NOVARTIS Bangladesh Pharmaceutical Marketplace Analysis

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MNP058 Economic and Global Context – Individual Assignment NOVARTIS BANGLADESH Pharmaceutical Marketplace Analysis Mohammad Younus Kazi 7/27/2010 MBA (Executive) 2009-10, London Metropolitan University

Transcript of NOVARTIS Bangladesh Pharmaceutical Marketplace Analysis

Page 1: NOVARTIS Bangladesh Pharmaceutical Marketplace Analysis

MNP058 Economic and Global Context – Individual Assignment

NOVARTIS BANGLADESH Pharmaceutical Marketplace Analysis

Mohammad Younus Kazi

7/27/2010

MBA (Executive) 2009-10, London Metropolitan University

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Table of Contents

1. INTRODUCTION ...................................................................................................... 3

2. NOVARTIS IN BANGLADESH ................................................................................ 3

3. BANGLADESH’S PHARMACEUTICAL MARKET .................................................. 4

4. PESTEL ANALYSIS ................................................................................................ 5 4.1 Political factors .................................................................................................... 5

4.1.1 Support of Government ................................................................................... 5

4.1.2 Issues ............................................................................................................. 6

4.2 Economic factors ................................................................................................. 6 4.2.1 GDP Growth ................................................................................................... 6

4.2.2 Inflation ........................................................................................................... 8

4.2.3 Unemployment .............................................................................................. 10

4.2.4 Debt .............................................................................................................. 11

4.2.5 Labour Force and Cost ................................................................................. 11

4.3 Socio-cultural factors ......................................................................................... 12 4.3.1 Alternative Medicines .................................................................................... 12

4.3.2 Religion ......................................................................................................... 13

4.3.3 Population Demographics ............................................................................. 13

4.4 Technological factors ......................................................................................... 13 4.4.1 Research and Development .......................................................................... 13

4.4.2 Active Pharmaceutical Ingredient .................................................................. 14

4.4.3 Energy .......................................................................................................... 14

4.5 Environmental factors ........................................................................................ 14 4.5.1 Climate Change ............................................................................................ 14

4.5.2 Waste Management ...................................................................................... 15

4.6 Legal factors ...................................................................................................... 15 4.6.1 National Drug Policy ..................................................................................... 16

4.6.2 TRIPS ........................................................................................................... 16

5. RECOMMENDATIONS .......................................................................................... 16 5.1.1 Bulk Drug Manufacturing ............................................................................... 16

5.1.2 Research & Development Setup ................................................................... 17

6. CONCLUSION ....................................................................................................... 17

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REFERENCES ............................................................................................................. 18

APPENDIX A: ABBREVIATIONS ................................................................................. 22

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1. Introduction Novartis International AG is a multinational pharmaceutical company based in Basel,

Switzerland. According to the Fortune Magazine (July 20, 2009 issue) it was the sixth largest

Pharmaceutical Company in terms of revenue. Novartis was created in 1996 from the merger

of two Swiss companies, Ciba-Geigy and Sandoz Laboratories which at present employs

nearly 100,000 people worldwide, has a presence in over 140 countries including Bangladesh,

and its products range includes Pharmaceuticals, Vaccines & Diagnostics, generics

medicines, over-the-counter (OTC), animal health and contact lenses and lens-care (Novartis

Website). This report investigates Novartis’s marketplace and its activities in Bangladesh.

2. Novartis in Bangladesh In 1973 the Ciba Geigy (Bangladesh) was registered as a joint stock company (Novartis

Bangladesh website). It then launched researched pharmaceutical products in the

Bangladeshi market. In 1986 Ciba Geigy introduced its first generic product in the Bangladeshi

market, Servipham. The company began to export its products from Bangladesh in 1995. In

1997, Ciba Geigy and Sandoz merged to form Novartis (Bangladesh) Limited and introduced

its first OTC product. In 2000, Novartis (Bangladesh) Limited became the first pharmaceutical

company in Bangladesh to be awarded the EU GMP certification.

