Emerging Markets Growth: Critical Role of Operations in Driving … · 2016. 5. 18. · Operations will follow commercial into new markets Country specific mandates can change our

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Emerging Markets Growth: Critical Role of Operations in Driving Competitive Advantage April 17, 2013

PwC

Background

Situation

Results

Emerging Markets are a prime focus of the industry as growth slows in Developed Markets and access to Healthcare in these markets increases

Operations’ role in these markets is evolving for all industry players

How can companies develop a successful Emerging market strategy? What are the Operating model approaches that align to successful

Emerging Market strategies?

Challenge

Uncertainty , operating risks, and country-specific challenges threaten lofty sales goals in Emerging Markets

Operations is thrust in the role of enabling sales goals in a myriad of operating and risk environments

Approach 15 companies with diverse business models (Generics, Pharma,

Biotech, Specialty) surveyed through an Interview based approach Integrate PwC experience in Emerging Markets to provide a value

proposition

2

Pharma Operations in Emerging Markets: A study by PwC

PwC

Study Objectives and Participants

Compare Operating Models of leading biopharmaceutical companies in Emerging Markets (EM)

Present PwC Point of View and recommendations for successful global expansion

Top Ten Biopharma

Specialty Biopharma

Multinational Generics

# of Participants = 15

US Europe Asia/Japan

Slide 3

08 October 2012 Pharma Operations in Emerging Markets: A study by PwC

PwC

There are three major Operating Model bands for Emerging Markets

Mark

et

Att

racti

ven

ess

A

B

C

D

Hig

h

Lo

w

3 4 1 2

Innovation

Driven

Market

Driven

Emerging Market Strategy

“Import”

Low Investment /

Distributed to local markets

“Local / Regional”

Medium Investment /

Supplying regional markets

“Originate”

High Investment /

Supplying to global markets

4


The subsequent slides describe the X-axis and Y-axis, and the Operating Model bands

PwC

1. Innovation Driven:

Leveraging Proprietary

Portfolio into Emerging

Markets

2. Augmentation:

Limited Augmentation of

Proprietary Portfolio into

Emerging Markets

3. Focused:

Focused Market Presence

with Selective Market

Expansion Investments

4. Market Driven:

Broad, Aggressive Market

Driven Expansion into

Emerging Markets

Leading Companies use One of the Four Strategies in Emerging Markets

3 4 1 2 Innovation

Driven Market

Driven


5


This table is for internal reference only. Please contact the project team for additional information.

PwC

1. Innovation Driven:

Leveraging Proprietary

Portfolio into Emerging

Markets

2. Augmentation:

Limited Augmentation of

Proprietary Portfolio into

Emerging Markets

3. Focused:

Focused Market Presence

with Selective Market

Expansion Investments

4. Market Driven:

Broad, Aggressive Market

Driven Expansion into

Emerging Markets

Many Companies are Evaluating and Shifting their Strategies for Emerging Markets

3 4 1 2 Innovation

Driven Market

Driven

Dual Strategy

Targeted in 3 years

Proprietary Bio-similars

AbbVie (Diversified) (Proprietary)

Dual Strategy / Spin-off

6


Dual Strategy Proprietary OTC

This table is for internal reference only. Please contact the project team for additional information.

PwC

Emerging market countries have high degrees of variability both in growth potential and market access

Ma

rke

t A

ttra

cti

ve

ne

ss

A

B

C

D

Higher Growth

Lower Growth

Lower Market

Restrictions

Higher Market

Restrictions

China

Brazil

Mexico

Turkey

Russia

South Africa

India

Poland

Chile

Morocco

Venezuela

Iraq

Hig

h

Lo

w

7


PwC

Many Companies are Re-aligning their Operating Models for the Attractive Markets

3 4 1 2

Innovation

Driven

Market

Driven


“Import”

“Local /

Regional”

“Originate”

Ru

ssia

Ma

rke

t A

ttra

cti

ve

ne

ss

A

B

C

D

Hig

h

Lo

w

8


Bio

log

ics-

In

dia

Global Biopharma

Leading Specialty

Big Pharma/ Generics

Mid

dle

Ea

st

Current State

Future/Planned State

PwC

The “Operating Model in a Box” has Five Key Components

Local / Regional Medium Investment

Originate High Investment

Import Low Investment

Assets Local, Regional, Global

Distribution Re-labeling QC lab Manufacturing Packaging

Distribution

Margin

COGS

Control

Gross

Margin

Operating

Margin Financial Control P&L Responsibility

Command

and Control

Increasing Regional

Functional Balance

Integrated Local /

Global Governance Governance Decision Rights

Global

Product

Local Formulation

Local

Packaging

Local

Products Global

distribution

Local

Technology Technology Biologics, Small Molecules, Vaccines

Outsourced Partner Full Ownership Ownership Source, Co-Manage, Own

9


PwC

The Predominant Reason for Entering Emerging Markets is Long Term, Top Line Growth…

…But, Multi-National Companies Are Accepting Lower Returns

57% 83%

43% 17%

Multi-National Companies Small/Mid Sized Companies

Expect Emerging Markets Returns < Developed Markets Returns or Don’t Know Expect Emerging Markets Returns = Developed Markets Returns

• 93% of respondents are primarily entering Emerging Markets for top line growth

• All companies expect Emerging Markets to be a long-term endeavor

Expected Returns in Emerging Markets

10


PwC

90%

53%

10%

47%

Innovation Market

Competitive Advantage Through Asset Class Investment

Competitive Advantage Through Product Class Investment

Investment Strategies for Gaining Competitive Advantage in

Emerging Markets

Innovative focused

companies gain competitive

advantage through asset

class investments

Market-driven companies

must make both asset class

investments and product

class investments to gain

competitive advantage

Competitive Advantage is Driven

Through Two Types of Investment

Asset class investments

Improvements to infrastructure

including distribution, network,

quality systems , manufacturing

technology, etc.

