2. Presentation Outline
• Aspirations of Indian companies
• Markets & Environment
• GI – LR Matrix in the Pharma space
• Characteristics of Emerging Markets
• Where do we start?
• Different models and implications
• Risk versus control trade off
• Currency related issues
• Conclusion
3. Common “Global” Aspirations
“Enriching lives Globally, with quality and affordable
pharmaceuticals”
“To be a leading Global healthcare provider with a
robust pipeline”
“An Innovation led Transnational Pharmaceutical
Company”
“To become Asia’s leading generic company and one
among the top 15 in the world by 2015”
“To be an integrated biotechnology enterprise of
Global distinction”
Source – websites of companies
4. Which Markets?
Tier 1 & 2 markets
Tier 3 markets
Source – IMS Health MIDAS, Market
Prognosis October 2009
Focus on Tier 1, 2 & 3 markets – “The Emerging Markets”
5. Challenging Environment
Source – IMS MIDAS MAT Sep 2009
Even the biggest and the best find the going tough! Need
to invest for the long term.
6. The GI-LR Matrix : Pharmaceuticals
API
Business
Transnational
Global
Global Integration
Corporations
Resource constraints,
Formulation
Business stage of evolution &
mindset play a major
role…
Formulation
Business
International Multi -
Domestic
Local Responsiveness
Source – Adapted from IR frameworks by Bartlett & Ghosal (1991) & Prahalad
& Doz (1987)
7. Emerging Market Characteristics
• Sizeable pharma market • Lesser transparency in
(> USD 1 bn) transactions & regulations
• Growth/ addition of > 1 bn • Cultural & Linguistic
USD in the next 5 years differences
• Per Capita GDP income of < • Varying IP standards
USD 25,000 • Lack of clear in-house
• Evolving government policies knowledge about the markets
• Strong local companies • Currency Risks
9. Where do we start?
Quantitative Assessment
Market Share, Population, GDP,
Growth Rates, Therapeutic Focus Short
etc
Term
Goals Mid Term
Goals
Qualitative Assessment
Language, Political &
Economic stability, Tax etc
Long Term
Goals
Pharma Specific Assessment
Regulatory Pathway, Clinical
Studies, Import Regulations etc
Strategic & Capability Fit
Alignment with overall goals, capabilities etc
11. Export Oriented Model
• Traditional method with lowest risk
• Direct Exporting
– Customers & Distributors in the markets
– Need an International Sales & Logistics team
• Indirect Exporting
– Through Agents & Associations in own market
• Works well when one has a monopoly in product technology or
cost
• Example – Indian Pharma in Africa, specific cephalosporin API
exports to China till recently
• Risks – Lack of brand building in the market, may not work long
term
12. Strategic Alliances Model
• Exports plus & FDI minus
• Need for local knowledge, tie-ups and reach
• May not be ready for financial investments
• Local regulations makes this obligatory
• Several examples
– Supply of Ceph Intermediates & API technology to Chinese
players
– Formulation technology tie-ups with Brazilian companies
– Exclusive supply of formulations to local marketing company
– Dossier linked supply of APIs
13. Strategic Alliances Model
• Advantages
– Gives a feeling of longevity
– Potential opportunity for acquisition or stake
– Helps a company to operate in a larger space with limited
resources
• Disadvantages
– Danger of abrupt termination
– Proliferation of technology without any controls
– Less than full value captured
14. Onshore Model
• More Indian Companies
Representative
moving this way Office
• High Risks but long term Trading & Marketing
Office
rewards
• Can augment export or JV – Manufacturing
or Marketing
alliance model
100% Subsidiary
• Investment in people (Manufacturing or
Marketing)
• Need for continuity
15. Rep & Trading Offices
Rep Office Trading & Marketing Office
No investment and legal liability Some investment or seed
stays with the parent company capital
No power to sign contracts P&L center
To have eyes & ears close to May need board approval
market Offices in Dubai & Singapore
Numerous Rep Offices in China
16. Joint Ventures
• JVs for manufacturing/ marketing
• Varying equity stakes with local partner
• Reason for JV
– Local expertise or presence required
– Government regulations
– Complimentary capabilities
• JV was the buzzword in China in the last 20 years
• Ranbaxy - BYS (Guangzhou), Dr Reddys - Rotam (Kunshan),
Orchid – NCPC (Shijiazhuang) etc
17. JVs – Things to consider
• Is it an “IMS” effect?
• Are the expectations matching?
• Long term view of partners?
• What are the capabilities both the partners are bringing to the
table?
• Is there a long term management commitment? (China – a
classic example)
• Risks of a manufacturing JV
• Legal & Repatriation issues
• Majority may not be enough…(few decisions need unanimous
board approval)
18. 100% Subsidiary
• High Risk but full control (Example – Ikea)
• Freedom to operate
• Management
– Indian companies have used locals to run the show…
– Exceptions need huge management depth (Aurobindo & Ranbaxy
China)
• Difficult to exit
• Increased need of company time & resources
• Highest exposure to political & financial risks
19. Risk vs Control Trade Off
Bigger companies
Smaller companies
21. Other Risk Mitigation Steps
• Start with a hybrid model till confidence is gained
• Due Diligence from all aspects
• Acquire hard assets only if you are fully convinced
• Existing owners to run the show with pay outs over a time
period
• Leverage known connections in the market
• Have a clear business plan & pay back period in place
• Think about exit plan & worst case scenario
• Do not spread your resources thin
22. Currency Matters
• Stability & Acceptability of the currency; ex: - Chinese RMB
gaining strong acceptability
• Keep a watch on currency fluctuations
– Determines ability to pay, by customers
– Pricing in local market vis-à-vis USD
• Business in USD or Euro
• Banking System – Is it pliable?
• Insist on advance payment or irrevocable letter of credit
• May be better to lose sale than repent later
23. Chinese Yuan vs USD
• Stable & Appreciating currency
• Imports becoming more cheaper, exports becoming costly
• Investment in 2012 will mean more USD/INR outgo than 2006
• Chinese costs on the increase
• Becoming an alternative to the US Dollar
24. Ignoring Emerging Markets?
Region Market share of CAGR 2010 -15
Global Sales by 2015
Market Environment
Mature Markets Pharmemerging
US 0-3% Tier 1 19-22%
32% Japan 2-5% China 19-22%
42%
Germany 1-4% Tier 2 12-15%
France 0-3% Brazil 10-13%
15% UK -1-2% Russia 11-14%
11%
Mature 1-4% India 14-17%
US & Canada Tier 3 10-13%
Source – IMS Health, Market
EU 5
Prognosis March 2011 Pharmemerging 13-16%
Japan
Company
Current – Turnover X crores > US & India
Future – Turnover 3X crores > US & India + ?
First Mover Advantage, Increasing cost of delayed entry, organizational knowledge
etc
25. Beyond Technical Capabilities
• Do we have a company goal?
• Do we understand the similarities & differences?
• Are we ready to learn & unlearn?
• Do we have a Team A in place?
• Is the top management ready to spend quality time?
• Are you willing to invest & respect the country?
• …
