MGMT90148 - Shared Value in the Pharmaceutical Industry
Transcript of MGMT90148 - Shared Value in the Pharmaceutical Industry
Medstar Limited: A Shi0 Towards Shared
Value MGMT90148 – Consul1ng Fundamentals
AU | CHANDRA | DAHDOULE | KERMECI | RUPAREL
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Who We Are
Our current strategy, and how it can be improved
Opportuni/es What opportuniAes do we have, in order to keep Medstar compeAAve
around the world?
Industry: At a Glance
The current state of the industry in the growing Asian economies
Strategy into the Future
RecommendaAons for Medstar to maximise its opportuniAes in Asia using shared value as a key tool.
In the Spotlight: GlaxoSmithKline
Company analysis to demonstrate GSK’s methodologies in creaAng shared value in emerging markets.
Today’s Journey From Today, Into The Future
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Current Standing Medstar Ltd: A Company Snapshot
AUD$18 billion 1H15
Revenue
Sydney, Australia – with addiAonal operaAonal headquarters in the USA
Headquarters
Australia, New Zealand, USA, UK, France,
Germany
Primary Markets
Approximately 90,000 employees worldwide
Personnel
Approximately 80 countries around the
globe
Global Presence
Medstar Ltd has two business divisions; consumer healthcare and pharmaceuAcals. Previous aYempts to enter into emerging markets including Cambodia and Vietnam through distributors have failed. Recently, Medstar has taken noAce of the successes its compeAtors are achieving in emerging markets. The possible entry of Medstar, influenced by the global acAviAes of its compeAtors could allow opportuniAes reflecAng posiAvely on not only Medstar’s boYom line but also on its brand image. Despite the scope of opportunity that is present, penetraAon of internaAonal markets is fraught with risk and complexity and a focused approach rather than opportunisAc is appropriate. Through creaAng economic efficiencies in emerging markets whilst improving the health of communiAes in developing countries, a shared value outcome can be achieved.
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-‐ VerAcal business model -‐ Medstar Ltd currently conduct internal R&D,
producAon and markeAng
Opera/ons
-‐ Revenue streams primarily originate from operaAons in established and mature markets
Markets
-‐ Previously unsuccessful in Cambodia and Vietnam
-‐ Need for reassessment of strategy
Globalisa/on
Currently, Medstar Ltd is serving developed countries in which markets are established and matured. It uAlises a fully integrated, verAcal business model, undertaking its own R&D, manufacturing and markeAng. Since its disconAnued operaAons following previous failure in Cambodia and Vietnam, Medstar Ltd does not service emerging markets in Asia. If chooses to do so it must develop its business model and accompanying strategy whilst carefully considering the markets it wishes to enter.
Current Strategy How can our operaAons be improved?
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What Is Shared Value? How Can Medstar Ltd Prepare for the Future?
“Shared value is created when companies recognize that there are tremendous opportuni7es for innova7on and growth in trea7ng social problems as business objec7ves.” -‐ FSG Medstar has been running on tradiAonal strategies, which are built on the basis of operaAng and profiAng at the expense of the wider society and the environment in which the firm funcAons. The powerful and revoluAonary idea of social value idenAfies this is harmful to the interests of stakeholders. It proposes work to correct this damage by emphasising ‘inclusivity’ by recognising that the company’s economic progress, and the wider social progress are interrelated and interdependent.
Medstar’s current inefficiencies and the scope for growth through innovaAve and trending business strategies in the pharmaceuAcal sector leads us to pose the quesAon: Should Medstar break into the emerging markets -‐ ‘the next big business opportunity’-‐ by adding a social dimension to their business prac;ce?
Looking at business through a difference lens: Being in the pharmaceuAcal and medical industry, Medstar faces tremendous business opportuniAes in entering the realm of serving a large underserved populaAon that suffers the burden of myriad diseases and insufficient healthcare. OperaAonally, Medstar would do this through social ly beneficial methods of producAon, distribuAon and sales.
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Medstar’s current internaAonal strategy is riddled with inefficiencies where opportunity could otherwise be apparent. There are a number of problems that need to be improved to sustain its posiAon as a global leader in the pharmaceuAcal industry. Areas of parAcular concern are highlighted below on the company’s value chain. It is worth noAng that throughout this value chain, support acAviAes such as human resource management, financial management, procurement, IT, and the like, occur concurrently and simultaneously to enhance value of primary funcAons. For the perspecAve of focus for Medstar’s strategy, primary acAviAes that require aYenAon include research and development (R&D) and MarkeAng & Sales.
R&D focuses on idenAfying disease target, drug research, discovery, drug-‐development, pre-‐clinics
and clinical trials.
