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BRIC by Brick

The life sciences industry in developed markets is going through a troubled phase. By 2016, it is expected that these markets will account for only 57 per cent of the global spending in life sciences – a sharp drop from 73 per cent in 2006.

This decline can be attributed to economic forces, regulatory agencies and various state-level developments. Several governments are currently in the process of tightening – or have already tightened – healthcare budgets and spending; R&D productivity in the industry is low; the patent cliff in the pharmaceutical and biopharma business is drying up revenues; and several cost containment measures adopted by regulators and payers across key markets have adversely affected the pricing and reimbursement environment.

As a result of these structural and regulatory changes, life sciences companies are continuing to view the emerging markets (EMs) as a strategic growth opportunity. EMs offer new opportunities to move beyond the struggling developed markets and take advantage of burgeoning healthcare demand in under-exploited regions due to growing populations and increasing access to healthcare facilities. EMs are also attractive for their low operating costs and their innovation-related potential.

Market Specifics


EMs have been defined in various ways since the term came into fashion in the 1980s. Several acronyms are in use today – BRIC (Brazil, Russia, India and China), BRICS (BRIC plus South Africa), and BRICTM (BRIC, Turkey and Mexico).

What all of these emerging countries have in common are a rapidly growing gross domestic product (GDP) rate and degree of industrialisation; a large and growing population; developing infrastructure; a volatile economy that displays an element of risk; and a complex policy regime that requires a strong understanding of the local markets and operating environment to achieve success. The most prominent of the EMs are the BRIC nations, and these countries display the most opportunities for life sciences companies.

Delving Deeper


Weighing the costs and benefits of entering EMs can be a daunting prospect for companies. The opportunity for success is high, but so too is the prospect of failure.

To help life sciences firms assess the viability of doing business in the BRIC markets, research has been undertaken, using an Emerging Markets Index (EMI) model, to delve deeper into the four markets and better understand the opportunities, challenges and risks in each. It assesses both the existing and anticipated drivers and constraints in each BRIC market to help companies make more informed decisions.

It is important that companies understand the significant operating and cultural differences between each of the nations, and take the necessary measures to support a successful transition into the market. This means adopting a strategy that is designed to conform to the regional regulatory environment, ensuring all products and services are tailormade for the local market, and customising operational practices to the business environment. Adopting these simple practices before doing business in BRIC nations will give life sciences fi rms scope to grow more quickly and sustainably.

Strategic Choices

Each company has different priorities and aspirations for doing business in a new market that will affect its decision on which EM to operate in. To reflect this, the EMI examines three complementary yet distinct perspectives – revenue, savings and innovation.

Revenue
In order to grow, life sciences companies need a receptive market. As such, revenue potential is judged on factors such as population size and growth; life sciences market size and growth; epidemiological shifts; the market’s approach to healthcare reforms; and the ease at which its population can access healthcare facilities – versus constraints such as political and economic instability, evolving corporate governance, healthcare infrastructure and intense local competition.

Savings
Savings potential is based on the ability of life sciences firms to operate at a lower cost than they would in developed markets. To achieve this in BRIC markets, companies need access to a large, educated labour force and healthcare personnel, investment in infrastructure by local governments, and business polices that do not stifle operation.

Innovation
The existence of an established, skilled R&D base is necessary for the life sciences industry to realise innovation potential. The presence of strong intellectual property rights that are upheld and supportive government policies will encourage companies to conduct clinical studies and engineer new products. High R&D costs and steep regulatory hurdles will make BRIC markets less attractive.

BRIC Comparison

Key findings from the EMI research allow each of the BRIC countries to be assessed and ranked as a whole or against each parameter. Overall, China and India prove to be more attractive, particularly over the medium and long term, but all BRIC markets display strong future potential in terms of revenue, compared to the more developed markets. Brazil and Russia’s future potential is diluted by the economic volatility and high entry barriers that currently exist in both countries.

China

Leading the index of BRIC countries is China. It gains its edge over other markets in the revenue stakes due to the country’s large population size, sustained economic growth, investments in economic and healthcare infrastructure, and supportive government policies. China also has an existing talent base for clinical research and product engineering that makes it a good market to explore innovation potential. It is second to India in terms of savings due to diminishing cost differentials, but its competitive wage costs and the low cost of raw materials still make it a strong contender.

India
Ranking second among the BRIC countries is India. At present, the life sciences market in the country is small compared to China and Brazil, but it shows more significant growth and a relatively risk-free operating environment. India is ahead of other BRIC countries in terms of savings due to an assured large supply of skilled, qualified workers and lower wage costs than the other three markets. Its innovation potential is also high due to policy support for research and engineering, particularly in the pharma industry.

Russia
Russia ranks third in terms of potential. It falls behind other BRIC markets in terms of revenue potential due to its comparatively small population, which is not expected to grow significantly in the future. Another serious limitation in Russia is the political and economic instability, which makes it less attractive.

The country scores lowest for savings potential out of all the BRIC markets. Potential is diminished due to the high material and manufacturing costs, coupled with higher wage costs due to the paucity of industry-specific skills. In addition, innovation potential is affected by the ‘brain drain’ that Russia is experiencing, which has resulted in a smaller talent pool and limited opportunities at the cutting edge.

Brazil
Although it is the BRIC market that presents greater near-term opportunities, Brazil ranks last over medium- and longterm perspectives. While it outperforms Russia in revenue potential, the medical demand is concentrated in a few, very large urban areas. Concentration in these pockets decreases the potential for growth in the near and middle term. In addition, the pace of healthcare expenditure is also likely to slow down over the coming years. Brazil also performs poorly in savings potential due to high wage costs and sub-optimal infrastructure. Recent regulatory changes have made it more difficult to conduct clinical trials in the country, and the lack of skilled researchers and a contract research sector severely hampers its innovation potential.

No One Size Fits All

The approach for entering EMs varies from market to market, and there is not a one-size-fits-all strategy for gaining access to the growth and innovation opportunities that developing nations offer. Each market presents its own costs and benefits.

Traditional EM strategies or even country-level strategies risk missing the mark if they do not take into account the variability and rapid change that exists within these markets. Companies are more likely to achieve greater success if they analyse opportunities against much smaller factors, and explore the possibilities for leveraging the complementary potential of individual markets.

Note: This analysis is based on the EMI model built by Tata Consultancy Services. More information is available in a white paper at: www.tcs.com/resources/white_papers/ pages/bric-by-brick.aspx. For further details, email: lshcip.pmo@tcs.com


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Debashis Ghosh is President Life Sciences, Manufacturing and Energy Business Group and also Head – North India Operations at Tata Consultancy Services. In his 23-year long career with the company, Debashis has performed a variety of roles in delivery management, sales and marketing, and general management. He was responsible for many of the company’s path-breaking transformation programmes. Debashis received a Master of Technology degree in Electronics and Telecommunication at the Indian Institute of Technology, Kharagpur, and is an alumnus of Harvard Business School.
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