By establishing a strong foothold in Southeast Asia with branded generics, MNCs can do much more than sell pharmaceuticals—they can build a robust presence within the region’s pharmaceutical value chain. (See Exhibit 3.) Participating in the local economy helps MNCs to better understand patients’ needs; develop relationships with local physicians, hospitals, distributors, and retail pharmacies; and identify gaps within existing markets. Armed with this knowledge, MNCs can better position themselves to compete with local unbranded generics and create sustainable value for consumers.
Companies looking to expand their footprint in emerging markets will need to focus on where they can create the greatest value. This may require some fundamental shifts in those companies’ standard business models. MNCs should take the following actions to secure big wins in emerging markets such as Southeast Asia.
Develop targeted, region-specific R&D. R&D in emerging markets is rarely adapted to local needs and preferences. MNCs typically import and distribute the same types of drugs in those markets that they created for developed markets. But pharmaceutical needs and preferences in emerging markets may differ from those in the West. Emerging markets have a unique profile of infectious diseases, such as Dengue, as well as genotype-specific diseases, such as systemic lupus erythematosus.
In addition, emerging markets may need products that are suitable for local conditions, such as heat-stable medications. Pharma companies that tailor their R&D programs to address these differences will have much greater success than their counterparts that do not. By localizing R&D efforts, companies also have an opportunity to build up the region’s infrastructure and capabilities.
Establish public-private partnerships. Strategic partnerships with local authorities help MNCs gain greater access to previously underserved populations. Novartis is doing this with its Arogya Parivar program, a public-private partnership that addresses health challenges among India’s rural poor. Novartis recruits and trains residents in remote villages to become health educators to keep people informed about disease prevention and the benefits of seeking timely treatment. Local teams also work with doctors to organize mobile clinics that provide access to screening, diagnosis, and treatment. The program became profitable in 2012 and has now expanded to include Kenya, Vietnam, and Indonesia.
Differentiate from unbranded generics. MNCs need to establish superior brand images to differentiate their products from unbranded generic competitors. This can be achieved by shaping their product portfolios to address unmet needs and by focusing on innovative, difficult-to-replicate products.
For example, companies may wish to develop biosimilars, or follow-on biologics, as an alternative to original biologics whose patents have expired. Biosimilars are not generics (identical copies of already approved products). Rather, they are highly similar versions of already approved products—and there’s a rapidly growing market for these drugs in certain sectors because they are priced at a discount to the original biologics. A recent report by Datamonitor Healthcare, for example, predicts nearly 40-fold growth in sales of biosimilars for HR+/HER2– types of breast cancer from 2018 through 2024.
Because biologics are complex molecules originally derived from living organisms, they can be extremely sensitive to changes in the manufacturing process. MNCs with deep expertise in the complicated process of producing biologics will have an advantage over local generics players.
Build a strong local distribution network. To secure full market coverage, it is essential to establish local manufacturing and distribution networks. Strategic placement of manufacturing hubs and strong collaboration with local distributors—particularly those with extensive networks and existing relationships—are important for the timely delivery of high-quality drugs. Inefficient manufacturing networks can create complex supply chain issues and damage an MNC’s reputation.
Explore joint ventures. A long-term partnership with a local organization through a joint venture or acquisition can be a quick way to build manufacturing and distribution capabilities. For example, the German pharmaceutical company Fresenius Kabi bought a 51% stake in Indonesian drugmaker Ethica Industri Farmasi. This joint venture provides Fresenius with valuable manufacturing capabilities while Indonesia rolls out its universal health care program. Similarly, UK-based GlaxoSmithKline partnered with Indian manufacturer Dr. Reddy’s Laboratories, gaining exclusive access to Dr. Reddy’s manufacturing capabilities as well as its portfolio of more than 100 branded pharmaceuticals in multiple segments. Other MNCs have licensed their products in an effort to reach emerging markets. EastPharma, a drugmaker in Turkey, acquired the rights to manufacture and market eight Roche branded generics registered in Turkey.
Southeast Asia comprises complicated and diverse markets with unique sets of challenges for MNCs. But we see much to gain from entering local markets. Using branded generics as a starting point, MNCs can make significant inroads into Southeast Asia. Over time, by establishing a strong local presence and forging strategic partnerships with local organizations, MNCs can expand into these markets in ways that generate meaningful growth and provide lasting benefits to the local community.
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