Global Innovation –
Lessons Learned from the Novo Nordisk Case
Nina BIRKMOSE, Ruxandra POPOVICI
Copenhagen Business School
This paper looks at the possibilities of Western multinationals to efficiently and effectively relocate research and development to emerging markets. In order to exemplify the findings, we will use the case of Danish pharmaceutical company Novo Nordisk and their approach to the Chinese market. Thus, the research question of this paper is: Which lessons are to be learned from the case of Novo Nordisk in China?
Keywords: global strategy, foreign market entry, offshoring, R&D, pharmaceutics JEL Classification: F21, F23
1. Introduction and Method
The forces of globalization are continuously changing the business landscape. Outsourcing and offshoring have been used by multinationals for decades. Global value chains stretch across the world and incorporate a diverse range of people and cultures. With this type of internationalization, new challenges arise. Each company must find a business model that fits their needs and adds the most value to their operations. The traditional outlook on offshoring is keeping research and development close to headquarters and assembling abroad. China’s rise is partially based on it becoming “the world’s workshop”: numerous companies moved their production there in order to take advantage of the cheap labour offered.
However, a general attitude shift seems to occur when it comes to manufacturing in China. Wages have risen by 69% between 2005 and 2010 and it is estimated that by 2015, the US and China will be just as attractive for manufacturing. (The Economist, 2011) There is an increasing need to manufacture close to the place of consumption. Therefore, China’s role is undergoing a radical transformation. Still, its relevance is not dwindling. With its population of 1.3 billion and its rising middle class, China is an enormous market. Companies will still manufacture in China, for Chinese consumption. Downstream activities are already undertaken locally. However, we are witnessing an increasing number of upstream activities taking place here, such as research and development.
The information for this research was obtained from desktop research. Novo Nordisk published the “Blueprint for Change” report on its operations in China and their value in February 2011. This report, along with other sources on the company, has been the basis for the research. In order to shed light on the operations of Novo Nordisk and gain insight into the lessons learned from the case, theories on entry strategy, global innovation and culture have been applied.
Volume 3 ♦ Issue 1 ♦ June 2011
2. Case study
Novo Nordisk is a Danish pharmaceutical company. It has production facilities in seven countries and affiliates in 74 countries. As of March 2011, Novo Nordisk employs 31,300 persons in: Denmark (13,707), North America (4,731), Europe (4,309), China (3,663), Japan and Korea (988), other international operations (3,946). 18% of the employees work in research and development.
The main product areas of Novo Nordisk are diabetes care, haemostasis management, growth hormone therapy and hormone replacement therapy. In the first trimester of 2011, diabetes care amounted to sales of 11, 808 million Danish kroner, 1,376 million of which occurred in China.
Danish Involvement in China
“The rise of the Asian giants fundamentally changes the strategic landscape for MNCs” (Hansen et al. 2010:11). The financial crisis hit many countries hard, but even though China has been affected as well, it has continued to show remarkable growth rates and it is expected that it will have a stronger position vis-à-vis other countries after the crisis (Hansen et al. 2010). The economic development and democratization witnessed in China has had a major impact on MNCs global strategies, as many...