Novartis Bangladesh awarded the National Export Trophy for the years 2002-2003 and 2003-

2004 from Bangladesh government’s Export Promotion Bureau (Novartis Bangladesh

website). Novartis Bangladesh is one of the top pharmaceutical exporters of Bangladesh that

exported US$15 million medicines in 2007, which is 44 percent of the total pharmaceutical

exports from Bangladesh (Daily Star report, 2008). Though its export value is quite impressive,

Its generic division Sandoz’s performance in Bangladesh’s local market is not as good as

Novartis’s patented products. Sandoz positioned 15 in top 20 pharmaceutical companies in

Bangladesh (Table 1)

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Rank Manufacturer Name Market Value (US$) Dec 2007

Market Share (%) Dec 2007

Market Growth (%) Dec 2007

1 Square 106,853,218 18.03 28.63 2 Beximco 54,406,039 9.19 4.08 3 Incepta Pharma 43,672,495 7.37 19.92 4 ACME 31,990,257 5.40 20.06 5 Eskayef 26,896,796 4.54 22.46 6 Drug International 23,163,408 3.91 -3.91 7 Aristopharma 23,005,700 3.88 32.74 8 Sanofi Aventis 22,505,617 3.80 18.91 9 A.C.I. 22,438,789 3.79 33.04

10 Renata 21,531,753 3.63 13.30 11 Opsonin Pharma 20,754,444 3.50 2.99 12 Glaxosmithkline 17,159,150 2.90 9.09 13 Orion Lab. 12,789,998 2.16 10.76 14 General 10,409,370 1.79 16.72 15 Sandoz 101,042,702 1.69 22.37 16 Healthcare Pharma 9,552,740 1.61 37.83 17 Ibn Sina 8,288,494 1.40 42.16 18 Nuvista Pharma 7,382,732 1.25 5.57 19 Novo Nordisk 6,739,984 1.14 25.71

20 Novartis 6,682,644 1.13 29.04 Table 1: Top 20 Pharmaceutical companies in Bangladesh. (Source: Hussain, I. F., Rahman, A. & Husain, M. (2008) Opportunities in Healthcare and Pharmaceuticals for Bangladesh, Bangladesh-American Pharmaceutical Association Journal, Volume 17.)

.

3. Bangladesh’s Pharmaceutical Market According to the UKTI (April, 2010) the total size of the pharmaceutical market of Bangladesh

was estimated to be US$700 million in 2007. It also reports that the industry produced

medication worth $715 million in 2007 with the market growing over 12% annually over the last

half a decade and firms primarily focus primary on branded generic final formulations by using

mostly imported APIs. According to the World Bank report (2008) about 80% of the drugs sold

in Bangladesh are generics and 20% are patented drugs. It also reports that domestically

Bangladeshi firms generate 82% of the market in pharmaceuticals and locally based

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multinational companies account for 13%, and the final 5% is imported. There are 240

registered pharmaceutical companies in Bangladesh where 164 of these actively involved in

the manufacture or marketing of pharmaceutical products (Hussain et al., 2008).

The top 30 to 40 companies dominate almost the entire market, where the top 10 hold 70% of

domestic market share and the two companies Beximco and Square capture over 25% of the

market (World Bank report, 2008). The pharmaceutical market of Bangladesh is dominated by

a few large companies. This kind of market structure is defined as oligopoly (Gillespe, 2010, p.

302; Griffiths & Wall, 2008, p. 226; Salvatore, 2007, p. 340; Besanko et al, 2010, p. 221). The

decisions of one company influence, and are influenced by, the decisions of other companies.

For example, when the pharmaceutical market leader Square got the UK MHRA approval, the

second largest company Beximco immediately started the process desperately to secure it

(UKTI, 2010).

4. PESTEL Analysis PESTEL analysis provides a framework to examine the external environment of a company

(Gillespie, 2010, p. 13; Morrison, 2006, p. 30). PESTEL stands for political, economical, social,

technological, environmental and legal factors. PESTEL analysis helps a company to

categorize the relevant issues in its environment, so that it can assess its relative importance

and develop an appropriate strategy (Sloman & Hinde, 2007). The following sections provides

an overview of the currently affecting the Novartis in Bangladesh.

