Abstract
The aim of this study is to find out innovative business models that pharmaceutical MNC’s can use to unlock growth in emerging markets. Two research questions guided the investigation and they involved finding out how pharmaceutical multinational companies can modify their business models to reach the Bottom of the Pyramids (BoP) communities in Africa and investigate how the same entities can expand their market presence on the continent, given its unique social and cultural environment. The investigation appeals to the work done by regulators and multinational companies in meeting the pharmaceutical needs of BoP communities. South Africa was used as a case study to undertake the research and data was obtained by interviewing professionals who are conversant with the research topic.
Introduction
Problem Statement
Africa represents 11% of the planet’s population but bears 24% of the global disease burden (United Nations, 2017). Relative to this imbalance of disease burden and population percentage, Goldstein Research analyst forecast the African pharmaceuticals market size is set to reach $160.7 billion by 2024, at a CAGR of 20.4% over the forecast years (Goldstein Research, 2020). Based on these statistics, Africa’s pharmaceutical industry emerges as one of the fastest growing in the world because of rising income levels and a growing population. As a proportion of the market for pharmaceutical companies in the world, the continent plays a pivotal role in shaping the next frontier of pharmaceutical sales in the world, buoyed by a strong growth in medical product development and market experienced growth in recent years. In fact, the value of the African product pharmaceutical market increased from 20.6 billion in 2010 to more than 30 billion in 2018 (Goldstein Research, 2020). This growth is underpinned by several factors, including increased, expenditure, expanded provision of drugs to specific populations, a maturing business environment and a growing confidence in generic drugs.
Multinational Pharmaceutical Companies (MNPCs) have a unique opportunity of exploiting the potential that exists in this market by enjoying first-mover advantages, given that Africa’s market is still relatively underdeveloped and in need of pharmaceutical products. Particularly, they stand to gain from tapping into the potential that exists in the Bottom of Pyramid market (BoP), which is characterized by people from low-income settlements whose health needs have been neglected by existing health structures. It is thus opportunistic for multinational pharmaceutical companies seeking new sources of growth to target the African market as developed markets stagnate.
MNPC’s have traditionally ignored the BoP market due to poor infrastructure and poor accessibility (Prahalad & Hammond, 2002). When entering developing countries, they have focused on selling to the upper-middle-class segments within these markets due to private health insurance and higher wages among a majority of their clients who can pay for medicine at a premium, thereby guaranteeing the profitability of the pharmaceutical companies. Thus, pricing their products accordingly to secure patients in low-income settlements is challenging (Looney, 2013). Indeed, BoP patients cannot afford expensive medicines due to low levels of disposable income and the traditional solution for MNPCs has been to offer a lower price to these markets. However, this is not a feasible strategy to adopt due to the potential impact on international reference pricing, while the traditional strategy does not allow MNPCs to recuperate their research and development (R&D) profits (Danzon & Towse, 2003). Consequently, there is a need to rethink the business models adopted by these companies to better prepare them to exploit existing market opportunities discussed above.
A business model refers to a blueprint or a plan that a business intends to follow to manage its operations and remain profitable. Key components of a business model include a revenue plan, definition of targeted customers, list of preferred products and a financing plan. These main tenets of a business model define the rationale that a firm uses to create and distribute value to its customers. The process of developing a business model is often considered a key tenet of a company’s overall strategic development plan. In the context of the African pharmaceutical sector, coming up with an innovative business plan will create an opportunity for MNPC’s who can innovate to provide good-quality products that are convenient and affordable because BoP markets are the new sources of growth in the market (Hammond & Prahalad, 2004; Rangan, Chu, & Petkoski, 2011). Drawing from the work of Teece (2010) it is possible to come up with a business model that addresses how a business creates and delivers value to customers and derives economic value.
Research Aim
The aim of this study is to find out innovative business models that pharmaceutical MNC’s can use to unlock growth in emerging markets.
Research Question
With the introduction presented above, a research question will hereby be presented. The research question will not only function as guide for the thesis but also as a structured way to obtain more knowledge about the research topic and contribute to expanding the existing knowledge of the field of study.
The main research question is formulated as:
- How can pharmaceutical multinational companies modify their business models to reach the bottom of the pyramids in South Africa?
- How can pharmaceutical multinational companies expand their market presence in Africa?
The question how MNPCs can develop profitable business models to enter low-income markets must be evaluated against the background of the general problems facing the pharmaceutical industry. Increasing international pressure on reducing the prices of medicines and the challenges of operating in emerging markets are only a few of the issues dominating contemporary debate on the subject.
Thesis Structure
The study will follow six stages as outlined in the Figure 1.1 below to fulfil the aims of this study.
A detailed methodology chapter seeks to justify the research and philosophical approach undertaken in the study. The second chapter is a comprehensive review of the existing literature by providing an overview on the strategies that MNPCs can use to operate in emerging markets. In this section of the investigation, the low-income market segment is defined and the literature on business model innovation and internationalization theory reviewed to understand the context of the study. Afterward, the results will be presented and a discussion, based upon these findings, done to understand how the pieces of information help in answering the research questions. Lastly, a conclusion will be presented that will bring together all previous undertakings in the stages. To conclude, there will be a brief discussion on the limitations of the research and potential areas for future research.
Summary
The introduction sought to identify the market opportunity of the BoP and the factors that could influence the future of pharmaceutical companies. This provides a unique opportunity for MNC’s to provide access to sophisticated modern drugs at affordable prices to the billions of people who form low-income markets without access.
Research Methodology
Introduction
This chapter describes the techniques used by the researcher to conduct the present study. Key sections of the analysis include a description of the research philosophy, data collection methods, data analysis techniques, limitations of the study, and ethical considerations.
Research Plan
Saunders et al. (2007) proposed the concept of the research onion model to help researchers develop a methodology and construct a research design that will be applicable in multiple contexts of research. This research onion model has six main layers, which serve as a step-by-step guide for researchers to create and organize their research methodology, as described in figure X below.
Research Philosophy: Subjective and Interpretivist
The philosophy underpinning a research investigation is dependent on one’s understanding of how data should be collected and analyzed. According to Sekaran and Bougie (2016), there are four main types of philosophies used in research studies. They include pragmatism, interpretivism, positivism, and realism. Based on their inherent characteristics, a research philosophy underlines the belief that a researcher has about the relevance of data collected in a study to address its intended objectives. The present investigation relied on the interpretivism research philosophy, which is commonly associated with qualitative research methods (Stokes, 2017). The technique allows researchers to collect subjective data and interpret social reality through the views of the research participants. Alternatively, the interpretive research approach encourages scholars to develop findings based on their interpretation of the present data.
The interpretivism research philosophy was justifiably used in the research project because it supports natural inquiry of variables, which was the foundation of the present research. Indeed, the inquiry of innovative business models to unlock growth in emerging markets required naturalistic inquiry whereby a social phenomenon is studied in its natural setting and findings made based on such observations. Stated differently, the interpretivism research philosophy presupposes that such a social phenomenon cannot be isolated from the natural setting. Therefore, the social phenomenon, which requires the use of innovative models, cannot be separated from the natural setting, which is the emerging markets sector.
The interpretive research approach was also justifiably used in the present study because of its hermeneutic value. In other words, the subjective nature of the review allowed the researcher to move back and forth from the views obtained in the interview findings and the emerging market context, which was the framework of review. This back-and-forth iterative process naturally continues until theoretical saturation is achieved, subject to the scope and limits of the research objectives (Sekaran & Bougie, 2016). Owing to the specificity of research issues observed in an interpretivism research philosophy, it is difficult to generalize the findings across a larger demographic area of study. The implication for the study is that it may be difficult to apply the findings beyond the African pharmaceutical industry. Therefore, the findings and recommendations are heavily contextualized within the social, political, and economic dynamics of the market.
Deductive Approach
Inductive and deductive approaches to research are different from one another because the latter is used to test a theory by allowing a researcher to look for themes that align with a preconceived idea of what the findings should be, based on existing evidence or relevant theoretical underpinning (Kara, 2015). Comparatively, the inductive approach is designed to create new evidence. The deductive approach will be used in this study because the study will be undertaken from a position of making specific observations to generalizing the outcomes. In other words, the research investigation will be implemented as a case study of the South African market to make generalizations about the African continent. Therefore, the logical progression of the research process necessitated the use of the deductive approach.
Case Study
The case study approach will be used to address the research topic. It focuses on investigating a research issue by studying one example and using its findings to make generalizations about a research phenomenon (Kara, 2015). The case study approach will be adopted in the study because Africa is a vast continent and it may be difficult to obtain data by travelling to various destinations. Therefore, the case study approach simplified data collection and made it possible to integrate business modeling as a unit of study.
Data Collection Methods: Semi-Structured Interviews
South Africa was selected as the case study because it is home to one of the highest concentrations of pharmaceutical companies in Africa. In this regard, the researcher had an easier time getting access to respondents because they lived in the same locality and had a good rapport, which allowed them to introduce their friends to one another and talk freely. Furthermore, there is a wealth of information relating to the country’s pharmaceutical industry, thereby providing the basis for undertaking a theoretical review of the study’s findings.
Two main types of data are often collected in academic studies: qualitative and quantitative. The qualitative technique relates to the collection of subjective data, while the quantitative method focuses on the collection and dissemination of standard and measurable data (Strokes, 2017). The information collected using the quantitative approach often involves the process of gathering numerical data that can be quantified. Comparatively, the qualitative research method is used to collect pieces of information, which cannot be easily measured. In this regard, it offers researchers an opportunity to collect in-depth data from respondents. This characteristic of the qualitative research approach highlights its suitability to the current study because the researcher was committed to getting in-depth information about the topic under investigation.
Subject to the above criteria for classifying qualitative data, the data collection techniques adopted in the present study were geared towards obtaining in-depth and rich information about business models that can be employed to unlock growth in emerging markets. Based on the nature of qualitative evidence to be collected, data were gathered using interviews as the main instrument of obtaining evidence from the respondents. This technique was applicable in the study because it allowed the researcher to better understand and explore the views of the respondents by seeking their knowledge of the research issues. The interview method was also justifiably used in the study because the researcher intended to sample the views of a small number of people who were conversant with business innovation models for application in emerging markets. According to Patten and Newhart (2017), interviews are appropriately used in research investigations involving a small number of people. This was the main justification for its use in the study.
In line with the above-mentioned justification for using interviews, the researcher engaged with the informants in a formal interview process characterized guided by a set of semi-structured questions touching on various subjects relating to the research topic. Important elements of the information sought from the participants related to business processes in the pharmaceutical industry, including local production/local subsidiary, partnerships, knowledge opportunities, and technology transfer.
The semi-structured interview process gave the researcher flexibility to ask follow-up questions or seek clarification in areas that needed further probing. Relative to this advantage, Stokes (2017), Brinkmann, and Kvale (2018) say that semi-structured interviews are often applicable in contexts where it is difficult for a researcher to get an opportunity to have a face-to-face discussions. Broadly, the semi-structured interview process allowed the researcher to enjoy using new ways of seeking the respondents’ input in the research process by including open-ended questions that encouraged them to give views based on their understanding of the research topic. To improve the odds of success, the informants were furnished with the main topic areas that would be discussed in the interview process before it happened. Doing so enabled them to psychologically prepare for the interview, thereby fostering a better organization of thoughts. These strategies ensured that the researcher obtained reliable and comparable data. Table 2.1 below shows the title, organisation, interview type and regional office location of the respondents.
Table 2.1: Respondents’ Profiles
Data Analysis Techniques: Thematic Analysis
The thematic and coding method was used to analyze the findings obtained from the study. This technique is synonymous with the scrutiny of qualitative data, which is the main subset of information gathered from the interviews (Howitt, 2019). It works by categorizing the findings into distinct themes that are relevant to the topic of discussion and identifying patterns of analysis that are instrumental in helping to answer the research questions (Manish et al., 2018). The justification for the use of the thematic analysis is founded in its relevance to academic contexts where a researcher seeks to find out specific information from a broader body of subjective evidence.
The flexibility associated with the thematic analysis was also instrumental in analyzing multiple perspectives of the research issue. This feature of the thematic and coding technique gave adequate room for the researcher to interpret the findings in multiple ways (Alam, 2018).
