The pharmaceutical industry today is India's one of the leading science-based industries with wide ranging capabilities in the complex field of drug manufacturing and technology. It ranks very high among the third world countries in terms of technology, and quality and range of medicines manufactured. There are about 300 large units that control about 70 per cent of the market with market leader holding nearly seven per cent of the market share and about 8,000 small scale units, which form the core of the Indian Pharma industry. These units produce a complete range of pharma formulations, i.e., medicines ready for consumption by patients and more than 400 bulk drugs used for production of Pharma formulations. Scenario in West Bengal has not seen much change and is currently looking for some fast track decisions to take advantages in a complex global growth market. This paper analyzes the pharmaceuticals product distribution choices available in rural BoP markets in the two districts of West Bengal and evaluates the key drivers of distribution for a successful go-to-market strategy. Section 1 - It presents the case for identifying pharmaceuticals products' and distribution requirements for working with distribution channels that have matching capabilities in the districts of West Bengal.
Section 2 describes how the distribution challenge makes rural BoP markets seem unattractive to producers/ manufacturers. The BoP population is characterized by unmet basic needs (access to basic healthcare, water and sanitation, financial services, education, etc.) and a so-called "BoP-penalty"
that results in higher prices for BoP customers than their wealthier counterparts for basic products and services. The "BoP penalty" is primarily an outcome of local monopolies, inadequate access, poor distribution and strong traditional intermediaries.
Section 3 puts forth a new analytical framework for evaluating rural BoP distribution channels and their capabilities. It highlights typical marketing scenarios in which these distribution capabilities are essential. Section 4 applies the distribution capabilities framework to several product classifications. It then also focuses specifically on the distribution requirements of rural-targeted BoP customer. Which therapeutic areas are growing faster? Key questions addressed from the survey include: What is the potential growth in domestic market and key drivers of this growth? How sustainable is the current market growth over next three-four years? Which therapeutic areas are growing faster? What are the key strategies adopted by various companies?
In Section 5, defragmentation of Pharma industry.
Against this encouraging backdrop, this paper analyzes pharmaceuticals product, distribution choices available in rural BoP markets and helps producer/manufacturer evaluate the key drivers of distribution for successful go-to-market strategies. The paper highlights the complexities of operating in Bengal rural markets. To this end, it presents a new analytical framework to help companies identify viable alternate distribution channels and evaluate their capabilities We covered all tiers of geographies in the districts of Burdwan and Birbhum to gain incisive insights into the future of the domestic Pharma market, performance of various Indian companies, strategies adopted and ground level challenges impacting growth. We further highlight that views of distributors are restricted to their coverage companies, which differ, but collectively represent 80% of the total market.
INTRODUCTION
The Indian Pharmaceutical Industry today is in the front rank of Indias science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.
The Indian Pharma Industry has been the front runner in a wide range of specialties involving complex drugs manufacture, development and technology. The Pharma companies in India are growing at the rate of $4.5 billion registering a further growth of 8-9% annually. More than, 20,000 units are fragmented across the country and reports say that 250 leading Indian Pharma Companies controls 70% of the market share which stuck price competition and Govt. price regulations and top 10 accounts for 30% of the market share. It provides direct estimated employment of 4.6 lakhs and indirect employment of 24 lakhs. India is better off in some situations due to pool of competitive workforce, organized distribution channel and organized trade associations. Indias pharmaceutical industry is now the third largest in the world in terms of volume. It ranks 14th in terms of value.
However, driven by factors such as rising rural incomes and a strong distribution network, India's rural Pharma market is also experiencing a strong growth. Estimates say that while small towns contribute 20 percent to the country's Pharma market, rural areas account for 21 percent. In 2006-07, the rural Indian Pharma market was estimated at around $1.4 billion.
OBJECTIVE OF STUDY
The rural healthcare sector has attracted business leaders and policy makers in the Pharma industry. The research is conducted within the two districts of West Bengal: BIRBHUM and BURDWAN.This paper intends to find out the probable answers to the following set of questions primarily pertinent to the marketing and distribution channels for pharmaceutical industries:
1. How is the market likely to grow? 2. To what extent there has been an increase in health care facilities? 3. What is the growth in various Therapeutic Areas? 4. What new products are being introduced in the market? 5. What role will health insurance and medical facilities play?
LITERATURE REVIEW
THE RURAL BOP DISTRIBUTION NETWORK DESIGN
The BASE OF PYRAMID (BOP) population is characterized by unmet basic needs (access to basic healthcare, water and sanitation, financial services, education, etc.) and a so-called "BOP-PENALTY" that results in higher prices for BoP customers than their wealthier counterparts for basic products and services. The "BoP-penalty" is primarily an outcome of local monopolies, inadequate access, poor distribution and strong traditional intermediaries. Bop markets are often rural, especially in emerging countries like India, are poorly served, dominated by local informal economies and consequently relatively uncompetitive and inefficient. They starkly contrast wealthier mid-market population segments that are largely urban, relatively well-served and extremely competitive.
The majority of populations in emerging markets continue to live in rural areas. In India for example, according to the 2001 census, 72% of the countrys population resides in over 600,000 villages. Of those villages, 85% have less than 5,000 people in them, meaning that 612 Million people in India live in low-density areas. As a consequence of the low population density companies may be faced with continuously escalating inventory holding and transportation costs as they are forced to stock and manage sales points in thousands of villages to meet customer expectations for product availability.
While there may be profit potential, the question remains as to how companies can successfully tap into it. This paper examines one particular part of this question: How can companies attempt to enter a rural region in an emerging market with a new product or service and expansion coverage?
A marketing channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption. The nature of rural emerging markets makes building a successful marketing channel challenging. The population is widely dispersed, transportation infrastructure is poor or non-existent, household incomes are low and sporadic, and traditional methods of creating brand trust and awareness will not work. An entering company needs to design marketing channels that both successfully deliver products to customers in a capital-efficient way, and that unlock the latent desire that customers have to purchase and receive those products. In this manner, not only are transporters and warehouses part of a successful marketing channel, but so are entities that educate customers about products and services they may not know they need, as are the financial programs that help customers finance their purchases.
A distribution channel is conventionally envisioned as a series of intermediaries, who pass the product down the chain to the next entity until it finally reaches the consumer or end user. Each element of the chain has its own specific needs, stimulus, and ability to deliver in a unique operating environment, which the producer must take into account, along with those needs of the end user. Recent innovations in rural distribution models have expanded the role of the distribution partner. The distributer role is no longer restricted to physical distribution of products alone, but has also expanded to provision of several other inputs, which influence a consumer's purchase decision, such as credit and post-sales service.
Physical distribution involves the transportation and storage of manufactured goods to make them available to the consumer. A prospective rural BoP channel must demonstrate these minimum capabilities under "physical distribution":
1. Transportation/shipping infrastructure according to the civic infrastructure available en route, such as road, fuelling stations, etc. 2. Accessible storage/warehousing for temporary storage of goods during transit 3. Inventory control at all sites to ensure uninterrupted supply to target geographies
FIGURE1-GEOGRAPHICAL SPLIT OF INDIAN POPULATION
Majority of the Pharma markets growth is driven by the urban markets, that is, areas that are classified as metros or tier I cities (refer to the BOP diagram above). Tier II to tier III is classified as peri-urban, while rural is the bottom of the pyramid, which constitutes 67% of Indias population (600 000 villages). As per IMS Health, peri-urban markets account for 38% of total industry sales, being valued at US$3.4 billion, while, rural markets account for 17% of total industry sales, being values at US$2 billion, in 2010.
Around 742 million people reside in rural areas. There is a significant gap between the number of people residing in villages that require treatment, and quality treatment and medicines reaching these villages. Accessibility of medication in rural areas is very poor, with less than 20% of the population having access. This gap represents a huge opportunity for pharmaceutical companies to expand, and we believe that these markets will be the future volume drivers of the industry.