4.1 Political factors

Experienced international businesses engage in political risk assessment, a systematic

analysis of the political risks they face in foreign countries and any changes in the political

environment that may adversely affect the value of a company’s business activities (Griffin &

Pustay, 2010, p. 97; Czinkota et al., 2009, p. 102; Daniels et al, 2009, p. 154). Politically

Bangladesh is now a stable country after decades of instability and coups.

4.1.1 Support of Government

Bangladesh government regards the pharmaceutical industry as one of the key sector for

foreign investment in the country (BOI, 2010a). With strong government support Bangladesh is

developing a robust manufacturing and technically experienced industrial base for this sector.

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Bangladesh was placed 15th globally for the protection which it affords investors in the World

Bank’s (2009) “Doing Business” survey.

4.1.2 Issues

General strikes by opposite political parties those caused huge loss to the businesses and

industries were a regular part of political life in Bangladesh. The situation has improved a lot in

past few years despite of very few occasions (BBC, June 2010). Companies are still facing

some corruption and bureaucracy issues when to do business in Bangladesh. For example,

according to the World Bank report (2009) it requires 7 procedures and takes 44 days to start

a business there. Despite some bureaucratic problems in overall the current political

environment of Bangladesh is business-friendly for Novartis.

4.2 Economic factors

When a company wants to do business in another country, it should have good knowledge on

growth rate, inflation, unemployment, wages, income, stability, poverty and the like of that

country (Daniels et al. 2009, p. 185). These factors of Bangladesh are analysed in following

sections and also compared with China, India, Pakistan and UK to get a comparative picture.

4.2.1 GDP Growth

The economy of Bangladesh has grown 5-6% per year since 1996 despite many internal

problems like political instability, poor infrastructure, corruption, and insufficient power supplies

and its growth was resilient during the 2008-09 global financial crisis and recession (Figure 1).

The GDP growth rate of Bangladesh was higher than in Pakistan or UK, and very close as in

India (Figure 2) and according to the World Factbook (2009) its position was 18th among the

213 countries in 2009. GDP per capita of Bangladesh was US$ 1,600 that was lower than

India, China and Pakistan.

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Figure 1 Country Comparison on GDP Per Capita (PPT) (2009). (Source: The World Factbook (2009). Washington, DC: Central Intelligence Agency).

Figure 2 GDP - real growth rate. This entry gives GDP growth on an annual basis adjusted for inflation and expressed as a percent. (Source: The World Factbook (2009). Washington, DC: Central Intelligence Agency).

05,000

10,00015,00020,00025,00030,00035,00040,000

Country Comparison on GDP Per Capita (PPT) (2009)

Source: The World Factbook

GDP - Per Capita (PPP)

-6-4-202468

10

Bangladesh China India Pakistan UK

GDP - Real Growth Rate (2009)Source: The World Factbook

GDP Real Growth Rate

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FIGURE 3: Gross Domestic Product (GDP) Growth of Bangladesh (1980 – 2009) Source: MOF (2010) Ministry of Finance, Bangladesh, Bangladesh Economy: Recent Macroeconomic Trend. Available: http://www.mof.gov.bd/en/budget/rw/real_sector.pdf (accessed: 26/07/2010).

4.2.2 Inflation

Inflation rate is a measure of the increase in the cost of living that influence on many parts of

the economic confidence, and the stability (Daniels et al., 2009, p. 196). From 1991 the

inflation rate of Bangladesh is always under 10 percent (Figure 4).

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FIGURE 4: Inflation Rate of Bangladesh (1980 – 2009) Source: MOF (2010) Ministry of Finance, Bangladesh, Bangladesh Economy: Recent Macroeconomic Trend. Available: http://www.mof.gov.bd/en/budget/rw/real_sector.pdf (accessed: 26/07/2010).

Figure 5 Inflation Rate in 2009 (Consumer Prices). (Source: The World Factbook (2009). Washington, DC: Central Intelligence Agency).

-202468

10121416

Bangladesh China India Pakistan UK

Inflation Rate in 2009 (Consumer Prices)

Source: The World Factbook

Inflation Rate

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In 2009 the inflation rate of India and Pakistan was over 10 percent whereas in Bangladesh it

was just above 5 percent. Higher inflation rate raises the cost of living and historically annual

inflation rates of 10 to 30 percent, erodes confidence in a country’s currency and spurs people

to search for better ways to store value (Daniels et al., 2009, p. 196). Lower inflation is a good

indicator for Novartis’s Bangladesh marketplace.