Particularly, the flexibility was pivotal in analyzing patterns of innovation in the BoP sector which would be instrumental in developing business models for the African pharmaceutical market.
Broadly, the thematic and coding analysis used in the research process involved six key steps. The first one involved familiarizing with the data obtained to understand the nature of information retrieved. This process also involved reviewing the interview transcripts and taking notes based on their relevance to the subject areas under investigation. The second stage of data analysis involved coding the information received from the interviewees, based on the thematic areas that emerged from the study. The coding method was implemented by highlighting recurring sentences and phrases from the interview findings that would contribute towards the realization of the research objectives. The codes were used to describe the content of the interview data to describe an idea or feeling that emerged from the text. After examining all interview data, all the information was collated and described by relevant codes.
The third stage of the data analysis process involved generating themes from the interview data. They were developed after observing specific patterns of responses from the participants. Depending on the subject matter under review, several codes were used to come up with one single theme that was linked to the research objectives. In the course of reviewing the text, vague or unclear thematic areas were excluded from the analysis. Therefore, each of the themes generated from the data analysis process helped to provide useful data about the variables in the study.
The fourth stage in the data analysis plan involved reviewing the themes highlighted above. In this phase of the data analysis plan, the researcher examined the findings to find out what could be changed to make them more relevant and specific to the analysis. This process led to the fifth stage of information review, which involved defining and naming themes. This stage of the data analysis process helped to identify the meaning of each of the themes identified above and highlighted how they helped to address the main research questions. The last stage of the data analysis process involved writing up the final report. In this phase of the data analysis plan, the connection between the information collected and the rest of the study was established.
Ethical Considerations
The integrity of a research process is partly protected by the ethical principles that guide it. In line with this view, DeRenzo et al. (2020) say that addressing the ethical considerations of a research study is an important step in reducing bias and improving compliance with relevant laws and policies governing research investigations. The use of human participants in research has many ethical implications but three guidelines were adhered to in the present study. They include informed consent, privacy, anonymity, and treatment of data.
Informed consent: All the participants who took part in the investigation did so voluntarily. In other words, they were not coerced or paid to give their views. Additionally, they were provided information relating to the aims of the study to get sufficient data for making an informed decision on whether to take part in it, or not. The goal of doing so was to get objective views from them, as recommended by Flynn and Kramer (2019). Before taking part in the study, the informants were furnished with sufficient details about the study to make them aware of what it was about. In this process, the procedures for conducting the interviews were furnished to the respondents and the location identification process was completed thereafter. The goal of doing so was to make sure that the respondents felt comfortable giving their opinions throughout the interview process.
Privacy and Anonymity: The identities of the research participants were kept confidential to protect their privacy. Stated differently, the researcher presented their views anonymously, meaning that their identities and name of organizations they worked for were protected. Therefore, the researcher was only interested in getting their views about the research topic and refrained from linking them with their names or other identifying features. The aim of doing so was to prevent attempts of victimizing the informants for the views they gave in the study. This practice is consistent with recommendations of DeRenzo et al. (2020) regarding qualitative interviews, which requires researchers to keep the identities of participants private, unless the respondents expressly permit to act otherwise.
Summary
This chapter has highlighted the techniques used by the researcher to conduct the present study. They are primarily driven by the qualitative nature of the research process and the need to maintain harmony among all aspects of data collection and analysis processes. The subjective and interpretive approaches to data analysis further provide the framework for analysing the findings obtained. The main strength of adopting this methodology is its empirical basis. In other words, the information that will be captured from the respondents will be novel and contribute to the expansion of knowledge regarding the development of business models in the African pharmaceutical market. Comparatively, the main weakness of the adopted methodology is the reliance on expert views as a basis for answering the research question. This strategy means that biases held by the participants may be transferred to their views of the study topic.
Literature Review
Introduction
This chapter contains a review of existing academic literature that is relevant to the research topic. Key sections will highlight different theories and models that have been used in internationalization, with a specific focus on innovation and BoP markets. Information relating to partnerships and collaborations, generation of new knowledge, acquisitions, and partnerships are other aspects of corporate behaviour that will be discussed in this chapter to understand how multinational companies can unlock growth in emerging markets. In the broader analysis of these insights, the concept of innovation will be central to these discussions.
BoP Risks and Business Model
A business model refers to a blueprint or a plan that a business intends to follow to manage its operations and remain profitable. Key components of a business model include a revenue plan, definition of targeted customers, and list of preferred products, just to mention a few. However, the implementation of business models can create conflict among stakeholders and this is why it is important to understand the risks that are associated with the implementation of business models.
Liability of Foreignness
The liability of foreignness refers to the work that MNCs have to do to compensate for their uniqueness outside of their traditional firm-based competencies. It is believed that the larger the psychic distance between the company and its host population, the greater the liability of foreignness (Johanson, 2019). For example, a book authored by Marinov et al. (2020) supported the same statement through a case review of Chinese multinational firms acquiring German-based companies. The scholars pointed out that the Chinese employees working in Germany experienced significant levels of discrimination from their immersion into the western culture of business (Marinov et al., 2020). Moreover, it was observed that they were a target for discrimination despite being the owners of the new businesses. The main fear fueling this behavior is the loss of local expertise to “foreigners.” Furthermore, the German employees developed a negative attitude towards their Chinese counterparts because of previously held beliefs that the Chinese were “copycats” and usually engaged in the production of low-quality goods (Marinov et al., 2020). Therefore, it was established that specifying the nature of relationships between companies operating in different cultures is of paramount importance to multinational companies.
The depiction of businesses as a product of variable networks of relationships between suppliers and customers has characterized corporate performance in emerging markets. This statement defines what stakeholders call “foreignness” because it refers to outside parties that could influence existing relationships between MNCs and their customers. As highlighted in the case study above, national cultures play a critical role in determining the liability of foreignness. A study authored by Szymura-Tyc and Kucia (2016), which investigated the behavior of international firms in emerging markets also arrived at the same conclusion. In other words, national cultures were observed to have an impact on a firm’s liability of foreignness because high levels of internationalization and innovativeness were associated with companies that operate in countries that have a high-power distance culture. Conversely, it was also established that firms, which have a moderate degree of an individualistic culture, would thrive in such an environment because associated workplace conditions would support high levels of innovation (Szymura-Tyc & Kucia, 2016). A lower sense of uncertainty avoidance is also linked to innovativeness and firms’ behavior (Szymura-Tyc & Kucia, 2016). This is because a lower uncertainty avoidance is indicative of a higher degree of openness to new ideas, which supports the proliferation of innovative ideas.
A perceived higher degree of risk avoidance is also known to spur networking relationships among firms. The relationship between the behavior of firms and national cultures is equally observed to have an impact on the competitive positions of companies in respective market categories (Szymura-Tyc & Kucia, 2016). Overall, the findings of Szymura-Tyc and Kucia (2016) highlighted above were obtained from an exploratory quantitative research study. The Polish-based study also used descriptive analytical tools to describe aspects of culture that impacted their behaviors. The overall assessment showed that national cultures significantly influenced the internationalization strategy of firms, their liability of foreignness, and their success in emerging markets
Liability of “Outsidership”
The depiction of businesses as a product of variable networks of relationships between suppliers and customers has defined most literature on internationalization today. These relationships define what stakeholders would call the “liability of outsidership” because it refers to third parties whose operations affect the balance of existing business relationships. In conventional literature, the “liability of outsidership” is defined as the root cause of uncertainty in businesses because of its potential to upset existing agreements (Raghunath & Rose, 2017). Alternatively, the “liability of outsidership” primarily focuses on highlighting the perceived foreignness of international firms in their host environments. This statement is true for international firms operating in emerging economies because their activities in these markets have primarily supported the growth of international businesses seen today (Raghunath & Rose, 2017). However, to comprehend the liability associated with the perception that they are “outsiders,” it is first important to understand the underlying linkages supporting their growth and success in foreign markets.
Relative to the above statement, Raghunath and Rose (2017) draw attention to the need to understand the principal-agent theory and the role of conflicting interests in predicting the performance of MNCs operating in emerging markets. In light of these concerns, they caution that conflicting interests among different shareholders may supersede the nature of power balance outlined in the principal-agent theory, which dictates that the interests of a business should be designed to fulfill its agency relationship with its principal partners before addressing all other concerns (Raghunath & Rose, 2017). The relationship between MNCs and their major stakeholders further draws attention to traditional agency relationships that define corporate governance practices. In this setup, management practices are described by the contractual relationship between a principal and its agents (Raghunath & Rose, 2017). Differences in risk appetites between the principal and its agents are known to be the main source of conflicts in agency relationships. Underlying this statement is the belief that people are primarily driven by their self-interests, while their actions are bounded by rationality.
The relationship between principal and agency as described above fails to be enforceable in emerging economies due to weak institutional and legislative frameworks of implementing such relationships. Therefore, the merits of the agency theory vary across different institutional contexts. To reduce the cost of agency due to the reasons highlighted above, most MNCs in emerging economies strive to consolidate the ownership of individual firms to safeguard their business success (Raghunath & Rose, 2017). This strategy minimizes their “liability of outsidership.”
Differential Pricing Models to Enter Low-Income Markets
Pricing is a significant deterrent for accessing quality medicines and healthcare services for many low-income families. In a Kenyan-based study authored by Ongarora et al. (2019), it was reported that most low-income families pay out-of-pocket for their healthcare expenses. This trend creates a further impediment to healthcare access because it makes it more expensive compared to having an insurance plan. The availability and affordability of drugs to different markets are conditional in that there needs to be logistical and financial support to facilitate their delivery and use.
It is believed that the rational and appropriate use of medicines is integral to realizing health improvement goals. However, the availability of drugs to target markets is determined by many factors, including awareness levels, service quality, and professional qualifications of healthcare personnel (Niessen & Khan, 2016). When these variables are optimized, there is the widespread availability of medicines which may be counterproductive to their efficacy if they are misused (Niessen & Khan, 2016). Price controls have to be established to avoid this potential outcome.
Researchers have tried to estimate the impact of price controls on access to medicines with varied outcomes. Recent developments suggest that the cost of preventive medicine may be higher than previously thought. For example, in a study authored by Khatib, it was observed that most current estimates of preventive medicines do not reflect service and travel costs (Niessen & Khan, 2016). Additionally, they fail to account for non-material costs, such as loss of working time, which should ideally be factored in as part of the cost of treatment. The exclusion of these types of data in the computation of prices means that more low-income households may be unable to afford drugs than was previously thought.
The above-mentioned challenges pose a problem to proponents of universal access to medicines because they have to overcome price control issues before attaining this goal. From a critical review of price determination formulas, the World Health Organization (WHO) has set up a series of guidelines that proponents of universal access to medicines have to follow to achieve their objectives. The main metrics used to create price controls include considerations on supply costs and tax exemptions (Niessen & Khan, 2016). Other factors stipulated by the WHO that affect price determination include “price management of generic medicines, promotion of market entry through flexible trade-related aspects of intellectual property rights arrangements and licensing, and internal reference pricing of generic and other products by the therapeutic group” (Niessen & Khan, 2016, p. 10). These considerations have played an instrumental role in understanding how medicines are priced.
In a Brazilian study authored by Bertoldi et al. (2012), the prices of medicines were identified to be dependent on several factors, including the type of hospital where prescriptions are made and the type of drugs that are to be sold. Regarding the latter issue, the type of medicine dispensed was seen to have a significant impact on pricing policies, depending on whether the drugs came from originator brands, generic models, or are of “similar characteristics” to the desired prescriptions.
Different types of facilities also have an impact on drug prices. Bertoldi et al. (2012), classify them as private, public, and “popular” pharmacies. His criterion was developed after examining pricing data from 56 pharmacies spread across six cities in Southern Brazil (Bertoldi et al., 2012). Using the health action International methodology, the median prices of 50 different types of medicines were investigated in the study to determine the median price ratio of various medicine types by comparing them to international prices (Bertoldi et al., 2012). The study demonstrated that the failure of public sector pharmacies to meet supply-side demands made it difficult for low-income groups to access medications. This is why price differentials existed among different classes of pharmacies mentioned above.
