Strategic Positioning In China and Other Emerging Markets
Historically, the global pharmaceutical industry has focused almost exclusively on the established regional markets of North America (particularly the US), Europe (particularly the big 5 West European nations), and Japan.
For an industry whose business model is founded on charging premium prices for novel therapies, these markets possess the scale and wealth to generate the profits required to support expensive, high-risk development programs. The rest of the world (or ROW) was generally treated as an afterthought.
In the past few years, leading companies have begun paying more attention to emerging marketsespecially the countries with very large populations and high economic growth rates. With China and India at the top, the list also tends to include Brazil, Russia, Turkey, Mexico and Indonesia. The long-term market potential of these countries has eclipsed concerns about the current state of intellectual property protection and low levels of per capita spending on pharmaceuticals. Companies have also learned that they can no longer afford to ignore the poorest populations of the world, if for no other reason than that their response to the medical needs of these populations can impact public and government opinion in their core markets.
This shift in focus is reflected in the strategic decisions of major pharmaceutical companies. Among the more visible changes have been restructuring moves by companies like Glaxo Smithkline to focus a greater share of their senior management talent on emerging markets. Companies have also begun shifting manufacturing and even research and development activities to China and other countries. In part, these investments are driven by the substantial cost advantages enjoyed by these countries, but they also reflect the desire to position their companies strategically in markets that promise to deliver some of the greatest longer-term growth opportunities.
The question is..what should companies do on the commercial side to take full advantage of their recent investments in management attention, fixed assets and intellectual capital? Lets consider the case of China.
As with other emerging markets, Chinas role in the revenue side of the equation has developed more slowly. Due to the remarkable pace of economic and social change, China presents a complex picture as a marketand one that is challenging to penetrate. There are several reasons for this. One reason is the very scale of the market. Considering only the large urban segment, China has over 160 cities with more than one million inhabitants. Another is the relatively limited infrastructure of third party vendors that can provide reliable market research, clinical development, and sales/marketing support.
Even more significant is the challenge of reaching and influencing healthcare professionals within these geographic markets. Part of the challenge is that Chinas healthcare market doesnt lend itself very well to classic product-driven strategies of the pharmaceutical industry. In their core markets, major pharmaceutical companies have become accustomed to building market franchises around blockbuster products and then dismantling and redeploying much of the sales and marketing infrastructure for these franchises once patents have expired and lifecycle management strategies have run their course. Starting from an essentially greenfield situation, it requires substantial time, effort and expense to develop the knowledge and relationships to build a successful franchise in China and other emerging markets. Given the extent of such investments, companies will not want to approach them in the traditional product-driven way.
In this environment, companies should be looking to develop sustainable, long-term franchises serving selected therapeutic areas and/or demographic segments. The key is to identify markets that can support infrastructure investments in the near term and then provide substantial rewards for the investments in the future as powerful economic and demographic trends create demand for more expensive therapies. In addition to their attractive long-term growth opportunities, such therapeutic markets should also be aligned with the companys portfolio of in-market and pipeline products. Given the overall size of Chinas healthcare market, even a strategy that is targeted narrowly at only the most attractive segments of the market has the potential to generate sufficient revenues to impact worldwide results.
The first step is to evaluate fundamental socio-economic and demographic factors to identify their implications for pharmaceutical demand. Given the rapid pace of change in these countries, the shifts will be dramatic and their implications will be profound. For example, in China, womens health is likely to be an area that experiences dramatic growth in concert with the rising social and economic status of educated women in particular. The social status of women is likely to see a redefining transformation over the next decade as the unintended demographic consequences of the Chinese governments longstanding one child per family social policy come to fruition with a shortage of women of child-bearing age and as the expanding market economy creates new opportunities for women to create and control wealth. Especially among urban women, it is reasonable to expect a growing demand for high-quality healthcare, including novel drug therapies.
The next step is to develop a clear picture of the emerging healthcare needs of these selected therapeutic areas and/or demographic segments, the role of pharmaceutical products in addressing these needs, and the level of clinical and economic value these drugs can provide, along with any ancillary services that may be necessary to overcome gaps in Chinas healthcare delivery infrastructure. However, most companies dont have an adequate foundation of knowledge on which to base their investment decisions. Their existing sales and marketing teams on the ground in China tend to have limited perspective beyond their immediate customer base. Furthermore, the rate of change in Chinas healthcare markets limits the potential value of traditional market research studies to fill this knowledge gap.
Given the limited availability of robust market data, companies need to pursue comprehensive primary and secondary research strategies to identify appropriate market segments, estimate their size and growth trends, distinguish their unique attributes, and determine their implications for product demand. It is particularly important to supplement available data with the insights of local experts and opinion leaders who can speak with authority to the most critical trends in patient demographics, therapeutic needs, and clinical practice, as well as the regulatory and reimbursement environment. Unfortunately, these sources are often more difficult to identify in emerging markets. Furthermore, established standard pharma market research methodologies are not well matched to the challenge of gaining strategic market insight in such rapidly changing market environments.
Companies that want to gain such insight should assign the responsibility to their most strategically adept marketers. These individuals need to select research partners based on their strategic marketing competencies as well as their depth of local knowledge. They should also actively engage in developing research questions to frame the right kinds of conversations, integrating the findings, and identifying the implications for market strategy. Once they have developed a sophisticated understanding of the environment, marketers can then decide which portfolio and pipeline products to map against the market opportunities and determine the most effective way to position them, develop them, and bring them to market.
To learn more about the market in China, make plans to attend eyeforpharma's Sales Force and Market Opportunities conference in Shanghai, December 2-3, 2008. For more information, visit www.eyeforpharma.com/sfchina.
Authors: Rita E. Numerof, Ph.D. is President, and Jack Nightingale, M.P.A., is a Consultant with Numerof & Associates, Inc. (NAI), a strategic management consulting firm located in St. Louis, Missouri.
NAI works with clients to increase revenues, reduce costs, enhance service delivery, and sharpen strategic focus, providing consultation in three broad areas: strategy development and execution, operational excellence, and organizational infrastructure. For more information, contact NAI at 314.997.1587, info@nai-consulting.com, or visit www.nai-consulting.com.