IO - Phama - Asia Focus

Industrial Organization: Write up / Pharmaceutical Industry6/12/2011Pharmaceutical Industry – Asia FocusIn the past, when we mention about pharmaceutical in Asia region some of us may just link it with the concept of “Pn=100-Qn, Ps = ∞100-Qs /AID drugs question in the text book”. Pn represent the developed market, while Ps represents developing one. Since the demand in developing markets [which also the condition of various countries in Asia] were weaker than the developed one, pharmaceutical seem to be hesitate to invest and sell product in these market because the profit would be less than the sell in developed market, like North America. Nowadays this condition is not yet change. In term of profit from drug purchase in Asia still less than profits receive from EU & North America’s market. However Asia is not the region that would be neglect by western pharmaceutical company anymore. Asia already could be considered as “competitive advantage” for multinational pharmaceutical company!In these paper I would separated in to 3 main focuses: why I would like to focus on pharmaceutical business in Asia, Recent trend of this industry & risk in Asia, and some concept related to pricing, competition and cooperation which some could related to Industrial Organization.Why study the pharmaceutical industry - under Asia context?Why study the pharmaceutical industry? - With globalization, evolution of disease, and development of medical discovery, nowadays Pharmaceutical is industry with high potential and growth rate, especially when we combine it with biotechnology. This industry is in an upward trend the most player focus on R&D innovation is key success. Unlike electronic industry that once were flourish but nowadays already reach it maturity and many player already move toward price war and bring fewer profit to outsourcing manufacture. In term of profit, even though this industry having high risk in term of investment in development process but it also listed in Fortune magazine that it is Top 5 fast grower in profit [1]. Moreover, from this industry we can study various management concepts from different perspective, like multinational marketing, alliance strategy and International knowledge transfer.Why focus on Asia Context? - The great change in pharmaceutical industry would be its next step in Asia! In the past, this industry was only concentrated in United State and Europe area. However it is slowly transferring from West to East, through acquisition, Joint Venture and various form of cooperation. Due to Pricewaterhousecoopers [PwC] Fifty eight percent of companies believe the center of gravity of the global pharmaceutical market will be in Asia rather than North America and Europe in the near future [2]. Multinational companies interest in Asia region not only as an end-[1] /magazines/fortune/fortune500/2009/performers/industries/fastgrowers/profit1yr.html[2] PWC: Gearing up for a global gravity shift* growth, risk and learning in the Asia pharmaceutical market.customer market [market size could be above 187 billionUSD] but also as the capacity base which come from firms’expectation to reduce cost in product development whichmay implement beyond R&D, clinical trials and analyticalservices. At the same time region-base companies also areseeking opportunity to expand their geographical footprint,due to these reason the growth in Asia market going to beprosperous.Target countries, challenge and trend in Asia pharmaceutical industryKey Countries in the region: The key countries for Asia region will be China, India and Singapore. All market countries proven to be very potential, but also with different condition.China – [enormous market size & low cost raw materials] China is forecasted to be world largest market [estimated to reach 28.3 Billion in 2010] However, the foreign investment only weight 20-30 % of sale. Most fragmented markets are still acquired by local entrepreneur. The other attractiveness of this market comes from low raw material cost. However China government has high intention to establish foreign investment in China. Therefore nowadays China become more concern about IPR and at the same time and at the same time try to increase the price of exported raw material in order to persuade foreign investment.Singapore –[Heaven for R&D & great IPR protection] Singapore provide prefect condition of international business, due to it high level in infrastructure and high skilled manpower. Moreover Singapore also provided well regulated IPR protection. However due to the higher cost when compare with other Asia-pacific region, most of the activities conduct in Singapore are mainly high – end complex task.India–[enormous market size & generic mass production] Indiapharmaceutical market is in the upward trend, since it have strongeconomies and the country needed of healthcare is increasing. Interm of strategy, Indian pharmaceutical try tend to follow themodel of keeping simple and run complex operation of shores. Interm of finish drugs Indian company mostly base on generic drug[account 20 % of global generic drugs] and the export value seemto be increasing in the past 5 yearsProblem & Challenge:Behind the prosperous chance in Asia market, there are some significant degrees of concern over the gap in regulatory standards between many Asian territories and the west which has acted as a brake on R&D out sourcing. These concern including, intellectual property and legal landscape, pharmaceutical regulation, disease profiles, labor & over head cost and corruption – management risk.Pharmaceutical Industry trend in Asia: This sector will separate into 2 main focuses, product and activities. In term of product Anti-Diabetics drugs and cardiovascular diseases are expected growth real fast due to the change in demographics and lifestyle which increasing more risk in creation of these 2 diseases. In term of activities, Asia market is not only interesting target due the great market size, but also, since there are high intention for reduction in cost in all part of value chain, Asia soon become a target area for outsourcing activities like clinical trials, Analytical services and development of formulation. However in order to gain the great benefit from these activities this region has to immediately increase in learning and improvement to match with international standard.Relation to industrial organization and business strategyLearning Curve: Due to the prediction that center of gravity of the global pharmaceutical market will be in Asia. This region is not only providing investor benefit over economic of scale anymore. With future potential in R&D support investment in this region could be considering as competitive advantage, lower R&D cost is one of the key factors to win the competition in this industry. The earlier the investor get in they will be more quickly learn about the unique condition of this region. The first entry can later on apply all the acquire knowledge and used as competitive or even created entry-barrier to lock out the new comer.Social welfare VS economic welfare: Refer to price discrimination at the beginning of the semester, first degree price discrimination allow company to serve the whole market with different price, depend on consumer demand. Ideally, this practice is win-win situation which allow pharmaceutical gain from economic of scale and at the same time patient can be more easily reach to the medical treatment. However in reality, it is not base on this pure concept of judgment. I would like to refer to the book name “The Truth about the Drug Companies” How They Deceive Us and What to do about it, by Marcia Angell. It talks about the fact that the cost of R&D is not as high as it was claim by pharmaceutical company , they just use the marketing tool to manipulate consumer perception. Due to this concept we can have further study about the real cost of this industry , and at the same time if the fact is similar to what it mention in the book we can also question the government to take action. This is because pharmaceutical product is different than other kinds – since it related to human-well being, and I believe that social welfare is more important than producer surplus and no one under the demand curve should be left out.Cooperation strategy and prisoner dilemma: For depth study in alliance, it will lead to various kind of cooperation, but we all can assume that all that company will try to grasp the best part for themselves. Multinational company may concern about the IPR while domestic company worries over the share of benefit or traditional remedies. Therefore this situation may lead to prisoner dilemma where both side are hesitate to run further cooperation. The cost to protect one own benefits usually quite high. Due to this situation we can run a further study over the condition or government support that could increase trust between multinational company and local company.References:Pharmaceutical related articles∙/knowledge_bank/articles/asia_pharmaceutical_sector.htm∙/articles/pharmaceutical-market-trends-2010.html Harvard business review∙/hbsfaculty/2010/04/pharmas-future-depends-on-thes.htmlPricewaterhouseCoopers International Limited -∙/sg/en/pressroom/pressrelease20070521.jhtml∙PwC: The changing dynamics of pharma outsourcing in Asia: Are you readjusting your sights?∙PWC: Gearing up for a global gravity shift* growth, risk and learning in the Asia pharmaceutical market.。