Ambidextrous
Ambidextrous is a business concept coined from the need for companies to explore emerging business opportunities by relying on old-fashioned tactics that have proven to succeed. The concept is a product of market-based business models that affirm the success of existing competencies in efficiently satisfying market needs (Cluver, 2015). If implemented correctly, ambidextrous is likely to support the creation of sustainable goals and help firms to align their processes to fit this mantra.
To realize the benefits of ambidextrousness in supporting innovation, Cluver (2015) says that companies should satisfy five preconditions. They include a rationale for the importance of pursuing exploitative and explorative units, a common vision promoting the realization of exploitative and explorative goals, an endless stream of communication for the ambidextrous strategy, a separate organizational structure for supporting the ambidextrous goal, and a strong leadership team. It is believed that these five conditions have to be satisfied for organizations to realize their exploitative and explorative goals, without which they would only promote their exploitative goals.
Different companies have used the ambidextrous strategy to unlock potential in emerging markets. For example, Imperial Health Services provides quality access to medicines in various African nations, including East Africa (Kenya, Uganda, and Tanzania), Southern Africa, and West Africa (Ghana and Nigeria) (IHS, 2020). It has employed the ambidextrous strategy in engaging these markets primarily by leveraging three areas of operational management, which include consumer health, providing multiple services across the value chain network, and extensive market knowledge of different subsectors and geographies. These competencies stretched across various functional areas, including warehousing, inbound freight management, order management, secondary repackaging, outbound distribution, and cold chain management, among others (IHS, 2020). Thus, ambidextrousness is a commonly adopted strategy in the internationalization process.
The Business Network Internationalization Process (BNIP) Model
The BNIP model is a departure from the neo-classical view of markets, which suggests a monolithic makeup of markets, and instead advocates for a decentralized structure linked together by a network of relationships (Johanson, 2019). It recognizes the fluidity of the current market, which is characterized by the presence of many independent suppliers and customers. According to figure 3 below, business network relationships between these parties are characterized by state and change variables.
The BNIP model outlines two states of state and change that are constantly in play when examining corporate behaviors. For example, as described in figure 1 above, the emergence of knowledge opportunities leads to relationship commitment decisions that are the foundation for business relationships. These associations are integral to the innovation process because they support learning, creation, and trust-building. Different organizations adopt a myriad of strategies to achieve the goals of their market expansion plans. While the focus of academic research has previously been on western-based MNCs, recent research studies have tried to investigate the strategies adopted by these organizations in emerging economies. Sun (2009) is one such researcher who used Huawei as a case study to evaluate the strategic planning processes for giant multinationals in emerging economies. He established that these companies tend to nurture their capabilities in their home markets before expanding their operations, globally.
It was also established that the same firms prefer operating in markets with few cultural, technological, and economic barriers, thereby allowing them to scale their operations without experiencing many challenges (Sun, 2009). Thirdly, the researchers found out that these organizations use inward and outward linkages to enhance their strengths and minimize their weaknesses. These observations show that the two forms of state and change are constantly at play when nurturing business relationships.
Innovation Concepts Overview
MNPC’s today operate in a challenging economic environment, they face the opportunities and threats incurred by growing domestic and global competition, more informed customers and the need to enhance product range and reduce cost. This coupled with the need to align organizational processes to promote sustainable development goals, have increased the importance of multinational companies to come up with innovative methods of unlocking growth in emerging markets as a way to compete with and stay ahead of the competition. Confusion often ‘clouds’ the exact meaning of the term “innovation”. Many authors have proposed different meanings to the term. As a concept in business, people have used it to mean the creation of “something new”
According to Tidd, Bessant, Pavit and Wiley (1997), innovation is a core process concerned with renewing what the organization offers and optimizing the way it generates and delivers its output. Whereas as the Oslo Manual defines innovation as: “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations”(OECD, 2005, p. 46).
Based on these definitions, innovation is recognized as a process that utilizes change to come up with fresh ideas that can be implemented in practice to fulfill a specific organizational or market-driven goal.
To understand the role of innovation in organizational development, it is important to consult the works of Joseph Schumpeter, Schumpeter states there are five forms of innovation a business can innovate: product launches, application of new methods of production, the opening of new markets, exploitation of new resources, and the process of restructuring company operations (Schumpeter, 1943). The five forms of innovation mean that entrepreneurship can be subdivided into a similar number of categories to include idea generation, opportunity evaluation, planning, company formation/launch, and growth (Larsen & Hansen, 2021). These categories are premised on the understanding that any company wishing to make a profit must innovate first. Drucker (1985) noted that innovation can be learned and practiced. Innovation has the propensity to flourish when the organization as a whole instill and ingrain innovation. MNPC’s have to evaluate changing their entire business model to adapt to the changing business environment to capture value in low-income markets. Drawing from Teece (2010) it is possible to come up with a business model that addresses how a business creates and delivers value to customers and derives economic value.
An Overview of the Base of Pyramid
The Base of the Pyramid (BoP) market is comprised of people who are at the lower end of the economic pyramid. It refers to the poorest two-thirds of world population, a group of more than four billion people living in abject poverty, their income level is less than $2 per day as such they are excluded from the market economy and lacks access to basic social needs like healthcare, education, food, water, sanitation, information, communication, banking, insurance and financial inclusion (Jagtap and Larsson, 2014).
Figure 2 below graphically illustrates this segmentation.
Four characteristics summarize BOP customers:
- Low-income levels among communities
- Their income is irregular and unpredictable
- They are hard to reach via the conventional means of communication and distribution channels
- Little, or no, presence of strong institutional structures for providing essential products
Despite these challenges, the International Finance Corporation in collaboration with the World Resources Institute noted the potential purchasing power of the BOP is five trillion US dollars (Jagtap and Larsson, 2014). This has led companies to pay greater attention to the opportunities at the BOP as developed markets saturate (Prahalad & Hammond, 2002). Different techniques have been used to classify this demographic group with most assessments being pegged on poverty levels, income levels, and access to resources. From a resource-based perspective, extant literature suggests that most emerging economies have failed to realize significant levels of social or economic development, regardless of the presence of abundant natural resources. In a book authored by Faghih and Zali (2020), this phenomenon is defined as the “resource curse” and it links the abundance of natural resources and depreciating gains in economic wellbeing in various countries.
Evolution of BoP from 1.0 to 3.0
The process of addressing the needs of low-income communities through BoP business models has undergone three phases of evolution. The first one was BoP 1.0, which was primarily concerned with the need for multinational companies to pursue their profit-making objectives, while helping the poor and marginalized to prosper as well. This phase of BoP growth was the first acknowledgement that changes had to be made to existing business models to make them more inclusive in addressing the needs of different market segments. The second phase of BoP growth (2.0) emerged from this background and it was centred on designing products that would address the unique market needs of the poor (von Carlowitz, 2020). From this stage of evolution, several marketing attributes, including product design, distribution plans and other strategies were developed to meet the needs of disenfranchised communities.
Price disruptions were also closely linked with this phase of BoP evolution because part of its key objectives was to make products more affordable and accessible to a diverse group of people without compromising on quality (Mason et al., 2017). BoP 3.0 is the last phase of evolution and it focuses on the importance of generating better ideas for addressing issues affecting low-income populations. This stage of development highlights the importance of harnessing collective wisdom to come up with solutions for addressing common market problems. A deeper insight into BoP 3.0 is provided below.
BoP 3.0 is a detailed process of business design ingenuity aimed at harnessing existing information capabilities to create a comprehensive approach for addressing the unique needs of bottom of the pyramid markets. Its overriding principle is to design a vision for BoP business models by forging new mind-sets for promoting inclusivity in the market. The approach taken to support this principle is a bottom-up one where participatory market research is at the cornerstone of developing new market intelligence. Doing so helps to create an ecosystem for generating new knowledge and promoting inclusive business practices. This process may also involve investing in inclusive innovation, which is the missing link for developing market outreach programs that cater to the unique needs of all communities.
BoP 3.0 is also designed to promote access to markets through innovative distribution systems, such as last mile delivery options and shared channel models of engagement. The goal is to open the space for creating new partnerships for inclusive business development, which may be aimed at eradicating poverty and promoting equity and access to resources for all. Several modalities may be adopted to meet this objective, such as pursuing cross-sector collaborative unions among non-governmental organizations, researchers and firms (Cañeque & Hart, 2017). The contribution of these entities to current goals of promoting inclusivity is described at a broader level of analysis, involving the creation of policy framework for addressing global challenges. Parallels could be drawn to strategies designed to address climate change and food security issues around the world. Therefore, from a broader objective of addressing these global challenges, the BoP 3.0 takes an inclusive and deliberate approach of engaging multiple stakeholders in looking for innovative solutions to push the world closer to realizing inclusivity in business model development.
Mechanisms for Achieving Innovation Capabilities
The process of realizing innovation capabilities depends on a myriad of factors, which are social, economic, and political. From the onset, concerns regarding people’s awareness levels about a product or drug play a vital role in making sure innovative products are embraced by the target population and serve their intended purpose. Based on a review of existing literature, Ando (2015) has highlighted this issue when he investigated market access challenges facing the acceptability of a novel drug for treating drug addiction. The drug Nalmefene was observed to be least recommended to patients because of their unfamiliarity with it.
The second reason was linked to the belief held by most of the people that other forms of therapy, such as abstinence, were the correct ones to adopt. The experiment was conducted in 2015 and it involved 253 physicians who were recruited from Germany, France, the UK, Italy, and Spain (Ando, 2015). Their views were gathered using a survey and the investigation mainly sought to explore their experiences prescribing the new drug – Nalmefene. This case study suggests that traction for products needs to be created for markets to accept new drugs. This way, patients would be aware of the drug, thereby creating a market buzz, which is essential for new the launch of new products or services.
To understand the mechanisms that help companies to achieve innovation capabilities, it is important to understand the institutional context governing these operations, especially in the framework of emerging markets growth. Barbour and Luiz (2019) highlighted this issue in a journal article aimed at understanding how solutions-based innovation has helped to expand the market for Uber in Africa. The qualitative study demonstrated that the solutions-based approach was instrumental in overcoming institutional voids that hampered innovation and growth (Barbour & Luiz, 2019). Therefore, the need for understanding the role of institutional voids in supporting the process was highlighted as a key factor that multinational companies should review before doing business in Africa.
The aforementioned findings were developed after sampling the views of Uber employees using a semi-structured interview process. The population sampled consisted of managers operating in various Uber outlets in Sub-Saharan Africa (Barbour & Luiz, 2019). Their views suggested that the main reason why other companies have failed to implement their innovations in Africa is their failure to understand the role of institutional voids in supporting or impeding market adoption of new products.
Part of the discussions surrounding factors that help companies to achieve innovation capabilities has revolved around the relentless push for data exclusivity among pharmaceutical companies. These discussions have been contextualized within the limitations of pharmaceutical patent protection rights as they relate to the production of original and generic drugs (Diependaele et al., 2017). Most patents that are being observed in the industry are aimed at promoting market exclusivity with a majority of stakeholders requesting additional regulatory protection through data exclusivity. Relative to this assertion, Ahen and Salo-Ahen (2018) note that the expiry of patent rights for most pharmaceutical products is likely to significantly increase the pace for the adoption of generic drugs. However, evidence suggests that shifts in governance policies and macroeconomic outcomes need to be realized before this objective is realized.
It is believed that the proposed changes would help to create the institutional conditions that would eventually lead to the growth of innovation, which would ultimately culminate in increased access to drugs. Cross-sector social partnerships have been proposed as a model for spurring this change. Relative to this statement, Ahen and Salo-Ahen (2018) examined the challenges affecting access to generic drugs by focusing on the African market and noting that most innovations are unable to achieve their desired objectives because of the failure to address the most fundamental issues affecting innovation. By using a document review methodology, the researchers implored the need to have a bottom-up approach for promoting innovation in African markets and striking a balance between what can be effectively realized in the future with current innovative capabilities.
