Healthcare: the regional impact of cross-border trade Achieving growth in Asia’s competitive healthcare sector means successfully navigating local and intra-regional routes to market.

Despite the recent economic slowdown, shifting demographic factors, including a rising middle class – the Association of South East Asian Nations (ASEAN), for example, will count 125 million households in the consuming class by 2025, up from 67 million in 2015 – and higher spending on personal health and well-being, are encouraging pharmaceutical, over-the-counter, consumer health and medical device companies to invest in emerging Asian markets. 

Differentiated regulatory environments provide a challenge, however. For example, the ten ASEAN countries retain their own regulatory systems, with varied requirements and registration procedures. The ASEAN Economic Community offers the potential for a harmonized approach, but this will take time to achieve. 

In China, where consumer healthcare products have been subjected to less regulatory scrutiny in order to stimulate cross-border e-commerce expansion, the China Food and Drug Administration (CFDA) is now introducing more stringent import compliance obligations, and new approval procedures for pharmaceutical manufacturing plants. 

Overlaying the regional challenges, healthcare companies of all sizes are contending with new commercial realities:

  • Multinational companies are merging to consolidate assets, such as GSK/Novartis, Bayer/Merck and Sanofi/Boehringer Ingelheim. These deals must deliver efficiency savings, and they are also leading to consolidation in key brands
  • Smaller and medium-sized enterprises are looking for more coordinated brand-building models – as the pure export model is no longer driving growth
     

Asia’s new reality in consumer healthcare

A proliferation of products notable in Asian markets, with increasing competition from home-grown brands, and ambitious Asian companies expanding across the region. The current high visibility and popularity of Korean skin care products throughout Asia highlights how new demand trends can regionalize in a relatively short period of time.

High expectations are evident. Consumers across Asia are increasingly discerning and demonstrate a strong appreciation of health and wellness issues. They demand quality and value for money, since healthcare purchases are viewed as a personal investment in themselves. In addition to being accustomed to consuming products purchased via cross-border platforms, customers want to be engaged and inspired via digital channels. 

In addition to mastering digital retailing, traditional channels – such as chain pharmacies, personal care stores, hospitals and clinics – vary in size and scale. Understanding which channel combination drives most sales is crucial. For example, a clear gel that reduces scar visibility derives 94 percent of sales from pharmacies in Singapore, but 39 percent through supermarkets, department stores and wholesalers in Thailand, and 27 percent through wholesalers alone in Cambodia. 

The retail pharmacy channel presents its own challenges. The majority of product sales in mature markets like Taiwan and Singapore are through four or five large pharmacy chains, whereas Vietnam counts 22,000 licensed pharmacies.

Consequently, a drive towards efficient expansion is discernible. “Healthcare companies are fighting to achieve small fragments of percentage growth in fiercely competitive and fragmented markets, and the route-to-market decision-making process across Asia is being anchored by new strategic efficiencies,” says Luke Horton, Regional Business Development Director – Consumer Health/OTC at DKSH.

The key challenges of online commerce in healthcare

Cross-border trading has created a dynamic sales channel for health, vitamin and nutritional products in China, and entire new business models have evolved. Herbal products suppliers in the United States and infant nutrition companies in Australia are now selling prodigious volumes of products online and shipping them directly to consumers in China. 

Online sales volumes are currently lower in South East Asia than in China, but a more aggressive model of cross-border e-commerce is gaining momentum, particularly as Chinese companies invest in the sector. In 2016, Alibaba purchased a controlling stake in online retailer Lazada, which sells health and beauty and baby products in South East Asia, and plans to launch its AliPay cashless payment system in Indonesia.

Digital retailing adds an extra layer of complexity to pricing strategies. Asian customers frequently research products and prices online, so differentiated pricing between channels risks cannibalizing sales. Premium products are also vulnerable to “parallel importing,” whereby wholesalers buy discount consignments and sell the products online at prices lower than the brand-holder. 

The price pressures of “grey trading” also occur within Asian markets – with discounted sales between two normally unrelated channels, such as between clinics and retail pharmacies. In addition to price vulnerabilities, unofficial trading reduces a brand-holder’s ability to control product quality, consumer trust and, ultimately, brand equity.

A forensic approach to consumer healthcare

Healthcare market complexity in Asia offers opportunities as well as challenges, particularly as the barriers to trade are reducing. By partnering with an MES provider to take advantage of deep market knowledge and customized solutions, companies can optimize lower initial fixed costs to experiment with phased brand and product launches that tap clearly defined gaps in a market, or submarket. This approach provides scope for balancing a forensic analysis of market trends with offline and online consumer engagement techniques to test new price points and redefine the optimum sales funnel for each new product.