Capitalism, Meet Globalism

Capitalism has met the enemy, and it is capitalism. Just ask the pharmaceutical industry.

Senior citizens in New Hampshire, Maine, and other border states have long grasped the essentials of global economics. For years, they've crammed into chartered buses and headed to Canada to score armfuls of meds for up to 60% less than what they'd cost at home. Maybe a little partying on the trip home, too. Ask those older folks: Globalism is good, cheap fun.

The buses are still rolling--but these days, thanks to technology, most everyone has become a border-town resident. Americans will spend about $800 million this year on Canadian prescription drugs. City employees in Springfield, Massachusetts, get all their drugs this way; it's in their benefits package. Illinois governor Rod Blagojevich is talking about importing Canadian meds for all 230,000 state workers and retirees.

This isn't just about pharmaceuticals, of course. The twin powers of globalization and the Internet are indiscriminately eviscerating old business models across industries. "Any industry that has enjoyed some kind of protected niche is now at risk," says Clyde Prestowitz, president of the Economic Strategy Institute, a Washington, DC, think tank. Five years back, business dreamed of the efficient nirvana implied by "frictionless commerce." Now, they're being smacked with a haunting new reality: Pricing power is dead. Distribution is out of their control. Capitalism has met the enemy, and it is capitalism.

Is that digital camera too expensive at the local electronics dealer? Find the best price among stores worldwide at Shopping.com. You want that Beemer in black, but you don't want to pay over invoice? Get data on dealer costs at Vehix.com. Look at the travel industry: Who buys a plane ticket anymore without running a search on Orbitz or Travelocity to see who has the best deals?

Business dreamed of the nirvana of frictionless commerce. Now, pricing power is dead, and distribution is out of control.

The recording industry, of course, is the classic of the genre. Get music online for less? Hell, how does free sound? If you're Universal or Sony Music, how do you even begin to compete with that? Uh, yeah, you could start by suing your customers, maybe--just like the U.S. Food and Drug Administration is trying to crack down on online prescription drug brokers. You know what? In the face of global economics, neither strategy has a prayer.

Which bodes badly in several ways--because the drug companies' sudden impotence is a lot scarier than the emasculation of the travel or music businesses. For starters, because pharmaceuticals produced $141 billion in U.S. sales in 2002, dwarfing the recording industry's $12.6 billion market. What's more, prescription drugs are a must-have, whereas Britney Spears's latest album we might be better off without.

Most troubling of all, the business model of most drug companies depends on funding research and development with the seemingly outlandish profits generated by current products. Essentially closed local markets have served this strategy well: By selling drugs for more in the wealthy United States than they can in Canada or elsewhere, companies can afford to develop lifesaving drugs that otherwise might never come to be.

So what is a well-meaning, $93 billion industry to do? What can any business do? It's no use trying to fight globalization and e-commerce. To compete, just to survive, companies have no choice but to embrace these forces and to accommodate all their nasty side effects.

But wrestling global capitalism into submission--well, that's a bit like asking scientists to hurry up with that dang cure for cancer. Think about the problem this way, though. Don Tapscott, author of The Naked Corporation: How the Age of Transparency Will Revolutionize Business (Free Press, 2003), says that the result of all this new pressure is a forced transparency. Like it or not, your company is buck stinking nekkid, and you better do what you can to look your best.

A good way to start, Tapscott says, is by being honest. In the current business environment, any misdeeds will be found out. Second, demonstrate your goodwill. Pharmaceutical companies, for instance, need to back up their "we care" message by not gouging customers.

Third, understand that customers' economic emancipation has already happened. When customers have complete access to information about your products, your prices, everything, you won't last long if you don't establish relationships based on trust. And the only way to do that, Tapscott says, is to offer clear, indisputable value, not arbitrary pricing based on an international patchwork of artificial controls.

Can the pharmaceutical industry pull it off? It probably doesn't have a choice. And in its struggles, we may discover a tenable solution for other industries that inevitably will grapple with the same global phenomena. Now that would be a wonder drug.

In the meantime, if anyone out there needs some OxyContin, that addictive painkiller Rush Limbaugh got hooked on, give me a holler. I get about 100 emails a day from online pharmacies that will send you some quick and cheap, no questions asked.

Sidebar: Chatter

Wasting away again in Sardinia

It may be the most downloaded home video since Pam and Tommy Lee's. At the embezzlement trial of L. Dennis Kozlowski, jurors were shown 20 minutes of highlights from the 2001 birthday party that the former Tyco CEO threw for his wife, Karen, on the Italian island of Sardinia. Within minutes, the footage was splashed across the Internet.

"We'd like to welcome all of our friends from...wherever you came from. We have a lot of things going on... tennis, golf, eating, drinking--all the things we're best known for."
--Kozlowski

"Ladies and gentlemen, thank you. I give you Karen Kozlowski."

"You know I can't speak, so just call me Mrs. K. That's it."
--Mr. and Mrs. K, after announcing their secret wedding

"Yeah!"

"Look at that!"
--Party goers, as Kozlowski posed with two toga-clad women

"Anybody else?"

"Yeah! Everybody!"
--Kozlowski, still with toga girls, and party goer

"Thanks, guys."
--Karen Kozlowski, after posing with models dressed as Roman centaurs

"Yes, it's...it's me. For those of you who were wondering where I've been since I got thrown out of the basketball game, hiding away in Sardinia wasn't bad."
--Singer Jimmy Buffett, who was paid $250,000 to entertain

"Whoa!"

"Ooh!"

"You guys are so decadent!"
--Party goers, after an archer fired a flaming arrow to light a "Congratulations, Karen and Dennis" sign

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