Strategic Alliance/Acquisition
Unlocking growth in emerging markets has also involved the process of developing strategic alliances and acquisitions. Innovation has been highlighted as a driving force in internationalization as companies dominate the market based on strategic alliances and acquisitions, they make. For example, in a study authored by He et al. (2017) to investigate the internationalization of Chinese MNCs, it was established that strategic coupling and decoupling helped firms to become successfully integrated into the global economy. The findings were based on a secondary literature review and drew insights from international business, economic, geography, and development literature. They also showed that this approach to internationalization had a significant impact on global business leadership and the power dynamics that support it.
Partnerships
Partnerships have also been voiced as an alternative way of market entry or expansion. Hammerschlag et al. (2020) highlighted the success that African Fin-tech firms have achieved by following this strategy, as a viable way of entering new markets, have provided part of the support for partnerships. Researchers further demonstrated that these firms have been successful in penetrating new markets by working with the local communities (Hammerschlag et al., 2020). Partly, their achievements have been linked to the development of fruitful relationships with customers, conducting customer education, and adapting communication/marketing strategies to suit the culture of the locals using social media.
In the above example, community involvement was mostly emphasized during the process of planning or formulating marketing strategies with the good relationship built with customers leveraged for optimum success. By using a flexible stakeholder engagement approach, the researchers also noted that the success of the Fin-tech firms was also linked to local partnerships developed by community leaders to improve distribution plans (Hammerschlag et al., 2020). The findings were developed after examining the marketing strategies of 14 firms based in Africa. The investigation was a qualitative exploratory study that was developed after sampling the views of respondents from the firms using semi-structured interviews.
Away from the conventional form of partnerships highlighted above, a new trend has emerged in the pharmaceutical industry whereby companies are producing generic drugs by using patents from originator companies. Although this process could be seamlessly completed if all laws are followed, Boumil and Curfman (2013) analyzed multiple case studies involving incidences where originator companies have sued generic companies for copyright infringements, but with the support of state authorities, and the litigation cases have failed to make a significant change in corporate behavior.
The case of the Federal Trade Commission v. Actavis, which was adjudicated in the US Supreme Court, highlights the depth of corporate behavior in the pharmaceutical industry (Boumil & Curfman, 2013). It was established that companies, which manufacture generic drugs often seek approval from the Food and Drug Administration (FDA) to manufacture originator drugs. Naturally, the originator company would sue for copyright infringement and get a ruling that presents the non-commercialization of the manufactured products.
Later, the two companies would forge a partnership whereby the originator company would pay the generic drug company for the non-commercialization of its products, thereby extending the brand name monopoly. It is estimated that this type of partnership costs consumers more than $3.5 million annually through suppressed competition, meaning that it is detrimental to the overall health of the pharmaceutical sector (Boumil & Curfman, 2013). Therefore, it is unfavorable to the economic development of the sector.
The extent of the effects of partnership agreements on the industry indicates that losses could also be accrued from the state protection that generic companies get due to limited prosecution rights associated with the use of their products. For example, in the Supreme Court case involving Mutual Pharmaceutical v. Bartlett, it was determined that, generic companies are immune from prosecution for the effects of their drugs on patients (Boumil & Curfman, 2013). This ruling means that generic drug companies have a low threshold for safety and accountability, while brand name companies are obligated to observe a higher standard of the same. The net effect is an imbalance in the relationship between the originator and generic drug companies, which influences the capacity they have to serve their target markets and yet be accountable for their actions.
Knowledge
The basic premise of the internationalization process is the creation of new knowledge. Indeed, the knowledge that is created from the internationalization process is integral to the learning process. Mutual learning is often realized when employees of companies that share knowledge choose to work together. The social identity theory has been used in such contexts and postulates that employees prefer to work in prestigious companies because they can assess their value and worth, thereby improving their self-esteem (Sipido & Nagyova, 2020). Therefore, the context of work plays an important role in understanding corporate performance.
The importance of understanding international trade is a significant determinant of the success of MNCs operating in emerging markets. This position is supported by a study that examined data from 46 countries developed through World Bank surveys (Narteh & Acheampong, 2018). The data suggested that foreign participation in international business had a significant implication on the intensity of internationalization processes of African MNCs.
Three factors were observed to moderate this relationship: firm size, financial performance, and the intensity of competition in the local market (Narteh & Acheampong, 2018). The results of the study further highlighted the role that participation in foreign business played in determining the intensity of internationalization processes (Narteh & Acheampong, 2018). Therefore, it was recommended that African firms should take advantage of the knowledge and legitimacy that companies enjoy from participating in international business and use the same information to bolster their market penetration strategies.
To understand the role that knowledge plays in improving access to medicines in emerging economies, it is crucial to comprehend how stakeholders have failed to translate the knowledge accumulated so far into tangible action that would enhance access to drugs for populations that need them the most. Relative to this assertion, Sipido and Nagyova (2020) hold the view that, for this objective to be achieved, stakeholders should refrain from analyzing knowledge through a narrow prism and instead adopt a cross-disciplinary and cross-functional perspective. It is through this strategy that they will understand the linkages and patents that affect how knowledge is disseminated and absorbed by target populations. To demonstrate this point, health researchers have pointed to the link between behavioral studies and improved standards of compliance for adherence to medicines and prevention plans (Sipido & Nagyova, 2020). From this view, researchers have highlighted the need to update education and training procedures to implement effective policies for addressing pressing health challenges.
Improved communication among stakeholders in the health sector, such as health practitioners, pharmacists, and policymakers has also been proposed as an auxiliary strategy for translating evidence into practice. Similarly, like all other sectors of the economy, healthcare is controlled by a balance between economic and social interests, thereby necessitating interdisciplinary partnerships (Sipido & Nagyova, 2020). These sentiments have been expressed in the context of the European Union cooperation to improve health outcomes through cross-disciplinary linkages. It supports mutual learning and cooperation among firms with interests in unlocking the growth potential of emerging markets.
Worldwide price reduction efforts and price control
In an effort to reduce the prices of pharmaceuticals, some countries have introduced price controls. Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for pharmaceutical products (Kyle, 2007). Another form of a price control is international reference pricing. Where the price of a pharmaceutical product in one country can affect the price in another country. MNPC’s make use of this to improve medicinal access between rich and poor countries. However, this has had the opposite intended effect, developed countries have pressured MNPC’s into providing them with the same low price, negatively impacting the international reference price (Danzon & Towse, 2003).
BoP barriers
Consumer exclusion from the marketplace is the norm at the base of the pyramid. This is because they are constrained by financial and logistical barriers that impede their ability to gain access to quality health services and medicine (Goldstein Research, 2020). However, this does not mean that they should lose their right and dignity to live or gain access to these services. Instead, a better approach would be to minimize BoP barriers to better improve their situation. Some of these barriers could be addressed through legislative changes, while others require interpersonal support.
To achieve success in the BoP, MNPC’s products require a different pricing structure. As noted above this strategy is not feasible in the BoP, MNPC’s producing generic drugs themselves can be an effective strategy. The global generic drugs market is anticipated to benefit from patent expiry of drugs worth $150billion by 2020 (Goldstein Research, 2020). Due to rising costs in healthcare, the interest in developing generic drugs has increased worldwide.
BoP: Healthcare perspective
From a healthcare perspective, discussions about the BoP have mostly been centered on investigating the impact that people’s socioeconomic status has on their ability to access medicines. Typically, studies that have focused on this area of the study suggest that people from low and middle-income countries have limited access to medicine because of their socioeconomic status. A study authored by Vialle-Valentin et al. (2015) support this statement after finding out that higher household income was the single strongest predictor of patients’ access to medicines.
Access to medicine has been a significant topic of discussion when addressing health problems affecting BoP markets. Additionally, scholars have also investigated how socioeconomic conditions affect the incidence and occurrence of non-communicable diseases within this demographic (Vialle-Valentin et al., 2015). For example, in a research study aimed at investigating the affordability of drugs for treating cardiovascular illnesses among Nigerian children, it was demonstrated that although the government was committed to promoting universal health coverage, there was poor access to cardiovascular drugs for children from low and middle-income households (Orubu et al., 2019). Consequently, the use of generic drugs was proposed as an affordable source of medicine for this vulnerable population.
To have a more robust understanding of healthcare issues affecting BoP markets, researchers have also focused their investigations on the actions and inactions of multinational companies (MNCs) serving BoP markets. In line with this area of study, Adegbile and Sarpong (2018) sought to find out the opportunities and challenges that multinational firms experience while operating on the African market and established that the institutional setting and the social context of the market significantly affected business success.
This has drawn attention to the need to understand the market characteristics of BoP customers before engaging them. For example, in a study designed to understand factors that companies should consider when marketing to BoP, Esko et al. (2013) suggested that strategy implementation should be a top-down management plan supported by its budget and affirmed by the availability of independent resources. They also propose that the value chain system for engaging BoP markets should be maintained through an acknowledged sense of dynamism in decision-making (Esko et al., 2013). This way, there would be a heightened sense of interactivity and partnerships between businesses and customers.
Relative to the above findings, consumer involvement in the decision-making process has become a paramount activity in the accomplishment of BoP marketing goals. The offerings that come out of the process should be accessible and equitably distributed among all parties involved. In this regard, Esko et al. (2013) suggest that a systematic process should be followed to accomplish all the objectives of BoP market expansion plans. Their findings were developed through a systematic review of literature discussing BoP. Using this framework of assessment, four case studies were analyzed, and they involved an investigation of P&G, General Motors, Grameen Phone, and Essilors’ innovation processes.
Some researchers have alluded to the need for companies to develop supply chain linkages and enhance market coordination strategies to promote BoP market expansion. Part of the discussions has been centered on promoting the principles of the network theory of internationalization, which envisions the need for economic cooperation through networking (Siddiqui & Othman, 2016). In other words, the success of BoP is based on value chain network integration – a process that acts as an agent of economic cooperation among MNCs to promote innovation in BoP markets.
Ongoing efforts by multinational firms to engage in corporate social responsibility have highlighted the importance of value network integration in corporate development. Additionally, this development has highlighted the need for corporate social entrepreneurship, which mostly targets BoP markets. For example, in a journal article authored by Ghauri et al. (2014), these linkages were associated with the relationship between a firm’s performance and the activities of Non-Governmental Organizations (NGOs). The pieces of evidence highlighted above show how firms can exploit BoP market opportunities by building on the tenets of the social entrepreneurship theory to promote internationalization. Particularly, the evidence espoused above shows how networking can be used to seek the contribution of different actors and players in the process. Additionally, they help to marshal the resources needed to complete specified tasks.
Another journal article authored by Webb et al. (2010) also supported the above-mentioned findings after adopting a similar methodology of investigating relationship linkages between MNCs and NGOs. Consistent with the views of Ghauri et al. (2014), the study also mentioned the important influence of the institutional environment on innovation in the BoP market. The researchers also noted that NGOs act as effective intermediaries between MNCs and their host populations. Their contribution to improving the relationship between the two parties was mentioned through their role in providing knowledge resources and legitimacy to MNCs operating in their respective localities (Webb et al., 2010). The journal article also noted that environmental challenges affecting the performance of MNCs in BoP, such as the failure of companies to collaborate, created inter-institutional distance. This barrier hindered the sustainability of market outreach strategies in BoP businesses.
Overall, new pieces of evidence have shown that there are opportunities in exploiting the potential of BoP markets to review the growing literature on the performance of MNCs. For example, Faulconbridge (2013), Siddiqui and Othman (2016) point to three key areas that are potential platforms for exploiting BoP market advantages. They include changing market dynamics, supporting knowledge mobility, and utilizing power geometrics to boost performance. These areas of leverage that exist in the BoP market mean that MNCs have the power to either make a positive or negative change in the industry (Faulconbridge, 2013). However, they are advised to use a “trade” and not “aid” approach to achieve this goal because local communities need to be empowered with the skills to navigate their challenges as well. However, to realize optimum results, MNCs have to implement sound business models for unlocking growth in these markets.