CHALLENGES IN INDIAN PHARMA RURAL MARKET
On close observation, rural BoP markets are demanding and complex for producers/manufacturers because of multiple challenges that broadly fall into three categories:
Rural BoP populations are not a homogenous group. Living in all kinds of settlements, they have varied income and expenditure levels. BoP customers' unique demands mean that product or service solutions are neither interchangeable nor readily transferable even within the segment. In spite of their diverse needs that vary across regions, BoP populations share several commonalities in their financial hardships, domestic constraints, difficult living conditions, lack of basic information for making informed decisions and informal quality standards, amongst others, such as:
a) Income levels and volatility: Income levels of rural BoP are low in both per capita income and disposable income. Household earnings compulsorily go first towards fulfilling survival needs and investments required to assure health in the next round of the economic cycle. This underlies a low risk appetite for unproven offerings. Purchase of essential products, such as medicines or other emergency necessities, is less reliant on credit availability.
b) Savings pattern: There is a lack of ready access to financial institutions and services, which could facilitate movement of resources across time and help arrest the economic risks felt by rural BoP households. Bop households continue to have minimal savings (beyond major life cycle events, such as education and marriage), retain illiquid assets (such as land, gold and animals), and have less capability to handle economic shocks.
c) Language and literacy: Variation in languages across regions and low literacy levels inhibit the creation of standard, cost-effective marketing and communication materials, such as well-designed publications, signage, advertisements and brochures. The lack of consistent and effective marketing contributes to information asymmetry and long gestation periods for new product introductions.
d) Mobility and travel patterns: Restricted mobility and limited travel patterns of rural BoP end customers lead to slow dissemination of knowledge, resistance to change, and little benefit from existing customer experiences from outside their local communities.
e) Logistics dependence: The penetration of medicines has not grown proportionately. The urban and semi-urban marketplaces have become extremely competitive at the stockist and retail levels, while the rural market is largely neglected.
PRODUCT CHALLENGES
Manufacturers and producers in rural BoP face many pressures to reinvent their offerings, supply chain arrangements, marketing and communication techniques, along with ownership models through which customers can access their products, such as:
a) Need vs. Latent need: Historical purchase decisions, product associations and conventional wisdom, along with long running market inefficiencies, have lead rural BoP consumers to deny or not recognize their latent needs and to pursue a fulfillment of only immediate, tangible needs.
b) Push Products: In a "push" strategy, the producer or manufacturer promotes the product to wholesalers, the wholesalers promote it to retailers, and the retailers promote it to consumers. Thus, with products promoted via this strategy, it is the supply which creates the demand.
OPERATING ENVIRONMENT
Political, social, economic and technological unpredictability in rural BoP markets has discouraged manufacturers and producers to actively participate in the operating environment. Variables in the operating environment that have adversely affected the interests of rural BoP end customers include:
a) Government Interventions & Policy Support: Ill-planned, poorly executed and intermittent government schemes in certain regions have led to a wide introduction of low- quality products that shift the end customer's perception away from better product choices. Short-term subsidy programs have led to sparse distribution of products in certain rural areas, skewing the price point perception against a more long-term market-based solution.
For India's rural BoP market segment as a whole, the current expenditure across product portfolios is highly concentrated in portfolios that correspond with immediate survival needs, overwhelmingly food. There is a large (66 percent) gap between segment expenditure on food and the next largest expenditure, on energy needs, which accounts for roughly 12 percent of the Indian rural BoP annual expenditure.
FIGURE2 -INDIAN RURAL BOP EXPENDITURE BY SECTOR
b) Accessibility- in the rural market, although, there might be infrastructural facilities, doctors,dispensaries,doctors,medicines,but accessibility stands as a huge barrier .there are lack of all weather roads which makes accessing those facilities including the health service facilities impossible at times.. There are push strategies but the pull strategies are weak. This forces the rural inhabitants to seek the services of the locally available substitutes services (Quacks, Rural medical practitioners, Assistant health workers, Chandsi Medicines, Health Assistant, Sadhu baba and the like) which call for greater use of non pharmacy, non-scientific local counterparts of medicines. If there is greater accessibility then there would be a better health, better education. Better exposure to life. This would in turn lead to a potential increment for the Pharma industry and its growth. Hence the rural people cannot affectively access to the facilities thereby they end up listening to the quacks and Sadhu babas.
c) 'Social proof' (also referred to as 'informational social influence')-, is a psychological phenomenon that occurs in ambiguous social conditions where individuals or group of individuals are unable to determine an appropriate rational behavior by themselves. Thus, making the assumption those others (individually or collectively) in similar conditions possesses more knowledge and deeming their behavior as appropriate or better informed. The society in the rural areas can be divided into two categories-
Rural BoP Expenditure by Sector (Million $'s adjusted by 2005 PPP) Source : "The next 4 Billion - Market Size & Business Strategy at the base of the pyramid''-By World Resource Institute, International Finance Corporation, IFMR-CDF Analysis 1. Areas close to the tier IV comprise of the remotest areas, where the tribes reside, which are completely not aware or well informed about the medicines or any other updates. People residing in those areas are ignorant about the various medicinal practices. Hence, it is the local quacks, Sadhu baba and various political leaders who easily influence over people.
2. Whereas the semi urban areas in the tier I, II, III are informed and aware of these facilities.
In rural markets, the influencing capability of opinion leaders in decision making and purchasing the product is remarkable. An opinion leader is a peer group leader in the sense that this person tends to lead the view and beliefs of a group of people in a reference group.
d) Social media- are media for social interaction, using highly accessible and scalable publishing techniques. A common thread running through all definitions of social media is a blending of technology and social interaction for the co-creation of value. In the rural market it is the Panchayats and other health centers which are the main hubs for interactions in the rural areas.
e) Infrastructure Constraints: Low penetration of civic and private infrastructure in rural markets, such as Hospitals, dispensaries, health centers, roads, water channels, electricity and telecommunications, has created barriers to entry for affordable, mainstream products. It has added to the financial burden on manufacturers and producers of product redesign, manufacturing facilities, physical distribution, and operations and maintenance that are more suited to local infrastructure availability. Lack of adequate infrastructure in rural areas has shifted producer/distributer attention away from the basic underlying needs of the end customer. Absence of modern technological interventions, mass media instruments and platforms (coupled with excessive reliance on social media and opinion leaders) contributes to the information asymmetry that prevents the growth of effective rural markets.
Healthcare infrastructure is poor, to urban areas. The doctor patient ratio in rural areas is 1:20,000, versus the urban ratio of 1:2000 [India requires 600,000 doctors in order to meet the statutory 1:250 ratio that is a World Health Organization (WHO) norm].(6) Doctors are not qualified, as most of them in villages have Bachelor of Health Sciences (BHS) & Bachelor of Ayurvedic Medicine and Surgery (BAMS) degrees. The quality and availability of medicines in rural areas is dubious, as there are many cases of counterfeiting and spurious drugs that have been exposed. Majority of the patients earn a basic daily wage, and affordability is very low.
TABLE1: HEALTHCARE PENETRATION IN RURAL AREAS IS SIGNIFICANTLY LOWER THAN IN URBAN AREAS
Population Rural (72%) 742 Million Population Urban (28%) 285 Million Population Hospital % 31 69 Hospital Bed % 20 80 Doctors % 08 92 Doctors/100,000 people 05 50 Spurious Pharma sales % 75-80 20-25 Source: Novartis, Arogya Parivar: Health for the poor (April 2010) g. Geographical Challenges: Extreme weather conditions, long distances (geographical spread), and hostile terrain present unique transportation and storage requirements, which require a high degree of customization both in planning and in execution of product distribution to rural BoP markets. i. Population Density: Sparse population density in India's interior, compounded by geographical spread of rural villages, has prohibited commercial players from enjoying economies of scale.
j. Non-homogenous stakeholders: Lack of homogeneity among key stakeholders in BoP market play, such as commercial players, civil society organizations, government institutions, and uncertain power centers (political, economic and social) across local communities demand sustained, local insight by distributors, manufacturers and producers.
INDIAN DISTRIBUTION SYSTEM: THE CURRENT STATE India is a geographically diverse country with extreme climates that make distribution a critical function. The long channel of distribution and high incidence of brand substitution makes it mandatory for a company to make all its stock keeping units (SKUs) available at all levels at all times. In India, most brands have generic versions of drugs and retailers can usually obtain higher margins with generics than for branded products. To reduce risks of substitution, innovator companies must make sure their products are made available to the stockists and retail shops.
