Although it is the world’s second largest drug market and the number of medical sales representatives in the country has grown by 31% annually in the last two years, Japan represents only a small portion of the total global spend on pharmaceutical outsourcing.
Contract sales organizations, or CSOs, supply local pharmaceutical companies with less than 5% of the estimated 60,000 medical sales representatives in the country. Industry analysts, however, expect that number to double to nearly 10% by 2015, creating a prime investment opportunity for sales outsourcing firms looking to expand their business in Asia.
In part, CSOs’ difficulty penetrating the Japanese market has to do with the country’s tradition of lifetime employment. Many Japanese citizens still commit to working for a company for life; as a result, local firms are cautious when it comes to contracting medical sales representatives from outsourcing service providers. This presents any CSO entering the market — especially a foreign one whose very business model contradicts the tradition of lifetime employment — with a major challenge.
When our company set up operations in Tokyo more than three years ago, that tradition certainly proved to be an obstacle. Japan is a country whose business culture attaches a high degree of importance to personal relationships, trust and loyalty, which take time to establish, build and nurture. Here are some important lessons for CSOs that we learned along the way:
1: Your Experience May Not Be Relevant Locally
Today, whether a company needs to build a new sales force or supplement an existing one, CSOs offer clients a full spectrum of solutions and the infrastructure, experience and experts needed to help launch, nurture and extend the value of pharmaceutical products. With their flexible and cost-effective services, CSOs can provide pharma companies with high-level talent for the most affordable prices, as well as the ability to scale these resources up and down as necessary. This arrangement enables pharma companies to more easily manage fluctuating costs and changing needs.
While relationships are an important component of establishing these strategic partnerships in Europe and the U.S., they are paramount in Japan. Without a solid reputation and organic relationships, even if your company’s offering or services are better than that of the local competitor, you’re unlikely to win new business. So how does a western CSO penetrate the Japanese market and, better yet, survive and flourish?
2: Invest in People Who Understand Local Market Dynamics and Culture
From 35 years of experience living and working in Japan, and serving as a medical sales representative for several of those years, I know first-hand that it is essential for employees at all levels, especially CSO leaders, to have knowledge of the local market. It’s through first-hand experience that one learns the nuances of Japan’s business practices. For example, it’s incredibly important for CSOs to understand that local companies make decisions by consensus. Often, a service provider may need to give three, four, five, sometimes 10, different presentations to 12 or more people before receiving a contract.
The tradition of lifetime employment in Japan contributes to a culture of stability and employee allegiance in the workplace. Sometimes, this results in, Japanese companies feeling a lack of connection to and trust in western CSOs, believing that a foreign firm is more likely to pack up and leave the country if local conditions prove too daunting. Concerns about working with foreign service providers also stem from the assumption that a company from the same area will better understand the local business culture and its needs. Time zones and operational factors play a role in this as well.
For those reasons, hiring employees with local knowledge is one of the smartest investments a company entering a new market can make. It’s a way to gain insight on the parochial nature of business relationships in the country and its impact on vendor selection. Employees with local know-how can interact more easily with local executives. They understand what needs to be done to “make the sell” and are better able to gauge success. In addition, a CSO can leverage relationships that resulted from employees’ previous experiences with Japanese pharma companies and find opportunities for organic collaboration.
3: Design Innovative Solutions To Meet Local Market Needs
Even if a CSO has the advantage of being part of a global network, success will boil down to the value of the strategy developed at the local level. There are several points to consider for successful market entry and differentiation:
A. Provide your customers with new options – show them the value of outsourcing
Japanese pharma companies, strained by the economic conditions of the last several years, are struggling with the country’s tradition of lifetime employment. Despite its status as the world’s second largest pharmaceutical and medical device market and a center for cutting-edge life science research, the approval process for new drugs in Japan is relatively slow and arduous. The country is known for its “drug lag,” a term used to describe the gap in time between approvals of foreign drugs in other countries and their authorization in Japan. In an industry characterized by increasing complexity and a constant demand for innovation, Japanese pharma companies find themselves caught between launching new products and needing more medical sales representatives, and not wanting to commit to hiring additional people because future success remains uncertain.
This is where foreign CSOs can come in and make the case for outsourcing medical sales representatives. Local companies appreciate service providers that can offer insight on how to operate more efficiently and accelerate success. When a CSO enters a new market, it must help clients understand that there is a good alternative to hiring people for life, one that still allows companies to visit their customers, make the number of calls they need to make and hit their sales targets, all without incurring the enormous expenses associated with lifetime employment. In both Europe and the U.S., for example, pharmaceutical companies outsource more than 20% of their sales forces. Partnering with CSOs provides them with the flexibility to increase or decrease the number of representatives assigned to a project on an as-needed basis.
