The country may well foster new models of innovation, but success will require a long-term commitment and talent development.

The health challenges of China and Asia offer big opportunities for multinational pharma companies. Cases of chronic diseases, such as diabetes, are on the rise in the region, as are lung, gastric, and liver cancers. China alone is likely to be the world’s third-largest pharmaceutical market by this year, with sales of more than $50 billion.

AstraZeneca, the largest multinational pharmaceutical company in China’s prescription market, has positioned itself to take advantage of this growth—it has more than 4,700 employees in the country, in manufacturing, sales, clinical research, and new-product development. In particular, AstraZeneca was an early mover there in research and development: in May 2006, it announced a $100 million R&D investment, which included the establishment of the AstraZeneca Innovation Center China, in Shanghai. The center’s initial research mandate was “In China, For China,” but it now has a broader mission as a full-fledged discovery center focusing on diseases more prevalent in Asia.

These heavy investments in China should give AstraZeneca’s innovation efforts a boost by providing closer access to China’s scientific talent pool and to potential external partners, says Steve Yang, the company’s vice president and head of R&D for Asia and emerging markets. Yang, who joined AstraZeneca in January 2011, recently discussed the challenges of pharmaceutical innovation in China in an interview with McKinsey’s Jeremy Teo at the Shanghai headquarters of AstraZeneca China.

The Quarterly: How is China’s environment for innovation in pharmaceuticals different from the environment in other markets?

Steve Yang: In many areas, doing pharmaceutical R&D in China is similar or identical to the West. We basically have the same quality and compliance standards throughout our R&D efforts. We are a regulated industry, and we try to follow local and global regulations.

Still, three factors differ from other markets and present a unique opportunity for China. First, the current macro environment of China is very favorable, in terms of the growth of the pharmaceutical market, the investment of the government in infrastructure and basic research, and the availability of talent.

The second advantage is timing. Our industry globally is facing a tough R&D productivity challenge. That means we have to do things differently out of necessity—and that particular mandate is very, very strong across all the companies. We’re not going to replicate what has been done in the West. We will try to innovate and transform how we do R&D.

The third advantage is, to some extent, a double-edged sword. There has been limited innovative pharmaceutical R&D work done in China, so we are starting with a clean slate, both in terms of the experience of local talent and the environment. But that could be an opportunity. It could remove many of the existing constraints of organizations, allowing us to experiment more and to try different things with the hope that, ultimately, new R&D models will emerge. These could prove to be innovation driven, but different from and more effective and efficient than the model that’s been used in the past.

The Quarterly: In this environment, how do you approach innovation in China?

Steve Yang: I can offer three specific facets. The first one, which is fundamental, is that we can leverage what our industry has learned painfully over the last few decades. There is high attrition at each step of the R&D process, and we learn from all the companies and all the products across these areas about what didn’t work. For example, we have learned that patient selection is critical to reducing the attrition rate. Selecting the right biomarkers and patients is pivotal to the success of a drug. This is a new insight, but one that is widely available to whoever wants to start a new drug discovery operation.

The second is that there are many unique disease mechanisms in China. Gastric and liver cancers, for example, have high prevalence and, in many cases, could have different populations or different disease etiologies. That presents a white space on which R&D innovation can focus. We can use what we have learned in the West to understand this situation and try to develop new medicines against those diseases. I hope that will open up new markets and help us meet unmet medical needs of patients in China and the rest of Asia.

The third, which is also very important, is that China and, to some extent, India have shown the world the importance of conducting R&D with more resource efficiency, particularly by focusing on externalization. This could mean strategic outsourcing of certain R&D functions. It could also mean collaborating with academics or biotech companies, and that’s an area in which I believe China can offer tremendous potential not only for our local R&D operation but also for our global R&D.

The Quarterly: There are some skeptics who say that pharmaceutical innovation in China is a long shot, and any efforts will take many years to materialize. How do you respond to that?

