Case Prompt

Our client is a U.S.-based startup that has recently received FDA approval for its only product: a new steroid hormone for pigs. There's promising potential in the animal hormone market in China, and an individual has generously offered to cover all the costs for the relocation of the business to China in 2015. Our task is to evaluate whether the client should accept this offer.

Exhibit

Exhibit 1: Pork Consumption in China vs. U.S.A. (2012)

Country

Pigs/person

Population

% Growth (2011 – 2012)

China

0.4

1.3 billion

4.7

USA

0.2

300 million

-4.6

Exhibit 2: Treatment of pigs with hormones in China vs. U.S.A. (2012)

Type of Owner

% of Total Pigs

% of Pigs Treated with Hormones

China (Pet owners)

5%

5%

USA (Pet owners)

10%

0%

China (Family-owned farms)

70%

10%

USA (Family-owned farms)

40%

20%

China (State-owned farms)

25%

80%

USA (State-owned farms)

50%

25%

Exhibit 3: Pricing and volume of drugs sold by Chinese companies, 2008-2012

Data includes pricing and volume information for Companies A, B, and C over a five-year period.

Background

Our client has a strong global reputation, has received awards for product quality, and has obtained FDA approval for their new pig hormone product. The current drug price in the U.S. is $20/kg. They're considering relocating to China, a market dominated by three major players in the pig hormone industry. The individual's offer to cover all relocation costs adds another dimension to the decision.

Analysis

Factors for Relocation
We need to consider multiple factors to make the decision, including the potential market size, competition, existing customer preferences, product quality, reputation, barriers to entry, and governmental policies.

Potential Market Size
Estimate the potential market size in China and the U.S. in 2015 based on pig populations and treatment rates.

Optimal Pricing Strategy in China
Determine the ideal pricing strategy in China by analyzing pricing data from Chinese companies and the expected volume of drugs sold by our client in both China and the U.S.

Alternative Options
Explore alternative options for the client, such as staying entirely in the U.S., entering the Chinese market without relocating, or considering joint ventures with Chinese companies.

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Final Analysis

The decision to relocate to China depends on the overall strategic goals of the client. Two viable options emerge:

Option 1: Relocate to China in 2015, targeting state-owned farms as initial customers. The client should consider a pricing strategy around $16/kg to be immediately more profitable in China than in the U.S. This approach leverages the client's reputation and quality guarantee.

Option 2: Stay in the U.S., where the client already has a dominant position. While the potential market in China is larger, challenges from Chinese competitors, pricing pressures, and governmental policies make this option worth reconsidering.

The final decision should align with the client's long-term strategy, weighing market potential, pricing dynamics, and competitive landscape.