Pharmacorp in Ukraine Case Study: Overview of Risks

PharmaCorp in Ukraine Case Study
Overview of risks
PharmaCorp mostly faces political and economic risks in its operations in Ukraine. Due to these issues,
sales for the company in Ukraine have gone down and it also faced 25% loss of market share.
PharmCorp in Ukraine was also facing issues on a corporate level since as an operating unit, it did not
enjoy autonomy from its PharmaCorp’s HQ in Milan so any decision that was taken in Ukraine had to be
approved by the HQ first. Due to this, any risk posed to PharmaCorp in Ukraine will affect the
PharmCorp as a whole and could affect its global reputation so any legal issues or political or economic
crises could spill over the entire company and not just a certain unit in one part of the world.
Furthermore, the political unrest in the country was also taking a toll on the economy which was making
a significant impact on currency exchange rates. The sharp devaluation of the local currency against the
Euro and the increasing inflation mentioned in more detail below led to decreases in consumer purchase
power which posed a risk on PharmaCorp as it was now difficult for customers to afford their products.
The company was also facing disturbances in its supply chain as wholesaler were struggling to make
payments to PharmaCorp.
Analysing the risks
During her 1st weeks in Kiev,
“Our best seller, Silovma, accounts for 20 percent of total sales and was available for Hryvnia 100 before
the crisis. Now, purchasing power has dropped dramatically and Silovma has become a kind of luxury
drug. Depending on the currency rate, the price was between Hryvnia 180 and 250. One pharmacist
stressed this in an amusing way, talking about “Coco Silovma”.
Risk on the salespersons future, due to the war they afraid of being attacked because of pro-Russians’
hatred for people who had a Kiev license plates on their cars.
These fears were aggravated after some distributors of PharmaCrop’s drugs in the eastern region of
Ukraine had disappeared.
And she learned that the sharp devaluation of the Ukraininan hryvnia against the euro, because they
imported its products from the RHQ in prices that were denominated in the euro. It affected local
customers because due to the crises they are unemployed, top on that new value-added tax of 7% on
drugs. In addition, PharmaCorp Ukraine incurred a duty of 5% on import which made this drug costlier.
Who suffer due to this? 1st it made difficult to the local customer to buy PharmaCrop’s drug, not only
patients, but even wholesalers were struggling to pay.
For example: Wholesaler Stated, “I can’t afford to transfer money to you unless I have collected money
from my customers, the pharmacists.”
She even heard that Banks are not supporting their clients on concede liquidity and granted loans only
rarely.
To respond to this issue, some firms had started to modify their terms of payment in favour of
wholesalers, for example, by extending dates of payment. But in Pharmacorp there’s a problem for
santos, if she wanted to change the terms, she would need the RHQ’s agreement.
In addition, there are some other issues, including corruption, and laws and regulations that continually
changed. Ever since the political situation has been unstable, there are fluctuations on the positions of
some public offices at short intervals. For example, from November 2013 to September 2014 there have
been 3 different people that held the position of health minister.
During these fluctuations, each one had initiated new rules concerning manufacturing standards, price
regulations and registration, drug authorization, advertising restrictions, and much more.
For addressing this issue, all units of Pharmacrop have taken minor initiatives – revitalize operations for
example, which granted more and higher discounts. Yet, profits continued to fall.
The Structure of the global organization has hampered local decision-making – concerned by 10 years
experienced sales employee. Santos recently had to talk to several people in Milan, Italy, just to get
approval for granting a higher discount to a long-term customer. She has to wait two more weeks to get
a signature to hire new drug distributor.
She is also worried about her unit’s expenditures – The rent of PharmaCrop office in Kiev is the high
share of total fixed costs, Operating unit’s number higher than its profits and spending on internal
training was much higher than the RHQ average.
Risk response plan
Therefore, Federica Santos has to decide based on all these risks whether to take a TOLERATE/ACCEPT
approach thus accepting these risks and staying in the market anyway or TERMINATE/REMOVE activity
causing risk therefore exiting the Ukranian market altogether so mitigate the risk to PharmaCorp as a
whole.
To address such risks, PharmaCorp will need to look into possibly altering its business model. A lot of
PharmaCorp’s frustration seems to stem from their high dependency on their main headquarters on
Milan. It might be wise then for the company to seek more autonomy for its operations and adopt a
more localised than a globalised strategy. Clearly, Ukraine is currently in exceptional circumstances and
cannot depend on a global strategy to mitigate its risks. Instead, it will need the expertise of the people
on the ground who understand the situation and current conflict better in order to form an efficient plan
on how to operate within the current climate. Furthermore, gaining more autonomy will decrease the
delay in decision-making since they would not need to wait for approval and can act immediately to
lessen the impact of the risks the unit is facing. There was also the issue that the HQ was more focused
on the long-term profitability while ignoring the current crises, which could cost them further loss of
market share as competitor take over the market as they adapt better to the situation.
Therefore, PharmaCorp will need to come up with a financial risk management short-term plan if it is
aiming to continue its operations in Ukraine. This may making require cutting costs such as the internal
training sessions and reducing prices of the company’s products due to the struggling economy. Santos
will need to work closely with the financial department to come up with a budget plan that will cut
unnecessary costs at least in the short-term in light of the current economic situation.
Short-term risk planning is important in this case as the situation in the country is unpredictable and
changes from one day to the next so PharmaCorp will need to focus on short-term goals and devise
strategies accordingly. In this sense, should the company take the tolerate/accept approach, it would
adopt a reactive approach where Santos and her team could take up a reactive approach by coming up
with a plan and adjusting it accordingly by close monitoring of the situation. To take such an approach,
the unit in Ukraine should strive for more independence in its decision-making process.

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PharmaCorp in Ukraine Case Study

Analysing the risks

During her 1st weeks in Kiev,

Risk response plan

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