R&D
How Could We Improve? Inefficiencies in Medstar Ltd’s Current Strategy
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Obtaining Regulatory Approval
Supply Chain and Manufacturing
Seeking approval from the relevant bodies for the creaAon of types of drugs. Seeking patents to protect intellectual property.
A0er the relevant approvals are sought, the drugs will enter the manufacturing phase. Medstar operates a number of
manufacturing faciliAes globally.
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As well as distribuAon acAviAes, the products need to be sold to front-‐line distributors. Through negoAaAons with buyers Medstar seeks to create relaAonships to buyers and further channels of markeAng to on its core strength, its brand.
Marke1ng & Sales
Post-‐market surveillance and pharmaco-‐vigilance Evalua1on
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Currently, Medstar is focused on delivering results to only its shareholders and its strategy is characterised by profit-‐driven investments and innovaAon based on financial outcomes. In stark contrast to its direct compeAtors who are seen as highly innovaAve and driven by social outcomes, Medstar is generally seen as a company owned by profit-‐hungry investors. This of course is not the case and the execuAve team should be commended for the philanthropic advances taken to engage in corporate social responsibility, for example the recent strides to innovate upon criAcal depression drugs. However, this percepAon is causing immense reputaAonal harm for a pharmaceuAcal that needs to be able to balance the unique dilemma of improving the quality of life of humans and at the same Ame make money to fund research and provide a compeAAve return for shareholders (Goldstein, 2011). Another major problem is that whilst Medstar preaches an innovaAve strategy where it claims to ‘operate in the future’ there is liYle evidence of this in pracAce. Whilst a great deal of spending goes towards research and development, there are few results to signify this and in recent years it has lagged behind its compeAtors. This can be drawn down to its current strategy for innovaAon where each of its major research hubs focuses on each of its separate research developments independent of other countries. This means that in each country in which Medstar operates there may be overlapping development projects occurring at one Ame. This is a major inefficiency as unnecessary double-‐ups are cosAng the company a great deal. There is a need for an overarching global strategy for the research and development team, this will ensure that the response Ames to global health needs can be improved. With innovaAon hubs working together, there can be a harmonisaAon of R&D with each locaAon performing specialised tasks rather than overlapping acAviAes that can result in a waste of Ame and resources. An open innovaAon plahorm is a consideraAon for the company and will be further outlined, thereby ensuring that complementary research can be undertaken at any point. Whilst research and development is highly decentralized due to the various innovaAon hubs around the world, sales is highly centralised with the global sales team based in the company’s Sydney office. The Medstar sales strategy seems to be universally accepted but not understood. This means that the sales force has not been able to adapt to the needs of each market and to different cultures but rather passed down from the global sales team.
How Could We Improve? Inefficiencies in Medstar Ltd’s Current Strategy
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Primary Markets
Medstar primarily serves in developed markets that is Australia, New Zealand, USA, UK, France, Germany.
Headquarters
Sydney, Australia with addiAonal operaAonal headquarters in the USA
Market PotenAal
Moving into emerging markets will mean that Medstar can engage in future potenAal benefits, as well as reputaAonal benefits
The geographic focus of Medstar is proving a major barrier to growth. Currently, the health needs of only developed countries are being fulfilled, with these markets already being highly saturated there is liYle growth prospects in the future. Moving into emerging markets will mean that Medstar can capitalise on future potenAal benefits, at the Ame this can have major reputaAonal benefits. There is a great deal to be acquired by reinvigoraAng the company strategy and moving into new markets and ignoring this be a will be a lost opportunity to leverage upon the significant exisAng competencies the company.
How Could We Improve? Inefficiencies in Medstar Ltd’s Current Strategy
By the end of this year, 40% of today’s pharmaceuAcal market will lose patent protecAon, which will also affect sales in emerging markets (PwC, 2015). Hence, industry players are required to look out for an alternaAve and sustainable source of revenue, as well as maintain their profitability. Given the pessimisAc outlook of the pharmaceuAcal industry, the Asia-‐Pacific’s strong economic fundamentals have are an aYracAve market for the future scope for players across the globe (Frost & Sullivan, 2014). By 2016, the global pharmaceuAcal industry is expected to generate an esAmated 30 percent of its total sales in emerging markets (PwC, 2015). Asia Pacific is the fastest growing pharma market and is going through tremendous change due to internaAonal and local developments. As per the data from World Bank and Frost & Sullivan analysis (Appendix 3), total Asia Pacific healthcare spending is expected to grow from $1.34 trillion in 2012 to $2.20 trillion in 2018 at a CAGR of 8.6%. The healthcare expenditure per capita is expected to increase by 4.8% across the region by 2018. (Frost & Sullivan, 2014).
