Karan Singh: There are four or five fundamental differences between the markets in India relative to the developed markets. India is a small healthcare market—roughly 65 billion in spending today, a small number, but with tremendous growth prospects.
The second fundamental difference is that the penetration is very low. Across any segment, India remains grossly under-penetrated. This could be in number of hospital beds, this could be in insurance penetration; this could be in the infrastructure, the number of doctors or the overall healthcare spending in India.
The third fundamental difference is the industry structure. The industry structure is highly skewed toward the organized sector. So the organized sector makes up the belly of the market, and the premium segment--the organized segment--isa very small segment of the overall healthcare landscape.
The fourth difference is that the market is quite nascent, so the regulations, standards, and different parameters of how the health system is set up are in their infancy and are being created. That’s a big difference compared with the western world.
And the last thing is that there is a tremendous amount of price sensitivity in this market, so the point of affordability is absolutely paramount. Given that you are going to service a large middle class population, having a product [priced], or pricing the service, at a very affordable rate is absolutely critical.
As a result, we are seeing companies—given the structure of the healthcare market—enjoy extremely rapid growth rates. The leaders are growing at very high double digits. The second characteristic is that the leaders are also enjoying extremely attractive profit margins. As a result of this, the valuations of players in India, especially the leaders, have been very attractive. And this is also a function of why financial investors—like the PE-investors, the private equity investors—are pouring a lot of money into healthcare in India. Against this backdrop we are seeing companies deploy very bold strategies when it comes to developing markets and healthcare in India.
They are focused on two fundamental aspects: penetrating the markets in the larger geographies, in the larger cities and market creation as new segments emerge and as a market starts to mature.
How to avoid pitfalls in emerging markets
The first pitfall is about not taking a portfolio approach to markets like India. We need to think about a near-term strategy, but also makes bets for the longer term, so a portfolio about near- and long-term.
The second big learning here—and a big watch-out—is to make sure the products are localized. A gold-plated offering may not be the right solution when you’re going after the large, mid-market in India and China.
The third big learning here is not being overly seduced by the big numbers in terms of population. Indian rural market is—the number of people there is very large. You’re talking about 600 million to 700 million people. Going after and cracking that market is extremely difficult and complex.
The other big learning here is making sure that [you] understand the complexity in the market and have the right business models to go after different opportunities in the right manner.
Going it alone can often be a big mistake, especially as you think about creating distribution footprints, which could be quite complex in markets like India. But having said that, I think it’s very important to do the right due diligence, given the data on many of the companies and partners is not very clean. So doing the right level of due diligence to make sure you partner with the right kinds of players is going to be very important.
And the last factor is not investing in the talent base. There is a huge war for talent in markets like India. It’s all about attracting the right talent base, but also regaining and growing that talent base. That can become a core differentiator and a core source of competitive advantage. So not investing in the right talent base can be a big issue.