Emerging markets – the new gold rush? (part 1)
Samkoman Consulting Limited
The Pharmaceutical industry in common with many other sectors goes through what one might describe metaphorically as “fashionable change”. Examples might be:
• Manufacturing moved away from warehouses full of stock and selling-to-order to just-in-time manufacture and make-to-order. This has brought a number of advantages but metaphorically it is seen by some as “fashion”.
• Marketing moved away in many developed markets from the one-on-one interaction with clinicians to that of key account management with different players – clinicians and non-clinicians. Presently the term “key account management” might resonate with that word “fashion” for some people.
Similarly, companies are now re-setting their sights, moving away from developed markets driven in part by the stagnation of growth in these markets to higher growth opportunities seen in emerging markets. This is creating the new gold rush in pharmaceuticals – the emerging markets gold rush trail!
“…companies are now re-setting their sights, moving away from developed markets driven in part by the stagnation of growth in these markets…”
Suddenly it seems fashionable to be working on “emerging markets”.
But there are cautions with such a wholesale shift in emphasis. This article will not dwell on telling readers what they already know through reliable sources with the data such as that provided by IMS. Neither will it recommend markets to enter or be present in. Rather the aim of this article is perhaps to highlight and attempt to put into context some of the factors that must be considered and some of the potential risks that may be encountered on this gold rush journey into emerging markets.
So let us explore some of these factors in part one of a three-part series on emerging markets:
1. Growth versus absolute value.
Discussions on emerging markets invariably focus on growth opportunities. However we need to balance this with absolute value. Many multinationals will see their sales as being predominantly from North America, Japan and Western Europe. Whilst growth per se may not be high, it is typically that 80% of their business comes from these developed markets. So those market are still key but strategy will be different- reduction in cost base etc. A company has therefore to balance its efforts and resources between developed and developing markets – the former still represent a large slice of their income and contribution to shareholder value.
2. Compliance frameworks.
Why should the high absolute value of developed markets be a consideration in an emerging markets strategy? The answer is that these developed markets have strict compliance requirements and usually drive a Company’s international operational frameworks. For example the Foreign Corrupt Practices Act for US-listed Companies and the delayed introduction of the UK Bribery Act for UK listed Companies on 1st July 2011 will have a profound effect on how a Company listed in the US or UK carries out its international business outside these locations. What is the Company’s risk preparedness in investing heavily in emerging markets with countries that have different and challenging infrastructures that may make compliance a serious issue and risk?
“…a strategy to expand a commercial footprint in emerging markets invariably opens up the risk dimensions… and brings with it a different degree of custody…”
Are they aware of the risk of an international breach impacting on a large percentage of their total sales? Reputation breaches can be very costly to a company.
So my first caution to explore when opening a dialogue with potential clients wanting to expand into emerging markets is always to have a feel for the preparedness of the company and its senior directors around ‘straddling the compliance line’ as I call it. It should be recognised and acknowledged as a fact that a strategy to expand a commercial footprint in emerging markets invariably opens up the risk dimensions, since each country is different and brings with it a different degree of custody (of supply, of strategy, of compliance, of control etc.) and this must be recognised at the outset.
Put another way, a Company that tries to impose a one-size-fits-all approach for emerging markets may be creating challenges for itself. That does not mean to say that frameworks should be abandoned but rather should be adapted to meet the local context in a ‘loose-tight’ relationship. This adaptation may have to be considered on a country-by-country basis within a Region rather than simply a Regional Compliance policy. For example trying to implement a one-size-fits-all rigorous compliance framework in a structured market such as that in South Africa into Sub Saharan Africa may bring inherent challenges. This is because, in part, Sub Saharan Africa is not a country but a collection of countries each with its differences in language, culture, regulatory requirements and business practices that make the imposition of a ‘Regional African Compliance Policy’ – challenging to say the least! Trying to run Nigeria like South Africa can tie one up in knots in the quest for corporate control and custody! But the requirement to operate in a compliant manner in Nigeria is no less than in South Africa!
“Trying to run Nigeria like South Africa can tie one up in knots in the quest for corporate control and custody!”
In my experience in Sub Saharan Africa taking a cluster of East Africa as an example, Kenya, Tanzania, Uganda and Ethiopia are each different from each other and though all except Ethiopia share a common language (Kiswahili) they are culturally very different. Furthermore their tribal ethnicities and political sensitivities are very different. Curiously, the business language is English yet none of them share a mutual recognition approach for product registrations as we see in Europe. That means each has to be considered on its own – product range, regulatory procedures, prices, channels, segmentation and targeting etc.
Business practices seen as traditional and accepted customs and rituals in emerging markets can stray from what we are used to in the Western World. An example might be the religious Eid celebrations in Islamic cultures where the giving of gifts is customary and acceptable by different cultures or where asking speakers to sign a contract of the content of their clinical talk and slides may be seen as disrespectful and offensive.
In part 2 of this three-part series, we will look at how an understanding of the company capabilities is crucial and why those capabilities should be woven into the emerging markets strategy. We shall also examine the impact the regulatory journey may have on our thinking and why the change management and programme management approach should not be under-estimated in an emerging markets strategy. We will develop the idea that the strategy and the ability to execute and implement the strategy with a joined-up approach may be considered a company’s major internal critical success factor.
Part 2 of this article can be viewed here.
About the author:
Amit Vaidya is the Director of Samkoman Consulting Ltd. Samkoman Consulting offers emerging markets business development consulting services with a particular emphasis on using distributors and agent based trading models.
Samkoman Consulting can add value by helping pharmaceutical clients in three core areas:
1. Developing their emerging market entry strategies through identifying appropriate commercial trading models cognizant of their product portfolio using distributors.
2. Increasing the commercial effectiveness of their current business in emerging markets through portfolio optimisation, carrying out a review of distributors and agents, assessing distributor- fit aligned to current client requirements, reviewing commercial models and agreements for re-negotiation, benchmarking Sales force effectiveness and consulting on business consolidation as a result of merger or acquisitions (products, processes, support infrastructure and supply chain/logistics).
3. Coaching senior managers and project teams on emerging markets strategy, entry and commercial effectiveness.
Over 30 years experience in pharmaceuticals spanning roles in Sales Management, Commercial Development, Sales Force Effectiveness, Change Management, Supply Chain, Logistics and International Business Management in Territorial, Area and Global roles.
Hands-on blue-chip experience with AstraZeneca for over 20 years, latterly as Territory Director Africa for over 6 years in a General Management role running the full P&,L for 18 countries in Sub Saharan Africa and recently setting up a new pan-African branded generics distributor business from scratch for a market leader branded generics Company in Turkey.
Expertise and focus on commercial negotiations and trading models using distributors in emerging markets with specialist hands-on current knowledge, networks and experience of Sub Saharan Africa.
Tel +44 1260 280306 / + 44 7860 617081
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