The pharmaceutical industry faces many challenges when it comes to its entry into overseas markets. Here our expert offers recommendations on how pharma companies can generate new revenues and thrive in this complex, yet exciting environment.
Since the beginning of the pharmaceutical industry, “growth” has been the watchword. But in the past several years, growth has slowed considerably given the global economic slowdown, the maturation of “developed” markets, the impact of multiple, billion-dollar blockbusters going off-patent, and the fact that New Chemical Entity (NCE) approvals have been relatively ﬂat.
As pharma searches for new revenue generators, the use of the classic Asnoff Matrix (see chart) clearly assists organizations in mapping out growth opportunities and provides guidance to companies with a strategic model to consider how best to achieve their objectives. Based on its in-line portfolio, pipeline focus, market penetration indices and other data analytics, organizations can assess their most effective path forward to stimulate new growth.
It’s hard to dispute the logic of using the Ansoff strategic development matrix that has led us to an Emerging Markets or ‘pharmerging’ focus. Given the early returns, however, it remains to be seen whether this seemingly smart strategic direction can provide the necessary gains to thwart short-term revenue/proﬁt concerns while setting up long-term sustainable growth. So what appears to be a smart prescription for success is a lot more difﬁcult to implement and achieve than many think given the evidence and returns thus far. Conceptually, it’s clear that the strategic move into Emerging Markets is relatively straightforward and easy to embrace. But it’s important to examine a number of critical lessons learned thus far for those seeking to enter the fray or for those re-evaluating their initial entry strategy.
All may not be what it appears to be: Sure the forecasted growth is huge, and industry analysts appear very bullish on pharma doing well in the Emerging Markets, but are the numbers realistic? Cautious optimism should rule the day. And while double-digit growth in these markets is real, organizations need to remember that they come off of a very limited base and are quite dependent on the market situation. A major concern in these markets is that pharma appears to be repeating bad practices that were precursors to some recent industry problems (i.e., sales forces layoffs, questionable marketing practices). The ﬂawed view that “the biggest sales force will win” is already repeating itself in some markets such as China. True, it’s a vast country, but is achieving high rural penetration really necessary? What happened to the concept of developing a focused and efﬁcient sales force with an alignment consistent with high opportunity accounts given one’s product/brand offering?
Others have proceeded with a “go all-in”’ mentality despite constrained revenue streams and profit margins, resulting in a questionable shift of scarce resources needed elsewhere to ensure long-term growth (e.g., product development). In an industry where risk mitigation, if not aversion, is the focus, some companies plunged in only to back off to re-craft their approach. In this case, being a first-mover is not the best.
Just look at the numbers that IMS predicts for Emerging Markets. Put simply, this sector will far outstrip “developed” country growth rates over the next several years, by doubling revenue volume to $345-375 billion by 2016 and $500 billion by 2020. While this is possible, we’ve already seen softening in these economies, and a deeper look inside the numbers should concern companies. For example, while India’s population is 1.2 billion and is making great strides in moving people into their middle class, public health financing continues to be very weak and their private market is very underdeveloped. And with China quickly approaching 1.4 billion people and a burgeoning upper class with significant disposable income and with a government commitment to establish its pharma industry as a global leader, public funding is again quite low. In fact, contrast India’s spend of just 3.8% and China’s of only 4.2% of GDP on healthcare expenditures versus most developed countries, which are in the 11.5%–17.9% range.
Recommendation: Given the prevailing winds of change, move forward appropriately with an eye on likely governmental cost containment measures so that investment doesn’t outstrip recoverable returns thus significantly handicapping an organization.
No two Emerging Markets are alike: In fact, even the concept of what constitutes this sector continues to evolve, so a typical question is whether to focus on the four large BRIC (Brazil, Russia, India and China) nations or extend to an E7 or even an E17 market set. The point is that in order to optimize the opportunity, whether it’s a short/mid-term opportunistic driven by the need to fill a product launch void or a long-term vision to gain a sustainable competitive advantage over time, success begets the well prepared. Have you fully vetted a move into Emerging Markets and selected the right opportunities based on an assessment of your core competencies, infrastructure and brand portfolio, or did you just take the plunge? In short, the key consideration is what makes sense given your company’s overarching growth strategy. Remember that while Emerging Markets might share the fact that they are growing rapidly and present significant potential, clearly their healthcare systems are not as advanced, let alone funded like they are in the U.S. and Western Europe.