Steve Yang: We are a regulated industry, so our product-development time line is very long. Look at the traditional hot spots of pharmaceutical innovation in Europe and the United States and at some of the R&D sites in the West. How long does it take for a site, from its establishment, to become productive, to discover and develop new drugs? We are looking at decades. On the other hand, that’s the type of long-term commitment a company and a nation need to reap long-term benefits, economically, through knowledge development and innovation that will eventually benefit patients.

The Quarterly: How far has AstraZeneca gone in achieving its aspirations for innovation in China?

Steve Yang: We have made great progress and built a solid foundation. But if you use as a measure the time needed to develop a new drug, we still have a long way to go. It takes 10 to 15 years to take an idea all the way from a scientist’s hypothesis to products on the market.

Our Innovation Center China was announced in 2006 as a part of a $100 million investment we made in China, and it was launched in October 2007. During the four years since then, we have accumulated a lot of data, contributed to global oncology research in the area of biomarkers and translational science, and built credibility and a strong team locally. We are ready to expand our mission to become a drug discovery center, with a special focus on cancers prevalent in Asia, such as gastric and liver cancers. But the journey has just started.

The Quarterly: What are the bottlenecks to successful R&D in China?

Steve Yang: There is a Chinese saying that you may have a destiny, and that final destiny may be very bright, but the road that leads there is inevitably windy and full of challenges. That’s the case at both the strategic and operational levels. The intellectual property–protection environment has been improving, but there is always room for further improvement. Also, the industry needs to work with government stakeholders to improve and bring more clarity to regulatory policies on drug development.

On a day-to-day basis, managing turnover and retaining and developing talent can be challenging, although in AstraZeneca R&D we are fortunate to have a turnover rate well below the industry average. Above and beyond these, AstraZeneca is a multinational company, and the majority of our senior leaders, our resources, and our stakeholders are thousands of miles and many time zones away. Constantly gathering their support and commitment is very important. From my experience at AstraZeneca, we have received top-level support and have good stories to tell. But we can never really rest on our laurels.

The Quarterly: How do you rate the quality of R&D talent in China’s pharma industry?

Steve Yang: There are a large number of scientists available, trained either overseas or locally. We have seen significant quality of talent both in the returnee population and in the locally educated population. There are disciplines—for example, chemistry and general biology—that tend to follow this trend. There are also disciplines that are highly specialized and require decades of training. In those areas, the talent, particularly those with experience, is in short supply. Examples would be toxicologists, pathologists, statisticians, and clinicians. That’s one dimension to look at: the technical competency of the talent.

The other dimension, given the fast growth of the markets, includes the leadership and management capabilities of the talent. In many cases, companies like ours need to ramp up our efforts quickly, so we are giving the scientists—particularly the scientific leaders—the mandate not only to do good science and to drive projects but also to become good leaders and good managers. If we use those criteria, the number of individuals who possess all these skills is smaller.

But in general, we are optimistic. From our own experience, we can recruit talent overseas and locally. And to support our portfolio, our mission, and, more important, the Innovation Center China, we have an excellent record in retaining and continuously developing those colleagues.

The Quarterly: Would you elaborate on your views about intellectual-property protection in China?

Steve Yang: We have seen a significant improvement in the IP environment. But, because of the rapid development of the legislative environment and the regulatory framework, there is a constant flow of amendments to policies on the IP law. In many cases, it took some time for the government, the legislature, and enforcement agencies, as well as industry, to understand fully what those new regulations meant. That’s just natural growing pains. In IP law, there has been a recent commitment reflecting the government’s increasing understanding of the importance of IP, but we hope to have more clarity around how those new laws will be interpreted and enforced.

The Quarterly: What will innovation in China look like in the future?

Steve Yang: One aspect is the view of the Chinese government. They have identified seven pillar industries that have strategic importance and should be innovative, including life sciences, medical, and biomedical. It is from those areas that the seeds of innovation will likely come in the future.

