Too Big to Ignore: What CI Needs to Do to Make the China Market Manageable

Too Big to Ignore: What CI Needs to Do to Make the China Market Manageable

Chinese pharmaceutical companies present both an opportunity and a threat to their international counterparts. In this blog, we explore what Western pharmaceutical businesses need to do as the world’s manufacturing hub begins building a reputation for quality.

JANUARY 2021

Pranay Kapoor

Associate Director at Prescient Healthcare Group

Competitive intelligence (CI) provides insights that are essential for any activity or strategy in the pharmaceutical industry. Crucially, CI is deployed for businesses to understand how markets function across different geographies. How a drug makes the journey from a lab to a patient is perhaps the most important “known unknown” for any company looking to enter a new territory. 

China presents a quandary

High speed and low quality are already out of date

So unknowable, in fact, that assumptions about Chinese manufacturing being all about high speed and low quality are already out of date: China’s pharmaceutical industry is beginning a process of transformation. As the country embraces a more value-added economy, we can expect Chinese pharmaceutical companies to do what they must to become much more competitive with the rest of the world (RoW).

The West’s assumptions about the country may give China a valuable advantage, but beyond this intelligence gap is a market ripe for exploration. Many major Western pharmaceutical companies have already made inroads into China; since 2012, for example, there has been a huge increase in the number and scale of RoW pharmaceutical operations setting up shop in the country.

The companies with early entries into China have adapted their approaches over the recent years; while initially adopting a strategy of using products that already exist in the regulated markets within China (Indian generics companies in particular are taking advantage of a better API supply), there is now more activity around developing and launching entirely new products. Johnson & Johnson is just one example: It opened an innovation hub in China, forming local partnerships and joint ventures to tackle various oncology indications.

Joint ventures are the key to success

These joint ventures are the key to success in the Chinese market: There is a fundamental difference between the way business is carried out in China versus in the West. Business relationships and networking are central to progress, and it is only when nurturing these relationships that the information that will allow for effective analysis of the market can be reached. In practical terms, this means several things – primarily that a physical, on-the-ground presence in China is a necessity, and this must include people with local language skills and local cultural knowledge.

Dropping a non-Chinese team into the heart of Beijing will not achieve this.

The Chinese society is friendly but can be insular, particularly where business matters are concerned. In the West, there is a tradition of centralization and freedom of information. This centralization certainly does not exist to the same extent in China, where, to build a complete picture of a drug, several sources are needed rather than a single point of truth, such as the FDA.

The Result

The result of all this is a mixed picture of success for pharmaceutical companies. Most of the market share in China continues to be held by local players who enjoy better reach and offer lower prices than RoW competitors. The strength of RoW companies is their global appeal and higher quality. In addition, with the R&D money already spent, Western pharmaceutical companies could find opportunities to get ahead of the local competition and continue to build on their reputation for quality. This advantage, however, has been recognized by the Chinese government, and the clock is ticking on how long it will last: China has had a chaotic history of regulation, but there is a move to put reforms in place that will make the industry more competitive with international outsiders.

We could be on the cusp of high-quality and new drugs being made in China. The one great advantage that Western pharmaceutical companies currently have is that Chinese companies do not have the appetite for making the necessary investments in R&D that will make them truly competitive in the Western markets.

“The best time to plant a tree was 20 years ago; the second-best time to plant a tree is now.”

This traditional Chinese proverb is appropriate when thinking about how building relationships within the Chinese market takes time to develop and pay off. For the companies that are looking to move into the Chinese market, it can feel like it is already too late if they do not have a presence on the ground. The solution for this may be to look around; you may discover that other companies have also delayed their entry into China later than they should have. Zhù nǐ hǎo

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