From a healthcare viewpoint, each Emerging Market should be profiled for prioritization and investment based on its fit with the organization given their political and social systems (e.g., Is the regulatory framework manageable? What are the barriers to entry and/or expansion? How is healthcare is distributed?), and their pharma market (e.g., Are they primary care driven by chronic diseases such as hypertension and diabetes? Is it a branded or generic-driven market? What’s the access to care level and their labor markets? [e.g., Is an affiliate in place and ready to ramp up quickly?] What’s the level of competition for sales reps in any given country? Do you have an established reputation in the market?). Only once you’ve addressed these core business questions and others specific to organizational goals, can you assess market opportunity versus your core business model. Making too big of a leap to close the gap between needs and opportunities often results in disappointment.
Recommendation: Focus only on those markets that play to organizational strengths, corporate culture, local and globally/regionally supported infrastructure and product base.
Adjust your lens to better understand culture and context: Given the vast array of cultural nuances/traditions/viewpoints exhibited by the wide range of Emerging Markets, understanding culture and context is any company’s biggest challenge. Since big pharma is principally “Western thought driven,” and despite organizational attempts to “globalize” their talent by providing rotational development assignments to some non-Western market managers and staff, most of the top globally oriented companies appear to institutionalize knowledge towards a global view (or one that’s U.S. centric or Euro centric). And while most companies understand the need to assess Emerging Markets at a micro level, and include a key Emerging Market or two on their global brand teams, very little headway has been made in providing signiﬁcant opportunities for talent from these markets.
In fact it seems that very few headquarters (HQ) personnel understand the core cultural values/norms/behaviors in the key Emerging Markets critical to their growth and commercialization efforts. And there doesn’t seem to be much impetus for gaining insight despite the fact that this understanding will unlock important decision-making paths.
Every senior manager and global brand team member should study the works of two important international researchers. Geert Hofstede’s work on the ﬁve dimensions for comparing work-related values is a must in understanding and explaining differences in behavior and the impact of communications from a societal and cultural context. Marieke de Mooij’s work on understanding cultural paradoxes and their impact on marketing and advertising provides a knowledge base on cultural differences/similarities, as well as a structure of how to apply this knowledge to brand management and marketing communications. Unfortunately, too many commercial business heads and marketers on an Emerging Market assignment have expressed concern (and sometimes outright pessimism) over their ability and their organization’s ability to understand the new the cultural situation.
Recommendation: If you are working in Emerging Markets (or globally), become a student of the culture(s) around you. Not only will it represent an opportunity to better understand and affect the market, but it will motivate and excite colleagues. In short, it will result in a better feel for what is often described as a lonely and isolated journey.
Thrive by creating novel, innovative, value-added solutions: Pharma’s success in Emerging Markets will likely depend on its ability to innovate practical solutions and challenge its usual business model. As a highly conservative and often monolithic industry, pharma doesn’t adapt easily to external change and often seems paralyzed by new barriers. However, as pharma pushes for greater access to care in these new markets, especially in the oncology and specialty areas, a new competitive mindset must evolve.
Innovation in the healthcare sector will have to move beyond the brand and its therapeutic value to other value drivers to help manage the healthcare expenditure explosion in Emerging Markets. Given the cost of many of the best therapeutic options, how many can really afford them? And how many can even receive proper care if they’re from a rural area 350 miles to the nearest oncology center? Companies are already offering innovative solutions to moving their specialty pharma brands, such as partnering with new healthcare insurance schemes to provide access to care, particularly in the oncology/catastrophic care areas. Clearly this partnership illustrates a smart, creative and novel approach to overcoming the market access issue.
Recommendation: Business as usual will not win the day in Emerging Markets. Organizations must learn to adapt and innovate with creative yet pragmatic solutions based on smart ROI investments. By developing testable, pilot programs akin to the fast moving consumer packaged goods industry, organizations can mitigate risk more easily and will likely be rewarded with growth.
In the past few years, the pharma industry’s reputation has taken a hit in many markets, particularly in the U.S. But the industry’s ability to adapt quickly, pragmatically and thoughtfully in Emerging Markets given a new cadre of talent “on the ground” and in HQ management, who are well versed in a market’s needs, nuances, culture and unique characteristics, represents a needed shift to ensure success. With a much more unﬁltered approach to market-level intelligence (i.e., carefully analyzing barriers to entry, cost containment, mandated pricing, etc., to mitigate risk), organizations can more effectively determine the most signiﬁcant opportunities that are aligned consistent with the best strategic organizational ﬁt. In many ways, Emerging Markets represent a new beginning for the pharma industry and drive the need to create organizations that are much more nimble, innovative and market/customer centric. There’s still much unknown and so much to learn, and that’s what makes it an exciting time in the industry.