In a global economy, sustained competitive advantage arises from tackling social, political and environmental issues as part of a corporate strategy — not just pursuing business as usual.
Novartis AG, the world’s fourth largest pharmaceutical company, has been engaged since 2002 in a high-profile public battle with the Indian government over Glivec, a popular cancer drug. (The drug is known as Gleevac in the United States.) India has denied Novartis a patent for Glivec, alleging it does not offer “improved efficacy” over its predecessor.1 Novartis, which has obtained patents for Glivec in more than 40 countries, including China, insists that India’s stringent requirements for novelty violate international intellectual property treaties. The company is waging its campaign in courtrooms and ministries, and with the public — its Web site features videos of Indian patients extolling the drug’s benefits and Indian experts detailing the dire consequences for patients deprived of Glivec.
Novartis, however, was not content simply to fight for its intellectual property rights. In a subtle and related thrust, the company offers Glivec to needy Indian patients at dramatically reduced prices. The program is featured among the company’s “corporate citizenship” initiatives, which also provide leprosy and tuberculosis drugs to millions of patients free of charge and malaria drugs to tens of millions more at cost. Novartis proudly trumpets that its billion-dollar “access-to-medicines” program has reached more than 80 million patients worldwide, many of them in India.2 In balancing assertive property rights and pharmaceutical philanthropy, Novartis is shaping the environment in which it competes. In short, it is pursuing a nonmarket strategy.3
Nonmarket strategy recognizes that businesses are social and political beings, not just economic agents. Because companies create and distribute value, a plethora of actors seek to influence them — formally, through laws and regulation, and informally, through social pressure, activism and efforts to shape the public perception of business. Companies can’t escape this. Smart executives, therefore, engage with their social and political environment, helping shape the rules of the game and reducing the risk of being hemmed in by external actors. Yet, few companies are prepared to do the hard work and commit long term to developing an effective nonmarket strategy. Fewer still understand how to integrate market and nonmarket strategies to sustain competitive advantage.
Novartis has figured that out.