they saw this as an attractive option for them.

At the time, doctors in the state-run hospitals in Kamaria could expect to make approximately $30 USD per month. Ajith noted, "I think they were all finding it quite difficult to exist with that income." Doctors who became medical delegates to international pharmaceutical companies like Laurent could expect to start at $70-$100 USD per month, and could potentially earn as much as $200 a month if they were successful. "They had to make a call at that time," Ajith said, "and make a decision as to what they wanted to do." Doctors could not work for the hospitals and the pharmaceutical companies at the same time, "but they had the option of moving out anytime they wanted back into being doctors, and some of them saw this as a short-term measure to collect some cash."

By the time Laurent Pharmaceuticals entered the Kamarian market, there were already approximately 30 competitors operating in Kamaria, including companies based in the United States, Europe, South Korea, and India, along with many local firms. "The Korean and Indian companies all had similar portfolios in terms of products to what we had. There were also Kamarian competitors, but very much in the lower-end product categories, like over-the- counter medicines, not in the high end vaccine and antibiotics businesses." Though competition was healthy, the market was booming.

In part, this rapidly growing market was fueled by growing health concerns in Kamaria, as Ajith explains:

There were two major health issues in Kamaria at the time. The first one was Hepatitis B. Hepatitis B in Kamaria has almost a 10% carrier rate, which means 1 in 10 Kamarians are prone to Hepatitis B. And the second big issue that was rising rapidly in Kamaria was resistance to antibiotics. Antibiotic resistance had now reached close to 18%, which meant that lots of frontline antibiotics were no longer effective amongst close to 20% of Kamaria's population. So most of the drugs that we were trying to register were high end vaccines for Hepatitis B and also the better antibiotics that we had in our portfolio, because Laurent has always been a world leader in both vaccines and in antibiotics and continues that leadership today. So, we knew the need was there, we knew the consumer problem was there, and we also knew that our products were significantly superior in delivering the remedial action compared to the drugs that we were getting registered.

Pharmacists, Ajith noted, were a key population that Laurent needed to reach in order to make any progress against antibiotic resistance. "I don't think too many Kamarian pharmacists know what it is to deliver a prescription and not under-deliver a prescription, and also educate consumers of the need for giving the full antibiotic dose as opposed to under-dosing themselves."

It would not be possible for Ajith to undertake such a marketing campaign himself until he was able to convince the Kamarian government to issue registrations for Laurent Pharmaceuticals products:

We were quite perturbed because it had taken close to one year that we'd been there, and we were struggling to get anywhere with registrations. It was becoming more and more clear that if we needed registrations that we had to be ready to compromise, and that the Korean companies were compromising, and the Indian companies were compromising, and some of the other European companies were compromising.

Compromising was not an acceptable solution for Ajith, however:

It was extremely clear to me that that was not an option for us to even consider. That was a very clear integrated policy in the company and we practiced that in almost every market where we operated. However, I must mention that if left up to some of the managers, they would also compromise. Now for example, at the time I was running Kamaria for Laurent, the guy who was running [a major competitor] was compromising. So having an integrity principle is one thing, but deciding whether to practice it or not, depending on the pressure you are getting from the company, is another thing. I can tell you that I was getting quite a lot of pressure from my regional head and from the global operations people because they were seeing very little for progress in growing the Kamaria business.

At the same time, problems were brewing in the previously robust over-the-counter business that Laurent Pharmaceuticals was operating in Kamaria.

We realized that sales of our brand of pain reliever, Theradil, were beginning to crash down rapidly. We had probably about 50% of the market in Kamaria for pain relievers, and we were suddenly seeing a massive decline from a 50-55% share down to about a 30% share, and when we began to investigate this further, we found that there were close to 12 brands of fake imitation Theradil in our market.

Testing of samples of the fake Theradil products revealed that consumers who purchased these brands were being seriously underdosedat best, the imitation pain relievers contained 72% of the minimum standard dose of the active ingredient, with the most inferior substitutes containing just 36% of the standard dose.

To address the imitation Theradil problem, Ajith hired a law firm to investigate these issues and made a disquieting discovery.

Almost all the 11 fake Theradils that were available in different parts of Kamaria were manufactured by factories formerly owned by the Kamarian government which were run by the then-generals of the Kamarian army. These generals had been given a pharmaceutical factory each, as compensation or recognition of their great contribution to the success of the Kamarian war at the time. In different parts of Kamaria, each of these guys had their little companies and it doesn't cost much to get a printer and develop your own artwork ripping off the competition.

With their government connections, Ajith knew that it would be difficult to put pressure on these factory owners to shut down their operations, particularly since, as Ajith observes, they made no attempt to hide what they were doing.

Most of these companies were putting their factory addresses at the bottom of the pack. The detectives didn't have to do too much detection to figure out what was happening, because this was a reasonably flagrant violation. Anyway, they probably knew that they were sort of above the law at the time and could get away with it, so they probably didn't worry too much about that.

By the time Ajith uncovered the extent of the Theradil problem, eight submissions of registration paperwork to the ministry of health for Laurent antibiotics and vaccines had now been missed. "We were now having a sales decline in our base business, and not having the opportunity to grow the potential business, and that was very much the situation we were in," Ajith recalled.

Developing relationships

In the course of launching the office in Kamaria in 2008, Ajith had recruited a dedicated local management team. This team oversaw the staff of doctors and supervised all other aspects of day-to-day operations of Laurent in Kamaria. Ajith's commitment to accountability and transparency in his organization were inspirational to his staff. Determined to fit in with his staff, Ajith began learning the Kamarian language, and only stopped conducting meetings in Kamarian when his staff expressed their desire to practice their English with him instead. He also plied his team for their expertise on a wide range of issues involving local customs and traditions, gaining insight into the tightly-knit culture of Kamaria. This expertise helped shape the vision Ajith was forming of what Laurent could offer the Kamarian consumer once the pharmaceutical registrations were approved.

At the same time, Ajith had been working closely with the French embassy in Kamaria as Laurent's operations were ramping up. In recent discussions with embassy officials, Ajith observed that the upcoming trade negotiations were a frequent topic of speculation, with strong opinions on all sides of the debate. Some embassy officials felt that the government of Kamaria was simply too corrupt to be considered a good free trade partner. Others saw great potential in Kamaria, and supported Europe's participation in free trade agreements with Kamaria, but worried about the weak protections in Kamaria for intellectual properly. Still others advocated for totally open trade, arguing that once Kamaria entered the global market, market forces would require the government to behave differently or risk losing their lucrative export position.

Taking action

Ajith sat at his desk and pondered his options. He did not want to compromise, but unless he took some action, he knew that his management would give up on Kamaria and he would have to leave. In fact, some members of his legal team went so far as to suggest that it would be in his best interest to leave Kamaria, due to concerns about the reaction from the powerful factory owners about the investigations into the production of imitation Theradil. But Ajith was not willing to give up quite so easily. He knew that Laurent's products, particularly the vaccines and antibiotics, could make a real, long-term difference in addressing the growing health concerns for the people of Kamaria, and this motivated him to pursue a creative solution. Surely there was a path forward that did not involve either compromising or turning a blind eye to illegal competition, and Ajith felt that he was up to the challenge.

At least 3 Recommendations to solve key problems were insightful and demonstrated as reasonable solutions through the application of Change Management concepts?

Provide an Action Plan to demonstrate how the recommendations will be actioned.