4.2.3 Unemployment

Daniels et al (2009) argues that unemployment depress economic growth, create social

pressures, and provoke political uncertainly. The unemployment rate in Bangladesh was 2.5

percent in 2009 and that was lower than China, India, Pakistan and UK (Figure 6).

Figure 6 Unemployment Rate in 2009 based on consumer prices. (Source: The World Factbook (2009). Washington, DC: Central Intelligence Agency).

The proportion of unemployed workers in a country shows how well a country productively

uses its human resources. In Bangladesh unemployed workers do not get any benefits or

allowances from the government. Without unemployment benefits, people are compelled to

engage in some work, even if this is only a few hours in low-paid informal jobs (Mujeri, 2004).

Lower unemployment increases buying capabilities of customers in Bangladesh.

02468

10121416

Bangladesh China India Pakistan UK

Unemployment Rate (2009)Source: The World Factbook

Unemployment Rate

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4.2.4 Debt

The larger the total debt becomes, the more uncertain a country’s economy becomes (Daniels

et al., 2009, p. 198). The internal public debt that was measured by the percentage of

Bangladesh’s GDP was lower than in India, Pakistan or UK in 2009 (Figure 7).

Figure 7 Internal Public Debt as percentage of GDP in 2009. (Source: The World Factbook (2009). Washington, DC: Central Intelligence Agency).

The resulting pressure to revise government policies, in the face of growing internal debt, can

create economic uncertainties for investors and companies (Daniels et al., 2009). Bangladesh

is in better position than neighbor countries in terms of debt problem and that is a good sign

for its pharmaceutical industry.

4.2.5 Labour Force and Cost

For the pharmaceutical industry, the cost of labour is one of the key elements of total

production costs. Companies always search the world for the best deal with the difference

between low-cost and high-cost countries (Daniels et al., 2009, p. 201). According to the Office

of the US Trade Representative (2008) the cost of manufacturing one million tablets was

estimated to be $18,000 in the USA, $8,000 in India and $6,500-7,500 in Bangladesh. This is

01020304050607080

Country Comparison - Public Debt (2009)

Source: The World Factbook

Internal Public Debt (% of GDP)

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accounted for Bangladesh’s highly competitive labour and energy costs. The report also

highlights that the labor costs in the pharmaceutical industry are 20-30% lower in Bangladesh

than in India. Bangladesh is 8th according to the number of total labour force in the world that

is more than Pakistan, UK, Germany, France or Japan (World Factbook 2009). Abundant

supply of cheap labour forces would be attractive factor for Novartis to extend their investment

in Bangladesh.

Figure 8 Total Labour Forces in 2009. (Source: The World Factbook (2009). Washington, DC: Central Intelligence Agency).

4.3 Socio-cultural factors

A company should identify key cultural differences in the country where it is doing or intended

to do business and then it must need to alter its customary practices to succeed there (Daniels

et al., 2009).

4.3.1 Alternative Medicines

There is a long tradition of self-medication in Bangladesh as many of its population cannot

afford to see health professionals when they fall ill. Majority of population are still using

0100200300400500600700800900

Mill

ions

Total Labour Force (2009)Source: The World Factbook

Labour Force

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complementary and alternative medicine (CAM) in the country (Islam & Farah 2008).

Alternative medicine refers to health practices, approaches, knowledge and beliefs

incorporating plant, animal and mineral based medicines, spiritual therapies, manual

techniques and exercises, applied singularly or in combination to treat, diagnose and prevent

illnesses or maintain well-being. Reports of Islam and Farah (2008) estimated that 70-75%

populations of the country still use traditional medicine namely herbal, homeopathy, religious

and magical methods for management of their health problems of various kinds.

4.3.2 Religion

According to the World Factbook (2010), 89.5% of the population in Bangladesh is Muslim.