Drug distribution in India has witnessed a paradigm shift. Before 1990, pharmaceutical companies used a different distribution system, in which they established their own depots and warehouses that now have been replaced by clearing and forwarding agents (CFAs). These organizations are part of the distribution chain, and are primarily responsible for maintaining storage (stock) of the company's products and forwarding SKUs to the stockist on request. Most companies keep one to three CFAs in each Indian state. On an average, a company may work with a total of 2535 CFAs. Unlike a CFA that can handle the stock of one company, a stockist (a regional distributor) can simultaneously handle more than one company (usually, 515 depending on the city area), and may go up to even 3050 different manufacturers. The stockist, in turn, after 3045 days (a typical credit or time limit) pays for the products directly in the name of the pharmaceutical company. The CFAs are paid by the company yearly, once or twice, on a basis of the percentage of total turnover of products. The Indian pharmaceutical distribution system is fragmented and disorganized with 60,000 distributors and 700,000 to 800,000 retailers, 24 many of them mom and pop drug stores. An archaic, multi-layered tax structure with multiple excise, inter-state and local sales taxes led to the establishment of a layer of carrying and forwarding (C&F) entities solely to avoid taxation.
Distribution network Current state 1. CFA/Depots 25 per company (one per state) 2. Stockists 60,000 across country 3. Pharmacists 500,000 across country Distribution network Current state 4. CFA/Depots 25 per company (one per state) 5. Stockists 60,000 across country 6. Pharmacists 500,000 across country
The manufacturer supplies goods to the first layer comprising a CFA, a super stockist or a company-owned depot. These, in turn, supply to stockists from where goods are routed to wholesalers, medical institutions, hospitals and retailers. The retailer dispenses the drugs to final consumers. Manufacturers can directly supply to institutions and hospitals, but never to a retailer.
In the current setup, many companies have distribution hubs where the products from different manufacturing units are collected before being shipped to various CFAs. On an average, a company has 20-30 CFAs, while the number of stockists may range from a few hundreds to even thousands. The total number of stockists in India is estimated to be 60,000 and that of retailers over five lakh. However, the penetration of medicines has not grown proportionately. The urban and semi-urban marketplaces have become extremely competitive at the stockist and retail levels, while the rural market is largely neglected.
TRADE MARGINS RULE THE ROOST Stockists in India operate on a margin of eight percent on the 'maximum retail price' of price- controlled drugs and 10 percent on de-controlled products. There are an estimated 60,000 stockists in India. Usually a stockist handles the business of six to eight companies. A few of them handle more than 50 companies. Despite a relatively limited role in effecting the sale, the CFAs are paid a commission of 1.25-1.5 percent with additional reimbursement for certain specified expenses. According to Viraj Gandhi, MD, Medicine Shoppe, these trade margins are stopping the distributors from adapting to change.
Apart from margins, the retailers and wholesalers are also remunerated through various trade schemes. In the case of institutional sales, the products may be supplied by the distributor, even if the institution negotiates directly with the manufacturer. The highly fragmented industry has resulted in not only higher margins for intermediaries but also multiple stock points. A minimum level of stocks must be maintained at each point, which results in total channel inventory of more than 65 days. Typically, a pharmaceutical company may have an inventory of 46 days as compared to 26 days in a FMCG company. The fallout of this highly fragmented setup is easy entry of counterfeits, estimated to constitute approximately 20 percent of the domestic market, into the channel.
Organized retail and distribution consolidation will enable greater demand by reducing systemic inefficiencies and increasing reach in the semi-urban and rural markets. Although distribution and retail consolidation is likely, enough impediments exist to limit or stall consolidation. Well- entrenched trade unions, specifically the All India Organization of Chemists & Druggists (AIOCD), a representative body with 550,000 members, are expected to try to protect the interests of small distributors and mom and pop drug stores. In addition, the pace of distribution consolidation will be governed by the rate of infrastructure growth, especially cold chains and road networks.
Finally, the future of retail consolidation will depend upon the governments willingness to allow foreign investment into organized retail.
Strategic Risk: Will protectionist policies be effective in restricting retail consolidation?
FIGURE3 - CURRENT DISTRIBUTION CHAIN IN INDIA
Figure 1 show how a manufactured product passes through the company-owned central warehouse, which supplies it to the CFA or super stockist. From the CFA the stocks are supplied either to the stockist, substockist, or hospitals. The retail pharmacy obtains products from the stockist or substockist through whom it finally reaches the consumers (patients). Certain small manufacturers directly supply the drugs to the super stockist.
TABLE2- MARGINS AT VARIOUS LEVELS OF DISTRIBUTION SYSTEM Levels Margins Clearing and forwarding agents 1-10% on the total turnover + other expenses Stockist or distributors 8 % on scheduled drugs 10 % on nonscheduled drugs Retailers 16 % on scheduled drugs 20 % on nonscheduled drugs
Despite the rapid increase in the number of stockists and pharmacies, there has not been a proportional increase in the volume of prescriptions distributed. Thus, the efficiency of the current system has clearly not been demonstrated. Further, it is estimated that more than three- fifths of Indians still do not have access to modern medicines. This clearly shows that the rural market is largely unattended and untapped.
Manufacturer Central warehouse Super stockist Stockist Sub-stockist Hospitals Retail shop Stockists typically market products of 6-8 pharmaceutical companies, only a few distribute products of more than 50 companies. Stockists of the same company are competing against each other and thus possibly strengthening the bargaining position of retailers. Stockists have their own visiting salesmen who contact and stock retailers on a frequent basis. On average stockists get 8-10% of their sale price to the retail. On the other hand a margin of 8% on the maximum retail price of price-controlled drugs and 16% on de-controlled drugs are also charged. Some stockists apparently pass up to 6% to retailers, leaving themselves with margins of only 2-2.5% (according to AIOCD.) On the other hand, stockists also sometimes get discounts of 5-10% from manufacturers in the form of free packs, some of which they may pass on as a discount to retailers.
Ernst & Young estimate the number of stockists in India at 80,000. As with the number of retailers, this seems to be a figure supplied by the All-India Organization of Chemists and Druggists (AIOCD), who claim to be able to control entry into this position. Indeed, there are also different licensing arrangements for wholesalers and for retailers. With the increasingly tough competition, and with many stockists moving to the apparently more lucrative retailing, we might expect a decrease in the number of agents at this level.
Calculation of retail price of formulation: - The retail price of a formulation shall be calculated by the Government in accordance with the following formula, namely:
R. P. = (M.C. +C.C. +P.M. +P.C) x (1+MAPE/100) + ED. where
"R.P." means retail price
"M.C." means material cost and includes the cost of drugs and other pharmaceutical aids used including overages, if any, plus process loss thereon specified as a norm from time to time by notification in the Official Gazette in this behalf
"C.C." means conversion cost worked out in accordance with established procedures of costing and shall be fixed as a norm every year by notification in the Official Gazette in this behalf
"P.M." means cost of the packing material used in the packing of concerned formulation, including process loss, and shall be fixed as a norm every year by notification in the Official Gazette in this behalf "P.C." means packing charges worked out in accordance with established procedures of costing and shall be fixed as a norm every year by notification in the Official Gazette in this behalf "MAPE" (Maximum Allowable Post-manufacturing Expenses) means all costs incurred by a manufacturer from the stage of ex-factory cost to retailing and includes trade margin and margin for the manufacturer and it shall not exceed One hundred per cent for indigenously manufactured Scheduled formulations "E.D." means excise duty;
REVAMPING THE DISTRIBUTION NETWORK
The pharmaceuticals distribution business in the country is all set for a revolution. VAT, consolidation of Pharma companies, and emergence of Pharma retail chains are some factors that will drive the change in the distribution cycle, discovers Sapna Dogra.
Distribution accounts for almost 35 percent of the retail cost of a drug. Yet, it hasn't witnessed much change unlike manufacturing and R&D in the past decade. The reasons are regulatory impediments (for instance, the sluggish implementation of VAT), and highly fragmented nature of the distribution network. But now, the distribution network is on the brink of a makeover. With the introduction of VAT in most states, the squeeze on domestic margins and increasing government pressure to contain retail drug prices, the reform in the distribution of Indian Pharma is imminent, says a report by E&Y on Indian Pharma distribution.
The existing Pharma distribution setup is highly fragmented as it is based on the two-tier sales tax structure, namely central sales tax (CST) and local sales tax. To avoid CST, Pharma companies have a C&F Agent (CFA) and company depot in each state to transfer goods as inter-state stock transfer.
According to R B Puri, President of All India Organization of Chemists and Druggists (AIOCD), the government will remove CST in next three to four years when VAT is implemented across the country, ushering in a massive change in the distribution network. With VAT, all transactions will become transparent, and the system will be easy to follow and there will be no inter-state tax hassles, adds Puri.
Drug distribution in India is layered and regulated. Unlike in the West, where a manufacturer can directly supply goods at the retail level, products in India move through a chain of intermediaries.