Industry Analysis Outlook: Pharma Sector in the EMEs
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Growing Middle-‐Income Group The middle class is esAmated to reach 2 billion by 2016-‐2017, giving a boost to healthcare spending.
Rapid Urban Growth UrbanizaAon is rising at a higher pace in the Asia Pacific region. UrbanizaAon improves the quality of healthcare, but at the same Ame, brings several risks in terms of increased polluAon, high prevalence of smoking, stress, etc. These factors have materially changed the profile of disease in Asia Pacific countries.
Growing Healthcare Coverage Local governments are making an effort to increase the healthcare coverage to a larger populaAon. Government iniAaAves to increase access to healthcare and treatment advancements will drive the sector expansion.
The upwards trend of growth in emerging markets is not expected to slow down. Although the Asia Pacific is an aYracAve growth market, it is equally complicated, too. The market is considerably heterogeneous, wherein, countries differ from each other poliAcally, economically, socially, technologically and, most importantly, culturally. Despite these differences, there are common aYributes that are contribuAng to the rapid growth of the market. Some of these important aYributes include:
Industry Analysis Outlook: Trends
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Industry Analysis A PESTLE PerspecAve
-‐ VolaAle PoliAcal Landscapes -‐ Need For Public Funding
-‐ Local Government AuthoriAes -‐ Tax Schemes
Poli1cal
-‐ Need For Fair Pricing -‐ OrganisaAonal ConsolidaAon
Economical
-‐ UrbanizaAon -‐ Ageing PopulaAon
-‐ Emerging Middle Class -‐ Ethics In PracAce
Socio-‐Economical
-‐ Need For Product InnovaAon -‐ Green Technology
Technological
-‐ RegulaAon In Pricing -‐ Patent ProtecAon
Legal
-‐ Sustainability Through ProducAon -‐ Adhering To Environmental PracAces
Enviromental
The pharmaceuAcal sector in emerging Asian regions vary across countries, mostly in terms of healthcare infrastructure. Thus, a “one-‐size-‐fits-‐all” approach and analysis cannot work here. However, there are many broad similariAes in the pharmaceuAcal landscape across the emerging naAons of Asia. A PESTLE framework, thus, provides a peek into some significant pharmaceuAcal industry highlights within Asia’s emerging zones:
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Poli7cal landscape: Highly vola7le, with rapid government changes affecAng economic prospects. Corrup7on: Many incidents of high profile corrupAon crackdowns and cases of companies trying to achieve rapid growth in unfamiliar markets. For example: Firms try to woo medical professionals in India for approvals through lavish gi0s under the pretext of medical conferences, free samples, etc. In China, GSK was fined £300m by Chinese authoriAes in September for “massive and systemic” bribery of doctors to boost sales. Insufficient public funding and reimbursement has led to an inefficient healthcare infrastructure. Local government Ini7a7ves are expanding healthcare coverage to the larger populaAon and focusing on treatment advancements Government focus is on localisa7on to encourage local manufacturers to produce drugs of their own. Tax policy: Tax deducAon for R&D and provision for deducAon for expenditure incurred outside R&D (expenses related to overseas clinical trials product approvals, patenAng,etc.) are low.
Poli1cal Economical
Pricing: Affordable products and services work in these naAons. Governments are increasing their control over prices and inching closer to stalling free pricing, to keep them low. Demand drivers: A Large middle class implies generally low affordability. At the same Ame, increasing incomes are leading to discreAonary spending. Focus has surpassed food, clothing, housing and energy costs and has become health care, educaAon and financial services. Increasing Urbaniza7on has increased the risks of polluAon, prevalence of smoking, stress, etc. Supply side dynamics: Insufficient qualified talent and a highly fragmented network of logisAcs and supply chain infrastructure is a challenge for companies. Firms prefer local investment as to cut costs and effecAvely leverage commercial success, there is a strong inclinaAon for investment in local Research & Development and local manufacturing. Consolida7on amongst corporates: Local firms are increasingly gaining market share, and growing through M&As and partnerships with local and mulAnaAonal firms
Industry Analysis A PESTLE PerspecAve
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Distribu7on of wealth: These lower & middle-‐income countries have a large underserved populaAon, which represents a huge new customer base. It demands the applicaAon of innovaAve technology to meet the needs of populaAons that suffer from insufficient resources. Unethical prac7ces: Cases have been reported on the use of vulnerable populaAon groups in clinical trials. Increase in ‘Lifestyle diseases’: With growing prosperity and improved nutriAon, disease paYerns in emerging markets are changing and shi0ing toward ‘lifestyle’ diseases, which are more common in mature markets. This trend opens up new markets for exisAng products, for eg: the number of cases of diabetes has gone up tremendously. Growing trends: The growing senior popula7on creates a strong demand for innovaAve cures, parAcularly in therapies that avoid tradiAonal drugs, devices and surgery. In China, the age group 65 and over, accounts for 9.5% of its total populaAon. This trend is placing a greater strain on healthcare services and increasing the demand for innovaAve therapies for the treatment of age-‐related diseases. Personalised and speciality treatments are also becoming a trend, where efforts are being taken to move away from the concept of one-‐drug-‐fits-‐all to a more customised approach.