Frugal Innovation: Generic Drugs
Frugal innovation is centered on the need to come up with innovative strategies that would make drugs affordable and effective at the same time. This need has drawn attention to the use of generic brands. When patents or other periods of exclusivity on brand-name drugs are near expiration, manufacturers can apply to the FDA to sell generic versions, a generic medicine is one that is comparable to a branded medicine in dosage form, strength, route of administration, quality, performance characteristics and intended use but differ in certain other characteristics such as shape, release mechanisms, packaging, excipients, expiration date/time and minor aspects of labeling and storage conditions (FDA, 2021), generic medicines are as effective as originator drugs and are considerably more affordable than the latter, Brand name medicine is generally sold at high cost to cover expense in R&D costs of drug, Furthermore branded medicines are strongly promoted by doctors and chemists, thereby adding to their retail prices (Ongarora, 2019). Relative to this observation, there has been considerable debate regarding the use of generic and original drugs among professionals in the healthcare sector, with most arguments pointing to the affordability of generic medicines as being the primary drivers for their adoption.
Professionals worldwide recognize the advantages of generic medicine in public health. For example, in a journal article authored by Brems et al. (2011), the benefits of generic medicines are acknowledged with a suggestion made to create a favorable policy environment to support growth. They mentioned that generic drugs are preferred by most low-income countries because they promote competition, thereby leading to price reductions, enhanced access to essential medicines, and improved stability of medical supplies
It is projected that much of the growth in the African pharmaceutical market will come from advancements in the development and distribution of generic medicines (Brems et al., 2011). This statement means that new opportunities for strategic alliances, mergers, and acquisitions are likely to come from this development. This development means that there is an opportunity for emerging markets to increase their access and distribution to medicines while reducing their overall costs (Dylst et al., 2013). Subject to this possibility, most pharmaceutical companies are changing their operations to create a hybrid model of drug administration, which is pegged on the use of generic and originator drugs.
Despite their affordability, there are significant challenges associated with the availability of generic drugs, such as limited market access, a declining price difference between originator and generic drugs as well as an existing negative perception about generic drugs among users (Dylst et al., 2013). It is believed that these issues may impede the growth and development of the generic drugs industry (Dylst et al., 2013). Consequently, current efforts to address this concern are focused on improving demand-side policies to improve market access. The goal of pursuing this strategy is to safeguard the growth of the industry because its development is pegged on making sales at high volumes.
The affordability of generic drugs has made them well suited to emerging markets where the price is a significant determinant of healthcare access. Different countries have adopted various policy positions for managing the price and ethical debates of using generic drugs to meet supply-side demands. For example, in a journal article authored by Leng et al. (2016), the South African government initiated a fast-track registration policy for generic drugs whose use should fit two specific criteria. First, they must fall under the essential medicine list, meaning that their use should be of critical importance to patients. Secondly, they must be of public health use, meaning that their use could significantly advance public health goals. By following this criterion, the government refrains from creating limitations on the number of generic brands that can be produced. The goal of doing this is to promote price competitions among producers of generic medicines.
It is a commonly held belief in the pharmaceutical industry that the backlog in the registration of medicines partly contributes to the limited access to medicines in emerging economies. This hurdle has also been described as a bottleneck in innovation as drug companies are unable to fast-track their product development processes through registration promptly (Leng et al., 2016). In a conceptual paper authored by Soni and Krishnan (2014), it was observed that frugal innovation is underpinned by three key factors: a frugal mindset, a frugal process, and a frugal outcome. After reviewing several research studies in thematic analysis, the scholars noted that frugal innovators could be categorized into three key groups: grass-root, domestic, and MNC innovators (Soni & Krishnan, 2014). Each of the three groups of innovators pursues different innovation strategies.
Three factors that enable a comparison of the distinct groups are the environmental conditions that necessitate them to be innovative in the first place, the institutional environment that characterizes their market, and a high tolerance for uncertainty (Soni & Krishnan, 2014). In the context of frugal innovation, research evidence shows that creativity is often espoused by a weak implementation of property rights, and the availability of a critical mass of people to act as the launch market. The outcome of the frugal process is also defined by the availability of various factors affecting operational performance, such as the network position of the innovators, and the availability of unfettered access to the lead market (Soni & Krishnan, 2014). These findings are important in understanding factors that support frugal innovation in the pharmaceutical industry.
Despite the benefits of generic medicine being widely reported in medical circles, there have been concerns centered on the difficulty in accessing this group of drugs, especially in emerging economies. Dylst et al. (2012) point to a litany of factors that have created this situation. Particularly, they point out that arguments on patent validity, delays in approving medicines, and the intervention of third parties in marketing processes are the main causes for difficulty in accessing generic medicine. The concept of data exclusivity has also been mentioned within the same breadth of analysis and it focuses on the rights of companies to withhold specific intellectual property rights relating to the production of medicine before authorities approve them for use.
Due to limitations of patent laws, data exclusivity has been seen to promote monopolistic behaviors in the market that limit the production of generic drugs, thereby contributing to the inadequate access to drugs in the market (Diependaele et al., 2017). Data exclusivity has been implemented and practiced in different parts of the world. For example, its proponents have convinced European and American governments to impose taxes on foreign companies to safeguard their intellectual property rights (Diependaele et al., 2017). Subject to an examination of varied insights relating to the promotion of data exclusivity practices in the pharmaceutical industry, observers are skeptical that the process will support innovation.
The European Union (EU) is among the world’s leading economic blocs that have taken a steadfast approach in addressing these challenges with the unification or standardization of approval processes being their first area of concern in efforts to improve access to generic medicines (Dylst et al., 2012). Relative to these insights, it has been proposed that addressing the legislative hurdles of market access could significantly improve access to generic medicine. The above findings were developed from a document review process. From a consumer point of view, it is believed that the ability of patients to comply with the specified guidelines of taking their medicine is predicated on their understanding of prevention factors and the training or behaviors of healthcare providers who should show them guidance in the first place (Niessen & Khan, 2016). Therefore, healthcare professionals play an important role in ensuring that the public embraces generic medicine.
Teece Business Model Innovation
A business model refers to the framework a company uses to deliver value to its customers (Yunus, Moingeon and Lehmann-Ortega, 2010). Each business has a model that it adopts either implicitly or explicitly to support its operations. The Teece Business Model of innovation is premised on the understanding that companies cannot effectively achieve legitimacy by simply implementing a linear model of business; instead, they need to offer additional value that meets customer needs (Teece, 2010). In most instances, a business should have non-imitable aspects in its operations, which eventually lead to the development of its competitive advantages.
The Teece Business Model suggests that the ability or inability of competitors to replicate business models depends on several factors, such as the possible upsetting of business relationships, the presence of existing organizational structures that may prevent duplication, and intellectual property protection among others (Teece, 2010). The model suggests that the recognition or awareness of these factors is necessary for designing the architecture of business processes today. This relationship has been observed in the failure of some businesses to rely on technological competencies to meet customer needs. In other words, some enterprises have failed to leverage the advantages of technology to meet the needs of emerging markets because they have not accounted for what it will take to market and address specific and existing customer or market requirements.
Hypothesis
The projected business model is as outlined in figure 4 below.
According to figure 4 above, the proposed business model will have four key tenets that focus on providing intensive intervention, creating targeted support, developing a high-quality supportive environment, cultivating supportive relationships, and resource optimization in operational management. The concept of effective intervention is preoccupied with the need to work with others to support disenfranchised communities. The concept of targeted support is primarily centered on planning how to respond to the needs of the BoP, while having a high-quality supportive environment is intended to create conditions that minimize inequality and give a better chance for the needs of the poor to be heard and addressed in business model development (Grimm, 2020). The process of cultivating and nurturing supportive relationships is designed to cement these gains, while effective resource optimization is intended to streamline them. Based on these insights, the hypothesis guiding the present study is if MNPC’s adopt the principles of the aforementioned business model (Figure 4), growth in the BoP should be feasible. Overall, the research will be centered on evaluating key themes: which will play an integral role in developing the results and analysis section.
Difference between BoP Model 3.0 and Healthcare Model
The main difference between the proposed healthcare and BoP model is that the latter is linear, while the proposed framework is progressive. In other words, the building blocks of the healthcare model are reformist in the sense that the progress made in one area is safeguarded by the gains to be derived from another. Comparatively, the BoP model adopts a nuanced approach to addressing community concerns. Stated differently, its building blocks are mostly independent of one another and although they are all designed to address the needs of the BoP, they act independent of each another. Therefore, the proposed model is progressive, while the BoP is linear.
Summary
This chapter has highlighted what the extant literature on the research topic has said about unlocking the potential that MNCs have in exploiting the market potential that exists in emerging markets. The evidence analyzed has largely been arbitrarily developed to explain business dynamics in emerging markets without a context-specific understanding of how the cultural context and nation-specific socioeconomic actors would affect performance. This gap in the literature necessitates the present study, which has a focus on Africa. The focus of the study will be on how local companies have paid attention to the BoP market segment.
Results and Analysis
MNPCs in Africa
The Need for BoP Solutions by MNPCs in Africa
To understand the need for BoP solutions in Africa, it is important to understand how they are contextualized within the Sustainable Development Goals developed by UN partner states. They are a collection of 17 interlinked global goals designed to be a “blueprint to achieve a better and more sustainable future for all”. The SDGs were set in 2015 by the United Nations General Assembly and are intended to be achieved by the year 2030 (United Nations, 2021). On a global scale, we are not close to achieving the SDG health target in regard to health and well-being. This relates to health inequalities in countries and regions, as well as systemic failures in operating advanced health systems (Sipido and Nagyova, 2020). Some of the reasons for this limited progress can be attributed to limited drug supply, the inability of the public healthcare system in emerging countries to deliver services needed by vulnerable populations as well as financial constraints. In this regard, Cameron et al. (2008) note that improving the affordability of medicines is key to increasing its availability to the BoP.
The increasing burden of non-communicable diseases (NCD) is one of the major reasons why health challenges abound globally. Comparatively, 70% of all deaths are caused by chronic diseases, while low and middle income populations account for 75% of them (Lucchini, 2018). An increased adoption of Western lifestyles in Africa has seen a paradigm shift in the burden of illness from infectious diseases towards non-communicable diseases (NCDs), thereby driving the demand for chronic prescription drugs (Lucchini, 2018). Based on World Health Organization prediction, the proportional contribution of NCDs to the healthcare burden in Africa will rise by 21% through 2030 (Lucchini, 2018). At the same time, population will continue to suffer from infectious and parasitic illness, but lifestyle diseases, such as cardiovascular diseases, diabetes, and cancer will witness high growth rates throughout the forecast period (Lucchini, 2018).
The decision of an MNPC to enter an emerging market is contingent on the differences between the risks that market demonstrates, such as financial returns, protection of the patent and registration process, weighted against the financial potential of that market (Wrona & Trąpczyński, 2012). Africa provides such a potential because there is an imbalanced risk-reward profile in favour of companies that dare to venture. Particularly, companies who target the low-income sector of developing countries will have access to 4 billion people who make-up the BoP that do not have access to proper medical care because they have a global spending power of close to a trillion US dollars (Prahalad & Hammond, 2002).
Case Firms Analysis
Three MNPC’s and a consultancy firm were chosen to be participants for the study (The organizations interviewed had their respective headquarters in Africa, Europe and The United States of America). However, the affiliates interviewed held senior management position in different divisions within Africa and had a direct role in the implementation of the strategic outlook of their respective organizations and reported directly to the head office of the MNPC. The consulting firm that was a part of the study was invited to provide an external perspective on providing health care to the BoP to minimize the issue of organizational bias that could arise. In lieu of the ethical requirements outlined in the research methodology section, the identity of the organizations and participants were coded to ensure freedom of expression. The organizations can be distinguished from the term (MNPC 1 – MNPC 3) whereas the interview respondents can be distinguished from the term (Respondent 1 – Respondent 4).
The organizations researched had varying levels of success in making healthcare accessible to the BoP. The ability to adapt to meet market needs and the respective business model in which each organization adopted was a determining factor in their success or limitation.
The respondents spoke of the market opportunity that exists in the BoP. All firms actively pursued the BoP and had a dedicated unit structure targeting the BoP in state hospitals and rural areas. All interview respondents noted limited consumer income and lack of infrastructure in the state hospitals and rural areas hindered the MNPCs from accessing effectively accessing BOP patients.