INDIAN PHARMACEUTICAL SUPPLY CHAIN
There has been a paradigm shift in the supply chain process of Indian pharmaceutical industry. Value added tax, consolidation of Pharma companies and emergence of Pharma retail chains are some the factors that are driving the changes in the distribution cycle.
FIGURE4- PHARMACEUTICAL
SUPPLY CHAIN FROM FACTORY TO SHELF
Supplier Production Carrying & Forwarding Agent Stockist Customer Retailer Supply Chain in Pharmaceutical Industry DEFRAGMENTATION OF THE DISTRIBUTION
FIGURE5- DEFRAGMENTATION
GROWING OPPORTUNITIES
According to experts, there is a huge gap between population residing in villages and quality treatment and medicines reaching these villages. "Nearly 70 percent of India's total population lives in rural areas where healthcare infrastructure is significantly low as compared to urban areas. Only 20 percent of India's total healthcare infrastructure is in rural areas," says Hitesh Gajaria, Sector Leader-Pharmaceuticals, and KPMG India. While Indian Pharma market comprises predominantly of urban areas, the reason for rural markets lagging behind can mostly be attributed to lack of facilities and experts in rural areas. Hence, this gap represents a huge opportunity for Pharma companies.
Spending on healthcare in rural India is also increasing. "The increase in rural income has also further enhanced the propensity to spend on medicines. According to estimates of the planning commission, village dwellers have started spending 12 percent of their household income on healthcare," informs Shakti P Chakraborty , President, India Region, Lupin.
"As the purchasing power is often low, distances are great, and qualified doctors are sometimes few and there is no mass media reach in these areas, communication needs to rely on a direct, person-to-person or person-to-group communication, in local languages, using visual presentation supports" informs Ranjit Shahani, Vice Chairman and Managing Director, Novartis. WEST BENGAL PHARMA INDUSTRY
The genesis of Indian pharmaceutical industry is always traced to the state of West Bengal. The starting point was in 1901 when the noted teacher and scientist Acharya Prafulla Chandra Ray laid the foundation stones of Bengal Chemical & Pharmaceutical Works Ltd (BCPL). BCPL is still a success story with four factories - two in West Bengal, one in Mumbai and one in Kanpur, with sales outlets in 11 cities, and a wide self distribution network across the country and abroad with about 1500 listed distributors. BCPL business model is unique in that, it has a wide range of related product mix, that include, fine chemicals, active pharmaceutical ingredients (APIs), perfumeries, toiletries, hospital and surgical equipments, sera, vaccine and fire extinguisher.
The state capital, Kolkata was considered, at one point of time, for production of cost effective and quality drugs. Pharmaceutical industries of Kolkata shared more than 80 per cent of the national drug production in 1940, which has gradually been reduced to less than eight per cent in 2004.
In view of a significant market access location, a strong knowledge based manpower support, very good transport, communication and manpower supply position added with proactive and favorable government support, West Bengal currently is a springboard for pharmaceutical industry developments. Hence, with its enormous advantages, including a large well-educated, skilled and English speaking workforce, low operational costs, huge domestic market including South East Asia, Kolkata has the potential to become the region's hub for pharmaceutical discovery, research, manufacturing and healthcare services. However, to make this happen, it is imperative that the regulatory environment, West Bengal government's strong commitments towards pro-industry policies should continue to improve.
The pharmaceuticals industry is grappling with the highest level of attrition. There is an acute shortage of manpower at all levels in the industry. It is becoming increasingly difficult to find the right people for the right position. Human resources in the Pharma industry is not well developed at all.
As far as emerging trends are concerned, consolidation will take place and is a logical thing to happen. An exemption on excise and other taxes, subsidies in capital investment and interest and reimbursement of insurance premium etc., are the prime reasons for selecting Sikkim for investment against West Bengal. Similar support also needs to be devised along with encouragements to regional enterprise for a faster growth in industrialization in this sector.
POTENTIAL OF WEST BENGAL PHARMA MARKET
Huge consumption markets with a target population of over 80 million along with a hinterland of over 100 million n the eastern and northeastern states. Kolkata is becoming a prime medical centre for patient from neighboring countries, especially Bangladesh. Increasing health infrastructure with plans for a Health city in Rajarhat area. Historical background of drug units and pioneers in the field. Presence of a wide variety of medicinal plants.
ISSUES
From organizational perspective the most prominent performance related issues in Bengal Pharma market are enlisted below:
a) .Increased competition and shortened window of opportunity. b). Low level of customer knowledge (Doctors, Retailers, Wholesalers). c). Poor customer acquisition, development and retention strategies d). Varying customer perception. e). The number and the quality of medical representatives d). Very high territory development costs. f). High training and re-training costs of sales personnel. g).. Very high attrition rate of the sales personnel. h). Busy doctors giving less time for sales calls. i). Poor territory knowledge in terms of business value at medical representative level. j). Unclear value of prescription from each doctor in the list of each sales person. k). Unknown value of revenue from each retailer in the territory l). virtually no mechanism of sales forecasting from field sales level, leading to huge deviations m). Absence of analysis on the amount of time invested on profitable and not-so profitable customers and lack of time-share planning towards developing customer base for future markets n). Manual and cumbersome administrative systems and processes designed which don't facilitate optimal efficiency levels in sales teams.
MEDICAL INFRASTRUCTURE
West Bengal has 2,081 hospitals including government, local, and those funded by voluntary organizations; 1,269 health centers including rural hospitals, block primary health centers and primary health centers and 10,356 sub-centers.
The state has better health indicators as compared to the national average.
Health indicators West Bengal All India Birth rate* 17.9 23.1 Death rate* 6.3 7.4 Infant mortality rate** 37.0 55.0
Life expectancy at birth (years) Male 67.4 63.7 Female 71.1 66.9
MEDICINE KITS FOR ANGAN WADI WORKERS (AWWS) In West Bengal, the PRI bodies and functionaries have been participating in local matters related to health and nutrition for a long time. This was mostly done at the GP level. Recently, the state has move done step ahead and given the existing Gram Unnayan Samitis (GUS) the additional role of Village Health & Sanitation (VH&S) Committee, a platform for inter- sectoral convergence under NRHM. Untied grants have been provided to 28,770 VH&S Committees @ Rs.10, 000/- per VH&S Committee. Members of the VH&S Committee/GUS are the ANM, AWW, Secretary/ Treasurers of local SHGs, ASHA (wherever available) and PRI members. The VH&S Committee is required to regularly collect, update, and use and maintains data relating to health and nutrition status of the population in its area.
PHARMACEUTICAL COMPANIES ENTERING RURAL MARKETS In the future, healthcare conditions in rural areas are going to improve, rural consumers will have more disposable income than they did in the past. The rationale behind this argument is that food, shelter and primary education are virtually free in rural areas, whereas a substantial chunk of income in urban areas is spent on these necessities. According to estimates of the planning commission, village dwellers have started spending 12% of their household income on healthcare. This has resulted in a spurt of Pharma companies targeting this market.
TOP BRANDS The following table gives the top leading brands in the two districts of Bengal- BURDWAN and BIRBHUM as tracked by survey. TABLE3 - TOP LEADING BRANDS CHRONIC SEGMENT BRAND NAME COMPANY NAME CARDIAC KORANDIL -5 SUN PHARMA CIPLA MODLIV TORRENT AMARYL AVENTIS TONIC TG LUPIN LIPICURE INTAS PHARMA CNS MAXITO SUN PHARMA VALPOL INTAS PHARMA CALM PLUS TORRENT ANTI- INFECTIVES REDIKET 200 DR. REDDY RESPIRATORY ASKALIN INHALER CIPLA DIABETES AZULIX 2 TORRENT TIOPODO GN TORRENT Source- own field studies
BRANDED GENERICS
Any non-patented molecule with brand name, which is other than the innovators name, is termed as a branded generic. In India, any non patented molecule with a brand name other than the innovators name is termed as a branded generic. Chemically, branded generics are identical, or bioequivalent to innovator drugs. It is the share of voice the brand commands by getting repeatedly prescribed by the physicians, due to some degree of recall and preference over the other brands. In the global context, substitution when an innovator product goes off- patent - is the key driver for generics. In India, its about driving a difference using the core equity of a brand, over a competitors product.
.
GENERIC GENERICS
Currently, the market share of generic generics is very low. We see two main hurdles to pure generalization of the Indian market:
1. Lack of generic generics regulations and guidelines for the establishment of bio- equivalence, for example the Abbreviated New Drug Application (ANDA) guidelines that exist in the U.S.
