Talent Acquisition in Emerging Markets: Staff Shortage (Part One)

Hampered by generic competition and an increasingly tough pricing and regulatory environment, the developed pharmaceutical markets of the US and Europe are slowing. The established multinational companies are no longer able to rely on double digit price increases and line extensions, and are unable to replace lost sales with new and innovative products from their research and development pipelines. These companies increasingly see sales generated in emerging markets as an important component of future growth.

Asia looks set to become the largest regional pharmaceutical market in the world. China has posted market growth of over 20 percent per annum for the last decade, and this expansion looks set to continue, with the market forecast to reach a value of US$41 billion in 2012. Smaller countries such as Malaysia and South Korea are also recording rapid market growth. Vietnam is emerging as a nascent manufacturing centre, and Singapore has a growing reputation as a biotechnology hub.

In a survey of pharmaceutical executives published by PricewaterhouseCoopers in 2007, more than half believed that the global centre of gravity of the pharmaceutical industry would be in Asia in the near future.

Perceived Expectations

This shift is borne out in another survey, in which executives at corporate level were asked to rate the strategic priority given to the emerging regions by their companies. With just one exception, all of the executives surveyed say that Asia Pacific has been given either a High or a Very High strategic priority within their company (Figure 1.1).

It must be emphasized that, in the rush to embrace the putative future of the industry in Asia, the markets of Latin America should not be ignored. Many markets there have grown faster than the developed markets in recent years, and are likely to do so in the future, fuelled by growing, aging populations and strong economic growth. Although the interviewees are slightly less enthusiastic in their assessment of Latin America’s place in corporate strategy, most executives still see the territory as having a High strategic priority.

In total, the Latin American regional market was valued at US$42.5 billion in 2007 and has recorded a compound annual growth of 13 percent over the last five years. With sales of US$15.7 billion in 2007, Brazil has become the tenth largest pharmaceutical market in the world, fuelled by double-digit sales growth.

While growth in Mexico has slowed, it is still a significant market of over US$11 billion and has become a regional manufacturing hub for many multinationals. Argentina has also posted double-digit growth figures in recent years, and Venezuela’s market, driven by burgeoning oil revenues, has taken off, more than doubling in size in the last three years.

In 2005, McKinsey estimated that the global pharmaceutical industry would employ approximately two million people worldwide in 2008. Although only around a fifth of this workforce is currently employed outside of the three main markets of the US, Europe and Japan, this proportion is growing fast. The industry has been building its presence in both Asia Pacific and Latin America for some time, and most big pharmaceutical companies now carry out a range of activities, including manufacturing, discovery research and clinical development.

In Latin America for instance, the number of clinical trials conducted annually has risen tenfold in recent years. The multinational industry has also built up a significant and rapidly growing commercial presence in the major emerging markets. They have in the process acquired a voracious need for skilled and experienced management talent.

In China, whilst almost all multinational pharmaceutical companies have a presence there, not one has yet captured the country’s full potential. McKinsey believes that, to serve China effectively, multinationals will require a much bigger presence in the country, including bigger sales forces. It estimates that to meet their growth aspirations in China, global pharmaceutical companies will need to add at least 11,500 new medical representatives by 2011, an increase of over 18 percent per year. To accomplish this task, the industry will have to find and nurture new sources of talent.

The pharmaceutical industry is both a knowledge industry and a people industry, and this is as true in emerging markets as it is in developed markets. Talented people are one of the most important resources for any pharmaceutical company, and how that company recruits and develops such individuals is the competency that will set it apart from its competitors.

This study looks exclusively at two regions: Asia Pacific, encompassing China, Hong Kong, Malaysia and Singapore; and Latin America, including Argentina, Brazil, Chile, Colombia, Mexico and Venezuela (Figure 2.1).

The survey was broken into two sections, with the first focusing on the in-market perspective in each country, interviewing senior executives in the local office of each multinational (often several from the same company). The second focuses on the Corporate and Regional Headquarters (HQ) view, interviewing executives with responsibility for one or both of the regions studied.

The Emerging Markets’ Executives

Between August and September 2008, 122 pharmaceutical executives in emerging markets in the Asia Pacific and Latin America regions were interviewed. These individuals hold Director level and higher positions in one of three job functions: Marketing, Medical Affairs and Clinical Development. They have been in their current positions for an average of almost three years, and each directly manages an average of eight people, although some are responsible for 40 or more.

The interviewees work for a range of multinational pharmaceutical companies (all headquartered in either the US, Europe or Japan), with 80 percent employed by companies with global revenues of US$10 billion or more. All of the big pharmaceuticals companies are represented, as are several leading biotechnology companies.

