The Glocalisation Challenge

This article introduces the concept of glocalisation and describes why it is has become the essential strategic capability. It will contrast the increasingly global nature of the pharma market, both supply and demands sides, with the continuing importance of locally-specific market conditions, such as market access, competitive environment, healthcare systems and market segments.

The implications of this 'local needs in a global market' situation is that firms need to develop superior capabilities in "glocalisation" (the adaptation of a core, global strategy to local market conditions). The article will use examples to illustrate shortcomings in firms' current glocalisation capabilities and outline a three-part approach to improving these, thus setting up the rest of the series.

Brian D Smith, Principal Advisor, PragMedic

When your business is global but your markets are local, you must glocalise.

The pharmaceutical industry has changed dramatically since I first stood at a laboratory bench in the 1970s. Then, drug markets outside of “the west” were considered insignificant and competition from those developing markets was inconsequential. But today I live in a hugely different world, in which no company can ignore the opportunities and threats presented by what is a truly global pharmaceutical industry.

But the globalisation of our industry has created a dilemma. Our competitors and customers are global but our markets remain intensely local. Biology defies borders, but the same is not true for regulation, competitors, healthcare systems, reimbursement systems, cultural preferences and many other market factors that remain essentially local. This 'global but local’ nature of our market means that the challenge is to keep the scale and scope advantages of a global strategy without sacrificing the competitive advantage that comes from tailoring to local needs and wants. This is the glocalisation challenge.

This article, the first in a series of four, will help you to understand the challenges and promise of glocalisation and why many life science firms fail to glocalise. It will introduce the practices that enable the best firms to succeed at being simultaneously global and local. In subsequent articles, I will expand on those best practices based on my decades of research into our evolving industry.

Why Globalise?

The pharmaceutical industry has been an international industry since first German and Swiss, and later British and American, companies evolved into the modern industry in the late 19th, early 20th century. Even in their earliest days, firms like Merck, Bayer, Roche, Pfizer and others were quick to sell their innovative products outside of their home markets. But for more than a century, pharmaceuticals remained an international rather than global industry, with the vast

majority of both supply and demand being concentrated in the North America, Western Europe and a handful of other westernised countries. It wasn’t until so called “Globalisation 3.0” began in 1989 that our industry spread out from these countries to a significant degree.

Since then, the rate of globalisation has been an indication of its benefits. By and large, the high fixed and low variable costs of inventing and making medicines means that profitability is closely correlated to volume. This makes a global market much more attractive than a national or regional one. That demand-side pull is amplified by supply side push. Both developed and emerging economies want the high-value jobs and export revenue that pharmaceutical companies create and, consequently, favour the sector in their industrial policies. Together, these two forces make it less of a question of 'Why globalise?’ and more an issue of 'Can we afford not to?’ Today, even the smallest pharmaceutical companies aspire to exploit global markets.

The Glocalisation Challenge

The inescapable logic of globalisation is powerful but it doesn’t change the irrefutable individuality of local markets. Some of this uniqueness is obvious and gradually eroding. For example, leading edge clinical practice tends to converge onto international standards. Increasingly, imitation and consolidation are making pharmaceutical distribution channels more similar between countries. And the internet is gradually erasing what were marked differences in how prescribers access information. Against this trend for global homogenisation, important, market-shaping differences persist. This is especially true in the less obvious characteristics of national markets. For example, the world is a still a very heterogenous place when it comes to attitudes to sexual health. Similarly, only a narrow stretch of sea separates the pill-loving British from the suppository-accepting French. And in many countries, especially in Asia Pacific, traditional medicine is still a direct competitor to modern pharmaceuticals. On balance, homogenisation and persistent heterogeneity combine to mean that each national market retains its predilections, strong preferences that create the opportunity for marketers to win customer preference and competitive advantage. And it is this combination of market similarities and dissimilarities that creates the need to glocalise, to execute global strategy in a way that meets local needs.

Naïve Glocalisation

The need to glocalise has been recognised by pharmaceutical companies as long as they have tried to globalize. I have studied, in detail, their glocalisation processes, both explicit and implicit and found that almost all companies follow a three-step method. But I’ve also found that the effectiveness of this three-stage process varies greatly. Most companies find it results in only a weak form of glocalisation, with little local competitive advantage. Only a few companies have found the secret to fully effective threestep glocalisation. If you want to avoid the mistakes of the former, it pays to consider their somewhat naïve approach. (Figure 1)

The first step in glocalisation is to decide which countries to focus on.

TARGETING

• Focus by size of market • Expect proportionate returns

Figure 1: Naïve Glocalisation

The naïve, but most common, approach is to base this on market size. So most companies will buy market research data and allocate resources (and expect returns) in proportion to, for example, population and disease prevalence. Some more sophisticated companies might overlay this data with the sales of comparator products to estimate the proportion of the market that is available to them. Even with good data and sophisticated analysis, this approach to resource allocation is ineffective. Mostly, this is because it assumes market attractiveness is only a function of market size, but this approach is also flawed in the way it assumes that every national market is homogenous and equally winnable. When I do 'postmortem’ examinations of failed glocalisation strategies, this naïve approach to resource allocation is a big part of the problem.

The second step of glocalisation is tailoring the value proposition to the targeted markets. This has two elements. The first is to address tangible local requirements, such as regulatory approval and language issues. Almost all firms do this well, usually aided by local experts. But the second element — addressing intangible local requirements such as cultural issues and local practice — is rarely executed so well. It is usually left in the hands of local affiliate marketers who are given little latitude to adapt the global strategy. Even subtle changes to targeting and positioning are constrained, either by headquarters’ edict or by lack of local resources. In one example I observed, the local affiliate was not given the resources to generate HEOR data against a locally important comparator, even though that was vitally important to the local payers. Mostly, tailoring weaknesses have their origins in HQ’s simplistic definition of market segmentation. Clinically defined segments are easy to translate across markets but they often miss the nuances of non-clinical, intensely local, needs. This naïve, reductionist approach to describing market structure is another major reason that glocalisation fails.

