Advantages and Disadvantages of Adopting the International Convergence and International Diversity Perspectives

The global pharmaceutical sector is more responsible for any development, production as well as driving change through R&D measures. Pfizer & GlaxoSmithKline is one of the largest pharmaceuticals globally are making an effort towards ensuring their sales income and growth is increased both in long and short-term perspective. For that reason, the essay will evaluate the pros and cons of adopting the international convergence and international diversity viewpoint about management of the demand for global and need for local responsive by GlaxoSmithKline’s and Pfizer pharmaceutical firms. Based on the evaluation of the two approaches a recommendation will be made to GlaxoSmithKline top management on the best view to adopt to attain its key performance indicators. Furthermore, growth strategies such as strategic alliances, mergers and acquisition merits and demerits will be assessed about improving firm’s profitability and finally a general conclusion.

Question One: Firm Competitiveness in the Global Pharmaceutical Industry

A global convergence accounting perception involves the key goal of creating a single set of accounting standards which will be used globally (Bushman and Smith 2014, p.9). As a result, there are several advantages and disadvantages of adopting the strategy. Firstly, it increases flexibility to the firm especially in the management of the demand for the global synergy. Because global convergence is more based on principles, they have the key objective of attaining a reasonable valuation with several ways to accomplish a given task. In this case, the pharmaceutical sector will have the freedom to adjust to any standards that suit their particular situation. Easy adopting the situation result in financial statements which are easy to read and understood by investors. For the case of Pfizer’s pharmaceutical, the firm clearly illustrates how it generated an income of $52.8 from its sales. The sales income was adjusted as per accounting system, a breakdown for different shareholders to understand. An adjusted cost of sales amounting to $22.0 represented as a percentage of revenues. There is also a breakdown of R& D expenses amounting to $7.8 as per balance sheet (Pfizer’s 2016 Annual Report, p.3). This indicates that the firm has improved its growth as for the last one year. In the scenario of GlaxoSmithKline’s, an outline of the firms operating profit amounting to £2.6bn, that has enabled it to determine most of the total shares and cash flow within its accounting systems (GlaxoSmithKline’s 2016 Annual Report, p.2).

However, global convergence perspective has some disadvantages, for example, it is prone to manipulation. A firm can use the method they want to adopt. Hence, lead to a financial statement showing only the desired results that can cause profit manipulation. Pfizer firm in their financial report is mostly focused on profit the firm has made. Every revenue per product is indicated, for instance, in the vaccine there is an income of $ 6071, oncology $4563 and lastly inflammation and immunology treatment income of $3928 (Pfizer’s 2016 Annual Report, p.5). Similar to GlaxoSmithKline, sales and total marketing share earnings are the principal focus of their financial income. Furthermore, the business indicates some reasons for why they have made such changes in their financial statements and kind of strategies and standard measures they have adopted in their operations. It suggests that a stricter regulation should be executed as a way of ensuring firms values their statements in the same fashion (GlaxoSmithKline’s 2016 Annual Report, p.2).

The international diversity strategy involves critical decisions being made by the top management of the firm concerning its operations. The international diversity approach allows a firm to collect more information from the different section, at the same time different methods of valuing the assets and liabilities are taken into consideration. The financial statements for the firm are prepared in different patterns to cater to the needs of various stakeholders as disclosures are made regarding the company economic status. Pfizer’s 2016 annual report explains its financial resources as well as where the firm obtains its income. Accordingly, Pfizer yearly performance regarding profit is higher compared to other years. Therefore, Pfizer’s key performance indicators are as follows; the firm has acquired various medicines and vaccines and earned different incomes, for example, in Lipitor services it has obtained a profit of $ 1,758 million while in the pneumococcal 13-valent conjugate vaccine. Moreover, it has received an income of $ 3,718 million. Accordingly, it is easier to derive financial ratios of the firm in the different aspect of its transaction (Ball 2015, p.23). On the other hand, general diversity approach has demerits since it is not easier to compare the value one company’s proceeds with another firm. Instead, firms are only able to indicate their performance and how they are earning different shares in other markets.

GlaxoSmithKline’s focuses more on developing and establishing new medicines in the respiratory, immune-inflammation, with more research in other areas. They require more funds to execute such plans. Additionally, they need more sales income, and for that reason, the company top management should adopt a global convergence approach to report on how it is performing in the pharmaceutical business. The global convergence is IFRS measures that elaborate on the financial statement of the firm, how it is earning its income, and also expenses incurred in the process (The Financial Times, n.d). Unlike the non-IFRS measures that are only used for planning and also reporting of different financial statements of the firm (Johnson and Scholes 2012, p.11). The global convergence will give GlaxoSmith Kline management an opportunity to compare the financial statement of other firms operating in the similar sector. The approach enables the top control to identify the key performance indicators and how to achieve them both in long and short-term perspective. By adopting the strategy, GlaxoSmithKline will be able to reduce any cost associated with the international requirement for the firm’s business. This is because the firm will be able to reconcile most of its transaction effectively about accounting standards. Adopting convergence approach gives the firm an opportunity to increase more investments from other foreign or global markets at a cheaper price (Pearce and Robinson 2011, p.2). At the same time, it creates more confidence in the minds of foreign investors in a way that they are being assured that their capital statements are complying with the globally accepted accounting standards (Ernst, Halevy, Monier, and Sarrazin 2013, p.1).