Another aspect is China’s urbanization. There are consequences to the migration to megacities with populations of more than 20 million. In these environments, people will increasingly have a more sedentary lifestyle. In such an environment, with high-density living, how do we continue to help people live a healthy lifestyle, prevent disease, and improve the quality of living? And the challenges and opportunities go beyond just inventing the next pill or vial for injection, to fundamentally thinking about what, with so many people living together, is the best way to prevent disease or at least slow down disease and some of the chronic-disease progressions? That is something I don’t think the world has really tackled before. The scale of such innovation is where China can offer ground for experimentation and, ultimately, a marketplace where the impact can be shown.

Exports:

• 2005: $25,571,605,977
• 2006: $32,219,124,163
• 2007: $34,401,709,969
• 2008: $34,668,671,020
• 2009: $28,611,928,167
• 2010: $38,845,657,563
• 2011: $43,505,004,799

What are some of the items that were exported during this time frame?

• Computer and Electronic Products
• Chemicals
• Machinery, Except Electrical
• Transportation Equipment
• Agricultural Products
• Food Manufactures
• Waste and Scrap
• Minerals & Ores
• Primary Metal Manufacturing
• Fabricated Metal Products
• Petroleum & Coal Products
• Paper
• Plastics & Rubber Products

1. China – $3,181
2. Japan – $1,295
3. Saudi Arabia – $650
4. Norway – $580
5. Russia – $498
6. UAE – $425
7. Singapore – $404
8. Taiwan – $385
9. Brazil – $352
10. Switzerland – $340
11. Kuwait – $325
12. South Korea – $311
13. India – $308
14. Hong Kong – $285
15. Germany – $285

Banks in Eastern Europe have had a roller coaster ride over the past decade.¹ After dizzying growth between 2000 and 2007, when shares in the region’s top financial institutions performed better than those of their counterparts around the world, asset values slumped by two-thirds as the credit crisis of 2008–09 took hold. More recently, a modest recovery in sentiment—pinned on hopes that the sector could reestablish itself as the engine of regional economic development—has snagged on wider global worries over sovereign debt.

While this volatility will continue and the region will remain vulnerable to external factors, we expect further long-term growth opportunities for the banking industry in Eastern Europe once the current turmoil has subsided. A new McKinsey analysis—based on empirical data, proprietary benchmarking, and interviews with 20 leading bank executives—identifies a number of segments and geographies that look promising over the next decade. It also highlights strategic actions that successful regional players must take to capture these opportunities.

Projections and figures in this article assume a consensus base case built analytically from the midrange of external macroeconomic forecasts and a consensus view on regulatory and market trends. In general, these assumptions are sluggish global growth, a prolonged and painful deleveraging, and high volatility for the next five years. This is not a worst-case scenario, though, and it does not assume, for example, a disorderly breakup of the EU Economic and Monetary Union (EMU) or a fiscal crisis in the United States.

Broadly speaking, the region’s banks must do two things. First, they must acknowledge the lessons of the past, notably by tackling the problems of insufficient scale, inefficient operating models, and relatively weak risk and governance processes that hobbled efforts to create value in the boom years. Second, they must position themselves to confront a number of fresh challenges, including new regulations, higher funding and risk costs, and changing customer behavior.

In the face of these obstacles, some international banks that owned subsidiaries or branch networks in the region have already exited. We expect this trend to continue or even accelerate when capital markets stabilize, as players reassess their long-term commitment. Banks willing to stay the course and able to adjust their operating models, however, can reap considerable benefits as the region’s economies continue to catch up with those of Western Europe.

The years of missed opportunity

The opportunity to reach new banking customers, combined with the prospect of at last closing the historical gap between Eastern Europe’s economic performance and that of Western Europe, provided the impetus for growth in the region’s banking sector over the past decade.

In 2000, banking penetration in Eastern Europe (as measured by the ratio of lending volumes to GDP) was below that of other emerging markets, such as Latin America or China, in several product categories. Along with low funding and risk costs, this gap created the conditions for a substantial increase in demand for banking services.