The majority of the interviewees (75 percent) are local executives who have worked in their home country all their lives, with a significant minority (20 percent) being expatriates from outside the region, usually from the US, Europe or Japan. The remainder are either “returnees”, ie, local executives who have worked abroad for part of their careers but have returned to their home country (3.0 percent), or “regional expatriates”, ie, secondees from another country within the region (2.0 percent).

The Corporate Headquarters Executives

Separately, a group of 30 senior executives, located at the corporate or regional headquarters of a range of multinational pharmaceutical companies based in the US and Europe, were also interviewed. These individuals hold senior executive level positions in the corporate headquarters with specific responsibility for one or both of the regions studied. Just over half are responsible for Latin America exclusively, while the remainder are responsible for either Asia Pacific by itself or in combination with another emerging territory. (Figure 2.2)

The Results

Major Challenges

The interviewees at both in-market and corporate level were questioned on the major challenges facing the industry in each region. The results are illustrated in Figure 3.1, Figure 3.2 and Figure 3.3 and Figure 3.4.

• Shortage of Talent

Most of the in-market executives interviewed in Asia Pacific agree that a shortage of talent is the biggest issue facing the pharmaceutical industry in their region. When asked about the top three challenges for the industry, 64 percent of respondents cite problems with a lack of talent in the region.

Partly because of the lack of qualified locals, the leaders of most multinational pharmaceutical companies’ subsidiaries in China are foreign citizens. In a survey of 33 multinational pharmaceutical companies in China, 28 said that their general managers were foreigners.

Sources of new talent are limited. Traditional education and labor markets provide few people with the right qualifications and experience. In China, the leading medical schools graduated just 6,200 students in 2005, and specialized pharmaceutical colleges just 3,900. Additionally, although business schools and management training institutions have proliferated in recent years, apart from an elite few, it is difficult for companies to tell which schools produce skilled managers.

This shortage not only makes it difficult to recruit good people in the first place, but also to retain them. Companies that are suffering from the same talent shortage are only too willing to tempt high-performing individuals away from their current jobs. Because of this, there are signs that the labor market in much of the Asia Pacific region is moving in favor of the employee and away from the employer.

Notably, a lack of talent is not seen by inmarket interviewees as being a major problem in Latin America, with just 13 percent citing it in their list of challenges in the region. Nevertheless, when those at corporate headquarters were questioned on the main challenges in talent management in the region, top of their list was the lack of talent.

Corporate leaders in Asia Pacific have a similar assessment of the challenges facing talent management, as their peers in Latin America. In both regions, the corporate interviewees rank Lack of Talent, Competition for Talent and Retaining Key Talent, in that order, as being the top three challenges (Figure 3.2 and Figure 3.4).

• Regulatory Challenges

Some of the other challenges shown in Figure 3.1, Figure 3.2, Figure 3.3, and Figure 3.4 show how important it is to recruit and retain leading management talent locally, rather than parachute it in from corporate headquarters or elsewhere. According to the interviewees, some of the most pressing problems for the industry in both regions pertain to relationships with government, regulators, and payers – including pricing and reimbursement, government policies, and the slow regulatory process.

Especially in China, multinationals continue to face the barriers to market entry, including capital requirements, weaknesses in the intellectual property regime and other regulatory obstacles. According to Peter Mandelson, previously the EU Trade Commissioner, European companies often complain of encountering in China, “an unspoken economic nationalism that implies that foreign investment is no longer wanted or needed”.

In Latin America too, the operating environment can be difficult for pharmaceutical companies. Although drug pricing remains relatively free in most of the region, the introduction of direct price controls is a growing threat in many countries. And in Venezuela, where the market is growing at a rate of over 30 percent every year, intellectual property rights are under attack (no pharmaceutical patents have been granted since 2003), restricting the ability of multinationals to share in that growth.

There is little doubt that multinationals in both Latin America and Asia Pacific operate in environments that are more challenging than those in the US and EU, particularly in the regulatory space. The leading pharmaceutical companies in the US and Europe have highly-developed clinical, regulatory and medical affairs departments, staffed by experienced individuals. Many of them have previously worked in the relevant drug approval, pricing and reimbursement agencies and bring with them valuable knowledge and networks of contacts.

To build such relationships with regulatory agencies, payers and key opinion leaders in emerging markets – a company’s representatives must be socially and culturally aware, and highly sensitive to local business practices. It will usually, though not always, be easier for a local person to navigate these waters than it will be for an outsider. However, in many emerging markets – China in particular – there is no established talent pool with these niche skills.

Unfortunately, if talented local people are in short supply, a company will have to either employ less able locals, or foreigners. The quality of the team negotiating with these organizations will suffer, with predictable results. Therefore, difficulties faced by multinationals in the regulatory, pricing, and even commercial environments can be directly linked to the talent shortage.

Part two of the series will be featured in the Jun-Jul issue of PharmaAsia