All emerging markets are created equal. While this myth seems obvious, there are still some players who, by applying a one-size-fits-all approach, overlook the extreme
socioeconomic and geographic differences between emerging markets. Among the BRIC countries, Russia has the highest GDP per
capita, at about $15,000, while nearly three in four people live in cities. At the other extreme, India has the lowest GDP
per capita relative to the other BRICs, and although it is the most densely populated, at nearly 370 people per square kilometer,
only three in 10 people live in urban areas.
Unmet medical need varies by market, as well. In Russia, the greatest disease burden—as measured in disability-adjusted life
years (DALYs)—is from cardiovascular and metabolic disorders, while in India, the most significant burden is infectious disease.
In Brazil, China, and Mexico, neuropsychiatric disorders have the greatest burden on healthcare costs. These distinctions
have important implications for the products that pharmaceutical companies need to bring to market, as well as the ways that
they connect with physicians and patients.
Health practice in each country is also characterized by a unique mix of channels, such as OTC, generics, tender, government,
private, and hospitals. Investors must think about tailoring the model to each market and even about operating multiple models
within individual markets. For example, in Russia this could mean focusing one unit on the out-of-pocket segment and another
on state-funded healthcare. The business model requirements are different for each: the out-of-pocket segment needs a business
model much closer to that of a fast-moving consumer goods business, one where knowing the mind of the customer is critical,
while dealing with the state-funded health system requires regulatory know-how, government-relations capabilities, and strong
payer negotiation skills.
We can apply our traditional business models to emerging markets. Companies have typically entered emerging markets, starting with high-end, premium-priced urban segments, where variants on
their core commercial model can be deployed. Companies which do not transcend their core Western business models frequently
fail to capture the long-term growth they expect because they neglect the lower demographic tiers, secondary channels, and
market specificities which can account for the bulk of the market. The patent protections, global manufacturing scale, and
marketing horsepower that serve as drivers and competitive differentiators in the West may not be sufficient in emerging markets,
where the lines between innovative pharmaceuticals, generics, and over-the-counter products are often less distinct. This
also makes establishing local cost effectiveness much more critical. Winning requires bold life-cycle management, low-cost
local manufacturing capacity or partnerships, and strong regulatory stakeholder management. Fundamentally, companies need
to embrace the necessity of business model innovation in emerging markets.
China alone has over 150 cities with a population greater than 1 million. Many of the top multinational pharmaceutical players
in China get the vast majority of their revenues from the top 30 cities. But building for the long term requires not just
going to the next set of cities—they are already there—but capturing the larger impact as the next billion consumers beyond
the top of the pyramid work their way into the healthcare system. We see that current medical rep-intensive approaches beyond
the top cities are already proving to be much less profitable due to dramatically lower rep productivities from smaller accounts,
higher price sensitivities, and less-efficient logistics. Instead, companies must think through different business models
that can keep in touch with doctors and influence prescribing behavior but at much lower cost.