All industries can be seen as a collection of product market segments.

The value curve is a tool used to differentiate the various segments (Christopher A. Bartlett)

The more profitable a segment the more sophisticated the capabilities needed to compete

in it – in R&D, distribution or marketing.

According to Bartlett:

“The problem for most aspiring multinationals (from developing countries) is that they

typically enter the global market place at the bottom of the value curve- and they stay

there.

High

Low

Te

chn

olo

gic

al

an

d M

ark

eti

ng

Co

mp

lexi

ty

2 - 12% 12 – 20% 20 – 30% 30 – 40% 40 – 60%

Interm-

ediate

& Bulk

Substan

ces

Commo-

dity

generics

Conven

tional

dosage

forms

Value-

added &

branded

generics

Over-the

counter

& new

drug

delivery

systems

New

chemical

entities &

drug

discovery

Gross Margin

Pharmaceutical Industry’s Value Curve

60 – 100%

Stan Shih’s Smiling Curve takes much the same view:

Seeing that ACER’s focus on assembling PCs was keeping the company in the least profitable

segment of the market, Stan Shih decided to move up the value curve by developing

capabilities in components and distribution. It required:

Components : Strong technology and enough manufacturing skill for economies of scale.

Distribution: need a solid brand, established channels and effective logistics

Acer has built both.

Terms explained

Bulk drugs: active pharma ingredients that are raw material for manufacturing

formulations or finished dosage forms of drugs

Dosage forms: completed pharmaceutical products in which prescribed doses of medication

are included (tablets or capsules)

Commodity generics: generics sold to consumer by their chemical names

Brand Generics: generics with brand names given by the manufacturing company

Drug delivery: method of administering a pharma compound for treatment.