China and the Emerging Markets Challenge - Pharmaceutical Executive


China and the Emerging Markets Challenge

Pharmaceutical Executive

Shaping strategies: best practices from China

Some companies are making impressive strides in putting shaping strategies into practice in China. General Electric Healthcare is one player that has focused aggressively on ways to shape its profile in the Chinese market, gaining a critical first-mover advantage in the process.

A full three years before the 2009 healthcare reform in China, which pushed care to rural markets, GE created a dedicated team to concentrate on serving the rural population. The team has spearheaded efforts to tailor GE's product line to deliver the simplified, lower cost products that this new demographic segment demands. In 2012 alone, GE rolled out more than 20 products aimed at this market. The company, which previously garnered 20 percent of its sales in China from smaller cities and rural markets, has set a goal of generating 50 percent of sales from those segments in the next two years. In addition, GE was the first to establish a new innovation center in western China after the Chinese government made clear it was focusing on that region for healthcare improvements.

Diabetes-treatment leader Novo-Nordisk has also displayed an understanding of what is required to win in China. Novo's focus on China dates back to 1990, well before the threat of diabetes in China was widely appreciated. The company has embraced a shaping strategy, including robust physician education efforts and the creation of an advisory board in China made up of key opinion leaders. Novo has also proven adept at raising awareness of the alarming rise in diabetes through events like a recent policy forum; where speakers included minister of health Chen Zhu and former UN secretary general Kofi Anan.

Novo's high level engagement has earned the company a seat at the table with policymakers. Novo helped drive the development of nationwide clinical treatment guidelines for diabetes through close work with the China Diabetes Society. In January 2012, the Ministry of Health formed a partnership with Novo to educate patients on diabetes. And the company has cultivated a strong relationship with the patient community through the Novo Care patient club which now tops 600,000 members.

Hurdles to successful shaping strategies

There are significant barriers to executing a shaping strategy in China and other key emerging markets. Often these obstacles stem from the company's culture and practices which have been forged in the very different realities of mature, developed markets.

While the rules of engagement in China often differ by city or province, global pharmaceutical companies with headquarter-centric decision making processes are often ill-equipped to respond with the required agility and flexibility. China is comprised of multiple market segments, each with distinct needs for products and services. Global pharmaceutical companies, in contrast, often adhere to one central standard when it comes to either product offerings or the core business model. And while winning in China requires big, bold commitments—think GE's announcement in 2011 that it was moving the global headquarters of its X-ray business to China—global pharmaceutical companies are sometimes hampered by short-term thinking due to the rapid rotation of managers through leadership positions.

This mismatch between pharmaceutical company skills and the requirements for succeeding in China can put them at a disadvantage to more informed, flexible, and agile local players.

Compounding these challenges are continuing financial pressures which force multinationals to focus on cost efficiencies, characterized by standardization and centralization. This creates a paradox for pharmaceutical leaders who must hone very different skills to win in emerging markets. In the end, companies must learn to employ different strategy styles simultaneously, or what we call "strategic ambidexterity." But this is rarely easy. A recent BCG study of the financial performance of 2,000 publicly traded companies found that only two percent outperformed the competition simultaneously in both turbulent and stable environments, a sign of ambidexterity.


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