Most major pharma players are vying for leadership in this faster-growing part of the "two-speed world." As they scale back costs in developed markets, companies are building R&D, manufacturing, and sales force capacity in emerging markets, with a particular emphasis on China and India.
While the optimism of straight-line forecasts for emerging markets sales growth may be debatable, there is clearly a sizeable prize to be captured. But emerging markets represent a competitive game—and playing that game successfully is far from straightforward. Based on our experience with global pharmaceutical companies and multinationals in other industries, there are important distinctions to be made between "profitable early-stage participation" and "winning the end game"—and between knowing what to do and doing it better and faster than competitors. Furthermore, not all emerging markets are created equal, and while some global pharmaceutical companies have found ways to win in particular emerging markets, few are winning consistently across a majority of markets and sub-segments.Players have an opportunity to increase their long-term performance by recognizing and avoiding a common set of pitfalls and mental traps. But what will distinguish the real winners is the clear-headed application of fundamental business strategy principles to prioritize investments and guide decision-making. Specifically, what are these myths and mental traps and what strategy imperatives will differentiate the winners from the also-rans?
Marking the Markets: Myths and Traps
In the race to find additional sources of profitable growth, players sometimes underestimate the challenge of building sustainable competitive advantage in emerging markets. While some pitfalls in strategic approach and operational execution may seem obvious from afar, they are often hard to avoid in the throes of competition.
Myth: "Globalization" is a constant and a given. The prospects for emerging markets hinge on the interconnectivity of the world economy. As ubiquitous as the term globalization is, it is not necessarily a smooth, predictable, and irreversible trend. Growth predictions must not be seen as inevitabilities; instead, companies should monitor and manage economic and political risk, prepare for a range of scenarios, and proactively shape the political environment.
Myth: Bad Industrial Policy precedents can be contained. Governments in emerging markets are aware of their increasing influence, and some employ a range of measures to tilt the playing field in favor of domestic pharmaceutical companies. For example, in June, Vietnam's Ministry of Health requested that the Ministry of Trade exempt local pharmaceutical companies from an import tax on a key manufacturing ingredient in an attempt to stabilize the domestic market. Similar dynamics are playing out in other countries too.
More broadly, the loosening of intellectual property protections is a significant risk factor for profitable growth in emerging markets. For example, when Brazil invoked compulsory licensing in 2007 to allow domestic players to produce and sell a low-cost version of Merck's antiretroviral Sustiva, then-President Luiz Inácio Lula da Silva, spelled out the rationale in plain terms. "Between our trade and our health," he said, "we have chosen to look after our health." Understanding the nuances and implications of shifting local market regulatory conditions is therefore critical to emerging markets success.