Building a durable base for growth in emerging markets is top line in pharma’s strategy to compensate for slowing sales in the US and Europe. Key to success is moving beyond the traditional reliance on serving the smallest, most affluent segment of the market to seed critical mass: expanding resources for health, broadening the customer base, empowering consumers, fostering brand awareness, and positioning the enterprise as a good corporate citizen.
Answers to these challenges vary and there are no fixed rules to drive what clearly has to be an active learning process.
One way that pharma can benchmark progress is to leverage the learning curve from companies in adjacent consumer businesses, but with a longer history of engagement in the same markets. Are there shared values or principles that can help position the business to operate successfully, even when the product mix may be different?
This was the basic question I posed as moderator of a November 9 panel discussion on Emerging Market Strategies hosted by the global consultancy Gerson Lehrman Group, which featured observations by three former corporate leaders – Jeff Hayzlett of Eastman-Kodak, Tom Santel of Anheuser-Busch International, and John Swainson of Computer Associates [CA] – each with a track record in growing an effective business model for emerging markets.
Key conclusions from the exchange are as follows:
Market potential must be evaluated from a real time perspective. It is a mistake to mimic the evolutionary play book used in the mature markets. There are numerous examples of emerging countries leapfrogging entire stages of the innovation cycle that technologies undergo in the US and Europe – in China, for example, there was little need to worry about the transition from film to digital technology as few individual consumers in China were affluent enough to afford film cameras during the years when Kodak led the world in that technology.
Progress has to be measured against the local competition. A 30 per cent growth rate in revenue for the local operation may sound impressive against what is achievable in the US, but it has to be remembered that mature markets start from a higher base – and that your local competition in the emerging market might be doing 70 per cent.
Achieving high margins is a better long-term strategy than posting volume growth in sales. Margins should not depend on raising prices but on constantly seeking new ways to keep the product offering fresh in adding value to the customer. Increasing volume growth through a low price strategy is risky over the long term because it tends to commoditize the product and makes it harder for the consumer to differentiate in terms of value.
The most important people in your emerging market operations are those who can make the connection between products and local productivity. Sales personnel must be proficient not just on the product profile and related technical characteristics but also on why the product is distinctive – and useful to the consumer – in each market.
In building market access, what is most essential is finding the right distribution partner. Too often, the assumption is made that everything revolves around the structure of the joint venture – the overall operation. But if distribution is not handled well, you cede ground on several key fronts: less awareness of the actual environmental conditions that drive the business and an increased potential for conflicts with the customer.
In any licensing or partnering agreement, the role of the CFO is critical to success. The position should be carefully vetted by the US partner, and candidates should combine trustworthiness to HQ with a close knowledge of the local business environment. “Parachute in” candidates tend to be a poor choice. And always rely on executives with a track record – who have done the same thing before.
Be seen as a good corporate citizen, and do not neglect the relationship with regional and local governments as well as top national officials. In many emerging markets, it is local bureaucrats who the call the shots in enforcing standards of good practice against counterfeiting or in IP. US-based companies also need a strategy to address the impact of stepped-up scrutiny around extraterritorial application of the Foreign Corrupt Practices Act, although European governments are increasingly involved in corruption compliance issues as well.