Our analysis shows that Eastern European banking revenues from loans and deposits (excluding Russia) grew by more than 14 percent a year on average between 2000 and 2007—more than triple the global average of 4.1 percent and surpassing even China and India during this period. Some products performed particularly well: for example, revenues from mortgages rose between 50 and 100 percent annually, achieving revenue margins of 4 to 5 percent, as well as a return on equity of roughly 100 percent.

Despite the favorable climate and investor optimism, only a few banking groups captured the tangible benefits of expansion. Our analysis shows that between 2004 and 2007, the average level of value creation (defined as returns on equity less cost of capital) at Eastern Europe’s top banks was just 0.2 percent, falling to –2.0 percent for the period from 2004 to 2009. These averages concealed considerable variations—the best performers from 2004 to 2009 created 3.5 percent a year of new value; the worst lost 11.2 percent annually.

This performance paradox—phenomenal growth and juicy product margins coupled with low profitability—can be attributed largely to the costly operating models that banks rolled out across the region. The delivery models were mostly the same as those in Western Europe, even though volumes per customer in Eastern Europe are roughly one-fourteenth of Western European levels, according to our estimates, and disposable incomes are one-fifth as big. Most banks pursued country-by-country entry strategies, in many cases creating a patchwork of subscale, fragmented operations. Governance focused mainly on country-level performance, allowing banks to extract only limited synergies from their portfolios. And assumptions about currency and regional economic convergence were often too optimistic. The financial crisis of 2008 and 2009 laid bare the fragility of the banks’ business models, exacerbating these inherent performance issues.

A challenging decade ahead

Looking forward, Eastern Europe’s fortunes are tied closely to other parts of the world, and the fallout from the sovereign-debt crisis is likely to hit the region hard. That said, the fundamentals for strong economic growth—rising consumption, trade, and investments, as well as the planned accession of more countries to the European Union and monetary association, subject to the euro’s future—are in place. The growing concentration of consumption and wealth in a handful of cities and regions, the need for improved infrastructure, the rise of more affluent consumers, and other important trends will create an impressive economic tailwind to support the growth of banking revenues.

Over the 2010–20 period, we expect those revenues (after loan losses) to increase by an average of 12 percent annually, probably the world’s highest level during these years. Unlike the last decade—when a rising tide lifted all boats—in the future, growth will probably be uneven, concentrated in certain geographic, demographic, and industry pockets.

The banks’ biggest coming challenge, which will be considerably greater than it was in the last decade, is to deliver shareholder returns that exceed the cost of capital. Our market modeling points to a decline in returns on equity from an average of 17 percent (2000–07) to about 13 percent (2010–20). Higher capital requirements, funding costs, and risk costs, as well as new regulations and state interventions and a generally more competitive market, are all likely to weigh heavily on the leading players.

What winning banks must do

How can a banking group outperform in such a challenging competitive, regulatory, and funding environment? What will be the major differentiators between good and bad performance in the next decade? And what will be the best ways to capture the opportunities that will create new value? Our analysis and industry survey results suggest that banks in the region must pursue four strategies.

Reshape business portfolios

Critical mass allows banks to capture scale advantages and create additional value. In Eastern Europe, where costs are high relative to customer volumes, this is especially important. Only a few top banks have been able to build a consistent, sufficiently large portfolio across major markets. In practical terms, this means about a 10 percent share of all markets where such players operate, Russia apart. Recent experience shows that banks at or above this threshold tend to outperform others in value creation: an average return on capital that’s 5.2 percentage points higher than the rest, according to our survey. Our analysis suggests that further acquisitions or swaps of “stuck in the middle” assets could generate incremental returns on equity of two to four percentage points for a number of regional players. If mergers and acquisitions are not possible, another option would be partnerships in, say, product development or distribution.

