The stringency with which countries apply localization measures to a company’s portfolio of products also varies. For example, in Indonesia and China, a company must localize some production processes, such as secondary packaging activities, for at least one product to gain localization benefits for the entire portfolio. Brazil is stricter, requiring local activities at the product level rather than at the portfolio level.

Related legislation is evolving rapidly worldwide. Saudi Arabia and Russia are increasing the product specificity of localization benefits. Russia is also increasing the complexity of required local manufacturing operations to qualify for benefits; secondary packaging activities will no longer be sufficient.

Countries want localization for reasons that go beyond the immediate benefits of paying local workers. They want more complex aspects of production executed on their soil because it improves their population’s skills base. China, for example, hopes to build its in-country knowledge capabilities by requiring local R&D investments. This trend has win-win potential. In the medium term, pharmaceutical companies could benefit from less expensive labor in emerging countries. In the longer term, increased global R&D capacity could lead to more breakthroughs that would benefit everyone—countries, companies, and global health consumers.

But the win-win is not guaranteed, especially because political systems in some emerging countries permit rapid decision making and new laws that make long-range planning difficult for pharma companies. During a three-month period at the end of 2015 and early 2016 alone, Saudi Arabia, Russia, and Turkey tightened their regulatory requirements. Shortly thereafter, an attempted coup took place in Turkey, which further destabilized the business environment and increased the in-country risks.

In general, however, the benefits can outweigh the drawbacks (see figure 2). A pharmaceutical company can increase revenues by gaining access to a growing market, getting tender preference for a government healthcare system, or achieving faster regulatory approval. Benefits can also be found in higher margins, such as avoiding import tariffs or accessing free-trade zones. Finally, some of these countries have populations that need the health benefits of pharmaceutical products, which helps the industry meet social responsibility goals.