This article originally appeared in PharmaExec.com on April 30th, 2015. Follow this link to read the original article.
Scott Lewin looks at Brazil's recently expanded transparency inititatives and how they affect pharma companies doing business in the region.
Brazil, the market leader for pharmaceuticals in Latin America, continues its economic transformation as the region’s most prominent manufacturing, packaging and distribution hub. Building upon its economic makeover that began almost 10 years ago, Brazil’s newest government regulations aim to heighten corporate transparency, requiring pharmaceutical companies to develop significant financial compliance processes. However, the hidden benefit of these burdensome regulations is the opportunity to improve operational efficiencies — in turn resulting in significant growth and innovation prospects for the emerging market’s pharmaceutical industry.
Brazil’s economic makeover
As the first Latin American country to require electronic invoicing nearly a decade ago, Brazil has long been the leader in this region’s corporate compliance regulations. Since the e-invoicing mandate took hold in Brazil, countries across the region, including Mexico, Argentina, Peru, Ecuador, Uruguay and Chile, have followed suit. The impetus for Brazil’s strict mandates, as well as for the countries who have followed, is increased transparency, resulting in increased tax revenue to stabilize its growing economy.
Why have other countries been so quick to emulate these regulations in Brazil? Because the process is working. In 2012, Brazil’s tax authority increased its revenue stream by ~$58 billion US with real-time visibility enabled by mandated electronic invoicing and standardized tax reporting. In fact, government-enforced requirements have now expanded into new aspects of business operations, including accounting, human resources and logistics. Because of the global scrutiny on the pharmaceutical industry, these companies are often the first affected by new regulations. Pharmaceutical companies operating in this region can expect these Brazilian mandates to chart a path for the rest of the region.
Mandates driving value within pharmaceutical operations
Three recent Brazilian expansion projects significantly affect the pharmaceutical industry: Manifestacao do Destinatario (electronic invoicing and verification), Brazil-ID (shipment tracking) and eSocial (government collection of payroll and labor events). While each project has its own implications for Brazil’s economy, companies forced to comply can also gain benefits, often unrealized, for their own internal processes and innovations.
- While e-invoicing has been a required process for all business operations since 2007, regardless of industry, Brazil’s government is expanding these requirements with additional measures to increase transparency. In the last year, Brazil has begun cracking down on fraudulent activities with added verification procedures at the point of final delivery. The business process known as Manifestacao do Destinatariorequires mandated buyers in the pharmaceutical industry to match inbound shipments to the government approved e-invoice and acknowledge the receipt and accuracy of that inbound reception process. Any errors will result in shipment delays and potential audits. Although companies are forced to comply or risk fines and business disruptions, the benefits of adopting this process and using it to drive business innovation translate into added efficiency and accuracy. As all invoices are standardized, companies diminish costs associated with shipping inaccuracies and inbound receiving processes, and are able to allocate those resources to more valuable business processes rather than error-prone manual data entry.
- Taking transparency to the next level, Brazil-ID is another example of Brazil’s efforts for deep scrutiny into business processes that will heavily impact the pharmaceutical industry. Under this new expansion project, the government will use RFID systems to track shipments from the moment they leave the manufacturing facility until they arrive at their final destination. While the goal is to eliminate costly, manual processes and ultimately the sale of pharmaceutical products on the black market, the result will be new business processes required of pharmaceutical companies. As trucks cross certain checkpoints while in route, the RFID systems report the status of shipments in real-time, providing the pharmaceutical company and the buyer optimal status updates for shipments. Smart companies can use this increased visibility to identify inefficiencies and improve logistics processes.
- The final new regulation of note for pharmaceutical companies is eSocial. When fully implemented, employers across every industry will transmit employee information online, including wages and labor events, eliminating repetitive submission processes, as various government agencies will all have access to one portal of information. This new insight will help pharmaceutical companies identify areas for human resources improvement as they continue to expand their operations in Brazil.
A proactive outlook
The implications of Brazil’s latest regulations translate to economic improvement through identifying and preventing fraudulent activities, raising awareness and insight about the workforce and increasing efficiency in business operations. With these goals in mind, Brazil hopes to significantly improve its economic standing, benefitting all companies with operations (and customers) in this emerging market. Brazil is the dominant player worldwide in these stringent regulations — and countries across the world are taking note.
Pharmaceutical companies have the option of taking a reactive approach to the mandates described by simply complying with required processes to avoid operational shutdowns, audits and/or hefty fines. However, those with a proactive outlook on these complex regulations will not only comply, they’ll embrace the added efficiencies, increased accuracy and enhanced transparency to ultimately reap the rewards of growth in this dominant emerging market.