It’s time for the Pharmaceutical industry to redefine the emerging markets says Booz & Company’s latest study
One in every two top pharma company managers expects share of revenues coming from emerging markets to exceed 30% by 2018
We have started witnessing an influx of global pharma manufactures focusing on optimizing their regional (Middle East) operations and setting up joint ventures and with regional public and private sector players, this will surely impact the sector positively
To complement the increased influx of global pharma manufacturers we have witnessed a number of encouraging initiatives from different GCC governments to encourage private sector participation in the sector
International pharmaceutical companies expect a significant rise in business activity in emerging markets over the next five years. The statement is one of the key findings in a recent research report by the international strategy consulting firm Booz & Company who interviewed executives from more than 25 of the top pharmaceutical companies, together covering some 50% of the total pharmaceutical revenues. 52% of the top managers who took part in the survey claim that, by 2018, more than 30% of their respective companies’ revenue will come from emerging markets. Today, the threshold is only 23%, equating to $191bn of revenue in emerging markets. Nevertheless, companies should be aware that whilst there is huge potential here, variations within the emerging markets themselves, require different and tailored approaches.
“The BRICMT-countries (Brazil, Russia, India, China, Mexico and Turkey) have become a viable alternative to Europe and the USA. In the non-established markets, pharma companies have a unique opportunity to enter early and shape the market,” said Stephan Danner, Partner with Booz & Company’s Health practice. The emerging markets have long been regarded as the “promised land” of the pharmaceutical industry, yet, so far, ambitious targets remain unachieved.
To effectively serve these markets, there is a change in thinking in the boardrooms: a greater proportion of operations will need to be bespoke to individual markets to adapt to local idiosyncrasies. Indeed, 27% of those surveyed see current strategies insufficiently tailored to local market conditions to be the biggest failing. One of the executives interviewed said, “one of our biggest mistakes was to treat emerging markets like mature markets. We were wrong. Pharmaceutical strategies have to fit a country’s individual needs and development.” The findings of the study firmly point to localisation being the most effective way of driving growth in the emerging markets. Thus, 77% of survey participants deemed the deployment of local operational teams in BRICMT markets to be a sensible move. 67% have voiced their support for a local production unit, and 65% support the creation of a local R&D division. These views are well supported by investment foundations: 78% are planning further expansion of local offices in BRICMT – a sign of the degree of trust companies have in the stability of these countries. "We have started witnessing an influx of global pharma manufactures focusing on optimizing their regional (Middle East) operations and setting up joint ventures and with regional public and private sector players, this will surely impact the sector positively" confirmed Gabriel Chahine, the partner leading the Healthcare practice at Booz & Company in the Middle East.
The adaptation to new market dynamics is expected to occur swiftly: in a matter of 5 to 10 years, 67% expect the Marketing & Sales functions within BRICMT countries to closely resemble those in established markets. This has clear consequences for the classical operating model of companies: the majority of interviewees expect that the weight of responsibility and ownership will gradually shift from the central HQs to regional subsidiaries; however challenges such as recruiting suitable local talents remain a large area of concern. The winners will be the executives who thoroughly understand the challenges of their markets build key relationships and retain local talent. They will reap the rewards; not necessarily in the short-term but certainly on a sustainable, long-term basis. Moreover to complement this increased influx of global pharma manufacturers we have witnessed a number of encouraging initiatives from different GCC governments to encourage private sector participation in the sector; this is a very important step given that most of the pharma procurement in the region is governmental driven. For example roughly around 60% of the pharmaceuticals sold in the KSA, the largest market in the region, are procured by the Ministry of Health said Jad Bitar, a Principal with the Healthcare practice at Booz & Company.
It is important to bear in mind however that whilst emerging markets offer huge untapped potential, they also display a wide diversity in their stages of development. The BRICMT countries are much more developed than the so-called “2nd tier emerging markets” in South-East Asia and then Africa, and there is a huge difference in size. Yet, they are all regarded as “emerging markets”. The vast majority of decision makers remain cautious about these 2nd tier markets, despite the projected growth rates in Africa of 28%. Only 43% of pharmaceutical managers surveyed believed that the same steps being taken in the BRICMT countries were worthwhile in 2nd tier markets. Collaborations with governments or local sales representatives are currently preferred here. "We are at a turning point where some regional manufacturers have commenced developing their capabilities and are now in a prime position to maximize their market presence and sales especially given the global economic climate as well as the pharmaceutical industry patent cliff (Several billions of branded pharmaceutical are expected to lose patency by the year 2018), I believe this is a golden opportunity which we need to maximize and make sure that we are all fit to grow and meet the expected upcoming market needs" concluded Raffi Boladian, an Associate at Booz & Company.