Build stronger regional-governance models

Successful players must perform a delicate balancing act: on the one hand, to pursue efficiencies by centralizing and standardizing; on the other, to generate value by allowing local units flexibility in managing their business.

One legacy of the past decade has been how most regional groups permit local units to lead stand-alone operations. In the future, finding centralization opportunities and developing standard products or processes through regional operating hubs could drive value, as banks in emerging markets such as Africa have shown. Consolidation is easier in some operations than in others, however. It may be straightforward to centralize international payments, card processing, and custody, for example, but less so the credit processing and IT platforms for deposit and lending products (because of local regulatory requirements).

Develop a differentiated approach to priority segments

The region’s banks must position themselves to take advantage of selected product and customer segments that can serve as growth engines for the next decade. This approach might involve developing a distinctive value proposition for a well-defined segment of sufficient size or pursuing a specialized opportunity such as infrastructure finance.

For example, the “emerging affluent” segment—young, educated, and consumption-oriented urban professionals—could account for up to a third of all retail-banking revenues in the coming three to five years: Eastern Europe, with just 7 percent of the total population of emerging markets, already accounts for 41 percent of all middle-class households in such markets around the world. Emerging affluents exhibit similar behavior patterns across the region. They are tech savvy, preferring online-banking and smartphone applications; reluctant users of branches; and price conscious and service oriented.

To capture this potential, banks must learn to better understand the needs of customer subsegments and put in place differentiated value propositions and service models rather than traditional one-size-fits-all approaches. Affluent customers expect a distinctive experience, yet we find they are frequently disappointed because instead they get the service that banks deliver to the mass market.

Focus on innovation

In the past decade, most banks in Eastern Europe based their home market models largely on the traditional branch networks in Western Europe. In these years, we observed far more banking innovation elsewhere in the emerging world, where low income levels made traditional models unfeasible. Banks in Eastern Europe must now take their cue from other emerging markets and try to develop business models more compatible with their stage of development. This effort might include focusing on “frugal” innovation—reassessing costs from a zero base—and considering greater centralization and the outsourcing of distribution and support. Eastern European banks also have big technological opportunities, including the introduction of richer features for automated teller machines and point-of-sale devices, biometric identification, and mobile payments.

Notwithstanding the industry’s gloomy global outlook, banks in Eastern Europe, including Russia, can prosper in the next decade if they learn the lessons of the past and prepare for new challenges ahead. Those that can reshape their portfolios, target priority segments, build stronger regional-governance models, and innovate successfully are the most likely to boost market share, efficiency, and profitability.

1. Use translation memory (TM) tool such as Trados
2. Manage content volumes
3. Plan ahead to provide sufficient time
4. Keep revisions to a minimum
5. Be efficient with your publishing processes and layout
6. Avoid free translation service such as Google Translate
7. Form a partnership with your translation vendor
8. Integrate desktop publishing (DTP) and translation
9. Create quality driven source content
10. Use translation management system

BPS

Recently, EPIC Translations was selected to provide ongoing language services to Boston Public Schools. When we received the contract, we took a deep dive into the BPS system to fully understand it in order to service it to the best of our abilities.  According to our research, there are 134 schools in the system, 4,220 teachers, 6,4711 other school-based staff, 1,564 central staff, and 57,050 enrolled students.

Of these students, 41% are Hispanic, 36% are Black, 13% are White, 9% are Asian, and 1% are Other/Multiracial.

74% of BPS students are eligible to receive free & reduced-price meals in schools. 45% are eligible to receive food stamps.

BPS is organized around 7 essentials. These are (paraphrased):

1. Use culturally relevant instructional practices
2. Examine student work
3. Invest in professional development
4. Share leadership
5. Focus resources to support instructional improvement
6. Partner with families and the community
7. Maintain high levels of effectiveness, efficiency, and equity.

As you can see, at least 2 out of 7 essentials deal with cultural relevancy. What is less obvious within these essentials is the need for language services.