Social Technological
Focus of innova7on: is on product development to deliver what the customers truly ‘need’. This entails recognising the true benefits to the customers and delivering through reengineering or reformulaAng exisAng products, improving funcAonality, adapAng innovaAve packaging to reduce costs or improve safety, etc. This ‘frugal or lean’ innova7on adopted in the EMEs, challenge the “more is beYer” mantra of the western world. These inexpensive methods of producAon, which are ‘need based’ are resulAng in new products and soluAons that are tailored for emerging markets Green technology: Increased pressure on scarce resources is leading the companies and local governments to invest in green technology and focus on environmental concerns.
Industry Analysis A PESTLE PerspecAve
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The overall legisla7ve landscape of these na7ons is highly dynamic. Pricing regula7ons: Regulatory bodies like the NaAonal Development & Reform Commission (NDRC) in China introduced drug policies to cut drug prices and to achieve “zero-‐markup” in hospitals. Even the Indian government is moving closer to directly controlling pricing of certain drugs, with the legislaAon inching closer to stalling free pricing for consumer protecAon. Patent protec7on: Firms, especially foreign players are fighAng over protecAon for their IP with the governments, as regulators open up some patent protected medicines to low cost-‐generic producAon by local manufacturers. Stricter standards for drug producAon, quality control and requirements on qualificaAon of employees. Regulatory defini7ons and explana7on to rules remain vague and unclear-‐ Due to such legislaAve ambiguity, delays are frequent. Clearance delays and regulatory uncertainty: Prevalent are delays in clinical trial approvals and compulsory licensing. FDI policies are unclear, especially in India -‐ the country is aYempAng to improve the situaAon, under the ambit of its popular ‘Manufacture or Make in India’ campaigns. The clinical trial industry, however, remains a challenge to operate in. These problems are also because of mulAple agencies and government bodies within the pharmaceuAcal industry.
Legal Environmental
Sustainability through redesign: Companies are redeveloping exisAng product lines to meet the needs of these new markets, either by lowering unit costs or improving funcAonality in resource-‐poor environments (and hence creaAng shared value). Environmentally friendly produc7on methods: Companies are construcAng and maintaining producAon faciliAes that are environment friendly with special air, water and waste management procedures installed. Stricter environment regula7ons: The concerned environment protecAon boards of these naAons have tougher laws to target emissions from pharma companies and wastewater treatment, and have rolled out a number of iniAaAves to promote energy efficient green technology.
Industry Analysis A PESTLE PerspecAve
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Thinking About Shared Value Looking at GlaxoSmithKline
Good Ideas
Affordable
Accessible
Sustainable
Vision
GlaxoSmithKline (GSK) recognises the importance of shared value and its role in addressing the unmet health challenges present in emerging markets (Our Strategy, 2015). As a for-‐profit company, public-‐private partnerships such as those with other companies, governments, internaAonal agencies and academic insAtuAons, as well as stakeholders, including community groups, allow GSK to sustainably meet strategic objecAves, irrespecAve of their customer’s locaAon and ability to pay. Current partners include: AMREF, CARE InternaAonal, Save the Children, Tony Blair Faith FoundaAon, Vodafone and Barclay’s (Developing Countries Unit: Who We Are, 2015). GSK endeavours to make their vaccines and medicines as affordable, available and accessible to as many people who are in need of their products as possible (Developing Countries Unit: Our Business Model, 2015).
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Their current strategy is not considered philanthropy, but rather an innovaAve way of doing business; this long-‐term strategy aims to create healthier communiAes over Ame, whilst also building the GSK business through increasing market size. On four occasions, GSK has been chosen as number one in the ‘Access to Medicines’ index, which measures and rates pharmaceuAcal companies operaAons in improving access to medicine in emerging markets (Developing Countries Unit: Our Business Model, 2015). GSK believes tradiAonal business models will not be able to sustainably deliver viable health soluAons to those in need, therefore prices of patented medicaAons are capped at no more than 25% of the recommended retail price in developed countries. AddiAonally, 20% of the profit made in developing markets is re-‐invested into the emerging markets healthcare system.