While clearly explaining this model to Japanese pharma companies can help ease concerns about outsourcing, convincing them to alter their approach to doing business and managing their sales forces can prove challenging. Mentality is something that is slow to change, especially in Japan. Essentially, overcoming this barrier means showing local companies the benefits of strategic outsourcing, which is why we regularly host educational conferences and seminars. Although this can take time, in our experience, it works. Once local pharma companies understand the benefits and start partnering with CSOs, they begin to recognize the value of such strategic partnerships and reach a greater comfort level with alternative forms of employment.
B. Act like a partner, not a vendor: make promises you can keep
One of the issues we encountered when we began working in Japan is that many of the local pharma companies simply viewed CSOs as glorified recruitment agencies, as suppliers of people they could otherwise hire themselves. The key to overcoming this impression is to show that, just like them, you’re committed to and invested in their customers’ success.
First, a CSO needs to take the time and put in the effort necessary to train its people well. Medical sales representatives must have up-to-date knowledge of specific therapeutic areas to gain the trust of physicians and other people who work in the field. Representatives should receive intensive training on topics such as medical knowledge, the pharmaceutical industry, illnesses and their treatments, drugs and sales.
A CSO must also train its representatives to improve their understanding of medical science and pharmaceuticals, and to develop presentation and detailing skills. In addition, it’s essential to provide ongoing learning and development opportunities for representatives after you place them in the field. Self-study tools, such as e-learning programs, can help representatives enhance their knowledge in a variety of areas on a regular basis.
With well-trained representatives in hand, a CSO should put its money where its mouth is and guarantee its people’s performance. This can take the form of paying a penalty if representatives don’t meet client expectations, and representatives can be rated based on their ability to grasp client needs and business strategies, their interactions with important stakeholders, as well as their planning and execution skills, knowledge of pharmaceutical products and punctuality. When your actions show a clear investment in your client’s performance, and when you make and stay faithful to promises that the customer knows affect your bottom line, the business relationships you establish feel like a two-way street. Japanese clients favor this model; they want to know that you are 100% committed to their success.
Part of this commitment means being as flexible as possible and offering contract terms that can be adjusted at any time, with minimum disruption to a client’s business. For instance, we often don’t charge customers a fee if they decide to permanently hire one of our medical sales representatives. In fact, when a staff member gets an offer from a client, we believe we’ve done our job — bringing highly skilled and well-trained people to customers — well. Typically, this also inspires employees to work harder. They stay motivated because they know the future is full of possibilities. And if you have a reputation for supplying good people, clients will want to work with you again and again.
C. Get on the ground with your clients and establish local offices
It is one thing to open an office in a country’s capital or main commercial center, but it is another to establish your operations in areas where the clientele is less used to working with multinational companies. While pharma firms in those areas are more likely to be parochial when it comes to business relationships, they are, ultimately, the clients you need to establish relationships with if you want to succeed in the local market. By having offices on the ground, the perception of your firm as a western CSO begins to fade and potential clients eventually see you as just another local company, one that appreciates the ways of doing business in the country and understands market-specific needs.
Less than a year after opening a second office in Osaka, we gained several new Japanese clients based in the city. They said they would not have chosen to work with us if we didn’t have an office in Osaka.
D. Hire the best talent
Hire people that know what they’re talking about and learn from them. You must understand the challenges your clients face on a daily basis, be aware of the issues in the field and pay attention to what motivates — and also demotivates — your people. It’s important that clients see you as a true partner, one that has been there, done that and is here to stay.
E. Incentivize your employees
Investing in your people is vital to any successful business, but for a service provider, it is critical. After all, it is your people and their expertise that you are selling to clients. In Japan, where it is especially difficult to get highly qualified candidates to work for outsourcing companies because of the country’s tradition of lifetime employment, you must offer employees incentives, both financial and professional.
By giving employees more favorable achievement-based bonuses, especially in comparison to local-market competitors, you will attract and retain the right talent. When CSOs acknowledge employees for their hard work and adequately compensate them, they are more likely to remain loyal to their employers because competitors become less attractive to them. These bonus programs also reinforce a CSO’s reputation as an outsourcing company that is committed to clients and focused on results.
Providing your employees with career development opportunities is another important way to motivate them and inspire loyalty. In Japan, most CSO employees expect to be medical sales representatives for life or, at most, field managers. As a foreign company with expertise in many areas, you can use your global network to provide your employees with opportunities to learn about different parts of the business. For example, leveraging our clinical business segment, some medical sales representatives at our company have moved on to successful careers as clinical monitors.
My advice: Don’t start a CSO in a foreign market just because you have great managers and business relationships. Build a CSO — from the ground up — with people you’d like to invest in, people who actually have local market and industry experience. They will make all the difference, especially to your clients.
Dan Feldman is president of inVentiv Health Japan. He can be reached at DFeldman@inVentivhealth.com