Emerging markets – the new gold rush? (part 2)
Samkoman Consulting Limited
(Continued from “Emerging markets – the new gold rush? (Part 1) ”)
In the first article on ‘the new gold rush’ of emerging markets, we set the scene considering on the one hand the attraction of the higher growth rates of many emerging markets with the low growth rates but high absolute value of the business in developed economies such as North America, Western Europe and Japan. We went on to consider why I think the developed economies could shape our thinking on what we did in the emerging markets driven in a major part by the dominant effect of compliance frameworks and legislation such as US Foreign Corrupt Practices Act and the new UK Bribery Act which have to be considered in our market entry strategy for emerging markets. We finished with the message on the need to consider how a focus on emerging markets can increase a company’s risk exposure to compliance breaches. In this second article we consider the need to weave company capabilities across different functions and I will share three critical steps that I believe are easy to overlook when entering emerging markets.
3 . Weave company capabilities into the emerging markets strategy.
A decision to enter emerging markets is a joined-up cross-company, cross-functional approach that could involve some or all of the following:
• Tax &, Treasury
• Manufacturing Operations
• International Marketing
Above all, a commitment from senior management to a long and potentially costly journey ahead with a full risks evaluation that has been agreed (but one where the sales will justify the costs) must be in place.
Of course for those interacting with the Finance Director in the Company, remember that the cost of sales is typically high on entry when investing and as you grow sales faster than costs over time, the cost of sales falls. The projections should reflect that! Finance Department buy-in is critical as is their modelling capabilities.
On this gold rush journey, one should not under-estimate the role of IP, patents and trademarks. Patents, IP and trademarks are the life blood of a Company. If they are infringed by a third party in a foreign country it can be a costly venture trying to get them back. Involve the legal department in your market entry plans.
“On this gold rush journey, one should not under-estimate the role of IP, patents and trademarks.”
There are ways of building in protection in a legal agreement against such breaches, but often one will have to consider litigating in a foreign country should a breach occur and you don’t want the legal guys telling you: “you should have asked me about these issues”.
In most companies, legal department has to have sign off and has veto to commercial deals in any case, so this should not arise. You should remember however, that even with a strong water-tight legal commercial agreement, breaches can and do happen and they are costly to put right. In my experience, the benefit of having a strong water-tight contract is to defend one’s position when litigating rather than preventing breaches in the first place. Maybe because distributors are in the market and the Company is not, there could be an element of ‘out of sight, out of mind’ and that is why selecting a partner distributor who is a right fit is so important – because breaches by the distributor can become a liability for the principal (the Company). It is not unheard of to find a distributor using a principal’s dossiers to register and sell his own generic copies of the principal’s products or registering the products in his name – so before you entrust your dossiers to someone who you hardly know, think very carefully about who and how you have chosen a distributor partner.
International expansion may involve a significant change management piece as well as mobilising skills and experience to help take the strategy forward using seasoned experienced professionals who have hands-on emerging markets experience and can coach staff through what is required. This is no time to find out that your coach and partner is one chapter ahead of you in the change management manual! The change management piece should not be under-estimated – moving the focus of a business into emerging markets requires a hearts and minds shift in both mindset and business processes – challenging thinking across the business founded on experience, working across cultures, working with people for whom English may not be their first language, working in different time zones, different sales-order-to-cash processes, expenses reconciliation, order management from receipt of order to goods out from warehouse and so on.
“…moving the focus of a business into emerging markets requires a hearts and minds shift.”
In my experience, three critical steps are easily overlooked:
1. Market assessment in terms of entry requirements with a special focus on regulatory requirements, the regulatory journey, costs and time lines. It is quite possible that many products for emerging markets will fall under different climatic zones from those of country of manufacture. In such cases a deep and broad understanding of the regulatory environment in the target market is critical to define which products (if any) the Company has dossiers for that meet those requirements. Allied to this dossier evaluation and compliance, is to assess the level of investment required to develop the data for the dossiers to comply with the target market requirements.
Some markets require local clinical trials in local patients thus having an impact on a Company’s Medical function further adding time and costs to entry. Increasingly countries are also stipulating an audit of manufacturing in the country of origin which has an impact on the Operations function. Such inspections are entirely in the hands of the regulatory authorities in terms of when they propose to visit your site and one must consider what happens if the date proposed is not agreeable to the Company. How much delay will that add to the registration process?
