As mature markets around the world become saturated, companies are basing their growth strategies in large measure on expansion into emerging markets. This trend is especially true in the life sciences industry, where all the BRIC nations (Brazil, Russia, India and China) are expected, according to IMS Health research, to be among the world’s Top 10 pharmaceuticals markets by 2015.
However, selling and operating in those markets also presents numerous challenges to many companies. Because of these constraints, many pharmaceuticals companies have not been able to get a major foothold in developing economies. Looking at the financials of the top nine pharmaceuticals companies, many of them have no more than 30 percent of their revenues coming from emerging markets—and some have as little as 10 percent.
Accenture believes that life sciences companies can gain a competitive edge in emerging markets by executing a multipronged strategy: thinking in terms of customer clusters and submarkets that can represent potentially profitable groupings of customers and lead to better R&D and marketing; finding cross-border customer similarities that can support a common market access strategy in multiple regions; establishing capabilities that simultaneously leverage global reach and local relevance; and creating effective and rapid execution capabilities by acquiring a deeper understanding of consumer needs and establishing more effective consumer influence networks. These strategies can help life sciences companies win in the competitive global marketplace.
Serving emerging markets: Challenges
Through our analysis of current value chain capabilities in the BRIC markets, six challenges and trends emerge as especially important.
Immature logistics and distribution. The distribution value chain in emerging markets is often immature—inefficient, inflexible and highly fragmented. Take the example of the typical Chinese distribution system that, by Western standards, appears complex and restrictive, with a large number of distribution companies operating at all levels. Many distributors are province-based or city-based, and few cover more than just a small area of the country. Five primary distribution centers supply more than 200 provincial-level wholesalers, which, in turn, supply approximately 3,000 local distributors. This system may have the advantage of simplicity, but it is also highly inefficient.
Inadequate manufacturing infrastructure. Different emerging economies have very different levels of maturity in terms of their manufacturing ecosystems. A great deal of fragmentation exists among pharmaceuticals manufacturers. In India, for example, no single company has more than 7 percent of market share. And in Russia, manufacturing has often not been able to cope with the growing needs of the country’s market; currently, local pharmaceuticals companies are able to meet only a small percent of Russia’s requirements—therefore, reliance on imported pharmaceuticals is growing.
Diverse regulatory environments. Successful expansion into emerging markets depends on a comprehensive understanding of the different regulatory environments of these nations. For example, gaining approvals for new products typically takes longer in the BRIC countries than in developed markets. Approval times can range from about 18 months in Russia to more than three years in China—over and above the timelines for registration in the United States and the European Union.
Uncertainty in pricing and reimbursement. Success in emerging markets also requires understanding how pricing and reimbursement systems work in the different regions. Although each market employs some combination of free-market pricing and price controls, the level of pricing controls can vary significantly across markets and is, in part, a reflection of local economic conditions and the government’s role in healthcare provisioning.
Complex taxation structures. Taxation and import regulations also have critical roles to play in the strategies of large, multinational life sciences companies in emerging markets. Recognition of the vital role of R&D and innovation has led to the implementation of specific tax incentives in many of the emerging and developed markets. Many local government bodies are trying to attract investments in their regions by setting up tax-free zones and providing access to better infrastructure and resource pools.
Shortage of skilled talent. As opportunities in emerging markets expand, the competition for skilled talent is likely to be intense, especially in areas such as cold chain management, biologics manufacturing, demand planning and pricing analytics. The support structure to provide a consistent stream of skilled talent is being developed but, at the moment, demand is outpacing supply. Even though emerging markets produce plentiful talent from their universities, many candidates graduate with skills that are not yet industry ready.
Serving emerging markets: A four-point plan
Establishing and executing a growth strategy for the life sciences industry in developing nations involves finding commonalities across the markets—commonalities that support cost-effective approaches while also being sensitive to unique market, governmental and consumer attributes within any specific region. Accenture recommends a four-pronged approach:
Think customer clusters: The importance of submarkets. Any particular emerging market has some diverse segments requiring differentiated treatment. However, Accenture’s analysis of markets in the BRIC countries suggests that customer clusters or submarkets can be identified within a national or regional market based on an understanding of consumers who have common health needs, such as those suffering from a particular disease such as Type 2 diabetes.
Submarkets can also be identified based on common characteristics related to factors such as demographics, accessibility and technology penetration. For example, an analysis of urbanization trends and per capita income can help identify common customer clusters, which then plays an important role in determining a life science company’s market access strategy.
By focusing on customer clusters and submarkets, life sciences companies can develop a more detailed understanding of the specific needs of potentially profitable groupings of customers, leading to more effective and customer-centric R&D, as well as stronger marketing and sales strategies.
Find cross-border similarities. When developing an emerging-markets strategy, companies should not be constricted in their planning by national boundaries. An approach too focused on nations and regions could mean that customer similarities across markets are not being sufficiently leveraged to create solutions that can move across borders.
For example, a recent Credit Suisse Global Wealth Report revealed that an average Brazilian household spends 10 percent of its income on healthcare—almost double the level spent in China and India. However, the number of households earning more than $2,000 per month is three times more in India and six times more in China than in Brazil. These kinds of analyses can identify cross-border insights that enable companies to serve groups or clusters of customers more effectively and efficiently.
Establish global reach with local relevance. Whether in an urban or rural market, it can be beneficial for companies to “think globally and act locally” in meeting the needs of consumers in the BRIC markets. Cities that may be similar in economic strength are often quite different in terms of human capital components such as population growth, working-age population, entrepreneurship, risk-taking mindset and quality of education.
Understanding these different levels of maturity can give a company an overall assessment of a particular function and also help it understand the drivers that can improve the existing maturity of that function. This more granular assessment can help companies develop more customer-centric, localized solutions.
Create effective and rapid execution capabilities. The fourth strategy to consider for potential success in emerging markets in the life sciences ties all the other strategies together: Execute the solution across the markets in a timely and cost-efficient manner. Such execution can be a difficult task for life sciences firms, given that many of them continue to operate in functional silos. It is important for companies to create a single, coherent strategy instead of trying to coordinate separate supply chain strategies, commercial strategies and so forth.
Two capabilities are especially critical when planning the rapid execution of an emerging-market strategy. The first involves developing the ability to understand and to get very close to the customer—by leveraging networks and chains of influence so that a market strategy can reach consumers quickly. The second involves companies improving their risk management capabilities to the point that they can take well-considered risks as a means to rapidly seize market share.
Conclusion: Winning in the emerging markets
Growth strategies in the life sciences industry are increasingly dependent on expansion into emerging markets. A growing middle class in these areas represents an opportunity for life sciences companies to improve the quality of life there, while also improving their own market standing. Companies that are more advanced in areas such as manufacturing infrastructure, logistics, distribution and talent management—and, of course, in understanding consumer needs and behaviors—can gain an edge in achieving high performance.
About the authors
Vishal Singal leads Market Access for Accenture’s Life Sciences Emerging Markets group.
Hussain Mooraj leads Accenture’s Life Sciences Supply Chain group.