Annual Report 2014 Annual Report 2014
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Trend/2 → GROWING MIDDLE CLASS

Markets in
motion

Topic

The world is converging – with amazing dynamism. Economic boundaries are blurring, and global competition is heating up at an accelerating rate. Merck is strengthening its presence in emerging markets and preparing itself for a successful future.

Meeta Gulyani → Executive vice president, Head of Strategy & Global Franchises Merck Serono

“We are uniquely positioned to further our great potential in emerging markets by driving growth of our specialty care portfolio.”

Not long ago, there was still a clear world order, one that was founded above all on differences – political, ideological and economic. Yet since the fall of the Iron Curtain, these differences have been increasingly disappearing, eliminated by the march of globalization. New free trade agreements have resulted in enormous economic areas – the markets are in motion. The once profound differences between developing, emerging and industrialized countries are crumbling, primarily due to a growing level of prosperity. According to estimates, the middle class will represent around 60% of the world’s population by the year 2030, with the Asia-Pacific region accounting for two-thirds of that figure. This “emerging middle class” is still a long way off from attaining the income level of central Europe. Yet in the past several decades, many millions of people have risen out of poverty in emerging markets such as China, India and Brazil. Urbanization is the key to this eco-nomic growth. People from rural areas are finding jobs in the megacities, where they are earning rising incomes and spending heavily on everything from their first flat- screen TV to their first car. Multinational corporate groups, which are increasingly building production facilities in Asia, are driving this dynamic development. More and more, the expanding middle class is leading to a profound sociocultural transformation, including a higher level of education, greater political interest and growing health awareness. Optimists view this transformation as a long-term upward spiral of prosperity.

“On the technology front, we are seeing increasing volumes of biologic drug production.”

Daniel Stamm → Head of Global Pharma Processing AT MERCK MILLIPORE

A well-honed strategy

The new world economic order is significantly impacting the strategic direction of global players such as Merck. It is giving rise not only to incredible opportunities, but to risks as well. After all, the competition is not slumbering; in many sectors, new competitors are springing up everywhere. Now more than ever, it is therefore necessary for companies to be in the right place at the right time, with the right products. And to equip themselves for the future. Success tomorrow will only come to those who invest in innovative technologies today, make meaningful acquisitions, forge strategic alliances and expand local capacities; to those who optimize their processes as well as attract and retain a qualified workforce. Merck recognized the signs of the times early on and is acting accordingly. The company does not view emerging markets merely as sales markets with enormous potential, but also as key technology and production hubs. This is why Merck is significantly expanding its presence in these markets, whether that means OTC products for consumer health, liquid crystals for consumer electronics, laboratory products for the life science sector, or medical care. In addition to this, the company is creating more efficient structures and processes through its “Fit for 2018” transformation and growth program. “We have significantly increased our efficiency in the last few years and will continue on this successful course. We are already well-positioned in global growth markets. We are making targeted investments in our businesses in order to further expand our strong position in Healthcare, Life Sciences and Performance Materials,” says Karl-Ludwig Kley, Chairman of the Executive Board.

Health as a key factor

Growth is being driven by the need for effective medicines, which is predicted to rise further. With the increase in prosperity, the birth rate is dropping, families are being started later in life, and average life expectancy is on the rise (see Younger for longer). The prevalence of diseases of civilization such as diabetes and cardiovascular disorders is predicted to increase even further. And Merck offers health solutions to address these issues. “Emerging markets have accounted for almost two-thirds of Merck Serono’s organic growth over the last several years,” says Meeta Gulyani, Executive Vice President, Head of Strategy & Global Franchises at Merck Serono. “We are uniquely positioned to further our great potential in emerging markets by driving growth of our specialty care portfolio,” she explains.

Among other areas, Merck is investing in biosimilars, which are subsequent versions of innovator biopharmaceuticals made by a different company following patent expiration of the innovative product. Another important step is Merck’s strategic alliance with Pfizer, which was announced in November 2014 and will allow the two companies to jointly strengthen and accelerate the development of immuno-oncology assets.

The consumer health care market is also experiencing extremely dynamic growth in emerging markets such as China, India, Russia, and Latin America, along with markets in the Middle East and Africa. This growth is being driven by increasing health awareness among the emerging middle class, as well as the desire to feel young and healthy until as late an age as possible. Market research on the expanding middle class segment in Africa shows that health has become synonymous with prosperity. “Health is the key to realizing a higher standard of living. Good health enables better performance, success and recognition in one’s professional as well as private life,” says Erich Nobis, Vice President, Intercontinental at Merck Consumer Health, particularly with a view to emerging markets. This business encompasses products tailored to the markets and target groups, such as food supplements for preventive health care, along with informational material for consumers and training for personnel. “In order to accomplish this, we have to be close to consumers, which means we have to build and expand our organizations in the core markets. Here, qualified employees with a cultural background in the respective market are especially important,” notes Nobis.

MIDDLE CLASS → GLOBAL DISTRIBUTION in 2030

Source: United Nations Human Development Report 2013

The middle class is growing worldwide, and this growth is especially strong in Asia.
In 2030, well over two-thirds of the middle class will reside in Asian countries.

Leveraging global opportunities

Merck Millipore is also on a growth course and is leveraging the opportunities offered by both mature and emerging markets. Every year, Merck develops new reliable products for the life science industry, “Scientists are everywhere and science happens across the globe. Traditional sources of scientific funding in North America and Europe are still leading, but stagnating as government funding is constrained and pharmaceutical research is consolidating,” says Daniel Stamm, Head of Global Pharma Processing at Merck Millipore. Many emerging markets are investing heavily to develop biosimilar production capabilities. Backed by favorable demographics as well as improving education standards, Africa and the Middle East have the potential to foster a new generation of scientists. “On the technology front, we are seeing increasing volumes of biologic drug production, of both currently off-patent drugs as well as a burgeoning pipeline of new biological entities. Cellular analysis is becoming more relevant, as is the purity of lab water and chemicals,” says Stamm.

For the Performance Materials business, Merck’s key goal is to underpin its global leadership position in liquid crystals and functional pigments, as well as to expand this position through investments in new technologies. Effect pigments from Merck make coatings, plastics, print products, and cosmetics shine. In its business with effect pigments, which are used in automotive coatings, Merck is thus also benefiting from the boom the automotive industry is experiencing in emerging markets. “Today it is more important than ever before to think outside the box, and to meld the familiar with the unfamiliar in order to develop truly innovative content, products and applications,” summarizes Walter Galinat, who heads the Performance Materials business at Merck. With this philosophy, Merck is laying the ideal foundation for success in dynamic markets.

Erich Nobis → Vice President, Intercontinental Consumer Health

“Health is the key to realizing a higher standard of living.”

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