Global 2.0: A lesson from Indian pharmacies

By Sarah Arnquist

MedPlus Pharmacies is arguably one of India's fastest growing health companies. Since its launch in 2006, the retail pharmacy chain has opened 500 stores in several Indian cities and serves roughly 25,000 customers daily.

In a space no larger than a walk-in closet tucked into neighborhoods, local MedPlus pharmacists dispense low-cost but guaranteed high quality medications and track customer orders with a sophisticated electronic record system.

In many respects, the MedPlus business model could not be more different than that of U.S. retail pharmacy chains. I spoke recently with Apu Gupta, MedPlus COO, who explained to me that the business' success is rooted in its uniquely Indian model developed by founder and CEO Dr. Madhukar Gangadi while he was a student at Penn's Wharton School of Business.

MedPlus' business model would likely not work outside India, and the Walgreens or CVS model would likely not work in India, Gupta said. This got me to thinking about a term I first heard last spring: Global 2.0.

William Amelio, CEO of Lenovo, which makes personal computers, wrote a column in Business Week this spring describing how multinational companies must move from "Global 1.0" framework to a "Global 2.0" mindset.

For some five decades, multinationals have been living in an era I call 'Global 1.0.' From this predominantly Western vantage point, many emerging markets are perceived as sitting at the map's outer edges. They're seen primarily as sources of cheap labor to mass-produce inexpensive consumer goods and, secondarily, as fertile markets for expansion and growth.

This Western-centric vantage point is not only outdated, but it overlooks the native ingenuity in emerging markets. Companies that cling to the old mindset are in for a rude awakening, Amelio says.

We've now entered the early stages of "Global 2.0," an era where the most successful companies will look for ideas and innovation anywhere to meet customer needs everywhere. Only the organizations that adopt a flexible "worldsourcing" approach to their business models will survive.

MedPlus is planning an IPO sometime next year. Without sounding too much like a commercial, here are some unique aspects of the business that make it different from retail pharmacy here.

India is home to tens of thousands of pharmaceutical manufacturing companies but also has the reputation as the hub of counterfeit drugs. Gangadi has built a brand based on the guarantee of quality, affordable medications. MedPlus works closely with manufacturers to 1) buy in bulk for discounts and 2) guarantee it receives authentic medications.

Also, Gangadi realized Indians aren't willing to go out of their way to buy medications. Hence, the model of market penetration with hundreds of small store fronts. This enables customers to walk only a short distance to their truly local, neighborhood pharmacy.

While serving clients who may only be able to buy a penny or two's worth of tablets at a time, MedPlus relies on a highly sophisticated computer system to maintain a small but robust inventory at each store. Each shop tailors its inventory to the preferences to the neighborhood, Gupta said. There's great variation within cities because Indian doctors prescribe by brand name and not generic drugs. Consumers are loyal to the doctors –- not the pharmacists –- so the pharmacy must stock what the area doctors prescribe most frequently.

MedPlus’ business model is based on volume. The typical customer’s purchase may be small –- literally two or three aspirin tablets at a time –- but each store has tens of thousands of customers. Volume is important because Indian law places a price ceiling on drugs, forbidding retailers from extracting a price premium. The ceiling is the manufacturer’s recommended price (MRP). MedPlus aims to sell at a discount by securing its own discounts from the manufacturers.

But there are growing pains associated with the rapid expansion of two shops per day, Gupta said. Personnel issues top the list. The booming Indian economy has made it difficult to recruit and retain qualified workers, particularly at the managerial level.

“The economy is on fire and people are in huge demand,” he said. “There’s a big gap between the desired skilled labor in India and the availability of skilled labor.”

The government price control's are also more than a nuisance. Business must deal with the inflation that has impacted nearly aspect of doing business, namely real estate prices.

Finally, the government forbids multibrand retailers, such as MedPlus, from receiving foreign investment. The expanding company must raise capital within India. This law has made it very difficult for Wal-Mart and other global conglomerates from entering the Indian market.

Are there any lessons U.S. companies can learn from MedPlus, I asked Gupta. MedPlus began offering physician services in its shops. It doesn't charge the doctors to use the location or take a cut of the physician's fee. The assumption is the service will create brand loyalty. MedPlus believes people will benefit and take advantage of the ability to seek primary care services quickly, cheaply and nearby. Americans, Gupta said, likely would appreciate a simiar convenience.