2. Doctor comfort derived from prescribing medications on the basis of brand name. A good example of a generic generics programme in India is the government run Jan Aushadi. This programme provides no-name generic drugs at subsidized prices in 24-hour pharmacies that are located all over the country.
THE GOVERNMENTS ROLE
1. Providing universal access to health including water, sanitation, nutrition, primary education, communication and employment are essential to balanced development. 2. Incentives for setting up hospitals anywhere in India, especially in tier II and tier III towns. 3. The NRHM 2005 - 2012 aims to provide effective healthcare to rural population throughout the country, especially in the 18 special focused states, which have weak public health indicators or weak infrastructure. 4. Further, the NRHM emphasizes on provision of a female health activist in each village, strengthening of rural hospitals for effective curative care and making this measurable and accountable to the community through Indian Public Health Standards (IPHS), integration of vertical Health & Family Welfare Programmes, optimal utilization of funds and infrastructure and strengthening the delivery of primary healthcare. It also targets to improve access of rural people, especially poor women and children, to equitable, affordable, accountable and effective primary healthcare.
PHARMACEUTICAL PRICING
The Department of Chemicals and Petrochemicals of the Ministry of Chemical and Fertilizer develops the pricing policy for the pharmaceutical industry .In India, the prices of some drugs are controlled through the Drug Price Control Order (DPCO) 1995.Price controlled drugs are divided into two categories, the first category includes drugs considered as essential and is subject to more stringent rules than those in the second category. Concessions exist for manufacturers who conduct in-house bulk drug research and development, and for new drugs introduced into India, Either by domestic or foreign firms.
CHANGING DISEASE PROFILE
The Indian population is experiencing a shift in disease profiles .Traditionally, the acute disease segment held a significant share of the Indian pharmaceutical market. This segment will continue to grow at a steady rate, due to issues relating to public hygiene and sanitation. But, with increase in income, rise in life expectancy and the onset of lifestyle related conditions, the disease profile is gradually shifting towards a growth in the chronic diseases segment. India has the largest pool of diabetic patients in the world, with more than 41 million people suffering from the disease; this is projected to reach 73.5 million in 2025.
IMS Health indicates that some of the fastest growing therapeutic segments in the Indian Pharma space today are chronic disease-related therapeutic segments. The anti-diabetic segment grew 29% in the 12 months ending July 2010. Cardiovascular medication and nervous system disorder medication grew at 22% for the same period of time, indicating rapid growth.
The growing size of the Indian geriatric population will be a key factor in influencing the growth of the chronic segment. By 2028, an estimated 199 million Indians will be age 60 or older, up from about 91 million in 2008.
Along with chronic, in the last year there has been a rebound in sales in the acute diseases segment. This trend is likely to continue over the next few years, as we see companies widening their reach into newer markets, which have a relatively higher number of treatment naive patients requiring basic treatment, thus, creating new demand for drugs of the acute therapies segment.
TABLE4- GROWTH IN THERAPETIC AREAS
Growth in Therapeutic Areas
Acute
Anti - infe ctiv e
Respi ratory
Pain /anal ygen ics
Gastrointestin al
Vitamins/Min er/Nutrients
Chroni c
Cardia c
C N S
Anti- Diabet es
Gy nec olo gy
Derm atolo gy
13 31 29 21 24 21 19 41 43 44 7 2
PIE CHART1- GROWTH IN THERAPETIC AREAS
THERAPEUTIC SEGMENT
West Bengal does extend several bulk drugs and formulation products standing on available technology strength. However, product mix of any pharmaceutical unit should adequately be spread across therapeutic segments for growth and to provide a protection net that needs to concentrate currently on individual concerns in West Bengal.
Major India centric therapeutic segments include anti-diabetics, cardiovascular medicines, anti- infective, anti-cancer and anti-HIV medicines and anti-inflammatory groups.
West Bengal is currently in a position to provide a contract manufacturing hub in synthetic as well as formulation areas particularly in specific therapeutic segments like anti-cancer, anxiolytics, cardiovascular, gastrointestinal and anti-infective. Skilled manpower is the basic input and that is a plenty in West Bengal.
It is very much evident from above above that chronic therapy area (Gastro, Cardiac, Respiratory, Neuro Psychiatry and Ant diabetics) is dominating the market in long run.
STRATEGIES
Whats the secret behind these successes? For one, the company operates in niche formulations (chronic) segments such as psychiatry, cardiovascular, gastroentology and neurology. While most of the top Indian companies have focused on antibiotics and anti infective (acute), Sun Pharma focused on therapeutic areas such as depression, hypertension and cancer. The company has introduced the entire range of products and has gained leadership position in each of these areas. Being a specialty company insulates Sun Pharma from the industry growth. The first quarter results for FY02 explain this to some extent. While the industry was affected to a large extent by a slowdown in the domestic formulations market, Sun Pharma logged a growth of 26% in revenues. Over the years Sun has also used the strategy of acquisitions and mergers to grow quickly. The current shift in the marketing strategy is work by multinational pharmaceutical Companies .It is now high-end (rather than adaptive) development that is being carried out by leading companies. And, increasingly, other companies are finding themselves competing against, or working with, new innovation-based companies. There are changes in the marketing strategies adopted by a Pharma company when it shifts from acute base to chronic therapy base.
NEW PRODUCT DEVELOPMENT
The pharmaceutical industry is a knowledge driven industry and is heavily dependent on Research and Development for new products and growth. However, basic research (discovering new molecules) is a time consuming and expensive process and is thus, dominated by large global multinationals.
DISTRICT PROFILE
DEMOGRAPHICS OF THE TWO DISTRICTS
In 1901, Birbhum had a population of 902,280, which by 1981 rose to 2,095,829. According to the 2011 census data, the total population has further risen to 35, 02,387. And in Burdwan the total population according to 2011 census was 77, 23,663. TABLE6- POPULATION DISTRIBUTION District Population 2011 Total Male
Hindus form around 65% of the population according to 2001 census. Muslims are about 33% of the population. There is a sprinkling of other religious groups in the population. According to the 2001 census, 29.5% of the population belongs to the scheduled castes and 6.7% to the scheduled tribes. Other than the speaking the local dialect of Bengali, there are tribal Santhals and ten other tribal communities in Birbhum with some presence, amongst whom Koda, Mahali and Oraons are more common. According to the 2011 census Birbhum district has a population of 3,502,387, roughly equal to the nation of Lithuaniaor the US state of Connecticut. This gives it a ranking of 84th in India (out of a total of 640). The district has a population density of 771 inhabitants per square kilometer (2,000 /sq mi). Its population growth rate over the decade 2001-2011 was 16.15 %.Birbhum has a sex ratio of 956females for every 1000 males, and a literacy rate of 70.9 %.
Birbhum, Total, 3502387 Birbhum, Male, 1791017 Birbhum, Female, 1711370 Barddhaman , Total, 7723663 Barddhaman , Male, 3975356 Barddhaman , Female, 3748307 Birbhum Barddhaman HEALTH INFRASTRUCTURE IN BARDHWAN DISTRICT
The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$ 12.6 billion in 2009. This was stated in a report title "India Pharma 2020: Propelling access and acceptance, realizing true potential" by McKinsey & Company. In the same report, it was also mentioned that in an aggressive growth scenario, the Pharma market has the further potential to reach US$ 70 billion by 2020.
Due to increase in the population of high income group, there is likelihood that they will open a potential US$ 8 billion market for multinational companies selling costly drugs by 2015. This was estimated in a report by Ernst & Young. The domestic Pharma market is estimated to touch US$ 20 billion by 2015. The healthcare market in India to reach US$ 31.59 billion by 2020. The sale of all types of pharmaceutical drugs and medicines in the country stands at US$ 9.61 billion, which is expected to reach around US$ 19.22 billion by 2012. Thus India would really become a lucrative destination for clinical trials for global giants.
There was another report by RNCOS titled "Booming Pharma Sector in India" in which it was projected that the pharmaceutical formulations industry is expected to prosper in the same manner as the pharmaceutical industry. The domestic formulations market will grow at an annual rate of around 17% in 2010-11, owing to increasing middle class population and rapid urbanization.
In the future, healthcare conditions in rural areas are going to improve, rural consumers will have more disposable income than they did in the past. The rationale behind this argument is that Food, shelter and primary education are virtually free in rural areas, whereas a substantial chunk of income in urban areas is spent on these necessities. According to estimates of the planning commission, village dwellers have started spending 12% of their household income on healthcare. This has resulted in a spurt of Pharma companies targeting this market.