Product class investments

Product or packaging specific

modifications that better address the

needs of a specific market

Innovative and Market-Driven Companies are Using Different Investment Strategies to Gain Competitive Advantage in Emerging Markets

11


PwC

Percentage of Market-Driven Companies make investment/P&L decisions at the local level

− Still majority of the decisions are made at the Corporate level

Percentage of Innovation-Driven Companies making investment/P&L decisions at the local level

Market Driven Companies are Much More Likely to Delegate Investment Decisions to the Countries

43%

14%

12


PwC

Market Driven and Innovation Focused Companies use Different Operational Organizational Structures

Most Companies utilize a top-down EM strategy developed for the entire firm—articulated by the CEO 70% S

tra

teg

y

De

ve

lop

me

nt

56% of Market-Focused Companies employ EM or Hybrid EM reporting structures

Re

po

rti

ng

S

tru

ctu

re

56%

Almost all Market-Driven Companies have a cross-functional Emerging Markets forum to implement the strategy compared to only half of the Innovation-Driven Companies 81%

Go

ve

rn

an

ce

13


PwC

Organizations are Searching for Technical Skills to Fill the Emerging Market Talent Pipeline

Capability

Companies see a need for

technical skills above local

knowledge and other skills such

as business acumen and

entrepreneurial skills

Acquisition Method

Almost ¾ of Interviewees cited

country or market specific

factors when deciding whether

to partner, acquire, or develop

specific capabilities. Abbott is

most concerned with the long

term strategy in the EM when

making investment decisions.

Internal Development Companies are looking to their

developed markets organizations

for talent to advance their

emerging market strategy.

Factors such as lower education

levels, less technical capabilities,

and turnover were cited as

challenges in EM

0%

10%

20%

30%

40%

50%

60%

70%

80%

Technical Skills

Local Knowledge

Other*

Desired Capabilities

Innovation Driven Market Driven

73% Transfer

from Developed Markets ,

88%

Develop from local

population, 12%

* Other includes “Business Skills” and “Other”

14


PwC

Trends Expansion of EM Operations

Future Emerging Market Expansion will depend primarily on commercial decisions and secondarily on country specific mandates.

Maintaining a well defined and flexible operating model is a source of competitive advantage in Emerging Markets

Risk over the Next 5 Years

As Emerging Markets mature, Innovation-Focused Companies see a reduction in Operational risks while Market-Driven Companies are divided on future risk

45% 41%

14%

Operations will follow commercial into new

markets

Country specific mandates can change

our future needs

We are still working on the right footprint to

service EM

57%

30% 29%

40%

14%

30%

Innovative Driven Market Driven

Reduction in risk profile No change in risk profile

Increase in risk profile

15


45% 41%

14%

Operations will follow commercial into new

markets

Country specific mandates can change

our future needs

We are still working on the right footprint to

service EM

PwC

Africa is not yet Featured in the Emerging Market View

27% Percentage of companies

investigating Africa as a

potential investment

16


PwC

Study Take-Aways (1 of 2)

Balance of Power is shifting to the Countries

Balance of Power is shifting from Big Pharma to the individual countries: more countries will have market access requirements.

1

Operational Investment in EM and Complexity is Increasing

As Companies move from Innovation Driven to Market Driven strategy, the Operational Investments (number of assets, ownership stake) and Complexity increases

2

Market-Driven companies require more diverse and higher investment profile operationally

Market-driven companies require investments in product portfolio as well as infrastructural assets when reaching their target markets

3

“Make in EM” still prevalent over “Develop for EM”

Very few companies are investing in development capabilities, especially those tailored towards market-appropriate therapies/technologies

4

Slide 17


PwC

Study Take-Aways (2 of 2)

Most-Attractive EM’s : Limited globalization of investments

Big Pharma is primarily using local-for-local models in these markets. The more appropriate operating model is a local-for-global approach. However EM HQ companies and Generics are leading the way in these markets with a better defined OM

5

Mid-Tier EM’s: Missing a concerted “Operating Model” approach

Companies seem to struggle with the appropriate Operating model in the middle tier markets mainly due to the diverse requirements, higher restrictions and volatile growth projections

6

Low-Tier EM’s: Limited focus

Very few Western hemisphere companies have harnessed “Africa” or similar under-developed economies as the next destination for supplying Emerging Markets. Again Generics and EM based companies are leading the way. There is an opportunity to significantly influence the HC model in these markets

7

Slide 18


PwC

Strategic Prescription – PwC Point of View

* For aspirations 20% or higher

Make Operations an equal partner in developing EM strategy 1

Develop an Organizational strategy to focus on EM* 3

Invest in multi-dimensional Operational capabilities 4

Develop discrete yet well-aligned Operating Model for your markets 2

A Narrow Role of Operations —

“Supply Assurance” alone is Not

Sufficient to succeed in EM

Instead Operations needs to be

transformed to offer companies a

“Competitive Advantage” in EM

19


PwC

Questions?


20

Documents

Emerging Markets Growth: Critical Role of Operations in Driving … · 2016. 5. 18. · Operations will follow commercial into new markets Country specific mandates can change our