Question Two: Strategic Alliances, M&A’s, and Pfizer’s R&D Strategies

As a comparison to other industry, the international pharmaceutical industry is mostly dependent on its research and expansion segment. Other pharmaceutical firms invest almost 20 per cent and a majority of their income in resource and development measures. Due to the steady loss of patent protection, the innovation of new drugs is of crucial importance for most of the pharmaceutical firms. Income losses as a result of patent expiry are most vital as can be seen with Pfizer Lipitor from the year 2012 to 2016. For that reason, Pfizer’s Lipitor has various strategic options for growth concerning their key competencies and dynamic capabilities. The strategic alliance option is one of them. Mostly, it involves two or more business forming an alliance with the fundamental aim of pursuing a business objective. Pfizer Lipitor working together with IBM health Watson with the primary purpose of engaging in immune-oncology research is considered to be the more strategic approach. By working together, there are some advantages that the two firms can experience; firstly it leverages affirms the assets that they do not own (Hitt 2010, p.11). Through strategic alliances, the pharmaceutical industry will be able to have to control some of the significant assets another firm might be possessing. Both firm’s marketers and developers are likely to combine their efforts with a critical target of maximizing revenues (Foster and Browne 2016, p.5).

On the other hand, strategic alliances have disadvantages to the pharmaceutical sector in general. A strategic partnership in most instances comes with inherent challenges. Possibly, foremost of these disadvantages is the idea that one of the individuals that handle the business is required to rely on another person (Choi, Frost, and Meek 2013, p.3). If the partnering firm has some concealed agenda, it can lead to less devotion toward the project. Consequently, it might cause some collateral damage as well as the negative performance of the alliance (Ismail, Abdou, and Annis 2011, p.94).

    Mergers and acquisition are overall terms used to refer to the consolidation of firms or assets through several forms of monetary transactions. Mergers and acquisition can involve several deals like acquisition, consolidation, tendering of products, buying of assets and management acquisitions, in both scenarios two firms are included in the process (Phelan, Ferreira, and Salvador 2012, p.2). Besides, mergers and acquisition entail divisions at a financial institution which deals with the issue of the merger as well as acquisitions.

Mergers and acquisition have some advantages to the pharmaceutical industry as it opens up some new markets for the firms involved. Immediately an organization has merged with another, and it is more likely to gain new markets share which it did not own before engaging in the process (Dye et al. 2012, p.33). Majority of firms are brand loyal, and for that reason, mergers and acquisition method enables them to maintain the high level of loyalty at the same time transforming to a new service (Mankins and Steele 2015, p.8). The loyal customer might be encouraged to test the new products and services immediately after the process of merging and acquisition has taken place, since they have more access to resources via their most ideal brand.

Mergers and acquisition have some disadvantages such as increasing the amount of debt a company has with other firms. In case, some debts are being owned by the two companies involved in merger and acquisition, they are more likely to experience an increase of the balance sheet debts (Mishra and Chandra 2010, p.11). However, not only can it be dangerous to a company, it can negatively influence the combined firm’s capability to create new credits or boron an extra fund to enlarge on its business (Fosbre, Kraft, and Fosbre 2009, p.4). The advantages and disadvantages of mergers and acquisition indicate that the business transaction should not be done hastily. Instead, a considerable thought is essential for an individual to come up with a better outcome regarding the business. A more empowered choice is needed, by assessing all of the major points with their crucial influence on the productivity of the firm (Selvam, Babu, Indhumathi, and Ebenezer 2009, p.23).

Pfizer is focused on treating most challenging and incapacitating health situation and the best approach they can adopt is implementing a strategic alliance. Thus, the firm will be able to partner and collaborate with some unique partners and then explore other opportunities that harness technology and evolving science. Besides, strategic alliance will also ensure they attain their long-term research and development objectives. For example, Pfizer’s working together with IBM health Watson with the fundamental aim of fuelling their immune-oncology research. Mostly, it focuses on fighting cancer, in which it utilizes body immune system to battle the disease. For that reason, for Pfizer to accelerate their work, they have opted to work with IBM with fundamental aim to improve on different therapies (Dyer, Kale, and Singh 2012).

To sum up, for the pharmaceutical sector to improve their profitability as well as sales income, it is critical to consider both strategic alliance, and mergers and acquisition strategies. The strategies are more beneficial towards ensuring their growth in other areas. Furthermore, for the firms to remain competitive in the global pharmaceutical sector is by focusing more on the comprehensive convergence approach since it is considered to be more flexible compared to international diversity strategies. On the other hand, the global strategy can as well be regarded as it enables the firm to plan and communicate its purpose to the intended individuals and various stakeholders.

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