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Pharma in China: Complex Opportunity

Contributed by Bryan Hara, Executive Director Southeast Asia & China, Schawk, Inc.

Bryan Hara

It’s possible that no area of Chinese commerce offers more opportunity for foreign companies – and more obstacles – than pharmaceuticals. The broad context is a country of 1.3 billion upwardly mobile people whose government wants to achieve near-universal healthcare, fast, and parity with Western medical systems. But the devil is in the details. China is still rooted in its traditional-medicine past, and where modern pharmaceuticals have gained some traction, they’re hampered by widespread counterfeiting and lapses in quality.

So if the learning curve for Western retailers has been steep in China, it’s even steeper for pharmas. As of two years ago, the top 15 pharmaceutical companies worldwide derived less than one percent of their business from China. Here’s the marketplace they encounter today.

China is a huge country that’s “getting old at a fast rate,” thanks in part to one-child laws that have skewed demographics toward the elderly. This and the fast growth of the middle class – a government crusade – are the kind of demographics that benefit pharma. The same with less welcome data, such as that the rates of cancer, diabetes, heart disease and high blood pressure are rising in China, along with its wealth.

As a result, China’s healthcare industry has grown by double-digit percentages in recent years, and a McKinsey report cited by Morgan Stanley Smith Barney forecasts 11.6 percent annual growth through 2025 – right around the time China is expected to become the world’s largest economy. And currently, the pharmaceutical market in China is growing faster than healthcare overall, outstripping even earlier bullish growth estimates. This rising sea will lift a lot of boats along with pharma. Various reports forecast explosions in packaging and labeling services for the pharma industry and in low- and middle-cost diagnostic equipment for hospitals, among other things.

These facts would be more enticing if they applied to a country less complicated than China. But the fact is, China is complicated. For starters, as in so many areas of commerce, China’s biggest cities are leading the way in modern medicine, but these are not a homogeneous group. As a report by IMS Health notes, each city and region in China has its “own characteristics, physician attitudes, drivers of prescribing and levels of income and affordability,” which require local and regional strategies, each complicated by the inconsistent application of ever-changing government regulations for pharma products.

This is why, the report adds, China is dominated by “local manufacturers with strong geographic reach, wide distribution networks, flexible promotional methods and close engagement with local governments and hospitals.”

There might be a bit of euphemism in “close engagement.” In many areas of life and commerce, the Chinese government is engaged in a balancing act between modern innovation and regulation and the entrenched structures that still help hold up the economy. Reports vary widely, but as much as one-eighth or more of Chinese pharmaceuticals today are either counterfeit or substandard. At the same time, according to various reports, a full-on attack on counterfeiting by the Chinese government would cause tremendous economic upheaval and would implicate military figures and more.

Yet the government understands the stakes, that not only do counterfeiting and lax manufacturing standards undermine long-term plans for a robust healthcare system within a robust economy, they endanger a population that’s increasingly unwilling to buy black-market goods. For these reasons the government’s most recent wide-ranging package of regulations, GMP10, from 2010, relies heavily on European standards and is heavy on quality management: deviation control, corrective action and preventative action and a product quality review system. Sterility is addressed throughout the pharma manufacturing and packaging process, and narrower discretion is given to inspectors.

Reflecting an awareness of the major changes involved, the phase-in of GMP10 is staggered. But a more pressing reality faces China in its long-term plans: “Until the manufacturers and regulators realize there is no other way to be successful than to do it right,” says a report from PharmaManufacturing.com, “the portent for change from GMP10 remains in doubt, and China’s bid for parity will likely fall short.”

But if China is successful, it could open up powerful new opportunities for Western companies.


Sources: “China’s Bold Step Toward Parity,” Bikash Chatterjee in PharmaManufacturing.com, Feb. 19, 2010. “Pharmerging Shake-Up: New Imperatives in a Refined World,” IMS Health, 2010. “The Problems and Potential of China’s Pharmaceutical Industry,” AEI Outlook Series, April 2009. “Patent System To Catch Up with Pharmaceutical Industry Expansion,” China Law & Practice, June 2008. “China’s Pharmaceutical Market is Booming,” Interpack Magazine, 2011. “Pharmaceutical packaging growth forecast in emerging economies,” Healthcare Packaging, Feb. 22, 2010. “Asian Affluence: The Emerging 21st Century Middle Class,” Morgan Stanley Smith Barney, June 2011.


Schawk, Inc. is a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers. With a global footprint of operations in 26 countries, Schawk helps companies create compelling and consistent brand experiences by providing integrated strategic, creative and executional services across brand touch points. For more information about Schawk, visit http://www.schawk.com. Follow Schawk on http://www.brandsquare.com and http://twitter.com/BrandSquare.

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