China and the Emerging-Markets Challenge

Why the Pharmaceutical Industry Must Embrace a New Strategy

By Rachel Lee and Martin Reeves

Emerging markets have been a major source of growth for multinational pharmaceutical companies in recent years. But that success masks a significant challenge: these companies are actually falling behind local competitors in critical markets such as China. That reality could put the position of pharma companies in emerging markets at risk in the years ahead. The answer to this challenge is for these companies to embrace a new strategy.

An examination of the Chinese market underscores the threat. China is projected to surpass Japan and become the world’s second-largest pharmaceutical market by the end of 2016. But multinational pharmaceutical companies have been losing share in China to nimbler local rivals. These share losses reflect the fact that the strategies being employed by multinationals in markets such as China are poorly suited for the dynamics of that market.

This challenge is hardly limited to the pharmaceutical industry. According to research by The Boston Consulting Group, market diversity and unpredictability confronting multinational companies have increased significantly over the last several decades. The right strategy for any one market depends on two factors: the degree to which the market will develop in predictable ways and the degree to which companies in that market can shape its evolution.

In the case of China, the pharmaceutical market is unpredictable but malleable. Consequently, multinational companies should develop what we call a shaping strategy—one that will allow them to respond effectively to uncertainty and also will enable them to help influence the industry’s development.

The original version of this article was published in the March 2013 issue of Pharmaceutical Executive.