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The Global Pharmaceutical Industry and Less Developed Countries

Literature Review

Introduction

Pharmaceuticals and medical technology play a tremendous role in health improvement in developing nations (Kremer, 2002: 67). Pharmaceuticals bring tremendous health benefits to developing nations although the existing pharmaceuticals are either misused or underused. Moreover, pharmaceutical research and development (R&D) on the health problems specific to poor countries is inadequate. Nevertheless, emerging economies such as China and India show a good developing in the global pharmaceutical trend (Cheri, 2004: 8). However, critics question whether these countries have the adequate strategic measures to enable them compete with the Western pharmaceutical gurus (Nolan, 2002: 119; Yeung, 2002:473).

The purpose of this literature review is to discuss the issues surrounding the global pharmaceutical business and the less developed countries. The review is based on the underlying rationale that the global pharmaceutical industry has a good trend in the less developed countries, and that with strategic management; the firms in these countries can compete effectively with other global firms. Data gathering for the review will be conducted from credible peer reviewed scholarly articles that are relevant to the subject. A critic analysis of the literatures will be performed and the works will also be compared and contrasted for the purpose of validating the findings for this review.

Cheri (2004) addresses the subject as to whether China and India should be considered for the availing medicine to various world markets through patents. Cheri (2004: 7) argues that products patents should be introduced to the China and India pharmaceutical markets. However, this move faces resistance because of the fear that introduction of patents will lead to increased drug prices and destroy the small firms. Moreover, the entrance of MNC firms to the Indian and China markets may displace the prevailing firms and thus a threat to the domestic market. On the other hand Cheri (2004: 7) argues that enhanced intellectual property protection can close off certain revenue options and cause the firms to reorient their strategies. Consequently, the reorientation can affect the firm’s structure and the types of competition and thus leads to changes in pricing, physical availability and quality levels. Furthermore, enhanced intellectual property protection will directly promote access to new medicines and indirectly enable the firm to adapt a successful market orientation. Therefore through IP an incentive structure to invest in R&D is provided.

Pharmaceutical dealings are not new to countries in the less developed regions of the world, for instance, China and India. Cheri (2007: 7) reports that pharmaceutical firms in China and India are important suppliers of low-priced but active pharmaceutical ingredients as well as domestically produced finished products. Yeung (2002: 3) also agrees that the Chinese pharmaceutical industry is developing but there are uncertainties as to whether they would be able to compete effectively with the already established pharmaceutical firms of the developed nations.

Yeung (2002: 2) addresses the subject from the perspective that China entered the World Trade Organization (WTO) treaty yet there lacks a comprehensive investigation on the implication of the WTO accession to the Chinese pharmaceutical industry. To understand why analysts doubt the success of the pharmaceutical industry of less developed nations at the global scale, Yeung (2002: 1) highlights major issues that affect the pharmaceutical business and which led to consolidation of the industry at global level. First, the cost drug discovery and new drug development is very high and increases exponentially as a result of the high cost of equipment and facilities required; the demand for highly skilled scientists to explore genetic research; and the expensive human clinical trials that are mandatory to satisfy the safety regulatory authorities. Developing nations may experience challenges in initiating and completing R&D as a result of the tremendous costs. Moreover, there is the challenge of skilled research personnel and advanced technology that can assist to meet the required standards. Second, for a pharmaceutical firm to thrive at the global level there is need to indulge in a global reach of sales and marketing channels in order to gain and maintain a market share. Marketing of products at the global level requires an integration of several factors such as knowing various cultures and their unique preferences as well as reaching out to satisfy these needs. Without effective strategies, adequate finances, and inability to identify the market or distribution channels for their products, developing countries may find it difficult to obtain market share and competitive advantage at the global scale. Third, as a result of a booming stock market and the shareholders’ pressure to sustain a high profit margin, the pharmaceutical sector is driven to develop blockbuster drugs that earn more than US$1 billion and this can only be afforded by the large established firms, absent in less developed nations. The presence of these three major issues will always hinder the ability of pharmaceutical firms in less developed countries to have fair play in the pharmaceutical business, even for China who acquired accession to the WTO.

Nevertheless, Yeung (2002: 19) observes that as much as it is difficult for China pharmaceutical firms to level with the competitors, China’s pharmaceutical industry can still develop a attain market share and sustain growth and survival through the following strategies. First, China should consolidate its local market of generic drugs and herbal supplements. Compared to the estimated above 46 billion dollar US pharmaceutical market, the Chinese market is smaller but has potential to be big if consolidation is conducted (Yeung, 2002: 19). Consolidation of the market in China and India can be done through mergers and acquisitions of firms or closing down the thousands of small, poorly equipped and non profitable drug firms that produce less than three products. Consolidation, as Yeung (2002: 19) argues will enable China to recapture its current deteriorating market share. Moreover, Yeung (2002: 19) asserts that there are plenty prospects for further growth of the Chinese pharmaceutical industry and China is likely to be one of the world’s largest drug markets in the future.

Second, the pharmaceutical firms should use latest marketing technologies such as the Internet to market their drugs (Yeung, 2002: 19). Currently, studies show that the number of Internet users has increased globally and thus there is likeability that awareness of the drugs will be created to a larger group (Yeung, 2002: 19). Moreover, the Internet provides a cheaper, faster, and sure way of reaching to a large number of potential customers at an instant rate. The Internet should especially be considered as a marketing tool for the Chinese drugs of which most are packaged dietary supplements that do not require regulatory approvals.

