Opportunities and Challenges in Emerging Markets

In a recent interview, Merck KGaA CEO Bernd Reckmann revealed that for the first time, the emerging markets, including China, South America and Southeast Asia, represent a greater revenue driver than the EU market for the company: in 2014, the emerging markets including Latin America and all of Asia except Japan provided 38% of Merck KGaA’s revenue ($12.5B) versus 35% from the EU. This share of EM revenue as a percentage of total topline is significantly higher than for most other major multinationals. This could be attributed in large part to Merck KGaA’s portfolio and established presence in these markets; Merck’s KGaA’s top selling drugs include JANUVIA (diabetes), ZETIA (hypercholesterolemia) and REMICADE (rheumatoid arthritis), which may favour EMs more than the portfolios of other manufacturers do. On the other hand, this could also be likely linked to portfolio factors given that most MNCs have become predominantly specialty- and oncology-oriented, while EM countries typically still struggle to manage infectious diseases which are still prominent in most EM countries.

 

Merck KGaA may not be the only manufacturer to find success in the EMs in the future, especially given positive growth trends in Southeast Asian and Latin American healthcare markets. Despite some recent political uncertainty, Thailand may present growth opportunities as it has positioned itself as an entry point to the more remote countries of Southeast Asia. Vietnam’s pharmaceutical market is also expected to grow significantly in the coming years due to its aging population. Brazil’s pharmaceutical market reached $26.4B in 2013 and Deloitte estimates that it will grow by 6.4% annually between 2014 and 2018. Healthcare spending in China reached $350B by the end of 2014 and McKinsey predicts that it could grow to as much as $1T by 2020. Driven by the increasing wealth of populations in these countries, common disease profiles are shifting from communicable to non-communicable disease and increasingly resemble the wealthier markets, creating more potential for future growth. In conjunction with the growing awareness of the benefits of good healthcare, emerging markets are showing increased demand for healthcare.

 

Capitalising on the opportunity presented by emerging markets will not be a simple task. Although an affluent class is growing with a demand for high-quality healthcare and Western medications, a successful approach to reaching this demographic across emerging markets will require strategic planning on a market-by-market basis. There are a number of other risks and considerations that manufacturers should also consider; for example, the lack of health care delivery infrastructure and slow emergence of health care financing systems render the traditional definition of ‘payer’ inadequate in these markets. As a result, to ensure success, proper strategies need to be customised to reflect local market realities.

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