DATA ANALYSIS
ANALYSIS -1
GROWTH RATE 1) Factor Analysis The initial set of independent variables behind growth rate is as follows: Price Change FFE NPI Avg. Inventory Credit Period Expanding Coverage MTO No of Chemists Strategic focus of companies New product launch Brand building Field force expansion New divisions Others Strategies by MNCs Increase in product introduction Increase in field force Building relations
Now, taking these 10 variables, we have tested the correlation matrix to check the correlations existing among each of these variables. However, the rank scores of the component (ix) and (x) are not lending any value in its functional relation with the growth rate. (Table 1)
Therefore, finally correlation matrix is again obtained taking only the following variables (independent) to analyze their impact on Growth Rate. Price change Field force expansion New product introduction Average inventory Credit period Expansion coverage Monthly turnover No. of chemists
These variables are expected to have considerable amount of inter correlation among a few of them. To test this, we have used factor analysis to identify the key variables.
(Table 2) 2) KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .535 Bartlett's Test of Sphericity Approx. Chi-Square 64.810 Df 28 Sig. .000
Here we obtained KMO value as 0.535. Although, the desirable value is anything more than 0.7. KMO is the sampling adequacy measure/test. We have got a low KMO because the number of samples that we have taken is just 60 which is not sufficient in relation to the no. of variables considered. However, KMO of 0.535 is a acceptable too the context that the paper can be extended as a preliminary research to broadly identify the functional relation between the chosen variables.
(Table 3) 3) Total Variance Explained Componen t Initial Eigenvalues Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings Total % of Varianc e Cumulative % Total % of Varianc e Cumulative % Total % of Varianc e Cumulative % 1 1.99 9 24.990 24.990 1.999 24.990 24.990 1.723 21.542 21.542 2 1.55 9 19.485 44.474 1.559 19.485 44.474 1.690 21.123 42.666 3 1.19 3 14.916 59.391 1.193 14.916 59.391 1.338 16.725 59.391 4 .974 12.172 71.563 5 .818 10.219 81.782 6 .647 8.090 89.872 7 .447 5.589 95.461 8 .363 4.539 100.000 Extraction Method: Principal Component Analysis.
On analyzing the Total Variance Explained, we have found that 8 variables can be factorized in 3 components only that have a cumulative explanatory power of 59.39% and individually contributing 24.990 %, 19.485% and 14.916% respectively. (Table 4) Rotated Component Matrix a
Component 1 2 3 PChange .091 .862 .067 FFE .561 .405 .154 NPI .860 -.125 .111 AvgInv -.002 .857 .041 CrPrd .277 .146 .174 ExpCov .763 .007 -.364 MTO .014 .100 .708 Chemists .052 .006 .794 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 4 iterations.
Here, the components to be selected with highest Eigen Value. Following is the summary of the three component elements:- New product introduction Price change Chemist Field force expansion Price change Monthly turnover New product introduction Average inventory No. of chemists Credit period Expansion coverage
We have picked up one representative independent variable from every component, New product introduction Price change No. of chemists
Therefore, New product introduction + Price change + No. of chemists => Growth Rate. We have taken the variable for every factor which has the highest Eigen value among all elements. That way, New product introduction represents factor 1 (New product introduction), Price change represents factor 2 (price change) and No. of chemists represents factor 3 (chemists)
The mean growth rate = 1.4167 Mean Price Change = 1.3833 Mean FFE (field force expansion) = 6.5583 Avg. Inventory = 2.0667 Avg. Cr. Period = 1.7667 Our objective is to regress the three identified factors on the overall growth rate.
Question being: - Do new product introduction, field force expansion, credit period and expansion coverage have any impact on the growth? Do extent of price change and average inventory have any impact on growth? Do monthly turnover and no. of chemists have any impact on growth?
We have assumed a linear causal-relationship between these independent variables with the growth. We have regressed these three variables only on growth rate without losing much generality. The regression equation we are looking for is of the form: Growth rate = ^ b 0 + ^b 1 NPI + ^b 2 PC + ^b 3 NC where, ^ b 0 , ^b 1 , ^b 2 and ^b 3 are the estimated coefficients for the true coefficients. The underlying hypothesis that we are testing here are: H 1 0 : New Product Introduction does not have any impact on growth H 1 1 : New Product Introduction does have any impact on growth H 2 0 : Price Change does not have any impact on growth H 2 1 : Price Change does have any impact on growth H 3 0 : No. of Chemists does not have any impact on growth H 3 1 : No. of Chemists does have any impact on growth
(Table 6) Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 .666 a .444 .369 .51267 a. Predictors: (Constant), MTO, CrPrd, FFE, ExpCov, AvgInv, NPI, PChange
R. Sq = 0.667 R 2 = 0.455 (it means the overall explanatory power of all independent variables taken together on the chosen dependent variable in the regression, however the preferable thumb rule is > 0.5) Adjusted R 2 = 0.358 means 35.8% of total variation in the growth is explained by chosen independent variable. Adjusted R 2 is a measures against degree of freedom.
Degrees of freedom, No. of observation No. of conditions 59 8 = 51
Therefore Regression Equation, y = b 0 + b 1 NPI + b 2 PC + b 3 No. of chemists = 0.275 0.096 NPI + 0.446 PC + 0.000 x No. of chemists = 0.275 0.096 NPI + 0.446 PC + 0 If we tend to reject null hypothesis regression we tend to accept with respective level of significance that the corresponding independent variable has a significant impact on the growth.
Refer to the results of Regression analysis (Table 5 of Annexure): The regressed equation obtained: y = 0.275 0.096 NPI + 0.446 PE + 0.0000 No. of chemists The R 2 (Table 6 of Annexure) = 0.445. This means that 44.5% of the total variation in y (growth) is being explained by the three chosen variable. This R 2 is moderately acceptable. The adjusted R 2 (being 0.358) is being affected by the degree of freedom by a considerable regression.
(Table 7) ANOVA b
Model Sum of Squares df Mean Square F Sig. 1 Regression 10.945 8 1.368 5.116 .000 a
Residual 13.638 51 .267 Total 24.583 59 a. Predictors: (Constant), Chemists, AvgInv, NPI, CrPrd, MTO, FFE, ExpCov, Pchange b. Dependent Variable: GrtRt
Degree of Freedom = No. of observations No. of conditions = 59-8 = 51 Here the degree of freedom is 51. (Table 8) Coefficients a
Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) .822 .263 3.125 .003 Pchange .617 .120 .559 5.126 .000 NPI -.077 .051 -.165 -1.511 .137 Noofchemists 2.604E-5 .000 .007 .061 .951 a. Dependent Variable: GrowthRate From the above table, Price Change The t-value of Price Change = 5.126, where t = test statistic (= estimate of co-efficient/standard error of estimate). The underlying hypothesis: H 0 : b 1 = 0 Price change does not have any impact on growth. H 1 : b 1 0 Price change has an impact on growth. The regression results show (Table 5 of Annexure) that the P value for the estimated coefficient for the price change variable is 0.000 and therefore the null hypothesis can be rejected at substantially low levels of significance. The null hypothesis is rejected at even more than 99% confidence. Therefore, we may conclude that this independent variable has a significant impact on the dependent variable. Precisely, the rate at which price keeps on varying in a location in the market the growth rate of the sector is significantly high in that area. The positivity of the estimated coefficient for the variable implies that proportional relationship between the said variables. The marginal impact of any change in the price level would also lead to about 0.6 units variation in the rate of growth. New Product Introduction The t-value of NPI = -1.511, where t = test statistic (= estimate of co-efficient/standard error of estimate). The underlying hypothesis: H 0 : b 2 = 0 NPI does not have any impact on growth. H 1 : b 2 0 NPI has an impact on growth. The regression results show (Table 5 of Annexure) that the P value for the estimated coefficient for the price change variable is 0.137 and therefore the null hypothesis can be rejected at only 13.7 % levels of significance. Therefore, the null hypothesis accepted at 5% level of significance. Therefore, we may conclude that this independent variable does not have any significant impact on the dependent variable. This means that the market growth rate is independent of the rate at which new products are being introduced across markets. No. of chemists The t-value of no. of chemists = 0.061, where t = test statistic equal to (estimate of co- efficient/standard error of estimate). The underlying hypothesis: H 0 : b 3 = 0 No. of chemists under a distributor point does not have any impact on growth. H 1 : b 3 0 No. of chemists under a distributor point has an impact on growth. The p-value of No. of chemists is 0.951. This independent variable has no impact on the rate of growth of the market altogether. The estimated co-efficient of 0 is also suggestive of the fact that there is almost no marginal variation of growth due to any variation in the value of the number of chemists operating in any location in the market. In summary, the regression analysis lends us evidence that only variables that are factor 2 constituents (i.e. Price change and Average Inventory) have significant impact on the market growth rate. That means, out of all 10 variables that we had incorporated as probable independent variables for the market growth in any location only the rate of price change and the average inventory at the distributor point have real and significant impact on the growth rate of the market. Moreover, they have a proportional relationship with the growth. This means that the more the price change, and the more the average inventory maintained at the distributor point the greater is the growth of the corresponding market. This also is supported by the general experience and common sense that in the markets where there is extreme price competition on an average the growth and dynamics of the market will be more profound. On the other hand, greater mobility and flow of inventory is also indicative of the fact that the market is dynamic for those products and brands and hence the underlying market is also highly dynamic. Therefore, chances are also high that those markets will experience a greater growth. At least, this is what is also suggested by the abovementioned data analysis with factor and regression analysis with the primary cross-sectional data for 2012 February among the distributors in Birbhum and Bardwan districts of West Bengal. Whether these results are generalisable for rest of the country is subject to further research with other areas and with greater sample sizes.
