McKinsey-Report-Sample

|McKinsey&Company2ChinaOTCmarketisexpectedtobecomethe2ndlargestintheworldby20101China’sOTCmarketofTraditionalChineseMedicine(TCM)isbeingunderestimated;NicholasHalldataapplies2007exchangerateof1USD=7.3RMBtoallyears,whichunderestimatesfutureOTCmarketsizeinChinaSOURCE:NicolasHallYearbook2008;McKinseyanalysisOTCmarketsize(atmanufacturersellingprice)USDBillions2007top102001top102010Etop1019.87.57.415.44.83.13.13.02.31.922.910.218.26.36.24.64.03.63.42.915.46.83.72.82.811.71.21.11.00.9USAJapanChinaGermanyFranceUKItalyBrazilCanadaRussiaUSAChinaJapanGermanyFranceBrazilItalyUKCanadaRussiaUSAJapanGermanyFranceChinaUKSouthKoreaBrazilCanadaIndiaMaindriversofOTCgrowthinChina▪Riseofpatientself-medication▪Risingincomelevelsofurbanpopulationanddemandforhigh-qualityOTCproducts▪Developmentoftheretailpharmacychannel|McKinsey&Company3OTCis~25%ofthetotalChinapharmaceuticalmarketwithTraditionalChineseMedicineaccountingforhalfofitGlobally,OTCaccountsfor~11%oftotalpharmamarket(7%inUS;12%inJapan)13%OTC(Westernmedicine)12%4OTC(TCM)64%19Rx(Westernmedicine)12%3Rx(TCM)~30TotalChinapharmamarket4~25%1NicholasHalldataassume2007exchangerateof1USD=7.3RMBSOURCE:IMS,NicholasHall;MOHhospitaldatabase;ChinaSouthernMedicineInstituteofEconomicsTotalChinapharmamarket1USDbillion,percent,2007CAGR(2007-2012)Percent~20~9|McKinsey&Company4MajorityofthetopOTCplayersarelocalcompanieswhoaregrowingfasterthanMNCs1NicholasHalldataassume2007exchangerateof1USD=7.3RMBandisappliedtoallyears2MajorityofTopsun’srevenuecomingfromWhiteandBlack,whichwassoldtoBayer.Bayerwouldberanked#9ifTopsunrevenuewereincludedSOURCE:NicholasHall;McKinseyanalysisTop15OTCplayersinChina,2007▪ChinaOTCmarketisquitefragmentedwith300-500domesticplayers,and~60MNCplayers▪Amongtop15OTCplayers,localsaccountfortwothirdsofthemarketandgrow40%fasterthanMNCsRevenueUSDmillion1CAGR%,2003-07385J&J373HayaoPharm239999204JiangZhong185GSK143SichuanTaiji135JianTe130DongErErjiao108BMS107Wyeth89Topsun/Bayer288LivzonGroup82GuilinSanjin79NinJiom79Joincare511101358-330516101011016100%=2,426USDmillions6436MNCplayers(7%03-07CAGR)Localplayers(10%03-07CAGR)LocalMNC|McKinsey&Company5ManyofthetopMNCOTCbrandshavebeenunabletomaintainhigherthanmarketgrowth62109-21552617DaktarinContacBufferinColdGyno-daktarinPevisoneFenbidTheragranOTCmarkettotalMotilium12-11143-7-79510SOURCE:NicholasHall;RDPAC;McKinseyanalysis2002to2005SalesCAGRPercent2005to200811Fenbid,Contac,andOTCmarkettotalCAGRsare2005to2007▪MosttopMNCOTCbrandscurrentlygrowatbelowmarketCAGR▪HighgrowthinthepasthavegenerallybeenunsustainableDirectionofchangeSelecttopOTCbrands|McKinsey&Company6CCAandVMSholdmajorityofOTCmarketwithcold&flu,tonicandsys.CV,productsdrivinggrowthSOURCE:NicholasHall;McKinseyanalysisTop15Sub-categoriesinChina,2007▪CCAandVMShold~60%ofsalesamongthetop15sub-categoriesinChina▪Marketgrowthdrivenbycold&flu,tonics,systemicCV,sorethroat,andmultivitamins2▪BCCdoesnotplayinmanyofthelargeandhighgrowthsub-categoriesRevenueUSDmillion1CAGR%,2003-07435Tonics379Multivitamins322Calcium307Topicalanalgesics294Antidiarrhoeals273Supplements268SystemicCV234Antifungals217Iron209OtherGIAntacids&antiflatulents508Sorethroat473Cough824Cold&flu532466Sysanalgesics1441412122617315105527810100%=5,741USDmillions4131828315OthersGIVMSAnalgesicsCCADermGrowthdrivers(OTCmarketCAGRof11%)1NicholasHalldataassume2007exchangerateof1USD=7.3RMBandisappliedtoallyears2Rankedbyabsolutesalesincreasefrom2003to2007acrossallOTCsub-categoriesNoBCCsalesinChina|McKinsey&Company7TypicaleconomicsofOTCbusinessinChinaSOURCE:CompetitiveintelligenceP&LofOTCbusinessIndexedtorevenueNetSalesConsolidatedCOGSGrossProfitMarketingSG&ATotalOperatingExpensesOperatingprofitOther(Income)/ExpenseAdjustedIBT100247632225422418Top5MNCexampleTop10MNCexampleNetSalesConsolidatedCOGSGrossProfitMarketingSellingDistributionLocalR&DAdmin&otherGeneralTotalOperatingExpensesOperatingprofitOther(Income)/ExpenseAdjustedIBT1002476271611651250.125▪Overallmarketingexpenseis25-30%ofsales▪SellingandmarketingexpensesisscalabletorevenueandwouldbemoreefficientsupportingalargerrevenuebaseNetSalesConsolidatedCOGSGrossProfitMarketingSellingDistributionTotalOperatingExpensesOperatingprofit1002080251194535Top5MNCexample|McKinsey&Company8SOURCE:Interviews;literaturesearch;McKinseyanalysisComparedtoMNCs,localplayersoftenhavestrongervaluepropositiontotrade,particularlyinlowertierexpansionmarketsMNCLocalTrademargin▪LowoverallchannelmarginasmostMNCsrelymoreonpulltactics▪Largegapparticularlyindistributor/wholesalermargin:tradecustomerscarryMNCproductsasaprestigiousflagship,howeverincentivetosellislow▪Tendtorelyontradetopushtheproducts:highchannelmargin▪SomealsoemploydirectvolumerebatesystemforretailersOthersupport▪Mostofthesignificantbrandsarebuiltinthepast,andarenowrelyingonlegacyequity▪LackofPOSsupport▪MassivelowcostmerchandisingforcegeneratingPOSdemand▪Morepersonaltouches,e.g.,secretincentiveschemes,bondingbetweentopmanagementofOTCcompaniesandkeytradepartners▪VeryfewproductsoverUSD40mn▪Mostsalesconcentratedintier1andlargetier2cities▪Anumberoflargeb