In effect, higher volumes of high quality, lower priced vaccines and medicines are distributed, increasing the scale of posiAve health soluAons available to communiAes (Developing Countries Unit: Our Business Model, 2015). In order to decrease the price of medicines, GSK is working on repackaging and/or reformulaAng its exisAng products, such as its Ventolin inhaler, which can sell in developing countries for a few cents rather than for five dollars in developed countries. Furthermore, GSK conAnues to adapt their value chain, offering incenAves to sales staff based on volume as opposed to sales (Peterson et al, 2011). GSK measures its success on the number of people lives in which they are able to make a posiAve difference (Developing Countries Unit: Our Business Model, 2015).
Thinking About Shared Value Looking at GlaxoSmithKline
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In Cambodia, GSK has been operaAng through local distributors since 1997 however, in 2013 through a partnership with the Ministry of Health it established a local legal enAty in Phnom Penh (Developing Countries Unit: Cambodia, 2015). In March 2015, a new global headquarters was announced to be located in Singapore. The reason being the PharmaceuAcals and Vaccines markets in countries covered by the new headquarters, are forecasted to grow at a significantly higher rate than that of others around the world. GSK also partners with the Singapore Economic Development board and its operaAons indicate a conAnued commitment to servicing its markets in Asia (GSK Announces Major, 2015). When entering emerging markets, partnerships are key to achieving operaAonal efficiency combined with ethical conduct in developing countries. In 2004, former GSK CEO Dr. Jean-‐Pierre Garnier stated that “Improvement of health care in the developing world can only be addressed if the significant barriers that stand in the way of improved access are tackled as a shared responsibility by all sectors of global society—governments, internaAonal agencies, chariAes, academic insAtuAons, the pharmaceuAcal industry, and others—working in partnership“ (AMFAR, 2004).
Thinking About Shared Value Company Analysis GlaxoSmithKline
At present, GSK operates a Developing Countries and Market Access Business Unit (DCMA), which services over 50 countries including the following developing markets: Angola, Bangladesh, Benin, Botswana, Burkina, Burundi, Cambodia, Cameroon, Central African Republic, Chad, Comoros, DemocraAc Republic of Congo, Ethiopia, Ghana, Ivory Coast, Liberia, Madagascar, Malawi, Mali, Mauritania, MauriAus, Mozambique, Myanmar, Namibia, Niger, Nigeria, Sierra Leone, Tanzania, Uganda and Zambia (Developing Countries Unit: Where We Work, 2015). In 2015, it’s anAcipated that the DCMA unit will contribute approximately $300 million to GSK’s top line (Peterson et al, 2011).
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1. Merger & Acquire For A Fast-‐Tracked Entry To enter new markets in the EMEs , Medstar Ltd should consider acquiring a local company with an exisAng presence in the market. This would enable Medstar to capitalise on local knowledge and internalise the core competencies developed by the local counterpart to succeed in that economy. This means that Medstar would not have to go into a new market through a greenfield investment starAng from scratch, being exposed to the risks of failure in the infancy of the business life and having to learn the processes and culture of the new market. Rather, the acquisiAon would empower Medstar to capitalise on the exisAng knowledge in the host country with the embedded skills to assist in working towards its strategy. Moreover, this will allow Medstar to minimise ‘last mover disadvantage’, as the company can build on the target’s relaAonship with local consumers as well as its previous track record in the economy. To kick-‐start its expansion, Medstar should reconceive their products to make them more appealing to its new market. A0er careful consideraAon of the product offerings of its target company as well as local disease burden, Medstar should create a tailored porholio of drugs to sell at affordable prices and target diseases prevalent locally. This strategy was used by NovarAs to target poor families in rural India and generated shared value by simultaneously increasing revenues and decreasing disease burden through their easy to access, affordable medicaAons (FSG, 2012).
RecommendaAons: Engage. Partner. Innovate A Foot in the Door: Merger/AcquisiAon
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To determine a suitable target to acquire in the EMEs, Medstar should consider pharmaceuAcal companies in both India and China. Both the countries are expected to be strong growth areas for the global pharmaceuAcal industry. As Appendix 1 indicates, the growth in GDP of both these countries is expected to significantly outperform that of other countries throughout the world. Furthermore, given the rising wealth of the middle class in both the countries, healthcare expenditure is expected to increase by 2.45x and 2.34x in China and India respecAvely, as highlighted by Appendix 3. Lastly, both these countries have a burgeoning manufacturing sector and provide easy access to skilled workforce. Hence a company in either country should be targeted by Medstar to begin their expansion into the emerging economies of Asia. Whilst the acquisiAon of a company would allow Medstar to enter into a new market, due diligence should be performed to ensure that the target is a cultural match for Medstar. AddiAonally, the presence of an internal champion can ensure that the realigning of processes and frameworks within the target company occurs smoothly and the acquirer can execute the long-‐term strategy for the company in a hassle free manner.