The religious belief and practices have influence and impact on national/international business

that is seen in a culture’s values and attributes toward entrepreneurship, consumption and

social organisation (Griffin & Pustay, 2010; Morrison, 2006 and Czinkota et al., 2009). Many

Muslim workers require extra time break for daily prayer. Muslims are forbidden from the

consumption of pork and alcohol. The pharmaceutical companies need to consider these

religious factors to do the business in Bangladesh.

4.3.3 Population Demographics

Bangladesh tops South Asia with its average life expectancy of 61 years though per capita

consumption of medication is one of the lowest in the region (World Factbook, 2009). The

population of Bangladesh ranks seventh in the world with about 140 million people and it is

one of the most densely populated countries in the world. Due to the total size of the

population, good life expectancy and the stable growth of economy, the country has

considerable market for pharmaceutical products.

4.4 Technological factors

Technological environment is another important dimension of a country and the foundation of its resource base (Griffin & Pustay, 2010). Three key technological factors are discussed in following sections.

4.4.1 Research and Development

Foreign direct investment has brought about the globalization of production, but this has not

led to the globalization of technological innovation in Bangladesh. Large companies have

tendency to concentrate their R&D activities in their home countries, but progressively

specialized R&D is being decentralized to overseas locations, to benefit from different areas of

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excellence in different localities (Patel & Pavitt, 1991; Archibugi & Michie, 1997). According to

the World Bank report (2008), pharmacists of Bangladesh have been trained for quality

assurance and skilled engineers for reverse engineering and manufacturing but its workforce

has lack of new research and innovation skills, which is very important for innovative drugs.

Bangladeshi pharmaceutical firms target mainly lower-end branded generics. Despite the

country possessing huge manufacturing capabilities of domestic need, the complete lack of

R&D in domestic companies could cause the market to be idle. According to the Kostermans’s

(2008) report, universities and government research is currently under funded in Bangladesh

and the pharmaceutical industry here currently invests about 1% in R&D.

4.4.2 Active Pharmaceutical Ingredient

Around 80% of Bangladesh’s total need of Active Pharmaceutical Ingredient (API) is being met

through imports (UKTI, 2010). To meet the API demand locally the Bangladesh government is

developing an API park, that is due to open in 2011 to meet at least 70% of country’s API

supplies and it will develop the infrastructure with state-of-the-art facilities including a central

effluent treatment plant and incinerator for solid and liquid waste-management (BOI, 2010b).

Novartis and other pharmaceutical companies in Bangladesh will be benefited from this park to

minimize their production cost by using locally produced APIs.

4.4.3 Energy

Bangladesh’s unreliable power supply forces most Bangladeshi firms to depend on self-

generation of power (World Bank, 2008). Disruptions of power supply result in significant

productivity losses in Bangladesh. The World Bank (2008) reports that the power cost could be

lower when generators are running on highly under-priced natural gas of Bangladesh. Large

pharmaceutical companies like Novartis can install gas based energy system.

4.5 Environmental factors

Couple of key environmental factors discussed in following sections those significant for Novartis operation in Bangladesh.

4.5.1 Climate Change

Bangladesh is now widely recognized to be one of the countries which are most vulnerable to

climate change as a result of global warming. It is a low-lying region that risks submerging

some of its parts beneath the sea (Morrison, 2006, p. 428). Natural hazards that come from

increased rainfall, rising sea levels, and tropical cyclones are expected to increase as climate

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change, each seriously affecting agriculture, water & food security, human health and shelter

(MoEF, 2008). Environmental impacts are often considered necessary side effects of

development or the price to pay in order to achieve progress (Furley, 1996; Hesselberg, 1992;

Weissman, 1993). Novartis (Bangladesh) claims in their website that it takes a leading role in

its work in the areas of Health, Safety and Environment in pharmaceutical industry.

4.5.2 Waste Management

The National Drug Policy 2005 of Bangladesh states that the pharmaceutical plants must need

to comply with environmental legislation like disposal of waste streams. Environment may

have hazardous impact if the wastages of manufacturing plants are not managed properly.

Novartis takes care of all their toxic and non toxic waste to make sure that all the disposable

water is properly treated and disposed (Novartis Bangladesh Website).

