But shouldn't IP protection worry medical technology and biotechnology companies going over to China? Not necessarily, says
Sévigny. In his experience, the products at the greatest risk of IP infringement in China are luxury items and simple technology-based
items. That's not to say that medical technology companies are safe from IP risk, which is why a close local partner, with
good connections to the government, is a must; a company must have a partner that can voice complaints effectively. DGel believes
it has found such a partner in GSBS.
MODEL 3: CAPITAL INVESTMENT
Adaltis Inc. (
http://www.adaltis.com/) is an international in vitro diagnostic company. Headquartered in Montreal, Canada, Adaltis has offices in China, Hong Kong, Italy, Germany, and Mexico.
The company develops, manufactures, and markets in vitro diagnostic systems and reagent products to detect viral infections, diagnose immune system diseases, and measure human hormone
In 2003, Adaltis made the strategic decision to build a manufacturing facility in Shanghai. This facility manufactures reagents
for its existing clients in Europe, South America, and India, while providing a platform to penetrate the high-growth Chinese
What are the key drivers that led Adaltis to build a 100%-owned factory in China, rather than develop a partnership with a
local company? Historical reasons factor in. One of its strategic shareholders, China International Trust and Investment
Corporation Pacific, out of Hong Kong, is heavily involved in the Chinese market already, and was able to reduce the barriers
to entry. Citic Pacific, which now owns approximately 13% of Adaltis's equity, became a key partner, providing Adaltis with
timely assistance that facilitated Adaltis's quick entry into China.
Yet, Adaltis's management felt that the necessary local production expertise was not available. As a result, Adaltis decided
early on to develop its own Chinese expertise and to build its own facility to go with it. Also, by building a team from the
ground up, management believed the company would have a better chance of retaining that developed expertise over time, thus
reducing copyright infringement risks.
The company also was unable to find a suitable facility, so it decided to build its own. Jacques Deforges, vice president
of finance and chief financial officer for Adaltis, explains: "The high quality and modernity of the industrial park [where
we built our site] made it a far more logical choice for us to build a new industrial unit than buying a 20-year-old building,
recycling it to comply to European regulations, and putting new equipment in it."
Staffing a new production facility from scratch presented some significant obstacles, however. The initial project team included
members in China, Canada, and Italy, so ensuring effective communication across different time zones was the first challenge.
Also, it was difficult to find local personnel with the required experience. The products manufactured by Adaltis in China
are high-quality reagents based on a lot of know-how, and key employees at Adaltis's other plants have over 30 years experience
in the in vitro diagnostic industry. The greatest challenge was transferring knowledge from existing production facilities in Italy and Canada
Deforges continues, "We had to train local personnel to a level allowing this facility to become 'CE mark' certified and teach
them our quality assurance and quality control standard. There is a limited amount of local knowledge related to European
certifications in China presently."
The CE Mark is a mandatory marking which is required for products in various fields, including medical devices and in vitro diagnostics, sold in the European Economic Area. The mark certifies that the product conforms to the essential health and
safety requirements set out in European Directives.
To address these challenges, Adaltis adopted a dual strategy of concentrating its efforts on transferring established products
to China while preserving the development of new products in Europe. This strategy allows Adaltis to use its state-of-the-art
manufacturing facility in Shanghai to produce diagnostic instruments and high-quality reagents at a low cost while attention
in Europe is dedicated to research and development. Therefore, Adaltis has entered China with its stable product lines while
preserving its knowledge in Europe. This strategy protects Adaltis from copyright infringement.