Strategy: The Four Fundamentals
All global pharmaceutical players understand the economic opportunity in emerging markets. And while many may have already
recognized the dangers of the myths and mental traps described above, few have succeeded in putting this knowledge to use
in developing a competitively advantaged strategy and suite of innovative business models in emerging markets. Yet it is the
consistent application of a set of strategy fundamentals that really make the difference in positive engagement that drives
long-term profitability. Such strategy fundamentals comprise the following:
Seek out value, not just growth. Long-term price points are, or could conceivably become, very low in some countries, channels, and segments. Revenue growth
has been a good surrogate for value creation in the West, but unprofitable growth is entirely plausible for some emerging
markets, especially if current developed country business models and cost structures are assumed. Therefore, companies need
to think about which countries, segments, and channels they will participate in and measure value creation segment by segment
as well as by top-line growth.
Don't neglect the innovation agenda. To win in emerging markets, global companies must innovate on the frontlines, rather than rely on standardized business models
dictated by headquarters. Often, however, they do not have the capabilities in place to drive business-model innovation locally.
Global pharmaceutical companies risk missing not only the opportunity to serve the growing middle-market segments of emerging
markets, but also the opportunity to originate disruptive new business models, which may be later exportable back to core
Develop a more adaptive and dynamic approach to strategy and operations. Turbulence and unpredictability have increased, undermining the effectiveness of traditional episodic and top-down approaches
to planning, and also shifting the basis of competition from scale, positioning, and efficiency to adaptability. Emerging
pharmaceutical markets provide an extreme example of this phenomenon. An approach that emphasizes experimentation and rapid
iteration is necessary in order to keep pace with incessant change. Four competitive attributes ("The Four Rs") are essential
for adapting effectively in a rapidly changing environment:
» Readiness: the anticipation of changes.
» Resilience: of plans to unanticipated market shifts.
» Responsiveness: rapidly responding to and taking advantage of changes.
» Recursion: rapidly and continuously learning how to do new things.
This requires a very different approach to organization, which emphasizes risk-taking, decentralization, challenging prevailing
wisdoms, flexibility, and rapid mobilization. It also requires a different approach to leadership, whereby leaders set the
context for learning, rather than dictating a static instruction set.
Don't lose sight of the change imperative in the core business. The challenges facing the current pharmaceutical industry model run deep. Consider that in 2000, the 20 largest biopharma
companies had a market value of $2.2 trillion. By 2010, their value had dropped to $1.5 trillion. Granted, the Dow Jones index
was flat and the S&P lost 10 percent—but the decline of the pharmaceutical industry's market value, at 32 percent, was particularly
The collapse of the industry's P/E multiple reveals a lack of faith in the ability of pharmaceutical companies to sustain
Emerging market participation is no panacea, but they do offer an opportunity for a different type of innovation. Industry
leaders should ask themselves how many cents of each R&D dollar should be spent on non-product innovation and make sure they
are seizing the opportunities for business model innovation which emerging markets present.
The prize of emerging markets is a valuable one. But competitive leadership should not be confused with profitable participation.
The winners will be the ones who embrace anomaly and change in emerging markets with agile, innovative organizations and new,
powerful business models.
Martin Reeves leads Boston Consulting Group's Strategy Institute and is a Senior Partner in New York. John Wong leads healthcare
for BCG in Asia and is a Senior Partner in the firm's Hong Kong Office. Ethan Dabbs is a Principal in BCG's New York office.