RecommendaAon: Engage. Partner. Innovate A Foot in the Door: Merger/AcquisiAon
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Pfizer and GSK have created shared value through this method by merging their HIV related drug porholios to create a new jointly owned company called ViiV Healthcare. This presents the new company with a comprehensive R&D pipeline of numerous compounds and provides it with the opAon to selecAvely progress only most the most promising leads through the drug development and approval process. Hence the alliance saves money for the parent companies but also quickens the drug development process, thereby benefixng the community.
Nonetheless, forming strategic alliances presents risks for Medstar. Different moAves of partner organisaAons may render the process full of inefficiencies which drive up cost and benefits not being realised. Moreover, in case of the an alliance involving a for profit firm and a public organisaAon, there is a possibility of public backlash. The community and government may view the alliance as a means for the commercial organisaAon to extract value from public bodies by exploiAng their research and experAse without fair compensaAon in return.
RecommendaAon: Engage. Partner. Innovate Building Value Through Partnership
A0er Medstar gains a foothold in the market, the company should seek to form alliances with local hospitals, research insAtutes and universiAes. This would enhance its R&D porholio and build a strong pipeline of new products with minimal iniAal investment costs. As a result, the company could engage with local stakeholders (for e.g. government departments) and create shared value by commercialising government funded research, thereby increasing the rate of rate on taxpayer dollars and reducing the burden on government and NGOs to fund medical research. AddiAonally, publically owned research organisaAons and universiAes may gain access to the company extensive intellectual property, technical knowhow and financial resources which may further drive their independent work and aid the society at large. Therefore, shared value is created by redefining producAvity in the value chain.
2. Medstar Limited’s New Partners -‐ Form Strategic Alliances
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3. Open Innova1on PlaYorm A0er alliances are formed and Medstar has built an ongoing relaAonship with each partner, the company should focus on creaAng a common plahorm where its partners collaborate amongst themselves and with the company. An emerging trend in the high technology industries has been for companies such as Boeing and Apple to create an open innovaAon plahorm and bring together the experAse of their partner organisaAons to create the end product. Similarly, Medstar should create such a plahorm to uAlise specialist knowledge in different fields of medical research, currently located in different organisaAons to create a comprehensive product offering. The benefit of this approach is that Medstar gains access to experAse of other organisaAons without the high cost associated with recruiAng the pioneers of parAcular fields. The benefit for the community is that a profit driven company like Medstar would drive up efficiencies and reduce bureaucracy that is normally prevalent in public sector organisaAons. AddiAonally, the company could also direct the research undertaken at such organisaAons to fields that are relevant to the society at large and prevent individual scienAsts from undertaking pet projects which provide no large scale benefit to the community. In spite of the numerous shared benefits to the firm and the public, there exist potenAal risks that need to be considered. Managing numerous stakeholders, each with a different corporate culture and different moAvaAons for being part of the open innovaAon plahorm may be a Ame consuming process. Apart from losing Ame, the company could also lose valuable proprietary informaAon as a result of sharing extensively to promote working cohesively.
RecommendaAon: Engage. Partner. Innovate InnovaAon Is EssenAal
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Rethinking Innova1on Within Medstar A related suggesAon that the Board should also consider is for Medstar to have local R&D offices in which they can collaborate with their counterparts in other countries. As previously outlined, a recent problem that Medstar had been faced with, is the decentralised research department; with each country’s R&D department seemingly operaAng as a separate enAty. This is both costly and inefficient and limits the uAlisaAon of in-‐house experAse in developing innovaAve soluAons. Nowadays, innovaAon is more crucial than ever before; lagging behind on innovaAon is one of the greatest challenges for technology based companies going into the future (Industrial Research InsAtute, 2002) and will separate market players from market leaders. Therefore, an open innovaAon plahorm that fosters the transfer of knowledge is criAcal to Medstar’s expansion in the future. There is immense benefit for the board of Medstar to consider a strategy to beYer coordinate these spaAally dispersed research hubs, integraAng them under a single overarching strategy for innovaAon. CommunicaAon is key here, with the global team in Sydney needing to build plahorms for strong internaAonal interacAon between the naAonal teams. This will ensure that research teams work in synergy wherever they are around the world, but sAll be equip to meet local requirements for innovaAon. Furthermore, there would be great value from forming a Global R&D Ambassador tem, this internaAonal team will convene every year in Sydney and will head the naAonal research agenda for their respecAve country.
RecommendaAon: Engage. Partner. Innovate Facing Issues Before Moving Into EME’s
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Whilst the acquisiAon of a company would allow Medstar to enter into a new market, due diligence should be performed to ensure that the target is a cultural match for Medstar. AddiAonally, the presence of an internal champion can ensure that the realigning of processes and frameworks within the target company occurs smoothly and the acquirer can execute the long-‐term strategy for the company in a hassle free manner.