ANALYSIS 2 Average Inventory vs Credit Period (Table 9) Descriptive Statistics Mean Std. Deviation N AvgInv 2.0667 .75614 60 CreditPrd 1.7966 .44643 59
Mean of Average Inventory = 2.0667 (i.e. more than 15 days but less than 30, approx 17) Mean of Credit Period = 1.7966 (approx 21 days since the value is very close to 2, which in turn represents the second set 15-30)
(Table 10) Correlations AvgInv CreditPrd AvgInv Pearson Correlation 1 .193 Sig. (2-tailed) .143 N 60 59 CreditPrd Pearson Correlation .193 1 Sig. (2-tailed) .143 N 59 59
ANALYSIS 3 NPI vs Expansion Coverage As we had seen in Annexure 1 factor analysis that FFE, NPI, Credit Period and Expanding coverage fall in the same factor, we may conclude that all these variables are inter-correlated. This calls for another factor analysis with these factors only. The following are the summary of the factor analysis with these four variables.
This shows that only NPI is considerably correlated with expanding coverage.
Therefore, finally correlation matrix is again obtained taking only the following variables (independent) Field force expansion New product introduction Credit period Expansion coverage These variables are expected to have considerable amount of inter correlation among a few of them. To test this, we have used factor analysis to identify the key variables.
(Table 12) KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .506 Bartlett's Test of Sphericity Approx. Chi-Square 18.945 df 6 Sig. .004
Here we obtained KMO value as 0.506. Although, the desirable value is anything more than 0.7. KMO is the sampling adequacy measure/test. We have got a low KMO because the number of samples that we have taken is just 60 which is not sufficient in relation to the no. of variables considered. However, KMO of 0.506 is a acceptable too the context that the paper can be extended as a preliminary research to broadly identify the functional relation between the chosen variables.
(Table 13) Rotated Component Matrix a
Component 1 2 FFE -.144 .838 NPI .851 .158 CreditP .264 .580 ExpCov .849 -.042 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 3 iterations.
This suggests that factor 1 consists of NPI and Exp Coverage and factor 2 contains FFE and Credit period. However, the correlation matrix suggests the correlation between FFE and Credit period is very much negligible. Therefore, we may conclude that there is perhaps some significance in the correlation between NPI and expanding coverage. This calls for a regression of NPI on expanding coverage. The following are the summary of the regression between these two variables:
Linear Regression Analysis Dependant Variables New product introduction
(Table 14) Descriptive Statistics Mean Std. Deviation N NPI 3.4500 1.38301 60 ExpCov 2.9500 1.50056 60
The mean NPI = 3.450 Mean Expansion Coverage = 2.950
Our objective is to regress the identified factors. The regression equation we are looking for is of the form: Growth rate = ^ b 0 + ^b 1 NPI + ^b 2 ExpCov where, ^ b 0 , ^b 1 and ^b 2 are the estimated coefficients for the true coefficients.
The underlying hypothesis that we are testing here are: H 1 0 : New Product Introduction does not have any impact on expansion coverage. H 1 1 : New Product Introduction does have any impact on expansion coverage
(Table 16) Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate Change Statistics R Square Change F Change df1 df2 Sig. F Change 1 .485 a .235 .222 1.22006 .235 17.812 1 58 .000 a. Predictors: (Constant), ExpCov R = 0.485 R 2 = 0.235 (it means the overall explanatory power of all independent variables taken together on the chosen dependent variable in the regression, however the preferable thumb rule is > 0.5) Adjusted R 2 = 0.222 means 22.2% of total variation in the growth is explained by chosen independent variable. Adjusted R 2 is a measure against degree of freedom.
Degrees of freedom, No. of observation No. of conditions 60 2 = 58
(Table 17) Coefficients a
Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 2.132 .350 6.096 .000 ExpCov .447 .106 .485 4.220 .000 a. Dependent Variable: NPI
Therefore Regression Equation, y = b 0 + b 1 Expansion Coverage = 2.132 + 0.447 Expansion Coverage Here the P value is 0.000. This means that the null hypothesis can be rejected at a very low level of significance (even below 99% level of confidence). Therefore, the coverage expansion can be taken as a significant determinant behind NPI. The implication is, faster the rate at which the coverage is expanding faster will be the rate at which the new products are being introduced.
(Table 18) ANOVA b
Model Sum of Squares df Mean Square F Sig. 1 Regression 26.514 1 26.514 17.812 .000 a
Residual 86.336 58 1.489 Total 112.850 59 a. Predictors: (Constant), ExpCov b. Dependent Variable: NPI
The regression results also suggest that coverage expansion by a market has significant impact on the new product introduction in the market. (The P value being 0.000). This again is quite legitimate because as the market expands the companies tend to launch newer products..
RESULTS AND FINDINGS (ON THE BASIS OF FIELD SURVEY) The main factors that drives the growth rate are: Price Change Field Force Expansion Doctors Prescriptions as it is a pull (branded) market.
Stiff Competition has forced companies to change their marketing strategies. At present, most of the companies operating in the rural market are following market penetration as their strategy. As a result, the present role of the semi-distributors or sub-distributors are diminishing day by day and may gradually end up into loosing their existence from the distribution model. Another reason is - companies are establishing new divisions to reach out to the rural dispensing points and also the chemists are directly approaching to the stockists because of the reduction in proximity between the two. No new MNCs are coming; rather the existing companies are penetrating in to the interior of the rural markets by expanding their field forces. We have observed a lack of availability of Shelf-Space and new products are not welcomed by most of the distributors by and large. The Top CLASS companies in the two districts are: Sun Pharma Mankind Torrent Cipla Intas Pharma GSK Dr. Reddys The average change in price of the pharma products is around 10% (approximately), including the reduction in prices. The average Credit Period enjoyed by the distributors is 21days, however, distributors need to purchase products from few companies against advance cash payment or PDCs or DDs. The average inventory period is 15-30days The major challenges faced by the distributors are: Unorganized distribution channels Doctors Prescription dependant market High capital requirement and security Competitive pricing Lack of incentives for promotion by the pharma companies Field force attrition rate approximately 2%. Upcoming product, Ranbaxy introducing a Malaria Drug named SYNRIAM, for the first time in India which will be launched in the first week of March 2012. New pharma companies coming in Besins HealthCare (from Belgium) Boehringer Ingelheim (from Germany) Sundyota (Ahmedabad) Movements of Vitamins/Minerals/Nutrients products are seasonal in nature High Price competition faced by the branded products from the generics because of their low prices. High demand for Credit facilities from the retailers leads to high risk on the part of the distributors or the stockists. Lack of basic health infrastructure and the mass of the population are laborers. Significant decrease in price of products in the anti-biotic segment. High inventory and distribution costs on interviewing a MR of Intas Pharma Public Health Centre Sattore (Birbhum) Only two(2) MBBS doctors No equipments in the Operation Theatre expecting the ones needed for stitching of cuts and wounds. 8 beds but none of them are sanctioned by the Govt. of WB and hence unauthorized. Motor-driven ambulance Matrijan is available only for maternity cases, on demand. The following cases are dealt in the PHC are: First-aid cases Diarrhea and Flu are treated. No assistant Nursing Staffs are available expecting one NS. The ASHA project is in work. The patients come to the PHCs by hired cars, vans, buses, etc. Various NGOs conduct health check-up camps and one of NGO organized eye-check up camp was witnessed and participated by us. The Mid-day meal program is in operation. Participated in the Anganwadi programs and Santhali Language School.
