As we emerge into the post-pandemic world, companies, industries and governments are re-examining their strategies, driven simultaneously by the lessons of a once-in-a-century pandemic, and the consequences of a once-in-a-generation geo-political realignment.
The shock of covid was as large as they come. Yet, thankfully, the organizations and the systems that run our world proved remarkably resilient. Despite early panic, retail markets did not run out of essentials; despite an unprecedented strain on healthcare workers, hospitals and healthcare systems did not collapse (except in India’s overwhelmed cities during its second wave); despite dire predictions, the world and its organizations adapted with notable flexibility to supply chain strains, labor shortages, work-from-home, and a new set of distanced norms. Yes, too many lives were lost, and the scars linger, but we are emerging with lessons learned.
On the geo-political front, the pandemic was handled differently in different parts of the world, and while the consequences of that will be felt on the political and global spheres for years to come, there are lessons there too. While the world was busy coping with the pandemic the two engines of the world economy, the United States and China, accelerated their decoupling, with consequences for businesses around the world.
With this backdrop, all companies are asking themselves these questions:
- Where will growth come from in the next decade?
- How are we positioned to play in these markets?
- Where will competition be most intense?
- Which capabilities and assets will help us compete in these markets; where are the gaps?
To address these questions, all companies in the industry can benefit from examining the global-scale, real-time case study that has just played out before our eyes: the vaccine rollout over the past 14 months.
A vaccine market of up to 15 billion annual doses sprung from the pandemic in 2020. Manufacturers from the United States, Europe, China, Russia and India scrambled to develop products to meet demand. Pfizer-Biontech and Moderna (European and American companies) developed high-tech mRNA vaccines and had them ready for market less than one year after the virus reached their shores. AstraZeneca (UK), J&J (USA), and Sinopharm and Sinovac (both from China) brought less expensive vaccines to market using traditional technology, within the year. AstraZeneca’s vaccine priced at 1/8th of the Moderna vaccine was remarkably successful in licensing and selling its product around the world despite early glitches with clinical trial data. The Russian vaccine maker Gamaleya was the first to market but, despite high effectiveness, it had produced fewer than 3% of the 10 billion doses that had been administered by the end of the second year of the pandemic.
Half of all doses were administered in developed markets, and the other half in developing and emerging countries, but these latter countries will eventually need a lot more as large parts of their populations remain unvaccinated.
The Covid vaccine case study offers a glimpse into what is to come in the chemical industry over the next ten years. The market will be evenly split between developed and emerging markets, but emerging countries will grow faster. The markets for sophisticated products based on cutting edge technology, and that require special handling and infrastructure (as, for example, the mRNA vaccines required refrigerated logistics), will still be primarily in developed countries, while tried, tested, and economical products will be better suited to emerging markets.
AstraZeneca’s flexible model that combines the research of university laboratories with the clinical testing, lobbying, management and marketing skills of a Western pharma giant, and the low-cost licensed manufacturing in the countries where the product will be consumed has been a revelation. This model proved effective, quick, and scalable. Recently, even Pfizer has signed a deal to manufacture its vaccine under license in Brazil.
China produced almost half the global doses. Its large domestic market absorbed half of those doses, and the other half were exported, primarily to emerging and developing markets. Products from Russia and China had little access to the developed markets, despite being early to market, as procurement was centralized, and governments chose on grounds of technology, proximity, and geopolitical concerns. Similarly, products from Western companies had almost no access to the Eastern markets, except for AstraZeneca’s vaccine.
Indian made AstraZeneca vaccines, produced by the Serum Institute of India (SII), a very large scale, low cost producer, did find their way to some developed markets, but accounted for a small share of the overall doses administered there. SII’s vaccines were mostly administered in India and other developing countries where their very low cost made them competitive against Chinese and Russian vaccines. The AstraZeneca vaccine was also manufactured under license in other locations (see Table 1).
Drawing some general lessons from the case study for the post-pandemic world, we look at four distinct strategies for companies (See Table 2), two each for Western and Eastern companies, one for each type of market, developed or emerging.
The strategies laid out in Table 2 are not new, but our understanding of their implications has been sharpened by our experience of the Covid vaccine rollout. Western companies selling in developed markets will continue to sell research-based products at premium prices (relative to the rest of the world), and play on their strengths with government relations and knowledge of processes, especially regulatory processes. They will also sell into emerging markets and have a choice of strategy: whether to sell their products with a global positioning that ends up being “super premium” in emerging markets, and consequently has tiny volumes, or to aim for the mass market and therefore adapt their products, packaging, and branding for the local market to be able to sell larger volumes at affordable price points. Eastern companies will continue to dominate their domestic and other emerging markets with low-cost generics and copies of older molecules, and serve the international market with bulk APIs and generics. However, they will face new barriers based on localization demands by freshly risk-averse Western governments. Many firms will continue to manufacture products under license from Western firms, at scale, for large domestic and international emerging markets. They will also seek customers and Western partners to access developed markets.
The table offers some counterintuitive conclusions. First, despite the longstanding fear that Eastern firms will overwhelm developed market firms by catching up on technology and offering very low prices, from Table 2 and from the Covid vaccine experience, it appears that because of the very different optimal strategies of Western (Including Japan and ANZ) versus Eastern (China and India) companies, competition among Western companies is likely to be far more intense than that between Western companies and their Eastern counterparts. Similarly, competition among Eastern firms will be far more intense than competition between them and Western companies. In fact, if each type of company pursues its expected strategy as in Table 2, there is far more room for cooperation between Eastern and Western companies than there is likelihood of intense competition. The experience of vaccines, in which governments of all countries behaved very cautiously and even in a protectionist manner along the East-West divide, reinforces this conclusion. Cooperation among East-West firms, when permitted, will include supplier relationships (such as supply of bulk APIs, Generics) and partnerships (licensing) and even private label production. Competition in this context, when it occurs, will be between Western companies trying to snag the best partnerships from among the Eastern partners, and vice versa.
Simultaneously, companies will find that government requirements to bring supply closer to home, especially for sensitive products, will mean manufacturing and logistic capabilities will need to be built in each major market. This, too, can be achieved through partnerships, alliances, licensing and, where allowed, fully owned subsidiaries, by both Western and Eastern firms.
Towards the middle of this decade, coincident with the shift from chemicals to biotech, we will begin to see the rise of high-tech Chinese biotech and pharma firms that are fast catching up (and in some areas, leading globally) on technology. They will initially be met with protectionism in the West, but will find ready domestic and Asian markets. Once they prove themselves there, they will seek marketing partners in developed markets. Perhaps for the first time, cutting edge products will not be launched in Western markets first.
It will be a productive exercise for any company, Western or Eastern, to drill down into the strategies required to play in each of these quadrants. For example, it will be helpful to examine which skills, capabilities, assets, and sources of competitive advantage are most valuable in the different markets, and under different competitive scenarios. This is an exercise that, in our experience, is best conducted at the level of each individual company.
Table 1. Vaccine Production in 2021.
Source: excerpted from https://en.wikipedia.org/wiki/Deployment_of_COVID-19_vaccines, accessed on January 20th 2022.
Table 2. Strategies as a function of company origin and market.
