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Context: Whenever there is an increased demand for life-saving products such as vaccines, the issue of inequity in access to such medicines arises.
What are the factors that that drive production of life-saving products in a country?
Product demand is central to the development of capabilities and the resources of firms.
In developed countries, the high-fixed-cost research and development activities, required to produce life-saving medicines, are incentivised. Demand in these countries is the main factor behind this incentivisation.
Whereas, in developing economies, demand for prophylactic products are low due to the lower disposable income.
Therefore, greater demand for prophylactic products in developed economies relative to developing economies enable MNEs to bloom in developed economies. Thus, provide them a solid ground to become dominant incumbents in prophylactic product markets in developing economies too.
Prophylactic products are the products for which consumer pays now for some uncertain benefits in future. For example; a vaccine for some disease before outbreak of pandemic.
How does the pandemic impact the balance of global medicine market?
Sudden pandemic outbreak means a sudden increase in global demand for life-saving medicines. In this case, the firm will always select the most profitable regions within a country or most profitable countries all over the world.
In this case, large foreign multinationals (MNEs) face opportunity costs in serving the underdeveloped regions.
A research paper published in Management Science, describe, how MNEs and domestic firms respond in the different local markets to a global demand shock, during the 2009-10 H1N1 influenza pandemic in India. Following are findings:
First, the market share of MNEs fell much more in regions low in per capita public health expenditures and a lack of political alignment between federal-regional governments.
Second, unlike domestic firms, foreign firms did not enter the influenza vaccine market or expand in underdeveloped regions.
Third, direct costs and opportunity costs are two defining features that can lead to inequity across regions within a nation.
Significance of findings
The findings enable identifying what type of regions within a nation may require additional policy support to attract different kinds of firms to deliver life-saving products.
It also provides an insight to the transnational organisations (e.g., the World Health Organization, the Gates Foundation, GAVI). These organisations use the country’s per capita income as the cut-off line to determine a country’s eligibility to receive vaccine donations. However, they should also find out the most prone regions within a country. It is also possible that a country ineligible for vaccine donation may have a region which is lacking infrastructure and is poor. This type of regions must be identified and served.
Source: This post is created based on the article “The influenza pandemic and ‘nations within a nation” published in The Hindu on 14th June 2022.