Third, the firms in less developed nations should outsource R&D and collaborative marketing to assist in lifting them to the level of established competitors (Yeung, 2002: 20-21). Regulatory processes for drug approval are extensive and very costly and therefore clinical research firms are outsourced through subcontracts to carry out the phases of clinical trials. Studies show that outsourcing R&D and collaborative marketing reduces the overall costs drug discovery and development for the firm (Yeung, 2002: 22).

Kremer (2002: 67) argues that pharmaceuticals are accredited to health improvement in the less-developed countries as opposed to the historical health experience of the developed countries in which improvement in socio-economic status and sanitation are major factors that contributed to health benefits. Kremer (2002:68) further argues that less developed nations benefit tremendously from drugs manufactured by the rich countries but there is less specification of drugs for illnesses that occur in particular less developed regions. For instance, there is high prevalence of malaria and tuberculosis in sub-Saharan Africa but little research is conducted provide drugs that can effectively solve the problem if this cohort. Kremer (2002:69) addresses the issue of product patent controversies like Cheri (2004). However, notable argument is that even with the available pharmaceutical products in less-developed countries, these are often misused or under-used as a result of political issues (Kremer, 2002: 69). Moreover, there is shortage of qualified skilled medical personnel to adequately address the issues of pharmaceuticals in these countries. Kremer (2002: 70) outlines the percentage of market share in the global pharmaceutical market in 1998 and this shows that Latin America, Southeast Asia and China have the largest market shares (7.5 and 7.0 percent) among the less developed nations while Australasia the least with 0.6 %.

Nolan (2002) addresses the global pharmaceutical business with a focus on China, a developing country with WTO accession and who has developed extensive evolutionary changes to transform the pharmaceutical industry. Nolan (2002: 120) observes that China has a huge attraction of foreign direct investment. If this is utilized in accordance with Yeung’s (2002; 19) suggestion of market collaboration and outsourcing professionals then there is prospect for further growth of the pharmaceutical industry. Nolan (2002: 123) adds other aspects that can lead to a lucrative pharmaceutical business in China. A pharmaceutical firm like Sanjiu is expected to excel because of government support, outstanding leadership, team enhancement and an exemplary Chief executive officer. Through strategic management, other firms will be heading towards global success as well.

Lichtenberg (2005: 663) analyzes the relationship between pharmaceutical innovation and disease burden and then compares these outcomes between developed and less-developed countries. Lichtenberg (2005) offers the same observation as Kremer (2002) that the faster the pharmaceutical industry advances in innovation and technology, the better the health outcomes for the society.

Edejer (2000: 37) addresses the issue of global pharmaceutical industry and less-developed countries by focusing on ethical issues that concern the clinical trial phases. Edejer (2000: 37) argues that there are many ethical concerns about the extend by which clinical trials performed in the less developed countries preserve the integrity of science, protects patient’s welfare, and respect the reputation of national regulatory agencies. Edejer (2000: 37) argues that not all trials conducted in the local population of the less-developed countries are well planned, or well done. The active involvement of pharmaceutical firms in the less developed countries may result to awareness and vivid address of issues that concern ethics in drug testing.

Analysis of these literatures shows that less-developed countries have prospectus for growth and sustenance of the pharmaceutical industry but the perspectives from which this can be achieved, more or less varies from one scholar to the other. Cheri (2004) believes that through intellectual patent protection, firms in India and China will develop a newer orientation in industry and market structure and therefore will reap more from the incentives of R&D. Yeung (2002) suggests that the firms in developed nations are way too ahead to compete with but firms in less-developed nations can obtain market share and competitive advantage through consolidating the local market, adopting IT tools in marketing, and outsourcing R&D and coordinative marketing. Kremer (2002) and Lichtenberg (2005) believe that less developed nations are not utilizing the available pharmaceutical services to their full benefits and that through government policies and education to the population, greater health benefits will be achieved in less-developed countries. Nolan (2002) asserts that even with China’s WTO accession, success in global pharmaceutical business requires the integration of a variety of management aspects within the firm. Edejer (2000: 37) appreciates the R&D initiative for the purpose of availing drugs to meet the health needs of the less-developed populations but the author is concerned about the ethics issues in some of the human clinical trials phases.

Conclusion

Less developed countries may not be as equipped and successful as the developed nations in the global pharmaceutical business but they have many prospects to be successful. Countries like China and India are not only successful in production of a variety of generic drugs and herbal supplements but also form potential largest world drug markets. Developing nations can succeed in the global pharmaceutical business, all that is required is strategic management and development of goals and objectives for both the short term and long-term. Aspects that need to be considered for the making strategic decisions include intellectual property protection, consolidation of firms for production and marketing, outsourcing skills, talents and roles, and use of technology in marketing.

List of References

Cheri, G. 2004. “The effect of changing intellectual property on pharmaceutical industry prospects in India and China,” DFID Health Systems Resource Centre

Edejer, T. 2000. “The ethics of drug trails in less developed countries,” Lancet, vol. 356: 37

Kremer, M. 2002. “Pharmaceuticals and the developing world.” The Journal of Economic Perspectives, vol. 16(4): 67-90

Lichtenberg, F. 2005. “Pharmaceutical innovation and the burden of disease in developing and developed countries,” Journal of Medicine & Philosophy, vol. 30(6): 663-690

Nolan, P. 2002. China and the global business revolution. Cambridge Journal of Economics, 26: 119-137.

Yeung, G. 2002. “The implications of WTO accession on the pharmaceuticals industry in China,” Journal of Contemporary China, vol. 11(32): 1-25.