Considering that 50% of the BPS students are either Hispanic or Asian, the need for language services can not be under estimated. Some of the most common languages in the system are Spanish, Creole, Portuguese, Vietnamese, and Chinese.

To that end, BPS has budgeted almost $33 million towards English Language Learning (ELL). Usage of language services is a component of ELL.

There are approximately 22,853 students in BPS whose first language is not English. ELL budget is targeted towards these students at $1,440.20 per student.

In this regards, BPS obviously has multilingual teachers and staff who can communicate with these students to increase their learning efficiency.

EPIC Translations has derived a method to help save BPS more than $658,260 annually towards the ELL budget.

If you’re part of BPS and want more information on how we can help you save thousands of dollars annually for your particular school, please email us at BPS@EpicTranslations.Com or call 734-786-8293.

EPIC Translations has recently expanded its operations by retaining a sales representative in Melbourne, Australia. Renee Pascouau has an extensive background in the language services industry servicing bio-medical and social sciences. She will guide EPIC Translations’ expansion in the Australian / New Zealand market.

Additionally, Renee is a experienced professional translator and editor specialized in peer-reviewed academic articles and medical texts. She holds B.A. in Anthropology from Central Michigan University and two field seasons of research in the Bolivian Andes. A classically-trained flutist, Renee also enjoys watersports, world travel, great literature and international cuisine.

It was a very successful meeting of over 1000 business people and government officials at the highest levels from the US and Saudi Arabia that aimed to explore trade and investment openings in the Kingdom.

Some facts about Saudi Arabia:

1. It is the largest economy in the region
2. Member of G20
3. Ranked number 12 by World Bank in its “Ease of Doing Business” out of 183
4. Private sector contributes 48 percent of the country’s GDP
5. Educational initiatives have received more than a quarter of national budget

Saudi Arabia represents $1.4 trillion in investment opportunities. The following sectors have the highest budgeted amount for investments:

1. Privatization of state owned assets through 2020 – $800 billion
2. Infrastructure – $149 billion
3. Petrochemicals – $92 billion
4. Power Generation – $91 billion
5. Agriculture – $28 billion
6. Telecommunications – $60 billion
7. Desalination – $88 billion
8. Natural Gas – $50 billion
9. Education / Training – $11 billion
10. Information Technology – $9 billion

If you are considering offering your products / services in KSA, EPIC  Translations is able to provide a great deal of assistance such as:

• Immediate availability of in-country talent for high growth sectors
• Software & Website localization
• Document translations
• Interpretations – In person / Over the phone

Thank you and I look forward to establishing a successful business relationship with you during 2012 and beyond!

Mostansar Virk, President

EPIC Translations

Courtesy of Free Digital Photos

Once you’ve localized your website the next challenge is being found on the Internet in the target country. Ideally, international SEO should be part of your overall website localization strategy, but it can also be done by itself. Here are top 5 considerations for international SEO – courtesy of Search Engine Watch:

Goals and Limitations:

Establish the parameters for your international SEO strategy. Figure out what resources you have at your disposal and use them to the best of your ability. Your company may already have a branch in your target foreign market. Discuss with them what sorts of results are attainable.

Search Engine:

What search engine is most prevalent in your target market? Google is highly featured across the globe, but will redirect to regional domains (i.e.: Google.com.de in Germany). Note that in Russia, Yandex is most popular, while Baidu is most popular in China.

Site Structure:

An important part to communicating with your international customers is to create an website that they value and understand. People like being sold to in a language that they understand, by a person or company they trust. Search engine algorithms look at more than just keywords and domain names, they also look at quality of a site to ensure the user finds the best information they are looking for. Different cultures place different values on pictures, colors, location of information, videos and social media. Understanding each of these aspects, and adapting your site accordingly will pay dividends down the line.

Optimization:

This is no different than domestic optimization. Focus on inbound links from other companies in a specific locale and develop headlines, subheadlines and URL’s for keywords specific to your target locale.