2. Having obtained a clear view of the regulatory and registration process, the next checklist item is to have reviewed the company capabilities to meet the regulatory requirements and identify what is required to meet the requirements if there are deficiencies. An estimate of the time required to meet the requirements should be made and reviewed on an on-going and regular basis – this review step has the risk of being overlooked adding to the time to enter the market – and we shall explore the implication of this in more detail in the third and final part of this series.
“The ability to execute the emerging market strategy with a joined-up approach at all times may be considered an internal critical success factor for a company.”
It is essential with this information to have senior manager commitment to proceed in full knowledge of the journey.
With that in place, a full assessment of product potential and prices is required to decide which products should be registered. Considering product potential and market size may be challenging in some emerging markets simply because the data does not exist. In much of Sub Saharan Africa for instance, there is no IMS data and competitors may not share the same distributors. Distributors do not share their principal’s data with any other distributor which blurs market size and potential. Being able to operate in an opaque environment with shades of grey rather than the traditional black and white approach of relying on volumes of data is essential in this example of sub Saharan Africa.
Assessing product potential, pricing and forecasting under such situations could form a separate detailed discussion it its own right!
Remember that we started off saying that this is a regulatory journey. Therefore at all times consider what the opportunity for that product might look like at the end of the journey for the registration process. The market could be more attractive than at entry – or less. There may be more players, the market dynamics at the end of the registration might lead to price erosion or reduce the product’s differentiation and therefore its ability to command a premium price.
Consider also that some emerging markets are becoming “reimbursed” and require health economics data and it may be difficult to obtain an acceptable reimbursement price. Some markets are not reimbursed in the true sense, but may involve a “price certificate” stage typically late in the registration process – often just prior to issuing a registration certificate. For example some markets in Africa requires submission of price certificates with prices in country of origin and the same for a basket of surrounding emerging markets against which they benchmark the Company’s proposed prices. There is a risk that a Company may not be granted its proposed price and then a decision has to be taken whether to enter with the product at that price or not. But bear in mind that the investment of regulatory activities, time and money has already been made and is not reimbursable!
3. Inadequate programme management skills to manage the multiple projects that are on-going during market entry – national and international silo mentalities slow down the whole operational effectiveness of the market entry plan and the business can lose sight of the constellation of activities required and lacks a joined-up view.
The potential for delays inevitably increases driven by such internal issues. The ability to execute the emerging market strategy with a joined-up approach at all times may be considered an internal critical success factor for a company. The composition of the company’s aggregated skills, human capital and culture can play a pivotal role in execution. If specific skills, experience and know-how are not present, consideration should be given to how it may be acquired, developed or brought in on a temporary basis to keep the programme running.
“…weave company capabilities into the emerging markets strategies.”
Emerging markets are an exciting area to be in. There are attractions such as high growth rates, extended product lifecycles, and brand loyalty for multinationals that target the right segments and pick the portfolio of countries carefully after considered evaluation. An emerging market strategy should consider some of the risks of entry. These include:
• Potential compliance issues and the Company’s preparedness not to impose a one-size-fits-all approach.
• Awareness of local regulatory requirements and the length of time for the regulatory journey that may involve complexities such as local manufacture capabilities further down the line, the need to conduct local clinical trials and an audit of the manufacturing site(s) to at least cGMP compliance standards.
• Risks of obtaining an acceptable reimbursement price. Some markets that do not have a reimbursement price are adopting a “price certificate” approach where there is a risk that the price granted may not be acceptable.
• Financial stamina and commitment to be demonstrated across the Company with a joined up view across functions in full knowledge of identified risks.
• Change management preparedness and the ability to adopt and implement a programme management approach in the execution of strategy across markets.
Finally, weave company capabilities into the emerging markets strategies. Entry is a joined up approach across different functions in the business. Leverage inter-departmental expertise and build it into your thinking .
In the third and final part of this series on emerging markets, we will examine and explore two dimensions – time and timing – and attempt to highlight how each is different whilst at the same time intimately entwined and important. With such exploration, we will conclude with some thoughts on how these two dimensions may be reconciled in an emerging markets strategy.
Part 3 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
How do you move the focus of a business into emerging markets?