Respondent 4 noted, the government does not intend to prioritize health care because there is no funding from a healthcare perspective since it is more about self-enrichment in those countries. The funding that goes towards maintaining that infrastructure and getting products into the country does not happen. If that structure is not in place, you cannot get medicines into hospitals. So, you almost have to go into a partnership or take a financial loss in order for them to utilize the product
Despite the benefits of generic medicine being highlighted from the MNPCs interviewed, concerns have arisen regarding the difficulty in accessing this group of drugs, especially in emerging economies. MNPCs blamed infrastructural voids as a barrier when trying to enter the BOP segment. This has confirmed Anderson and Billou’s (2007) findings that fragmented infrastructure in the BOP that makes it difficult for MNPC’s to effectively serve consumers in last mile markets. There was a high cost to serve customers, as they have to be recovered down the line. Respondent 2 noted “even if the price of the drug was at zero, access would still probably still be hard.” Thus, one can only get medicines as far as the infrastructure makes it possible. This issue was prevalent in the African countries where MNPC’s operated in.
Manufacturing facilities in emerging markets was also inefficient, thereby resulting in high costs for any organization wanting to gain access to the market (Bland and Hamann, 2015). Respondent 2 supports this statement by saying “One of our biggest costs is manufacturing and then transportation. So, the issue is that we do not have sufficient manufacturing capabilities, you know, across the world. So, if your manufacturer site is based abroad, the cost of goods automatically is higher. For example, if you are working in a European country, you then have to transport products across the world. Given that the manufacture of drugs does not happen in emerging markets, people are always going to have costs because of transportation, packaging, and distribution. So, you increase cost to serve by bringing products from Europe, and having to transport and package it all.”
Respondent 2 further states “You need to understand some of these drugs; the technology used to make them is different from one product to another. So, you cannot sometimes have a generic manufacturing plant in very specific lines for each type of medication. Furthermore, countries do not have the resources, as they may not have a budget to have a manufacturing site at in every country, or on every continent. So, generally, companies would have one global manufacturing site, and then distribute products from there to the rest of the world, that that’s generally how it was.” This statement supports the views of Prahalad and Hammond (2002), which state that the barrier to doing business in the BoP is availability and accessibility, which in effect is not a lack of buying power but instead a manifestation of insufficient distribution networks.
Unlike in developed markets, BoP distribution channels are fragmented and the task of simply getting products to consumers can be a major hurdle to overcome (Anderson and Billou, 2007). Since, BOP markets are fragmented, organizations need to find new opportunities to increase their profitability (Sánchez, Picart and Rodríguez, 2006). Researchers have alluded to the need for companies to develop supply chain linkages and enhance market coordination strategies to promote BoP market expansion. From the interviews, two identifiable solutions emerged in solving the distribution issues faced. They involved the use of a mobile healthcare unit and establishing local production in the country of operations. Despite the solutions been used by different MNPC’s, it is important to link them together in solving issues of accessibility and availability in the delivery of medicines.
Relative to the above challenges, it is important to establish partnerships with other companies that have a manufacturing facility in the part of the world where you want to work and then you share resources and knowledge. Afterwards, companies can engage in co-marketing agreements and profit sharing because of the co-marketing agreements. For example, when a company brings a drug to market, it becomes an authorization holder, so long as the patent is valid. Both MNPC’s share that MAH status, thereby allowing MNPCs to lower the price of drugs and make there drugs available to BoP patients. In this regard, local manufacturing facility is a factor that the government takes into consideration when evaluating a tender.
Expanded African manufacturing can have a significant public health impact on the continent, such as a sustainable and secure supply of medicines that prevents supply stockouts typically reported in public health facilities. Moving beyond the current era of drug donations to embrace an improved outbreak and pandemic response rate as well as an enabling environment for the development of products, Africa is expanding market and growth opportunities for addressing the burden of non-communicable diseases. This will have strong economic benefits on the continent, such as increased high skill employment, a reduction in trade deficits, value addition and technology spillovers. Local production is a critical component of the continent’s new public health order for Africa and for MNPC’s seeking to unlock growth on the continent.
Although state hospitals provided efficient means in accessing BOP patients, there was logistical barriers to effectively reach patients in rural areas. There are no pharmacies and trained doctors, so you cannot get scheduled measured medicines out to the people who need it, while BoP patients trek long distances to gain access to government hospitals and endure tedious waits, without any guarantee of getting treatment. This issue was prevalent in the African countries MNPC’s operated in. These findings confirm Anderson and Billou’s (2007) findings that this fragmented infrastructure in the BOP that makes it difficult for MNPC’s to effectively serve consumers in last mile delivery markets. There was a high cost to serve customers, because they have to be recovered in the end.The MNPCs interviewed have come up with innovative solutions overcome these hurdles.
MNPC 1 has a caravan that drives into the rural areas and with staff and resources and stuff at the back. Additionally, between a partnership with MNPC 2 and an NGO, they have a train that travels across the whole country and stops in a village. They invite, doctors and nurses, dentists, and companies who can volunteer time and resources, via mobile healthcare clinics initiated by the MNPCs to bridge the gap between healthcare and accessibility. The infrastructual nature of mobile clinic units allows it to be shared by multiple communities and achieve maximum reach in rural areas to deliver on demand treatment and medication.
There was a strong correlation between the strategies which MNPCs noted were important and the key characteristics highlighted from the hypothesized business model. A characteristic not covered was mentioned in the interviews was co-invention of custom solutions. This point relates to understanding that each market is different, and one solution is not applicable to all of them. Thus, innovative considerations in regard need to be taken into account for each market to prosper. Relative to this statement, some companies displayed only one of the characteristics, or partial features of the themes. However, the MNPC with the most success displayed all of the characteristics. However, respondent 3 noted that there were limitations of adopting the strategies they wanted to implement due to the managers not understanding what it takes to compete in emerging markets.
Responses to Survey
The previous chapter discussed the underlying areas of research in the literature review. The purpose of this section is to highlight the key discussion points from the interviews conducted. However, before going into detailed discussion, it is necessary to give some background information of the research participants and as well as some details about the data-gathering process itself. The table below summarizes information about the research participants, the nature of the interviews that were carried out with them, whether they actively pursued the BoP, had a dedicated BoP unit and where BoP patients are accessed. This point is expanded upon in subsequent sections within the results and analysis section.
Themes that emerged from the interview process are presented here as well as additional texts that were not intentionally explored. These themes will be contrasted against key points from the hypothesized business model and the research question. Table 4.2 below shows that personalities involved in the implementation of the BoP model.
Table 4.2: Institutional Affiliation of Respondents
Analysis of Business Model Modification
Traditionally, the typical target for business models is the individual consumer; however, this delivery model needs to be changed when delivering health care to patients in the BoP. The delivery model requires greater focus on community engagement and a greater sense of awareness regarding cultural and societal differences that require specifically tailored healthcare solutions and delivery. Angeli and Jaiswal (2015) note that due to the cultural, psychological and linguistic differences within communities, different solutions that cater to each market is required. In relation to the success prospects of different BoP business ventures. This leads to the development of long-term and mutual relationships, resulting in the achievement of common benefits for all stakeholders (local communities and entrepreneurs) involved in the network. The global healthcare challenges we are facing also require us to be flexible in our approach and responsive to different needs, particularly as the disease burden shifts from infectious to non-communicable diseases.
Testing Model
The firms noted the importance of pricing in developing effective solutions for addressing BoP pharmaceutical market needs. This is true especially when it comes to winning a government tender in a specific therapeutic area. Most respondents noted that the price point of the drug and relevant product portfolio are the deciding factors for the government to award a tender to a company. Generally, tenders are weighted 80 to 90% purely on price. The remainder can be focused on other elements, local manufacturing, and investment in the country as one.
The respondents spoke of free pricing as a barrier to access African countries. Respondent 1 of MNPC 1 stated “In South Africa, we have something called Sep, single exit price. So, there’s one price in South Africa, the price you bring a product in, and the price you sell it at is the same price. In other markets like Zimbabwe, Zambia, and Malawi, there is no such thing as Sep; it is unique to South Africa. That means you can vary the price within the market.
Respondent 1 further stated that, “In Africa, but outside of South Africa, so the Malawi, Zimbabwe, sub-SADC region, which I used to work in more, a major problem there is around the free pricing. So, if we reduce the price of a product, now; say, it used to be 10 pounds, and we bring it down, we reduce our price, and we bring it in at five pounds. Yeah, the problem is, is that the different people along the chain, add, whatever margin they want, there is no regulation so you can get 100%, 200%, 300% markup, and so long as that chain before it gets to the patient.”
The problem there is that a major access challenge is reducing your price to sell in the market, that’s not regulated does not mean the patient gets it at a lower price, because of competition, law and regulation, on price fixing – MNPC’s cannot fix price. Relative to this statement, respondent 3 said, “It is a very challenging thing for a manufacturer where you want to reduce your price to increase access, but you do not have control of the value chain to the patient.”
Respondent 1 also noted that BoP consumers have a low spending power and their income is unstable. Thus, all MNPC’S interviewed are involved in the production of generic drugs, to enable them develop a fair price point for the BoP segment. In this regard, respondent 4 noted, that “it is really important for companies to come in and make a generic drug available. The problem with generics is that I am not saying that they are not effective, but it usually becomes a price war between companies to knock the price down, thereby forcing patients to switch from one drug to the other.”
Respondent 4 further states, “Your drug companies from India, love getting into the African space. Because at the end of the day, they will do a generic for a generic, if I can put it like that. So, they will give you a cheaper drug, and then they will give an even cheaper drug.” However, the success was contingent not only on producing generic drugs but also on addressing many underlying characteristics of product delivery, such as production, patent mitigation and promotion as a means of effective access.
Overall, the data gathered from the interviews were comprehensive and prescribed in tables, based around four themes – awareness, training, partnerships and business knowledge. Access issues were brought up in the literature review from the hypothesized business model and around the research question posed in the methodology section. However an additional theme of custom solutions was uncovered. The participants’ responses related to key issues which the interviews exposed and were unintentionally neglected by the researcher. Key words within a theme area were highlighted and classified by (X) if it resonated amongst firms interviewed and tallied. Furthermore, key quotes from the interviews were used to exemplify the respective findings. This was done to make the findings easy to read. A finding which became clear in the beginning of the analysis was that organizations were not always clear on how to approach the BoP market.
Partnerships and Business Knowledge
All interview respondents spoke of the need for their organizations to develop strong partnerships within their networks to overcome issues of “outsidership” and foreignness. It was necessary to leverage different organizational capabilities within their network to offer and market a relatable product that catered to the needs and preferences of the BoP. This came in the form of conventional and non-conventional partnerships. The interview respondents spoke of technology transfer, where they would be partnering with a MNPC that provided them with a license to manufacture the generic version of their drug – a process that allowed them to mitigate patent legislation. The use of non-conventional partnerships came in the form of partnering up with NGO’s and local community groups that understood how to navigate the social infrastructure within the BoP. Table 4.2 highlights linked cases
Table 4.2: Cases
NB: Key words within a theme area were highlighted and classified by (X) if it resonated amongst firms interviewed and tallied.
Cross-Cutting Analysis: What Characterizes Business Model Modification at the BoP?
An initial hypothesized business model was set out in the literature to offer a guideline on the adoption of best strategies to access BoP markets. The research and findings undertaken in the study show that there are encompassing elements which need to be expanded upon. Table 4.3 below showcases an optimized business model, which highlights all areas covered in the research.
Table 4.3: Optimized model
Most respondents spoke of the importance of building awareness and training as a necessary prerequisite for market entry in the BoP. It was critical to establish awareness for two parties, the BoP consumer and the healthcare professional. This involved educating doctors and nurses on the value of their drugs for dealing with a particular illness and also teaching the drug administration methods with skills they could use to train or educate the BoP community on the value of seeking and taking treatment. Table 4.4 below
Table 4.4: Keywords
NB: Key words within a theme area were highlighted and classified by (X) if it resonated amongst firms interviewed and tallied.
