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Will GlaxoSmithKline plc’s Global Ambitions Make It A Buy?

The story of the twentieth century was, in essence, the story of one country: America.

This one nation played a key role in the First World War, the Second World War, the post-war boom, the Cold War, and modern consumerism.

During this time, it grew and grew to become, by some distance, the wealthiest and most powerful country on Earth.

The most powerful nation on Earth has no healthcare system

The story of the twenty-first century will, in essence, also be about one country: China. Many are talking about the China boom. But don’t be suckered into thinking the current trouble is a car crash like the Credit Crunch was; the Chinese juggernaut is merely waiting at the traffic lights. Believe me, this country’s time has now come.

Having said this, the Middle Kingdom has a huge number of problems. Mass industrialisation has meant that pollution levels are some of the highest in the world. Despite a booming economy, there are still tens, perhaps hundreds, of millions of unemployed and dispossessed.

And this new wave of wealth has meant rocketing levels of heart disease, diabetes and cancer. Yet there is no national health service as there is in, say, Britain or France. And there is precious little healthcare insurance or provision in pension plans. In short, you’re okay if you are healthy, but woe betide you if you fall seriously ill.

After the horrors of the Second World War, the most important thing Britain’s post-war government did was launch the National Health Service. Thousands of doctors and nurses were recruited and what was a disparate collection of surgeries and hospitals was drawn together into a unique organisation.

China is on the brink of doing something similar. It will take billions of yuan, and a massive training and recruitment programme, but this will naturally follow from the fact of this nation’s new-found riches. After all, what do people in a nouveau riche country want? An empire? A massive nuclear arsenal? No to both of these — they want a good healthcare system.

This means opportunity

And this means opportunity. One of Britain’s great strengths is its pharmaceutical companies. In GlaxoSmithKline (LSE: GSK) and AstraZeneca, this country has two of the leading, and most coveted, drugs firms in the world.

While AstraZeneca’s focus is on big-money anti-cancer treatments, GSK is aiming to expand in emerging markets, where its array of consumer healthcare products and over-the-counter medicines should sell in astonishing numbers. While AZ has gone for the high-margin, research-intensive, developed world approach, GSK is realising there are fewer opportunities in blockbuster drugs and more in cheap but effective treatment for the masses. And, in emerging markets, this mass market numbers in the billions.

That’s why I expect Glaxo to edge down its scientific research and concentrate more of its resources on cost-effective treatments for emerging markets, where it will sell brands such as Zovirax, Aquafresh and Panadol. In doing so, it will follow the path of consumer goods giants such as Unilever and Reckitt Benckiser.

It’s a strategy that none of the other pharmaceutical companies has yet attempted. I will watch Glaxo’s progress with interest. You see, everyone knows that the future of healthcare companies is in emerging markets. But I’m not sure we have yet worked out what that future is.

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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, and has both recommended and owns shares in Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.