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Key considerations for healthcare companies entering ASEAN Listen with ReadSpeaker

Key considerations for healthcare companies entering ASEAN

It is no secret: ASEAN is the marketplace that healthcare businesses are keeping their eyes on. Besides being the world’s third largest market, the region’s population of almost 700 million, rapid urbanization and an aging society are enticing.

At the recent 2018 International Pharmaceutical Regulatory and Market Workshop in Taipei, I presented my thoughts on what healthcare companies should consider when entering ASEAN. Let me share the key points with you:

With an annual growth rate of over nine percent between 2016 and 2021 pharmaceutical companies still enjoy high growth in the USD 20 billion ASEAN pharmaceutical market. With a forecasted growth of five percent through 2021, growth exceeds many western markets.

According to Nicholas Hall, Asia represents the largest region with USD 42 billion of the USD 122 billion global over-the-counter (OTC) drugs market. There are still a significant number of healthcare companies that currently do not have any presence in this part of the world and are struggling to identify and define the most suitable entry strategy for their brands.

Understanding your target markets is obviously a key first step when shaping your entry strategy. It is important to look beyond market size, growth levels and standard healthcare indicators such as private and public expenditure, reimbursement systems, disease prevalence and other aggregated market data.

In addition, it is also crucial to understand local consumer behavior, patient pathways, hospital and pharmacy landscape and the intended country’s specific market regulations.

The region’s regulatory requirements are very diverse with specific regulations and registration processes in each country. Meeting these requirements can be a tedious and time-consuming task.

For example, an OTC product may be classified as functional health food in China, a dietary supplement in Korea, a herbal medicine in Vietnam and a food product in Hong Kong. You must then decide which claims are feasible for your product and the type of claims your competitors use in the intended market. This is vital for your communication strategy and the positioning of your brand.

Having supported dozens of companies with their ASEAN market entry, we have observed and clustered three options for entry strategies, all with their own advantages and disadvantages:

Three entry strategies for ASEAN
  • Going alone: high margins, high control. In this traditional market expansion approach, you handle most activities yourself, from setting up your own subsidiary or rep office, taking care of regulatory requirements right through to commercialization. Only logistics, distribution as well as credit management and collection services are outsourced to a service provider. This entry strategy involves a high level of investment, and of course risk, but if it works, you reap the benefits. You also have the most control as compared to the other options
  • Commercial partnership: more options, more flexibility. This approach has seen rapid growth in the past five years as companies strive for market entry efficiencies in increasingly complex market environments. It is most relevant for companies with limited knowledge about the market; goes along with lower investment costs as well as reduced financial risks compared to going alone. Commercial partnerships vary depending on the types of sales and marketing activities you want your expansion partner to manage across channels, geographies and brands.
  • Out-licensing: quick entry, quick rewards. Out-licensing generally refers to a business that after taking initial steps to create a product, appoints an external business partner to help bring the product to the intended markets. Out-licensing is the most hands-off approach to market expansion. The biggest advantage of this method is that a product owner can eliminate the time risk of learning about the market and finding out what works and what doesn’t. The out-licensing approach requires low investment, minimal involvement and offers the quickest entry with some decent royalties.

With everyone from independent pharmacies to specialist healthcare providers stepping ahead to modernize trade, the channels are becoming more complex and fragmented. Therefore, I recommend paying special attention to the channel economics in the ASEAN market you are entering.

For example, in Cambodia, wholesalers play a key role in the retail of healthcare products, while in more developed markets like Singapore, the majority of trade sales come from four to five large pharmacy chains. Over in Vietnam, as there are no big international or large local chains, sales are derived from the presence of several thousand independent pharmacies.

Therefore a trade channel launch in a developed ASEAN market often starts with exclusive listing in one chain pharmacy before expanding to others, while in emerging markets companies apply a geographic expansion from key accounts in larger cities to smaller more rural areas.

Developed Asia: Chain expansion

On top of that, healthcare companies are now increasingly looking at omni-channel access which includes e-commerce channels to satisfy consumers’ demand for information, speed and accessibility. They must explore how to use e-retailers and marketplaces as well as social media platforms to capture consumer’s attention and provide broadest possible product availability.

Here are some of the typical pitfalls I have witnessed healthcare companies doing when entering ASEAN:

  • Not tailoring product (portfolio) to the specific country or sales channel. It is important to customize your product to fit the different consumers in each market. For example, consumers in Thailand may prefer small sachet-type packaging for their whitening cream instead of larger tubes.
  •  Not willing to invest money into market access. Before introducing a new healthcare product into a market, businesses need to consider not only the costs and benefits of the product but also the impact that it will have on local healthcare procedures and on the way services are delivered, such as updated protocols, new patient information, staff training and changes to the way clinics are organized, all of which can take many months to develop and implement.
  • Not understanding regulatory constraints. It can indeed be overwhelming to fully understand all the regulations, particularly in emerging markets where regulations are developed and implemented by different levels of government (federal, state and local) and by private organizations as well. Getting a grasp on all these different regulations, registration processes and requirements can be a very tedious and time-consuming task.
  • Unrealistic expectations including return-on-investment time. For any company, getting a product through the approval process and into commercialization is often a lengthy, expensive and risky process. Adding to this, gone are the days when you can just bring any product from the US or EU into ASEAN and expect instant success. Yet, I still witness some companies believing that because they are category leaders in Europe, they will quickly become the leader in an ASEAN market. It does not work like that anymore. The region has grown quickly in recent times and is often not waiting for your product to enter their markets. Companies must make choices and prioritize their limited budget, especially if they are keen to access multiple markets within a short time. One option is to work with a business partner to manage all aspects of the product’s commercialization from day one, including managing the registration process to pre- and post-launch marketing activities. This way a product owner can eliminate the time risk of learning about the market, finding out what works and what doesn’t.

Having considered all the above aspects, for me, the key success factors for expanding into ASEAN are:

  • Have the right team with local market knowledge
  • Be aware that regulatory road blocks can have a big impact on your business
  • Base your decisions on real first-hand market insights
  • Do take channel economics into account when deciding on the next step forward