SEPT 26 — Unprecedented growth is happening all around us in Asia. Yet companies are not fully capitalising on the many growth opportunities. Here are three powerful trends which are shaping the Asian healthcare landscape.
The economic dynamism of Asia, despite current slowdown in some markets, is presenting many opportunities but also challenges that countries and companies are aiming to better understand and manage successfully. Despite their sophisticated forecasting tools, many governments and companies unfortunately continue to predict the future looking through their rear-view mirrors. What matters crucially however is the ability to foresee and adapt successfully to what lies ahead. It will be a road different from the one trodden in the past. As Yogi Berra, the well-known American baseball player, once said “The future ain’t what it used to be”.
Three powerful trends are predicted to have a major impact on Asia’s life sciences landscape.
1. An unprecedented increase in the size of the middle class. As an example, the middle class in Indonesia is expected to expand dramatically. From the current 135 million, this group will grow to some 170 million in less than 10 years. In his latest book, The Great Convergence, Prof. Kishore Mahbubani cites an estimated 500 million Asians who today enjoy middle-class status. By 2020, that is only seven years from now, this figure is forecasted to more than treble to 1.75 billion. Never before in recorded history has a transformation on such a massive scale taken place in such a short time. Rapid urbanisation and fast-rising disposable incomes, despite increasing income disparities, are affording greater access to modern healthcare in developed and developing Asia. More Asians today are accessing modern healthcare, also for preventive purposes. Yet, the region’s companies are generally slow in fully capitalising on the many opportunities this historical growth presents.
2. A fast ageing population, especially in North Asia. Asian demographics are changing dramatically. Rapid fertility declines and unprecedented increases in life expectancy are causing lasting demographic shifts. The region’s preparedness for an ageing population can best be described as mixed and most governments today are ill prepared to deal with the effects of a fast greying population. The situation in China is probably the most worrying. By some estimates the country’s work force will start contracting as early as 2015. China today has an estimated 137 million people aged 65 and above. By 2025 this figure will be closer to 250 million. In Singapore, it is estimated that by 2030 one-third of the population will be 65 years and above. Some reports suggest that Singapore may suffer the most among Asian economies from an ageing population, with falling economic growth in the next 20 years or so. Manpower shortages will also have an impact on emergency care and need to be addressed now.
The region has an ageing population, but in some sub-regions like South Asia, also a relatively young one. Most Asian countries are still at the top of the working age population hump. However, this is likely to change in as little as 10 years from now. Demographic shifts present political, economic and social challenges, but also opportunities. Ways in which retirement income and healthcare are provided to cope with an ageing population provide a macroeconomic opportunity to rebalance growth.
3. A growing demand for quality medical care. As incomes and living standards rise and poverty levels are reduced, there is historically an increase in demand for better standards of medical and health care. Asia is no exception to this and healthcare spending in the region is expected to triple over the next decade. Growth in the Asia Pacific region is being driven by the increased availability of healthcare services and an increase in the diagnosis and treatment rates of lifestyle illnesses such as diabetes, obesity, hypertension, joint replacement etc., as well as treatment of rare diseases. The market for life sciences products is forecasted to show sustained and an above-average growth rate in line with healthcare expenditure increases. The self-paying market is also expected to grow, in some cases faster than the prescription market, as consumers are better educated and become more aware of the need to take good care of their bodies. One may therefore wonder why Asian companies are lagging behind in the quest to capitalise on the market opportunities?
A number of Asian governments are learning from healthcare cost containment initiatives around the world to avoid West European and US-style cost escalation. For example, patient co-payment is gradually being introduced in some markets. This trend in turn will likely result in an increase in the acceptance of generic pharmaceutical brands and managed care being selectively adopted in some markets. However, the average Asian consumer will also increasingly demand that economically-priced brands are delivered at acceptable quality. Herein lies the challenge and also the opportunity for Asian companies. Asians will demand access to better and more reliable standards of healthcare. Scandals like tainted infant milk powder will increasingly become a thing of the past as regulatory controls improve and the Asian consumer demands more transparency and better quality healthcare.
Asian companies not content with simply copying Western brands but willing to embrace innovation and offer high-quality healthcare products and services suited to Asian needs will be the real winners. An increased rate of innovation will also come about as companies and countries change the way that entrepreneurial success is managed and are willing to do away with the social and sometimes the political stigmas attached to failures.
Barring short-term slowdowns, as long-term GDP growth continues picking up and lifestyle changes continue, there are indeed an increasing number of market opportunities in Asia, both for innovative Asian and for non-Asian companies. However, as always there are problems and challenges too. Increasing opportunities also means increasing numbers of competitors. Healthcare budgets are under pressure, which translates into increasing pricing pressures and more regulatory scrutiny too. However, there are some positive changes in the regulatory environment, e.g. regulatory harmonisation in the ASEAN bloc (2015), despite the gap still between intention and enforcement. The same applies to IP enforcement too. No significant change is expected on this front in the near term.
Going forward, managing headquarters’ expectations about “markets of billions” (China and India) will become an even bigger challenge for regional and country pharma executives. Demands for higher margins and pressures on selling, general and administrative costs will probably increase. The recent economic slowdown has already seen knee-jerk reactions with some companies de-emphasising their regional presence for the relative and assumed safety of a headquarters retreat. Companies which had been largely targeting China and India for growth are now also looking at the ASEAN Region for growth. The sub-region with a population base of over 600 million people continues to grow at a steady rate. Of course there are challenges here too, e.g. getting products registered in Indonesia, or compulsory licencing in some other markets, but in the author’s opinion the opportunities far outweigh the challenges.
To become successful and continue being successful in Asia requires companies perhaps abandoning their traditional and structured planning, entry and operating approaches that they generally feel comfortable with. Opportunities are likely to appear suddenly and unexpectedly and to capitalise on these successfully will require making quick decisions based on limited market facts.
* Salman Bokhari has extensive senior level experience within the life sciences industry in Asia and internationally. He is currently based in Singapore ([email protected]).
** This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malay Mail Online.