RecommendaAon: Engage. Partner. Innovate How Medstar Ltd Can Prepare for the Future
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In order to scope out the potenAal merger or acquisiAon of an exisAng pharmaceuAcal company. RaAonale: this company will have on the ground operaAons and a branded reputaAon in developing countries, rather than Medstar needing to undertake greenfield investment. Reduce the cost of not being an early mover into EME’s and minimising the last mover disadvantage. Risk: need to ensure a clear strategic and cultural alignment, and that the core acAviAes will not be disrupted by the M&A.
Undertake Due Diligence
Preferable markets to move into would be markets that are yet to be saturated, provide a compeAAve plahorm, soon-‐to-‐be robust emerging middle class and low poliAcal risk.
Execute M&A
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With universiAes, hospitals, and similar partners; the value is in the ability to leverage on core local knowledge and fostering engagement with the community at large. Public-‐private partnerships will allow Medstar to further focus on conAnuously innovaAon.
Build Strategic Alliances
Backward verAcal integraAon with research insAtuAons. This will assist in building a strong research component.
Ver1cal Integra1on
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A hub near a cluster of synergisAc ameniAes-‐ so, close to universiAes and hospitals. This will be a research hub that will specialise in finding new medicines and enhancing and reissuing drugs that are close to the expiraAon of patent date.
Open Innova1on Hub 5
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Through our analysis of Medstar Limited, the industry and the wider environment, we have been able to outline recommenda1ons moving forward. These recommenda1ons will tap into new markets and capitalise on the opportuni1es that are present. Implemen1ng this new strategy, Medstar will be able to sustain its market leading posi1on through realising Shared Value.
In Summary
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All stock images provided by: www.geYyimages.com.au AMFAR, (2004). CreaAng New Partnerships and Rules of Engagement, TREAT Asia Report, Retrieved from <hYp://www.amfar.org/arAcles/around-‐the-‐world/treatasia/older/an-‐interview-‐with-‐glaxosmithkline-‐ceo-‐jean-‐pierre-‐garnier%E2%80%94creaAng-‐new-‐partnerships-‐and-‐rules-‐of-‐engagement/Developing> Bhidé, A. (2009). Where innovaAon creates value. The McKinsey Quarterly, 2, 119-‐125. Booz & Company,. (2013). How emerging markets are driving the transforma7on of the pharmaceu7cal industry. Retrieved from <hYp://www.strategyand.pwc.com/global/home/what-‐we-‐think/reports-‐white-‐papers/arAcle-‐display/pharma-‐emerging-‐markets> Clarke, M. (2011) Emerging market growth pushes GSK to profit, Fresh Business Thinking, Reviewed at <hYp://www.freshbusinessthinking.com/news.php?NID=9471&Title=Emerging+market+growth+pushes+GSK+to+profit#.VV8eQBf9pek> Countries Unit: Cambodia, (2015). Retrieved from <hYp://www.developingcountriesunit.gsk.com/FileViewer.ashx?f=AssetsLibrary\43\cambodia.pdf> Crawford, R. K. (2002). Industrial Research InsAtute's R&D Trends Forecast for 2002: As They Tightly Target R&D Spending for Tangible Business Results, IRI Members ConAnue to Emphasize Growth through New Businesses and Partnerships. Research-‐Technology Management, 45(1), 16. Developing Countries Unit: Our Business Model, (2015). Retrieved from <hYp://www.developingcountriesunit.gsk.com/Our-‐innovaAve-‐business-‐model> Developing Countries Unit: Where We Work, (2015). Retrieved from: <hYp://www.developingcountriesunit.gsk.com/Where-‐we-‐work> Developing Countries Unit: Who We Are, (2015). Retrieved from <hYp://www.developingcountriesunit.gsk.com/Who-‐we-‐are> Ernst & Young. (2014). Rapid-‐growth markets. Retrieved from <hYp://www.ey.com/PublicaAon/vwLUAssets/EY-‐rapid-‐growth-‐markets-‐february-‐2014/$FILE/EY-‐rapid-‐growth-‐markets-‐february-‐2014.pdf>
Referencess
