Extra-Urban Evolution: The Vast Potential Outside India’s CitiesBy Mahesh Kalsekar and Mamata Kulkarni

With more than 5,000 small towns and some 638,000 villages, India’s vast extra-urban regions have long challenged a country eager to fortify its economy and elevate the standard of living for its 1.1 bil-lion people.

Widespread illiteracy has interfered with attempts to educate; a poor transportation infrastructure has historically impeded farmers in their efforts to get their produce to market; inadequate communications technologies have impaired efforts to get the news, including basic weather forecasts, in and out of the smaller towns. Healthcare, for many, has hung in the balance.

All of that is rapidly becoming history. Today India’s extra-urban regions boast a 65% literacy rate, a growing number of internet users (which already accounts for 39% of Internet users across India)1, a ris-ing network of connective roads, new in-novative communications channels, and new opportunities for those seeking a greater quality of life.

This modernization of rural India, which has accelerated over the last five years, has had a marked impact on the economy. According to the Rural Marketing As-sociation of India, the rural market now contributes more than half of Fast Mov-ing Consumer Goods (FMCG) and dura-bles sales in India and current projections from the Indian Brand Equity Foundation (IBEF) suggest that the rural consumer

market of the FMCG goods will reach US$425 billion in 2010-11.

Government programs aim to further boost rural economies with programs such as the National Rural Employment Guar-antee Act. The Union Budget for 2010-11 has hiked the allocation under the act to US$ 8.71 billion. This extraordinary allo-cation aims to guarantee one hundred days of wage-employment per year to adults in rural areas—greatly increasing income levels, consumer activity, and personal pur-chasing power.

The emergence of new healthcare needs in the rising rural sector

All signs point to a much stronger extra-urban economy and, with it, significant wealth creation. And, as with all strength-ening economies, there is a greater focus on health, as consumers, now equipped with more disposable income, have begun to demand the best available treatments.

The needs in extra-urban India, however, are different than those in the urban cent-ers. While specialty and oncology products gain ground in the urban Indian markets, rural India is in particular need of prod-ucts that offer treatments in the areas of infection, gynecology, hypertension, and diabetes. India is, in fact, considered the diabetes hub of the world, and valuable contributions to the population’s health can and must be made by those who can offer treatments in this area.

Today, some 1,500 brands have penetrated the rural market, crossing the US$200,000 threshold 2. At the moment, anti-infectives, gastrointestinal products, and respiratory and pain medications are the top-selling categories in rural India. Cough syrups such as Phensedyl and Corex are, for their part, the top-selling respiratory products, while Taxim (an anti-infective) is the third largest brand in the extra-urban market followed by Voveran, for pain manage-ment. While Indian companies such as Mankind, Aristo, Piramal healthcare, FDC,

and Alkem have traditionally been more aggressive in these geographies, recently a handful of multinational interests—No-vartis and Aventis among them—have started to design and test “extra-urban” strategies.

Nevertheless, urban areas remain the fo-cus of most multinational companies, leav-ing opportunities in extra-urban regions unfulfilled. While 60% of India’s pharma market is generated from urban markets 3, the modernizing rural sector comprising some 700 million ever-wealthier people repre-sents enormous opportunities for pharma-ceutical companies—especially at a time when the urban markets in India are experi-encing both saturation and fragmentation.

Consider this: Today India’s urban doctors are called upon by pharmaceutical compa-nies at least 10 times daily 4. Some 250,000 physicians work 5 in these urban areas of India. Per capita spend on medicine has lately reached approximately US$35 6. And though the top pharmaceutical companies are now unleashing an average of 2,000 sales reps on these metropolitan physi-cians7, the majority of medicines are more than ten years old. Even mature products, in India, are urban centric.

Contrast that to the nearly 400,000 doc-tors 8 of rural India who continue to work, for the most part, without the benefit of consultation with the sales representatives of pharmaceutical companies. There, in rural India, the per capita spend on medi-cine averages just US$2 9 per year and the large population does not typically benefit from such necessary agents as anti-infec-tives. For example, outpatient use of anti-infective medicines in urban India is 24 DID (defined daily dose per 1,000 inhab-itant per day) but as low as 3 DID 10 among the rural population. By comparison, out patient use of anti-infectives in most of the developed European countries is in the range of 18- 30 DID.