All organizations interviewed also noted that accessibility and availability was an issue in trying to serve the BoP. Therefore, they struggled to reach the BoP consumer and ensure their drugs were constantly available for use. The respondents also noted that BoP patients are assessed in either state hospitals or in rural areas. Due to insufficient government spending, there is a lack of infrastructure in the state hospitals affecting access to BOP patients. For patients residing in rural areas they were geographically dispersed from state hospitals and were not always able and willing to access the hospitals, thus the onus lied on MNPC’s to provide access to these marginalized communities. Although not all organizations were successful in providing access, MNPC 4 did stand out because respondent 4 spoke of the importance of establishing local production and coming up with innovative modes of thinking, to overcome the issue of accessibility and availability. Table 4.5 highlights the relationship between keywords and the respondents who took part in the study.
Table 4.5: Relationship between keywords and respondents
NB: Key words within a theme area were highlighted and classified by (X) if it resonated amongst firms interviewed and tallied.
The respondents from each company interviewed were asked an open-ended question regarding which strategies they deemed to be the most important in achieving success when targeting consumers in the BoP and the results are depicted in table 4.6 below.
Table 4.6: Strategic Analysis
Despite innovation in its broad sense already coming from frugal innovation, which has led to production of the cost friendly generic drugs, innovating for the BoP patient segment does not stop there. Respondents spoke of the need to develop custom solutions for each market to increase access to medicine and increase profit margins.
MNPC 1 changed its strategy on how to access Africa five times over the last 10 years. Respondent 2 noted “It is a very challenging area to operate in. There is high governance risk, often low profitability, and high complexity. So, it makes it unattractive for a lot of major companies, and you have seen in Africa, pulling back their investment models because of that. So, I think that is the major challenge for bringing medicines into Africa.” Respondent 4 also noted “A lot of the stuff that is coming to fruition now in AstraZeneca was a full five-year plan. That is how long it takes and it is not only now whether or not we will be seeing its benefits.”
The BoP environment is an uncontrolled ecosystem, The BoP does not have the necessary resources in place for an isolated business model to be replicated (Sanchez & Ricart, 2010). Thus, MNPC’s must move from traditional business model that has worked in developed markets to unlock the growth potential in the BOP. When an isolated business model was adopted in the interviews, MNPC’s ceased to be profitable. This happened when an isolated model was used within projects in Africa.
Respondent 2 noted, “When you’re looking at a global company like MNPC 1, you’re comparing the profit. So, every pound you spend in Malawi versus a pound you spend in China? What’s your return? And unfortunately, the answer is that you get more money back in China, in the US in Brazil, than you do in Malawi. And so there has to be some part that is bigger than profit. So, it is about access and corporate social responsibility to make products available in resource-constrained countries where you know, the return is going to be less, there’s more thinking of it from global health perspective, in this part, not thinking of high margins, but low margins over, like a sustained period.”
Respondent 2 further noted, “when we look at in some of our HIV modules that you make the product available pretty much not for profit and resource constrained countries, but at a higher profit in, for example, America and Europe, which then subsidize, you can spread the risk globally.” An issue with this approach is that influencing pricing is only one aspect of a multi-dimensional approach that is necessary in targeting the BoP market.
Respondent 3 also noted that they have done something called NCD open labs, where they have labs that the MNPC has funded to be created in countries that did not have lab facilities previously to monitor and track non communicable diseases. Relative to this statement, he said, “So, focusing away from the HIV AIDS and malaria and understanding that people do have asthma, heart problems, diabetes and hypertension in these communities helps to present a broader picture of the health situation.” Nonetheless, by incorporating consumer input into organizational co-creation processes, MNPCs are able to develop strong value propositions that directly respond to the needs of BoP consumers, their health requirements and the development of acceptable solutions, thereby leading to the creation of sustainable business models that are conductive to the operating environment.
The MNPC’s that were successful in targeting the BoP adopted an explorative business model. They established strong relationships and leveraged knowledge sharing opportunities between upstream and downstream international counterparts. This finding disputes Esko et al. (2013) suggestion in section 2.2, that the strategy implementation in the BoP should be a top-down management plan supported by its budget and affirmed by the availability of independent resources. The researcher implores the need to have a bottom-up approach for promoting innovation in African markets and striking a balance between what can be effectively realized in the future with current innovative capabilities. Whilst acknowledging a sense of dynamism in decision-making.
Africa is a very interesting dichotomy, whilst we have these very fancy cities, with top of the range technology, we also have many areas that are poverty-stricken. By having a dedicated business unit and a strategic intent to pursue the BoP-led successful organization, firms can be ambidextrous and serve two markets. Kapoutsis et al. (2016) highlighted a manager’s political skills in balancing exploration and exploitation to be critical for achieving ambidexterity. Relative to this assertion, O’Reilly and Tushman (2011) note that management must have a willingness to empower others, to undertake risks and facilitate the creation of opportunities for employees to directly challenge the status quo by providing for knowledge integration and transfer. Thus, fostering ambidexterity is integral for the simultaneous exploitation of existing markets and exploration of new opportunities.
Implications and Discussion
The purpose of this study was to examine, what profitable business model pharmaceutical multinationals could use to unlock growth and serve consumers at the base of the pyramid whilst being profitable. The study has confirmed that entering new markets and taking part in internationalization activities is an uncertain and unpredictable event. However, this research also established that organizations have developed innovative and collaborative means to deal with these problems in order to access and service the market.
There was a strong correlation between the strategies which MNPCs noted were important and the key characteristics highlighted from the hypothesized business model. However, the successful organization interviewed covered all themes covered in the study and also drew upon those from the hypothesized business model. Based on these findings, we could re-visit the research question and frame it as follows:
- How can MNPCs modify their business models to profitably serve the BoP?
This research question can be juxtaposed to come up with 4 themes (access, awareness and training, partnerships and business knowledge, custom solutions) which outlines the successful business model entry in the BoP.
To recap the findings, we deduced that when discussing the strategic implementation of ideas catered to the BoP market, the respondents noted that managers had an impact on the desired strategy they wanted to implement in an organisation or market. Respondents also noted that their global headquarters did not understand what it meant to compete within different African regions in the BoP; as such, there was an obligation to adhere to the global HQs business model. This led to instances of inapplicable strategies and lack of relevant product portfolios.
The hypothesized business model outlined the importance of building awareness, access, partnerships and training. Furthermore, a key theme – custom solutions – was uncovered from the interviews. Its characteristics are emblematic of an explorative business model because an isolated business model was deemed ineffective due to its inability to adapt to the needs of the BoP. The organizations with the most success followed an explorative business model, this allowed firms to freely adapt the aforementioned contexts of analysis and adapt to the needs of each African market. The themes noted in this section will be discussed ion subsequent sections of this document but table 4.7 below outlined the characteristics of the explorative business model.
Table 4.7: Explorative business model
From the data analysis and results highlighted in this section of the study, it can be observed that pharmaceutical organizations face an array of challenges in their pursuit of what is deemed “the next growth frontier” – African market.
What Should Firms Do?
The research findings have confirmed that entering new markets and undertaking in internationalization activities is an uncertain and unpredictable event. The main impediment for internationalization is the lack of network relationships, thus impacting MNPC’s access to business market knowledge and legitimacy. The greater the physical distance between the company and its host population, the greater the liability of foreignness (Johanson, 2019).mAn important factor for organizations efforts to consider in servicing the BoP market is the development of relationships that are mutually beneficial. Indeed, the, success of BoP is based on value chain network integration – a process that acts as an agent of economic cooperation among MNCs to promote innovation in BoP markets. The benefits associated by such embeddedness include key resource access held within the BOP, the establishment of trust amongst various stakeholders, and assistance with generating new knowledge pertaining to communities in the BoP (Bland and Hamann, 2015). The relationship between the MNPCs and national cultures had an impact on the competitive positions of the MNPCs (Szymura-Tyc & Kucia, 2016) as well.
This study has shown that healthcare industry is a complex business environment. It is highly regulated, highly professionalized and to an extent, localized (Lagerström and Lindholm, 2020). Lagerström and Lindholm (2020) note that the decision to enteri this type of market is greatly influenced by the institutional context and relationships that exist among actors with political, legal, professional and business interests. A key consideration from the interview respondents was the importance of conventional and non-conventional partnerships in formulating and undertaking their business activities. This came in the form of collaboration with an NGO and local community group to understand the market and partner with pharmaceutical companies to get licensing permission to manufacture generic drugs. Lagerström and Lindholm (2020) note that the existing network in which the firms are embedded is significant in gaining access to new markets and thus to business market knowledge and in developing legitimacy.
The institutional and cultural differences from operating in a new market made it difficult for foreign MNPC’s to build trust and develop relationships. However, this action is imperative for establishing a new company within a market. Seeking legitimacy is also an important process in the plan, but it requires persuasion and patience especially among groups of younger of older employees. In this regard, it can help institutions to improve their societal standing and gain access to more resources. Thus, by virtue of seeking legitimacy through building relationships within a network, successful MNPCs make use of local relationships through community group networks.
Consistent with the views of Ghauri et al. (2014) and Webb et al. (2010) in section 2.2 of the literature review, they noted the important influence of the institutional environment on innovation in the BoP market. The researchers also noted that NGOs act as effective intermediaries between MNCs and their host populations. Their contribution to improving the relationship between the two parties was mentioned through their role in providing knowledge resources and legitimacy to MNCs operating in their respective localities (Webb et al., 2010). This leads to the acceptance, credibility and desirability of the “unknown” firm. This is why respondent 4 noted, “There is this perception in the world today about Big Bad pharma. Often, they are greeted with a feeling of mistrust. I found a couple of ways of dealing with it. So, we will start with the credibility part and go backwards to understand the credibility, how crises are mitigated – by partnering with established scientific, recognized sort of respected clinicians in the field, a doctor in the area, or some nurses in the area that people know, respect and trust.
Even though organizations have responded positively to the idea of BOP and have made commitments to such strategies, it is evident that social embeddedness is much rarer and challenging to adopt (Bland and Hamann, 2015). Business market knowledge is thus built on developing an understanding of and an ability to use different partners’ knowledge. Stated differently, it involves developing relationship-specific knowledge in different market contexts to compensate for their uniqueness outside of their traditional firm-based competencies. Besides, technology transfer between pharmaceutical firms enables successful MNPCs to offer a relatable and affordable drug to the BoP. This action helps to mitigate issues relating to patent rights.
Respondent 1 noted “Sharing the knowledge specifically on tech transfers, is sharing the Intel on how to make the medicine and some of that can be done while one still retains a patent.” Globally in terms of IP, there is a rub between the big pharmacy needing to retain its IP due to investments you put into R&D and the need to be able to have protection on return. However, that protection, in resource-constrained countries, can mean a delay in generics coming in, as they cannot come in until the patent expires, which can reduce access.
MNPC 1 has an interesting solution to this problem because he has a sister company called, an HIV focused company that has an access initiative that collaborates with group of companies that work with medicines like MSF, Doctors Without Borders, where medication, or drugs that are created for HIV, do not hold a patent in certain countries. They contribute those medicines to the patent pool. Even though the drug may be launched by the sister company at a higher price, the patent for the drug, the moment it is launched, is available for use. Any generic company can then go in there with support from the sister company in terms of data or technology and make generic copies of those products. The intention of that is to allow that to be available to that base of the pyramid. It is for countries, according to the WHO index, which fall in the low socio- economic debt. In a way, pharmaceutical companies maximize profits by appearing to compete with themselves. This form of partnership results in shared revenue.
Interestingly, for its business operations in South Africa, MNPC 2 has a partnership with aspen. Aspen is the biggest pharmaceutical company in South Africa and is a generic firm with a deal that has been running since 2009. MNPC 2 is the MA holder and remains responsible for distribution to South Africa for medical, regulatory and quality for all MNPC 2 products. Aspen is responsible for commercializing their product, where they are responsible for local distribution, sales and marketing. All costs are split 50/50 and profit is shared is shared on the same basis. This formula compensated for MNPC’s 2’s lack of distribution presence in the country of operation. The respondent noted that, this has enabled them to locally produce within South Africa and serve the market, thereby enabling them to win more tenders, because they get priority status within the country, Since they are manufacturing within the country, tech transfers occur as a tool for opening up access.
