Forecasting - the Asian Way

Forecasting - the Asian Way

It's that time of year again where HQ demand to know the strategy and forecast for next year. It's always a time of trepidation, what's the level of risk we should take and also excitement, clearing the slate for 2011 and starting with a re-vitalised focus and energy for the New Year. It's a process which gives the drive to what we are trying to achieve.

I was finalising our European strategy en route to Shanghai for the first Ephmra conference in Aisa, pondering the balance between my estimates for the growth in the market place versus what's achievable with our strategy.

Ephmra is the industry organisation for pharmaceutical market research, and had decided this year to reach out for an inaugural conference to cover local and regional issues in the pharmaceutical market in Asia. Everyone talks about China as the growth engine of the future, it's where companies are investing and is a critical market to understand in any global strategy. The conference had almost 200 attendees from the top pharmaceutical companies and research agencies in Asia, and offered two days of networking and debate on issues in the region - it was a place I needed to be.

The conference opened with key note speeches from both a research agency and client perspective. The consistency between the two papers was extraordinary - they could have written their speeches together. The focus was on growth and growing pains. China is a market where year on year growth of 20% has been happening for the past decade or more. This is a phenomenal rate of growth which shows no sign of abating.

It's not just a growth rate which one company is experiencing, everyone is experiencing it. Put that market growth rate into the context of forecasting for 2012; if the market is known to be growing at 20%, offering HQ anything less than a 20% growth target for 2012 will mean failure, and I am sure the pressure would be on to outgrow the market, say to 30%.

In a European context 20 - 30% growth would be ambitious, maybe foolhardy. It could be something we could aim for in a truly exceptional year, but year after year after year? The pressure would be unbelievable. Think about this from a P&L perspective; to manage this type of growth requires a large and steady influx of staff to cover the increased workload - either that or you are consigning your teams to slavery. I'd always considered China a market where there is a large number of people, presumably ready to fill such roles. What I learnt at the conference proved me wrong. In a typical Chinese research agency, a churn rate of 30% of staff is not uncommon - what this means is that every 3 to 4 years everyone in the agency is new! China is the land of opportunity, particularly in terms of jobs - there is a huge shortage of stable skilled labour in the industry, both agency and client side. If you are having a bad day, or don't like your working conditions, there are plenty of people out there willing to improve them and pay you much more.

It is also the case that around 40% of positions in the research division of pharmaceutical companies are vacant. It's not possible to commission work, if there is no-one there to commission it. This caps the growth achievable in the research industry. What tends to happen is that the pharma co take people from the agency side to make sure the work can be commissioned, and then leave the agency with no-one who can execute on the work.

To meet the growth needs and to account for this churn rate, the speakers estimated that there is a need to hire 50 to 100 new graduates every year in every major agency, train them up to work in the industry, but realise that less than 30% will make it through. This is tantamount to running your own university within a corporate environment. It's a very different business strategy, to invest in people, knowing they will leave and become the commissioning managers in client companies to ultimately benefit the agency who trained them - estimating the tangible ROI on this is very difficult, if not impossible. Even a HQ with a long term vision will struggle to support this level of investment.

Travelling back from Shanghai, I re-reviewed my forecast. It looks rather dull and unexciting in light of the Chinese market place. It seems in China, the challenge is about how you manage the future and the growth, which will happen year on year, it's about not getting left behind. It's a fast moving target. It's like being driven in a fast car - we need to get to the steering wheel, not be like Europe, almost broken down by the side of the road. It opened my eyes to many things, not least that I am sure I will be back in Asia soon.

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