4.6 Legal factors

Every company in every country must comply with local legal system and regulations

regarding operations (Daniels et al., 2009). The legal environment has a great impact on doing

business in any country. According to the World Bank (2009) reports Bangladesh is ranked

119 out of 183 economies on ease of doing business whereas India ranked 133 (Figure 9).

Figure 9 Bangladesh – Compared to global good practice economy as well as selected economies.

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4.6.1 National Drug Policy

The Bangladesh government’s Director of Drug Administration (DDA) has an essential

monitoring and supervisory role on all activities related to import, procurement of raw

materials, production and import of finished drugs, export, sale, pricing, etc. for all kinds of

medicine. The National Drug Policy (2005) states that the WHO’s current Good Manufacturing

Practices (GMP) should be strictly followed and that manufacturing units will be regularly

inspected by the DDA. Other key features of regulation are restrictions on imported drugs

(where these are produced by four or more local firms); a ban on the production in Bangladesh

of around 1,700 drugs which are considered non-essential or harmful; and strict price controls,

affecting some 117 principal medicines.

4.6.2 TRIPS

The World Trade Organization’s (WTO) Trade Related Aspects of Intellectual Property Right

(TRIPS) agreement permits 49 Least Developed Countries (LDCs) including Bangladesh to

reverse-engineer, manufacture and sell patented generic pharmaceutical products locally as

well as for export to other developing and Least Developed Countries (LDCs) until 2016

(World Bank, 2008, p. 15). Bangladesh is unique among the 49 LDCs as it has a strong

pharmaceutical base. This sector is the second largest sector in terms of national revenue and

it exported drugs to over 50 countries in the world (Azad, 2006). Novartis are enjoying the

benefit of TRIPS as it has manufacturing based in Bangladesh.

5. Recommendations According to the PESTEL analysis, pharmaceutical sector in Bangladesh has an positive

external environment in overall. Here are some recommendations based on the outcome of

this analysis regarding Novartis’s current and future operations and strategies.

5.1.1 Bulk Drug Manufacturing

Novartis can expand their business in Bangladesh to increase its production. Increasing the

scale of production will allow it to a lower cost per unit of output and yield economies of scale

(Besanko et al., 2010; Griffiths & Wall, 2008; Sloman & Hinde, 2007). By doing this Novartis

can increase is total market share in Bangladesh that is currently only 1.69% of total

pharmaceutical market and top to local companies have 18% and 9% (Hussain, 2008). Under

the TRIPS, Novartis in Bangladesh can manufacture patented drugs until 2016 in bulk for

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Bangladesh as well as to export other 49 such patent exempted lease developed countries of

the world.

5.1.2 Research & Development Setup

Novartis can invest in R&D setup in Bangladesh for reverse engineering as well as

bioequivalence study and clinical trials. Rivalry in pharmaceutical sector is very high as a

good number of investments have taken place in this sector, but very few companies have

invested on R&D. The research on developing drug for localised diseases like dengue fever,

arsenic poisoning by using Novartis R&D skills and local scientist would be an excellent

investment for Novartis. According to the UNESCO report there is a huge demand of drugs

for these diseases not only in Bangladesh but also in other countries in South-East Asia.

6. Conclusion In this report Novartis current operations in Bangladesh are analysed. PESTEL analysis used

to examine few significant factors of external environment and discussed how they influence

the Novartis. At the end of the report couple of recommendations is provided for Novartis’s

current and future strategies and operations in Bangladesh.

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Appendix A: Abbreviations

APIs Active pharmaceutical ingredients

BOI Bangladesh Board of Investment

CAM Complementary and Alternative Medicine

DDA Director of Drug Administration

DTL Drug Testing Laboratories

GDP Gross Domestic Product

GMP Good Manufacturing Practices

LDCs least developed countries

OTC Over-the-Counter

PESTEL Political, Economical, Social, Technological, Environmental and Legal

TRIPS Trade Related Aspects of Inellectual Property Right

TRIPS Trade Related Aspects of Intellectual Property Right

UKMHRA United Kingdom Medicines and Healthcare Product Regulatory Agency

UKTI United Kingdom Trade & Investment

WHO World Health Organization

WTO World Trade Organisation