For most Western and Japanese biopharmaceutical operations, the question is not whether to enter the vast Chinese market, but how. The evolution of the Chinese market in recent years has given biopharm executives many options to consider.
Kent Kedl, coauthor of The China Ready Company and a partner at Technomic Asia (Shanghai and Chicago), a firm that guides companies investing in China, describes the market's
evolution this way:
"Ten years ago, a company that wanted to make a direct investment was forced to go into joint ventures, which were often arranged
marriages from hell. Now, companies can step back, look at the marketplace and choose the best strategy, whether it's a green
field, joint venture, licensing deal or acquiring somebody. It has really opened up."
Most Westerners' notions of their economic relationship with China focus on using inexpensive Chinese labor to manufacture
consumer items—from toys to housewares—and exporting the finished goods from China to the United States, Japan, or Europe.
Scientists at GNI-Shanghai Genomics' laboratory in Zhangjiang Hi-Tech Park use state-of-the-art equipment.
Japanese and Western companies, including those in biopharm, are forging a far richer involvement in the Chinese economy to
take fuller advantage of China's rapidly growing consumer market.
China's gradual relaxation of its historic opposition to foreign ownership of companies operating in China, makes it easier
for Western companies to pursue capital that is structured more to their liking. This also propels further investment.
We can see this evolution at work in the experience of two foreign biopharm concerns with deepening Chinese operations.
- The Japanese-Anglo pharmaceutical firm GNI, Ltd., (Tokyo) once outsourced testing services in China. Last year it merged with
the Chinese firm Shanghai Genomics (Shanghai) to create a solid foundation for developing products to the burgeoning Chinese
- German pharmaceutical concern Qiagen (Hilden, Germany) once had only a distribution office in China. It now is the 100 percent
owner of two Chinese companies: TianWei Times (Beijing) and PG Biotech (Shenzhen).
Part of this evolution in the sophistication of Chinese foreign direct investment (FDI) is the natural course of any economic
relationship. What begins as low-value-add mutual exploitation either evolves into something deeper, or the party soon moves
elsewhere, where the drinks are cheaper. Western companies understand that China has been transformed from just a labor market
into a vast consumer market. And the Chinese understand that foreign direct investment will dry up if the capital structures
available to Western companies are limited to joint ventures with government-owned companies.
Christopher Savoie, CEO of GNI-Shanghai Genomics, also describes in strategic terms the changing nature of biopharm FDI in
"There is a new trend in bio research to move outsourcing more upstream, to involve more intellectual property (IP)," Savoie
This trend has taken time to develop because companies have needed to gain experience to become comfortable with the idea
of exposing their IP to Chinese partners.
How to Conduct Business in China