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FSG (2012). Compe7ng by Saving Lives: How Pharmaceu7cal and Medical Device Companies Create Shared Value in Global Health. Retreived from <hYp://www.fsg.org/publicaAons/compeAng-‐saving-‐lives-‐0> Goldstein, K. (2010). Corporate ReputaAon Management in the PharmaceuAcal Industry. Ins7tute for Public Rela7ons. GSK Announces Major New Commitment to Asia, (2015). Retrieved from <hYps://www.gsk.com/en-‐gb/media/press-‐releases/2015/gsk-‐announces-‐major-‐new-‐commitment-‐to-‐asia/> Kim, S., Peterson, K., Rehrig, M. & Stamp, M. (2011). CompeAng by Saving Lives: How PharmaceuAcal and Medical Device Companies Create Shared Value in Global Health, FoundaAon Strategy Group (FCG), pp. 35 Persaud, A., Kumar, V., & Kumar, U. (2002). Managing synergis7c innova7ons through corporate global R&D. Greenwood Publishing Group. PricewaterhouseCoopers LLP. (2012). 10 Minutes on Medical Innova7on. PricewaterhouseCoopers LLP. Retrieved from <hYp://www.pwc.com/us/en/10minutes/assets/medical-‐innovaAon.pdf> PwC Analysis. (2015). Retrieved from <hYp://www.pwc.com/gx/en/issues/the-‐economy/assets/world-‐in-‐2050-‐february-‐2015.pdf> Our Strategy, (2015). Retrieved from <hYp://www.gsk.com/en-‐gb/investors/invesAng-‐in-‐gsk/our-‐strategy/> Ward, A. (2014). Pharma giants face developing market ambiAons. Financial Times. Retrieved from <hYp://www.0.com/intl/cms/s/0/e1b39b2c-‐2f97-‐11e4-‐83e4-‐00144feabdc0.html#axzz3aljZ3uV4>
Referencess
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Projected Growth Profiles for Major Economies: Projected average annual real GDP growth rates for the BRICs, the US, the UK, the EU and the world over the period to 2020 and in the following three decades. Our model suggests that growth in emerging economies, par7cularly China but also to a lesser degree India, could moderate ader 2020 as they mature. Brazil and Russia show a slightly different paeern since short-‐term problems give them scope to improve in the 2020s, but they too see their growth rates revert back towards the advanced economy norm of around 2% in the longer run.
Appendix 1 (Source: PwC)
40
A quick look on the growth paths (US$ Billion) Emerging 7 (E7) -‐ the seven largest emerging market economies -‐ China, India, Brazil, Russia, Indonesia, Mexico and Turkey, Versus, the mature economies (G7) -‐ US, Japan, Germany, the UK, France, Italy and Canada. It is expected that the E7 economies will con7nue to be the driving force of the world economy in 2014 – 2050.
Appendix 2 (Source: PwC)
41
Emerging Market Economies: Inflows from Foreign Direct Investment, 2000-‐2012 As published in the report by the Interna7onal Monetary Fund, Regional Economic Outlook: Asia and Pacific: the past few years in Emerging Asia have seen an upward trend in Foreign Direct Investments. In 2012, it aeracted about a quarter of the world’s FDI flows. This has risen sharply ader the global financial crisis, making these Asian countries an aerac7ve FDI des7na7on.
Appendix 3 (Source: IMF)
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0
1000
2000
3000
4000
5000
6000
7000
8000
Australia Japan Singapore China Malaysia Indonesia India
Healthcare Expenditure per Capita, Asia-Pacific (Source: Frost & Sullivan)
Where developed markets are struggling with a single-‐digit, year-‐over-‐year growth of 1-‐4%, the Asia Pacific market is witnessing strong double-‐digit growth of 12-‐18%.
Appendix 4 (Source: Frost & Sullivan)
43
Strengths • One of the top 5 largest pharmaceuAcal
companies in the world • Strong R&D focus and is one of the
worlds largest investors in R&D • Vast resources and funds • Strong exploraAon of new markets • Global presence in over 100 countries • Over 97,000 employees worldwide • Winner of awards regarding chemical
industry manufacturing and resource efficiency.
• Strong sales and markeAng team
Weaknesses • Patent expiry dates • Controversy regarding safety of products
affecAng GSK image • Controversy regarding ethical pracAce
affecAng GSK image • Product recalls
Opportuni1es • Strategic alliances with public and private
organisaAons such as government, chariAes, academic insAtuAons and other pharmaceuAcal companies
• Global penetraAon • Specialised markets and segments • Mergers and acquisiAons • Increasing awareness of healthcare • Increase in demand for health soluAons
exp: HIV/Aids medicaAons
Threats • Risk of product failure in new markets • Increasingly stringent regulaAons and
legal requirements • Slowdown in exisAng markets (Europe) • CompeAtors • AlternaAve medicines • Complacency as shown in operaAons
(USA)
S WT O
In order to conAnue entering emerging markets with success, GSK must draw on its strengths, and seize opportuniAes whilst minimising or managing its weaknesses and threats.
Appendix 5 SWOT Analysis