Positioning for Partner of Choice

The third strategic driver follows logically from this: building bold partnerships. "We were first in the industry here, launching the Mectizan program against river blindness way back in 1987. Partnering around innovation is ingrained in the Merck business culture," Oschmann says. Done right, partnerships can yield a marketing advantage by building awareness of disease states where traditional metrics do not exist. It is also valuable to accessing the customer base because in many emerging countries traditional sales and distribution channels are weak or ill defined.

More important, a bias toward local industry means that two-way partnerships are vital to convincing governments that the company is committed to the country as a responsible investor. Merck has tried to take a higher profile than other companies in shaping the policy debate in emerging markets, sponsoring a series of workshops on medicines access and affordability issues in Turkey and Poland. On good will grounds alone, this activity will continue.

One lesson Merck has learned from experience is that partnerships are most effective when they relate to local priorities. Says MSD Russia Managing Director Boris Braun, "in Russia, transparency is the transcendent issue of concern." This is why we are building collaborative partnerships to focus on clinical research, working with others to register substantive pools of eligible patients; supporting a centralized health system coordination to allow for unified site certification by local government; and sponsoring a number of sites to specialize in earlier stage and basic research in key areas of unmet medical need like oncology and psychiatry." The affiliate is also working with the Russian Rheumatology Society to build a national registry of patient data to monitor the condition of patients with immunological disorders, which can in turn serve as the basis for evidence-based treatment guidelines.

The End Game: Resolve and Resources

Integrating these three strands of strategy—product and process innovation, locally tailored portfolio offerings, and bold partnerships—is the next step for the new Merck's effort to rationalize its approach to emerging markets. Moving forward, the company can rely on the additives in terms of international exposure and capabilities made available through the Schering-Plough combination. But the integration process can itself induce "commitment fatigue," particularly as the company prepares for another round of downsizing to compensate for the patent cliff and a reduced cash position created by merger-related costs, as well as supporting efforts to shore up the global product portfolio against competition in increasingly crowded therapeutic segments. The company also is committed to ambitious sales growth targets in mature markets where it has some holes, especially Japan. Continued backing from new CEO leadership due in 2011 counts too.

More important, competitive challenges in the emerging markets are set to increase as these economies recover from recession and the gap between revenue prospects in the biggest emerging markets and the mature markets of the US and Europe grow more stark. Latest IMS data shows that the "pharmerging 17" countries contributed 37 percent of the global growth in pharmaceuticals in 2009. IMS predicts these countries are "set to overturn the established pharmaceutical world order" by accounting for 48 percent of the global growth by 2013. This space will become increasingly expensive as companies vie for competitive advantage. Starting from a lower base in the regions implies a significant resource investment by Merck to keep up with the blistering pace of change—will the money follow?