The third step of glocalisation is learning, the creation of knowledge about what works and the sharing of that knowledge between countries. Large, global companies spend a lot of effort on this but they rarely get a good return on that effort. Through internal conferences other methods that are supposed to share best practice, they encourage local marketers to exchange experiences. This often has the veneer of success when marketers pick up on the clever ideas of their colleagues. But when I’m asked to follow up on this knowledge sharing, I find that success is only superficial. In practice, good but mundane ideas are often rejected whilst bad but glamorous ideas are evangelised. The underlying reason for this is the sharing channels are often designed without any scientific understanding of how knowledge management works. In any case, when the approach to glocalisation is naïve, it’s the learning element that is often an expensive failure.

TAILORING

• Address essential local needs in full • Make limited allowance for non-essential needs

LEARNING

• Share local experiences • Adopt the superficially attractive

Astute Glocalisation

The contrast between naïve glocalisation processes, as described above, and the more astute processes used by the most effective companies is striking but subtle. Both naïve and astute processes follow the same three step process but they differ significantly in how that process is executed. (Figure 2)

In astute glocalisation, the decisions about how to allocate resource between countries allow for the reality that country attractiveness is multifactorial. It considers not only obvious factors like how big a market is but also country’s influence on each other. Resource allocation also considers how easy or difficult it is to win in each country. Together, this amounts to an approach that is less about prioritising countries and more like managing a portfolio of countries. Details of this method will be discussed in article two of this series.

Once resources are allocated, the astute process for tailoring the value proposition is also quite different from the naïve process. It is designed to address the

TARGETING

• Consider country attractiveness and competitive strength • Construct a multifactorial country portfolio

Figure 2: Astute Glocalisation

TAILORING

• Address essential and motivating needs • Construct an extended, augmented value proposition

LEARNING

• Identify learning needs • Uses explicit knolwedge management methods

needs of payers, patients and prescribers and, importantly, not only their obvious needs but also their intangible motivators. This leads to the construction of an extended, augmented value proposition built around the needs of a well-defined target segment. Details of how this is done in practice will be the subject of article 3 in this series.

The learning step of glocalisation, which is such an expensive failure in the naïve process, is much more deliberate in the astute approach. It involves defining what needs to be learned and then designing an appropriate combination of inductive, deductive and abductive processes to create and share that new knowledge. This is a knowledge management, rather than an idea sharing, methodology and the techniques used for this will be discussed in article four in this series.

Meeting the Challenge

If, like almost all pharmaceutical companies, you accept the benefits of globalisation and the realities of local market individuality, then you must also recognise the reality of the glocalisation challenge. If you do, then you probably follow the three step process of allocating resources to markets, tailoring to markets’ needs and inter-market learning. And if you find your glocalisation has not effectively combined global strategy with local advantage then you, like many of the companies I have studied, may be being using a naïve glocalisation process. If you have come to that realisation, then you will be interested in knowing how astute companies meet the glocalisation challenge. If so, I am sure will enjoy the next three articles in this series.

AUTHOR BIO

Professor Brian D Smith

works at the University of Hertfordshire, UK, and Bocconi University, Italy and researches the evolution of business models and competitive strategy in the global life sciences industry. He has published over 300 papers, articles and books. www.pragmedic.com

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Over the last decade or so the CRO industry has been driven by acquisitions to amalgamate skills to (i) improve financials, (ii) assuage client concerns of having to deal with too many vendors, and (iii) play a seminal role in intellectual property generation to ask for risk-sharing rewards that are multiples above the cost-plus models associated with plain vanilla silo services. Even more recently, acquisitions in the space show a clear key trend, CROs are acquiring their peers for innovation, not just expanding top-lines or geographies. Testament to this is the fact that valuations of innovation-led acquisitions were almost double the rest over the past five years.

A closer look shows that the intellectual property (IP) is primarily generated in early pre-clinical stages of drug development. Importantly, a lot of this IP emerges from cell-biology research, relating to biochemical pathways, genes and proteins as drug targets. Later animal studies serve to help validate early hypotheses. But it is of note that animals is not where IP is generated. Animal studies are, however, integral to drug discovery as they allow testing at an organism level, and FDA approval is unthinkable without these. But now there is an emerging paradox: failures during human trials are mostly due to data from animal studies not translating to humans! Disease and drug response mechanisms at the genetic level are different in animals. The rise of animal models with humanised diseased parameters have helped translatability but the overall failure rates are still >75 per cent for drugs under development, (albeit with better rates for biologics). Exacerbating the ‘non-translatability’ problem is the recent movement against animal research. In the Cosmetics sector, for example, a European commission has banned the use of animals altogether. Even for the pharma sector animal-research capacities are strained, due to which costs have nearly tripled over the last decade.

‘Inaccurate animal science’ and ‘animal rights’ is driving cell-biology efforts (both academic and commercial) to come up with solutions that are better indicators of experimental drug performance. Leading cell-biology service providers today are not only providing better mechanistic details to understand safety and efficacy profiles, the bleeding-edge now is human cell systems. The cream of the crop here are companies that deal with human induced pluripotent stem cells (HiPSCs) that bring totally next generation benefits to the assay system. It is interesting to note that leading CROs like Charles River Laboratories started as an animal supplier to the pharma industry in the 1940s and went on to acquire Hemacare in 2021 for access to stem cells, cells, tissue like in vitro systems yielding human relevant readouts.

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