The Winning Edge in Emerging Markets

In the eight years since the global financial/banking crisis and subsequent recession across most of the world’s leading economies, many of the emerging markets have proven to be much more resilient economically as well as becoming the longer-term engines for economic expansion, compared to the more stagnant health economies in Europe, Japan and the US.

Emerging markets outside these traditional, established terrains are, therefore, strategically critical to large multinational pharmaceutical companies. However, as the business and political environment in a number of these markets has become increasingly tough and unpredictable (e.g., Brazil and Russia) and others have accelerated their economic development, management needs to revise corporate strategies and “go-to-market” approaches. Support and expertise is needed from the very top, i.e., board level. This article gives some perspective on how boards can support the business to win in emerging markets, against increasingly challenging market conditions and competition.

Embracing change

In our recent publication, “Insights into the future of top pharma boards,” we analyzed the background, profiles and experiences of board directors in the 15 largest (by revenue) pharmaceutical companies in the world, all of which are still headquartered in the US and Europe. We also interviewed a significant number of these directors, both executive and non-executive, to understand better how board compositions are changing and to identify the key skills and competencies that will be required in the future.

The ability of boards to tackle effectively the complex and unique challenges of succeeding in emerging markets has developed as a key theme from our study. 

Market hurdles

Over the last few decades, large pharma companies have been trying to expand their presence in emerging markets outside of the US and Western Europe. Indeed, a higher mission to make new medicines accessible to under-served populations, especially in these regions, seemed to be compatible with the significant business objective of achieving top-line growth.

It should be noted that the pharma business environment in emerging markets has always been different and often difficult for the top multinational companies. Many factors account for this difficulty, including government protectionism of local  drugmakers (mostly, in generics) and often a lack of

IP protection, since many emerging economies do not recognize international patent law in their particular legislation. Additionally, the recent implementation of more aggressive pricing and reimbursement policies as well as compliance and ethical considerations have restricted daily operations and raised concerns about the short- and long-term growth opportunity for multinationals in these countries (see chart). 

For example, since the top 15 pharma companies all trade in the US, the DoJ’s rules and code of conduct applies wherever they do business in the world, even though “different” and seemingly less ethical practices may be commonplace and indigenous to a number of emerging markets which they serve, potentially giving local competitors an unfair advantage.

Emerging markets account for 20% of revenues, on average, for the top 15 pharma companies-mostly generated from China, India, Russia, Brazil, Mexico and Turkey. The significant growth opportunity associated with generally increasing economic prosperity and healthcare spend further highlights the importance of capturing these markets to achieve future global success. However, the apparent unpredictability of several emerging markets has forced the leadership teams of the top pharma organizations to analyze and review more critically their previous strategies for extending into non-traditional pharma markets.

One of the key findings from our survey was that revising and improving business strategies requires input and advice from senior leaders with genuine understanding and successful track records in those markets, as they each have individual cultural, political and commercial differences that require non-traditional approaches and strategies for success.

How boards can help

Boards of top pharmas are increasingly challenging company strategy across all markets, including in non-traditional pharma markets. Given the long-term potential for exceptional growth in many of these emerging markets, it is crucial that boards provide relevant and informed input to the development of a long-term vision for their company’s presence in these regions. It is also important that boards provide strategic responses to the arising and enduring challenges that inevitably come with entering or expanding in those markets.

A closer look at the current board composition of the top 15 pharma companies shows that 40% have three or more board directors with hands-on operating experience in emerging markets (see chart). On average, 22% of the total board seats of the top 15 pharma multinationals are held by these directors with operational experience in emerging markets.

Board directors can play a key role in guiding executive management to understand the social and political circumstances and risks associated with

individual countries and regions. For pharma companies, this suggests a need to appoint board members with relevant experience in those emerging markets as well as a profound understanding of individual market dynamics (political, cultural, social, legislative and commercial).

For example, it may be important to understand and consider which are the dominant ethnic and religious groups in a particular less homogeneous market and then to tailor the market access strategy accordingly. Likewise, in some of the emerging economies, which are less open to foreign competition, the best way forward for a pharma multinational may be to form a joint venture with an existing local company, thereby creating a “win-win” strategy, which generates revenue growth and increased employment for both parties rather than trying to compete with them on unequal terms.

As a result, an effective board should include not only directors with commercial talent and experience but also directors with a strong political and social understanding and credibility with a country’s leadership, as well as financial acumen, regulatory affairs and government affairs experience to navigate these environments successfully and maximize the growth opportunity.

Our point of recommendation here would be to extend a “board diversity” definition to a broader meaning that reflects a potentially large patient base in emerging markets and the business acumen to work effectively in those markets-whether this implies a variety of nationalities, a diversity of hands-on operating experience in emerging markets or global mindsets.

In addition, the board can advise the company on optimizing talent strategies and extending talent pools-from the board level to country heads-to make the most of opportunities in emerging markets. Boards can also advise the executive management in establishing an appropriate skillset by defining key competencies required for success in an emerging market, having determined any significant competency gaps and ensured that the talent strategy is tailored and adjusted accordingly, i.e., in both developing internal talent and hiring additional external professionals.

A new view forward

Although the current economic challenges facing several of the emerging markets-e.g., Russia and Brazil-may be restricting their short-term growth potential, in the longer term, emerging markets with growing populations and increasing wealth are likely to be strategically critical to success in the pharmaceutical sector. To be most effective in capturing share in these markets, board composition at top pharma companies needs to better reflect emerging market perspectives and experience. This diversity will reflect increased specialist knowledge of the key dynamics and different cultures of emerging markets and, therefore, increasingly help to address significant proportion of growth and market opportunities.

Christopher Burrows is a consultant in Russell Reynolds Associates’ Global Healthcare Sector, Digital Transformation Practice and Board Practice. He can be reached at chris.burrows@russellreynolds.com. Saule Serikova is Global Knowledge Leader for Healthcare at Russell Reynolds Associates. She can be reached at saule.serikova@russellreynolds.com