What We Know

IndIa Town Class defInITIons

Urb

anex

Tra-

Urb

an

Metro >= 1,000,000 people

Class I Town 100,000 – 999,999 people

Class II Town 50,000 – 99,999 people

Class III Town 20,000 – 49,999 people

Class IV Town 10,000 – 19,999 people

Class V Town 5,000 – 9,999 people

Class VI Town < 5,000 people

Village All unclassified settlements.

1 Summary Report ICube, 2006; 2 IMS Databases; 3 IMS Databases; 4 IMS Doctor Census; 5 IMS Competitive Benchmarking; 6 IMS Analysis; 7 IMS Analysis;8 IMS Research & Collective experience; 9 IMS Analysis; 10 IMS Analysis

With its vast size and demand base, rural India offers a huge opportunity to pharma-ceutical companies. And yet, reaching out to the rural population means overcom-ing a number of hurdles. Though patients can seek care at either the government-sponsored primary healthcare centers or through individual dispensing physicians (the latter chosen by some 75% of the peo-ple), poor diagnosis and disease awareness remains a critical issue, one compounded by residual illiteracy. Communications and transportation are also key challenges—not just for patients seeking access to care centers, but for pharmaceutical companies seeking to build effective sales models and product distribution systems.

Capitalizing on the rising rural sector in India means knowing where the consum-ers are located and where they go to be treated. It means knowing how far they will travel and by what means. It means tapping into technologies and systems that can reduce the travel distance for patients. It means recognizing that, while per capita expenditure in rural India is low, those

that effectively identify those geographies that have potential from among the 4,500 small towns and 600,000 villages can and will succeed—especially if they pay atten-tion to small-scale packaging solutions for which patients can pay for a day or two of therapy.

Those who persist—those who enter this market early—will benefit in a number of ways. For example:

• Companies stand to gain an early-mover advantage as the rural consumer is evolv-ing both as a patient and as a “healthcare consumer” intrigued by the concepts of preventive medicine, nutritional supple-ments, and the like.

• Companies have the opportunity to gain a sizeable market share from the currently prevailing local players who primarily op-erate by incentivizing chemists and dis-tributors to substitute doctors’ prescrip-tions or push over the counter medicines (a “trade push” strategy), rather than brand promotion.

• Those who enter these geographies early by using “doctor promotion” strategies will facilitate faster adoption of brands in clinics.

• Those who innovatively partner with some of the allied industries will be in a position to establish economies of scale for distribution/logistics.

The keys to success in these extra-urban geographies, of course, are to remain fo-cused on branded generics and to recog-nize all that must be done upfront to build disease awareness and to support higher rates of diagnosis. Those pharmaceutical companies that choose to tap the rural markets must be willing to stretch—to enter into dialogues with doctors, primary health centers, diagnostic facilities, NGOs, and health workers that ultimately elevate the healthcare conversation, and outcomes, across all of extra-urban India.

What We Think

For more than ten years, IMS Health has had a strong local presence in India-analysts and consultants who have effectively helped clients navigate this terrain and capitalize on growth opportunities.

Our clients turn to us for help in designing optimal portfolios-portfolios based on careful assessments of the extra-urban therapy markets as well as the client’s own portfolio.

We are, in addition, frequently commis-sioned to create in-depth evaluations of key expansion sites, assessing not just the demographics and infrastructure of pro-posed regions, but the healthcare and pharma potential associated with each one.

Once the most promising regions have been identified, we design optimal sales and distribution models that reflect our

knowledge of distribution models from other industries and a thorough under-standing of appropriate field force sizes. We take the next step by developing lists of opportunity therapies and molecules for the rural market as well lists of brands most ideal for extra-urban marketing.

Additionally, our clients rely on us to iden-tify potential extra-urban clusters in the nominated states and to make recommen-dations regarding the size and structure of the sales force.

Ultimately, we support our clients throughout the development and imple-mentation of a strategic plan that enhances the client’s competitive advantage in extra-urban markets. Supported by the appro-priate tools and resources, our clients gain functional synergies that maximize their

commercial opportunities in extra-urban markets.

To have a deeper discussion about how IMS Health can help you capitalize on the opportunities in India’s extra-urban regions, contact the authors of this paper.

Mahesh Kalsekar Principal, Commercial EffectivenessIMS Health India mkalsekar@in.imshealth.com

Mamata KulkarniSr. Consultant, Commercial EffectivenessIMS Health Indiamkulkarni@in.imshealth.com

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