Regarding non-conventional partnerships, MNPC 1 noted “We partner with NGOs, we partner with patient organizations and scientific societies.” The reason for this is twofold: (i) to have insight into the unconventional operations of the market and (ii) to build trust and credibility in the company itself. Therefore, when there is an offering, stakeholders understand that it is coming from a space of knowledge and the concerned parties are not just jumping in. Partnerships are also forged with other associations like Bill and Melinda Gates Foundation and Save the Children, just to mention a few. So, there is a lot of initiatives that go on in the background in terms of social responsibilities, and that is another way in which people improve access to underserved populations.”
Subject to the above collaborative model, MNPC 1 partnered with GAVI (global alliance of vaccines and immunization), which is an NGO focused on access to healthcare. So, this is a major global partnership GSK is part of funded by Bill and Melinda Gates in part and others, which makes vaccines available to governments, all low-income countries made available for free. So, MNPC 1, for example, will give their vaccines in bulk at a much lower price and then GAVI will subsidize to provide to the government. Thus, complex partnerships in the form of non and conventionial partnerships are needed to cover all required skill sets of a complete solution in targeting the BoP. A great case study of success is MNPC 3 making its license available. It is allowed to produce drugs at a cheaper cost than MNPC 3 could, thereby increasing access, whilst getting a big share of the profits.
An important factor at play here is the influence of state in influencing business activities. This form of partnership is important as it dictates policies that favour business conditions for MNPCs. Subject to this statement, Respondent 4 noted that when he worked for AstraZeneca, its Sub-Saharan team was bigger than the South African and Nigerian teams. However, from a business perspective, it was not sustainable. The governments and the ministers of health did not want to come on board or partner – that number had to be downsized to where it was an absolute shell of itself, compared to the glory days of probably about 6-7 years ago. “So, a lot of companies have gone that route to say, they would rather use a distributor in the country because it is going to cost less to get the drug in, and then they have to take care of the rest of the expenditures and cover some costs. Therefore, partnerships not only make medicines accessible, but also ensure profitability. Thus, it is necessary to have good political relations from a state and private person perspective to realize market success.
Inputs to the Literature
Due to lack of government support and insufficient spending (Khanna & Palepu, 1999) there is a shortage of trained personnel and lack of access to budgets to treat patients. Respondent 4 noted COVID 19 has exacerbated the issue of government funding. “Everything is being pushed back several years. Because of that, to me, those are some of the major challenges.”
The majority of the respondents also highlighted skilled and trained staff as key components of success in the BOP. This education comes in the way of two forms: training doctors and developing a dedicated team that outlined the benefits of treatment.
Due to the low education level of BoP patients in rural areas, they have poor health literacy regarding the ailments they are faced with. The first protocol for seeking medical advice is to go to an unqualified traditional doctor for treatment which exacerbated the medical problems faced. Bhanderi & Kannan (2010) note that sociocultural beliefs, values, and traditions undermines health seeking behavior of the BoP segment. Doctors and pharmacists are only consulted when the ailment has become serious, by the time they are consulted, the costs of medical treatment become prohibitive. The importance of establishing relationships with local community groups was stressed in the partnerships section within the discussion part.
The MNPC’S interviewed were asked whether the onus now was on them and other companies to improve skills and awareness to compensate for lack of government support. Respondent 4 noted, the problem comes in Africa is that, that they’re not looking towards partnerships, in the sense of what a partnership should be. “So, you have to initiate it. You have to get them around the table from your side. It’s not like South Africa, where they’ll contact you, you contact them, and it’s a partnership. So it’s a two way street. In that instance, you approach them and you have to drive it further and then you get to a point where, okay so what is the funding that you will make available? funding from this side? Nothing, you run the access programmes, you run the the educational programmes, you basically run everything financially”
MNPC 1 had a higher propensity of medical staff working for them compared to the other MNPCs because they need to supply this ecosystem with trained professionals, in order for their products to be used. Respondent 3 from MNPC 1 noted “so we upskill existing HCPS, like nurses, doctors, pharmacists, technicians, all of the above, in all aspects. So, it will be across state hospitals, rural clinics, private clinics, private pharmacies, and we try to upskill around the disease areas that we are involved in. So, for example, I can just give you an example off the bat. We a couple of years ago, we’re launching a new HIV drug called Dalia takeover. And so, we partnered with the SA HIV clinician society, to provide a roadshow of, you know, of meetings to actually educate doctors on to the guidelines for HIV, the WHO guidelines, and the local guidelines to show how to treat HIV. So, when we train, it’s always medical, scientific based training. It’s not they do the product training.
MNPC 1 had an outreach programme. “So we do disease awareness campaigns. So we can’t market our medicines to patients, we can only market our medicines to healthcare professionals, but we can do disease awareness. So, you can talk about the importance of going to your healthcare professional to seek advice on an ailment, and we often do those campaigns in partnership with the Department of Health, for example, cervical cancer awareness, we would partner with the Department of Health to say, you know, make sure you must get a pap smear that girls of the age of nine to 11 are eligible for a cervical cancer prevention vaccine.” Relative to this statement, Respondent 2 noted that they would have webinars, face to face meetings, road shows, and videos educating people about asthma. They also did patient education in the same context and it involves different activities, including showing patients how to use the medication correctly.
Limitations and Future Results
Limitations of a study refer to aspects of its nature that impact how findings will be interpreted. In the current study, concerns, and limitations of the research techniques used to point to issues relating to the generalizability of findings, applications on practice, and use of the findings in practice. Addressing these limitations helps to improve the internal and external validity of the information obtained. Subject to these insights, one of the major limitations of the research findings was the small sample size used to gather the views of informants regarding the research issue. All possible strategies that have been successful in engaging with BoP patients are therefore not represented in this research. It would have been preferable to interview more MNPC organizations to allow for wider comparisons and eliminate bias. Furthermore, the research had a corporate perspective not encompassing the customer of the corporate and the ultimate end consumer.
Again, the small sample size was occasioned by the use of the interview method as the main data collection technique. While this limitation may be a fundamental problem in quantitative investigations due to the need to find statistically significant relationships, it is believed that it does not pose the same challenge in qualitative investigations because of the subjective nature of the variables under investigation (Sekaran & Bougie, 2016). Therefore, the small sample size used in this study may not have a significant impact on the interpretation of findings.
The use of self-reported data through the interview findings was also another limitation of the study because the researcher had to rely on the information given by the informants and believe that they were truthful. A statement made by Kara (2015) highlights this concern because it mentions the difficulty of independently verifying self-reported data in interviews. To further support this statement, researchers also point out that self-reported data from interviews and other sources of data may be problematic to use because of their vulnerability to biases, including those involving selective memory, telescoping, attribution, and exaggerations (Sekaran & Bougie, 2016). To counter these problems, the researcher counterchecked the views of the informants with findings derived from the literature review process to examine areas of convergence or divergence of opinions. Another limitation of this study is its indicative nature. In other words, the information findings developed from the investigation are only indicative of the opportunities for unlocking the growth potential in the African pharmaceutical market and could be deduced to other emerging markets, which have similar characteristics. Implicitly, the pieces of evidence outlined in this report may inform policymaking decisions about business strategy development from a broad perspective but may not necessarily create context-specific solutions that would guide innovation processes in a pharmaceutical company. In other words, they are not specifically designed to solve the challenges of internationalization in a specific organization, because they are developed to indicate the overall state of affairs underpinning the process of developing business models that could unlock growth in emerging markets
Relative to the above discussion, consumer involvement in the decision-making process has become a paramount activity in the accomplishment of BoP marketing goals. The offerings that come out of the process should be accessible and equitably distributed among all parties involved. In this regard, the researcher suggests that a systematic process should be followed to accomplish all the objectives of BoP market expansion plans.
Future Research
Future research studies should focus on collecting information from a larger group of respondents. The current investigation has only included the views of a few professionals using interviews as the main data collection technique. Surveys could be used in future studies to gather the views of more people.
Conclusion and Reflections
This chapter discusses the major findings of the research study and presents insights and recommendations to stakeholders based on the findings. This research study investigated MNPCs operating in Africa and their ability to change their business models to enter the BoP market. From the research findings, those organizations seeking to enter or optimize their BOP market engagement will have to revisit their operating model and invest in ground market intelligence in regard to market constraints and preferences.
Four companies were investigated, and their practices were compared to the literature and in particular to that of internationalization theory and business model innovation for the BOP segment. The three MNPC’s interviewed had varying level of success in targeting the BoP, with each coming up with their specific solutions to overcome the hurdles that categorized the BoP. Some strategies co-related to the hypothesized business model but their considerations were not taken into account.
When conducting strategies for the BoP, there was resistance from the global headquarters regarding the analysis of their strategies. In other words, there was a perception that the global headquarters did not understand what it takes it compete in Africa. When an exploitive business model is used in developed markets, there was little to no penetration in the BoP. The strategy for the African healthcare market requires flexibility and responsiveness to the different needs of the patients. The solution to this problem is to have a separate but dedicated BoP business unit that will enable MNPC to have freedom of autonomy to develop a more relevant business model for these markets.
This view concurs with those of Webb, Ireland, Hitt, Kitstruck and Tihanyi (2011) that suggest that when organizations do not understand the local market requirement, it is not an issue of translating and juxtaposing developed market practices and incorporating it for the BOP market; one need to first establish consumer needs then modify those needs for the specific market. A key observation from the research is that successful market reach within the BoP market is underpinned by customer and consumer intimacy, then develop a business model upon that basis. Whilst taking into account the same business model applied in one BoP market may not be applicable to another market.
Working towards meeting goal three “ensure healthy lives and promote well-being for all at all ages” of Social Development Goals will require MNPC’s to revisit their existing business models to capture growth in the BoP. The three MNPCs interviewed have a strong presence in the BOP market, their development in new marketing strategies and innovative way of thinking has shown that it is possible to adopt profitable business models to enter the BoP and serve consumers at the base of the pyramid
Despite the challenges of the African pharmaceutical industry, it stands to grow at a CAGR of 5.9 percent between 2018 and 2022 to reach a total of over USD 25 billion market value (Sekaran & Bougie, 2016). It is advisable for MNPC’s to establish first mover advantage and take advantage of the existing constraints by building capabilities and infrastructure on the continent and grow with the upward trajectory that comes with it. The MNPCs interviewed that invested in capacity enjoyed profits and social embeddedness.
At the same time, pricing strategies need to support access and match available consumer income. Pricing is a fundamental component for an effective BoP strategy. Shegal, Dehoff, and Panneer (2010) denoted the term “frugal engineering” MNPC’s be innovative around cost efficiency in regard to accessibility of medicines. This led to the production of generic drugs. However, a price modification strategy is only one element of the many steps required to effectively serve the BoP.
It is imperative to recognize that the African healthcare challenges we are facing will require MNPC’s business model to be flexible in our approach and responsive to different needs, particularly as the disease burden shifts from infectious to non-communicable diseases in the continent. The researcher suggests a graduated open approach towards intellectual property that enables MNPC’s to bring innovative medicines to drive access in poorer countries whilst providing the right products to match the disease burden of the country of operation. MNPC’s should aim to get critical mass in emerging markets through acquisitions, organic growth and partnerships. It is critical to include partnerships throughout the period of development to introduction of a product, to supply LMIC often and effectively there is a need for another manufacturer e.g., generic company to broaden the footprint and for non-conventional to build the legitimacy of the foreign firm.
Overall, it is important to continue incentivize innovation in research development through an investment in an ‘Open Lab’ that enables African scientists to work in collaboration with GSK to undertake research on NCDs to help inform prevention and treatment strategies and develop local scientific knowledge and talent. Whilst continuing to strengthen external healthcare systems by investing profits to train healthcare workers in least developed countries and continuous innovation of custom solution for different markets. It is necessary for MNPC’s to look at the BoP, through a lens of corporate social responsibility and emphasizing high volumes and small margin over a sustained period of time. The research study successfully answered and achieved the research question set out in Chapter 1 and provides insights to stakeholders as to which strategies are effective when engaging with patients in the BoP.
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