Thursday, August 21, 2008

Winning in Emerging Markets

Last Post Review

A LONG time ago I posted my last blog feed about one of my favorite topics: Evidence-Based Marketing; or the use of Marketing Strategies reinforced by evidence and data. Another way to describe it (and which may sound more familiar) is Value-Based Strategies. In both cases, it means emphasizing the value offered by a certain health care product, and not only its benefits. After all, not all benefits turn into value, right?

Now, after a few months away from my blog I decided to resume my activities putting some thoughts on emerging markets, under the perspective of Health Care business.

BRIC Power!

The first time I heard about the BRICs was in the 90s when still in high school; and frankly, much before Jim O’Neill from Goldman Sachs “created” the term. Brazil, Russia, India and China, although far from what they represent now, were expected to have such a fast development that they would become major players in the global Economy. At that time, few would believe it, and I wasn’t one of them despite my Brazilian heart.

Nowadays it is very easy to find numbers and analyses justifying the importance of the BRICs to the world economy, but this is just the tip of the iceberg. Emerging markets have dominated the scene for quite some time now, and the BRICs is on top of that given the market size and potential of these four countries.

This is not a blog about Economy, but my point is that emerging markets represent countries experiencing fast industrialization process, with people increasing their income and, therefore, consumption. When you combine an emerging economy with a huge population the effects are geometric: imagine if just 10% of China’s 1.3 Billion people start to relocate from rural to urban areas, earn more money and spend more in clothing, food, entertainment, health care…Imagine what this would represent in terms of market potential for new products and companies. Now stop imagining because this is happening every year, and at a faster rate of about 15.3% (source: The World Factbook, CIA).

The comparison is clear: where would you market your products: a) in a highly-competitive, saturated market, or b) somewhere else with just a few (if any) competitors and with a market that is eager to spend what it hasn’t spent for the past years?

According to the World Bank, on average the world is expected to grow its GDP at 2.7% and 3.0% in 2008 and 2009, respectively. The U.S. GDP is expected to grow at 1.1% and 1.9% in the same period. Now, what about the BRICs?

Brazil: (2008) 4.6%; (2009): 4.4%
Russia: (2008) 7.1%; (2009): 6.3%
India: (2008) 7.0%; (2009): 7.5%
China: (2008) 9.4%; (2009): 9.2%

Together, the BRIC countries represent almost 41% of the world’s population, and in a simple average is growing at 7%, or more than twice the average global growth rate. (For Math fans, the weighted BRICs growth average is even higher: 8%).

Implications for Health Care

As my returning post after a few months “in silence”, I just wanted to call your attention to a logical equation: should we invest where we can obtain higher returns? Let’s analyze the significance and implications of BRICs to Health Care.

The Health Care market, most noticeably Pharma industry, is experiencing a tough period. With blockbuster drugs losing patents and generics entering the market each day, the average product price has been falling steadily, and so are margins.

Well, a broken patent in Germany is also a broken patent in Brazil, so there is no safe place for old blockbuster drugs. However, these blockbuster formulas were initially created for individuals living in developed countries and with a very specific epidemiology. The list goes on diabetes, high cholesterol, obesity, stress, depression, cancer…with this last therapy area being very difficult and expensive to be replicated by generics.

Now, what about unexplored and untapped areas such as vaccines, infections, tropical diseases and severe digestive illnesses? Of course you’re thinking “well, there are a lot of vaccines out there” and that’s right! Out there, in the developed markets, there are a lot of vaccines for sure. And, by the way, one single disease may have different virus strains depending on the world’s region – U.S., Latin America, Africa, Asia etc. Now guess which regions are usually considered for vaccine development?

I’m not talking about “orphan” drugs or diseases, but about creating emerging market plans for health care products. It doesn’t help to say “well, China will grow about 9% this year, so we should be able to increase sales for our Bariatric surgery equipment there”. (Bariatric surgery is the procedure indicated for people with a certain minimum degree of excess body fat).

Mistake 1: Assume that China would be like anywhere else. Fact: obesity is not an issue there.

Mistake 2: Initially, GDP growth has nothing to do with health care sales increase, unless you create a plan for that.

I remember entering a director’s office in my company to report a project’s conclusion. He was sitting on his chair, reading the newspaper with a very serious expression on his face.

- “What happened?” I said.

- “Well, it says here that Brazil’s economy will be the 5th in the world by 2030 and is growing at a very fast pace as compared to other emerging markets.
- “And what’s the matter with that?
- “Well…” and the director looked at me with very disturbed expression. “…headquarters are questioning why our sales are not growing at the same rate.
(And this director’s region already had the highest sales growth in the world for his division.)

Ernesto M. Nogueira

No comments: