Emerging Markets: Setting a New Agenda

Apr 01, 2012

Getty images: Glen Allison
The rise of the emerging markets as an opportunity for Big Pharma cannot be measured solely by growth and revenue statistics. These new players in the global economy are also having a profound impact on how the industry innovates, as the source for new ideas ranging from how to market medicines to underserved consumers to the application of traditional knowledge that brings down drug development costs. Seeding the thought leadership base is a new class of activist scientists, many of whom advocate an equally activist national industrial policy and, in contrast to their counterparts in the West, enjoy close ties to government.

An exemplar of this influential sect is India's Dr. R. A. Mashelkar, a scientist, management expert, and IP specialist who has chaired no less than 12 policy commissions for the government and is currently President of the Global Research Alliance, a network of some 60,000 scientists from publicly-financed research institutions in Asia, Europe, and North America. Mashelkar has spoken out forcefully in India—at some risk to his reputation—to promote recognition and enforcement of IP rights. More recently, he has become a proponent of new business models designed to deliver medicines profitably, but cheaply, to low income consumers—on the premise that if this market is approached as a distinct community, even the poorest have significant disposable income to spend on health. Finally, despite his government ties, Mashelkar is also widely known in the business community, serving on the boards of Tata Motors, Reliance Industries, and Piramal Life Sciences, as well as Microsoft's global science advisory board. Last month, Mashelkar sat down with Pharm Exec to discuss the life sciences business—with the compass pointed south.

PE: You advocate a shift in business strategy for emerging markets, from the exclusive pursuit of "value for money" to an approach that incorporates "value for many." How does management avoid losing focus in moving from satisfying a distinct and familiar customer base to a larger, more diverse set of consumers, with varying preferences?

The challenge is twofold: first, to create a strategy to serve the market you wish to address and then to adapt the larger process of management to make a successful transition from the "journey of the mind"—the plan on paper—to the real world of the marketplace. For example, companies often start their strategy review by asking: "Given our cost structure, which segments of a market can we serve?" Instead, companies must ask: "Given that we need to cater to the unserved, what should our cost structure be?" Project teams have to change their ways. They have to work within self-imposed boundaries that stem from a deep understanding of consumers. That will lead to a novel, "outside in" view of how to be innovative in addressing the needs of the unserved. The language inside the organizations should change, too. The thought process should start with an understanding of consumers as people and individuals rather than an undifferentiated mass; likewise, your suppliers are better seen as partners, not just vendors; most important, we must regard every employee as an innovator, the in-house safety net that helps organizations keep pace with disruptive change.

In building a new business model for the unserved, the question to be asked is "What if we change the way we operate to reduce costs and focus on return on capital employed, not just on operating margins? If we reduce prices enough and make our products available to many more people, won't there be explosive growth as they quickly find uses for and buy our offerings?" This is precisely the outcome from the effort by India's Tata Motors to create a new car to cater to the aspirations of an emerging class of lower-income workers. In marketing the Tata Nano, the company soon realized it was dealing with a customer who had never used a car before—and had never gone to a showroom. In fact, the showroom had to come to the customer! Building consumer confidence in the Tata Nano meant raising the warranty guarantees from 18 months to four years, a world record for a car. Financing car loans to customers who were not salaried, or did not have bank accounts, was a challenge that led, in turn, to some innovative financing methods.

Reaching millions of new customers with a low-priced product means keeping an eye on production and distribution costs to such an extent that the addition of a single dollar to overhead might endanger the profitability of the enterprise. Such cost pressures require extreme innovation in building rapport with the customer. ChootuKool, an ultra-low-cost refrigerator retailing at $69, was created by the Indian manufacturer Godrej-Boyce to appeal to largely rural households earning an average $5 per day—a market consisting of over 100 million people in India. To build support for the brand, the company enlisted local villagers to help market the refrigerator by guaranteeing a commission of $3 for every unit sold.

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