(ON THE BASIS OF STATISTICAL ANALYSIS) 1 st Analysis Growth Rate The initial independent variables that are taken for analyzing the growth rate- Price change Field force expansion New product introduction Average inventory Credit period Expanding coverage Monthly turnover No of chemists Taking these 8 variables we have tested the correlation matrix to check the correlations existing among each of these variables, we have found On analyzing the Total Variance Explained, we have found that 8 variables can be factorized in 3 components only that has a cumulative explanatory power of 59.39% and individually contributing 24.990 %, 19.485% and 14.916% respectively.
New product introduction Price change Chemist Field force expansion Price change Monthly turnover New product introduction Average inventory No. of chemists Credit period Expansion coverage
From the descriptive statistics table, we have found the following - The mean growth rate = 1.4167 = 12-14% (on the basis of questionnaire) Mean Price Change = 1.3833 = 5-8% (on the basis of questionnaire) Avg. Inventory = 2.0667 = 15-17 days (on the basis of questionnaire) Avg. Cr. Period = 1.7667 = 20-24 days (on the basis of questionnaire)
Therefore through regression analysis The Equation stands, y = b 0 + b 1 NPI + b 2 PC + b 3 No. of chemists = 0.275 0.096 NPI + 0.446 PC + 0 Which means no. of chemists doesnt have any impact on the growth rate and new product introduction has got an inverse impact on the growth rate. Hence, price change is the only positive factor that drives the growth rate. 2 nd Analysis Average Inventory vs Credit Period No significance correlation exists between Average inventory and credit period. 3 rd Analysis NPI vs Expansion Coverage FFE, NPI, Credit Period and Expanding coverage are inter-correlated. NPI is considerably correlated with expanding coverage Field force expansion, New product introduction, Credit period, Expansion coverage have considerable amount of inter correlation The correlation matrix suggests the correlation between FFE and Credit period is very much negligible. There is a significance relation between NPI and expanding coverage. From the linear regression analysis, the dependent variable is New product introduction and in-dependent variable is expanding coverage. Growth rate = ^ b 0 + ^b 1 NPI + ^b 2 ExpCov where, ^ b 0 , ^b 1 and ^b 2 are the estimated coefficients for the true coefficients. Therefore Regression Equation, y = b 0 + b 1 Expansion Coverage = 2.132 + 0.447 Expansion Coverage The regression results also suggest that coverage expansion by a market has significant impact on the new product introduction in the market. (The P value being 0.000). This again is quite legitimate because as the market expands the companies tend to launch newer products.
CONCLUSION 1. The competition between the mass and class companies have forced these companies to change their marketing strategies in the rural market. At present, the CLASS companies are following market penetration strategy in the development their brand. As a result, the present role of the semi-distributors or sub-distributors is diminishing day by day and may gradually end up into loosing their existence from the distribution model.
2. Another reason is - companies are establishing new divisions to reach out to the rural market. Some companies like INd Swift have opened their own distribution center.
3. Few MNCs are coming; rather the existing companies are penetrating in to the interior of the rural markets by expanding their field forces. However no statistical relation could be derived between new product introduction and coverage area and therefore there exists a negative correlation between them.
4. We have observed a lack interest in the distributors in proving shelf space for new product and new companies this is reflected in data analysis as negative correlation existing between shelf space availability and brand building.
5. We can easily distinguished between Class and Mass companies in these two region Birbhum and Bardhman, some of the class companies identified are Sun Pharma, Ranbaxy, Mankind, Torrent, Cipla, Intas Pharma, GSK, Dr Reddys.
6. Inferring from the descriptive statistic table, the average change in price of the Pharma product, average inventory period, credit period, is approx 10%, including the reductions in price, 15-30 days, and 21 days respectively.
7. The common challenges faced by the distributors in these two regions for ensuring better penetration of the various are:
a) Unorganized distribution channels b) Doctors Prescription dependant market c) High capital requirement and security d) Competitive pricing e) Lack of incentives for promotion by the Pharma companies. f) High Price competition faced by the branded products from the generics because of their low prices. g) High demand of Credit facilities from the retailers leads to high risk on the part of the distributors or the stockists.
8. Field force attrition rate approximately 2%.
9. As noticed in our field survey SYNRIAMof Ranbaxy is the new product for anti-malaria
11. The products in the Therapeutic Area of Vitamins/Minerals/Nutrients are not attracting demand hence the movement of such products is slower as compared to the products in other therapeutic areas.
12. Poor medical infrastructural facilities and low standard of treatments.
13. While interviewing a MR of Intas Pharma one of the major threats faced by the Pharma companies are high investment in inventories and higher distribution cost that includes various incentives and bonuses and gift are provided to the distributors, qualified Doctors, and non qualified medical practionier,Registered medical practioner,Health worker, Assitant health worker. This pressure created by mass companies through Push strategy.
14. On visiting a Public Health Centre at Sattore Village in Birbhum district, we have interviewed that Nursing Stuff there and came to know that there are only 2 MBBS doctors and only one Nursing Stuff. There is an OT but no equipments to conduct a surgery other than stitching cuts and wounds. Total number of beds available is 8 but unfortunately none of them are sanctioned by the health authority. The general modes of transportation for patients, no matter how serious their illness is, are hired cars or vans or buses. However, we have seen and have been informed by the local people that a motor-driven ambulance is available, Matrijan but meant only for maternity patients. In this PHC, only cases like, first-aid for accidents, flu and diarrhea are dealt with. The sub-health post is opened only twice/thrice in a week.
15. The NRHM services are available in all the villages we visited. Even on Sundays the members of Anganwadi were available in Debogram during our visit. 16. NGOs actively take part in improving the rural health care facilities by conducting various health check-up and awareness camps.
17. The Government is also actively conducting the Mid-Day meal program, Santhali Language teaching program and the Anganwadi programs.
18. From the statistical analysis for Growth Rate, it can be inferred that out of all 8 independent variable factors taken, only Price Change has got positive significance effect on the Growth Rate as seen from the regression equation.
19. On analysis the correlation matrix between Average Inventory and Credit Period, we have seen that none of them are correlated to each other statistically, however, from the field survey we have learned that both these two variables are correlated to each other.
20. In our third analysis, we tried to establish a relation between FFE, NPI, Credit Period, and Expanding Coverage and finally seen that there is a significant relation between NPI and expanding coverage, which is supported by the regression analysis in the results and findings.
RECOMMENDATIONS 1. Low cost Market penetration strategies through directly supplying to the stockist without semi distributor. This will eliminate middle men and reduce distribution cost.
2. Direct Market penetration strategies through own distribution point in the interiors.
3. To reduce attrition rate, field force retention strategies such as proper salary, travelling allowances, dearness allowances. , training and regular sales promotion inputs to be given. ( higher attrition in field force possess risk to current growth)
4. Focus on brand building strategies with special emphasis on creation of prescription from qualified doctors.
5. To increase rural visibility companies should participate and organize various health check up and awareness camps jointly with the govt. institutions such as PSC , health centers , sub health centers and NGOs
6. Company must focus on new product development and price for growth in the rural market.
7. Development of awareness for medical insurance and medical infrastructure.
8. Mass therapies will remain important but growth will take place in severe chronic diseases such as coronary heart disease, diabetes, respiratory and cancer. (chronic therapies leading growth
9. Rural and Tier II market will register high growth but Tier I will remain important.
10. Defragmentation of the distribution channel.
11. Percentage of market share will be in the hands of CLASS companies.
12. Government should take appropriate measures to reduce cost and improve health care access.
13. New product development will have a negative impact on growth as understood from the statistics.
14. Companies to adopt localized approach to build market presence.
15. Oncology and nephrology will be the new growth avenues within chronic.
16. More active competition in chronic segment will result in high investment.
17. Dynamics of semi- urban and rural market vary from metros and tier I market.
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DIAGRAMS-
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Source : "The next 4 Billion - Market Size & Business Strategy at the base of the pyramid''-By World Resource Institute, International Finance Corporation, IFMR-CDF Analysis Source- own field studies Source-Primary Interviews,Express Pharma Pulse,Deloitte Consultancy LLP Analysis