The Chinese prescription drug market: Business potential and entry strategies for foreign pharmaceutical companies

Arsilan Hamid

Student thesis: Master thesis


thesis looks initially at the pharmaceutical market and then at business potential and entry strategies for the foreign multinationals in the Chinese prescription drug market. The initial research on the industry reveals entering China or for that sake other markets is necessary to further exploit economics of scale and to extend the lifecycle of outdated drugs. The industry consists of big players mainly from the developed countries of USA, UK, Germany and Switzerland and Japan controlling major shares of the market. Main lessons learned about the industry are that it is very heavy on R&D and works with high fixed costs and low variable costs. The main point is the costly and lengthy approval process which is under huge amount of regulatory supervision. The lengthy drug discovery process leads to great owner specific advantages where niche multinationals stands stronger. It leads to high entry barriers and big companies competing on quality. Due to future challenges you need to expand your business to more than just the west. The R&D costs in the west are increasing and the products on the pipeline decreasing hence to further drive the profits you need to take more comprehensively advantage of economics of scale of the few products. This means that niche companies needs pursuing economics of scale more that broad portfolio companies. This is though only relevant for those multinationals who have fully exploited the western markets. The next step has been to assess China´s business potential by looking at market size, buying power, growth, government regulation and average industry margin. Since the country has such a huge difference in its regions and income it has been necessary to assess the business potential of each classes and regions independently. My research shows that not only the rich but also the upper middle can afford original prescription drugs. The lower middle class constitutes a huge market for generics. The business potential of the rich and middle class is great. The rich scores high on buying power whilst the middle on market size. In terms of growth it has huge potential. The regions have huge income differences with those at the east coast being the wealthiest. It also applies for the hospitals. Class 3 hospitals are those mainly visited by the rich and it is there your drug can get on the reimbursement list. The Chinese pharmaceutical industry is expected to rank as the second biggest market within 2020. The flip side is weak IPR protection. Challenges met in mainland could be less qualified physicians and the customers harder to find as the share of rich in the less wealthy regions is very low. Don´t expect competition from locals as the Chinese pharmaceutical industry is ages behind the western. From the resource based view we can see that it is not easy to reach those owner specific advantages. The locals are only specialized in producing generics and the consumer’s don´t trust them. The perceived high quality of western medicine is your biggest asset. The country is undergoing a huge health care reform which characterizes its country well as a constantly changing country. So be sure to keep yourself updated with the latest trends for not to be taken with guards down. Enter with wholly owned operations with sales and marketing as the biggest value chains. Entry time should be within the next 3‐7 years as the current companies are mainly maturing the market and doesn’t earn a lot of money. In the initial state of your entry focus on the east coast and in class 3 hospitals. Invest a bit in less wealthy regions and hospitals as a long term investment. Remember that the middle class constituted the biggest potential customer base. Enter mainly with outdated drugs and a bit of innovative. Do not engage in selling to pharmacies. Focus a lot on marketing activities. Invest in large scale programs in collaboration with stakeholders in educating and raising awareness. This is especially important as the formal institutions are weak so the informal ones play an important role. Run your campaign with a push strategy. The market entry steps are approval, marketing, provincial listing, hospital listing, reimbursement listing and physician visits.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2013
Number of pages99