Market entry an interesting decision
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Emerging Market EntryAn Interesting Decision
Vijayaraghavan Venugopal, 27th November, 2012
Mumbai
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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
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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
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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”
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Challenging Environment
Even the biggest and the best find the going tough! Need
to invest for the long term.
Source – IMS MIDAS MAT Sep 2009
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The GI-LR Matrix : PharmaceuticalsG
lob
al In
teg
rati
on
Local Responsiveness
Multi -Domestic
Global
International
Source – Adapted from IR frameworks by Bartlett & Ghosal (1991) & Prahalad
& Doz (1987)
Resource constraints,
stage of evolution &
mindset play a major
role…
Transnational Corporations
API Business
Formulation Business
Formulation Business
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• Sizeable pharma market
(> USD 1 bn)
• Growth/ addition of > 1 bn
USD in the next 5 years
• Per Capita GDP income of <
USD 25,000
• Evolving government policies
• Strong local companies
• Lesser transparency in
transactions & regulations
• Cultural & Linguistic
differences
• Varying IP standards
• Lack of clear in-house
knowledge about the markets
• Currency Risks
Emerging Market Characteristics
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Everyone is on the learning curve…
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Where do we start?
Pharma Specific AssessmentRegulatory Pathway, Clinical
Studies, Import Regulations etc
Strategic & Capability FitAlignment with overall goals, capabilities etc
Quantitative AssessmentMarket Share, Population, GDP,
Growth Rates, Therapeutic Focus
etc
Qualitative AssessmentLanguage, Political &
Economic stability, Tax etc
Mid Term Goals
Short Term Goals
Long Term Goals
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Entry Strategies
• Exports
– Direct & Indirect Exports
• Strategic Alliances
– Licensing
– Technology Cooperation
– Exclusive Relationships
• Onshore Presence
– JVs
– FDIs
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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
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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
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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
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Onshore Model
• More Indian Companies
moving this way
• High Risks but long term
rewards
• Can augment export or
alliance model
• Investment in people
• Need for continuity
Representative Office
Trading & Marketing Office
JV – Manufacturing or Marketing
100% Subsidiary (Manufacturing or
Marketing)
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Rep & Trading Offices
Rep Office
� No investment and legal liability
stays with the parent company
� No power to sign contracts
� To have eyes & ears close to
market
� Numerous Rep Offices in China
Trading & Marketing Office
� Some investment or seed
capital
� P&L center
� May need board approval
� Offices in Dubai & Singapore
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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
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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)
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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
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Risk vs Control Trade Off
Smaller companies
Bigger companies
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Decision Matrix for Entry Strategy
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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
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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
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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
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Ignoring Emerging Markets?
32%
15%
11%
42%
US & CanadaEU 5Japan
Mature Markets
US 0-3%
Japan 2-5%
Germany 1-4%
France 0-3%
UK -1-2%
Mature 1-4%
Pharmemerging
Tier 1 19-22%
China 19-22%
Tier 2 12-15%
Brazil 10-13%
Russia 11-14%
India 14-17%
Tier 3 10-13%
Pharmemerging 13-16%
CAGR 2010 -15Region Market share of
Global Sales by 2015
Mark
et
En
vir
on
men
t
Source – IMS Health, Market
Prognosis March 2011
Co
mp
an
y
Current – Turnover X crores > US & India
Future – Turnover 3X crores > US & India + ?
First Mover Advantage, Increasing cost of delayed entry, organizational knowledge etc
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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?
• …
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Emerging Market Mantra
“Crossing the river by feeling for the stones…” Deng Xiaoping
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Thank You