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Although expansion into emerging markets is vital for pharma companies to ensure continued growth, both cultural and economic market entry barriers can pose critical challenges. China is one of the most lucrative markets for pharma companies across the globe. China’s growing middle class and an aging population mean new opportunities for companies to widen their portfolio in this area. However, entrants into the Chinese market encounter several roadblocks while expanding their operations into the country. For Western companies seeking a foothold in the pharma industry in China, our experts have identified some of the key market entry barriers in the Chinese pharma market and ways to overcome them.
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Barriers to market entry in China’s pharma sector
Identifying untapped market potential
The scale of the country could prove to be one of the key market entry barriers for pharma companies planning to enter the Chinese market. So far, the main focus for pharma companies has been on Tier 1 and Tier 2 cities, those with a population of over 2 million. Physicians in large hospitals in these cities have been targeted by foreign companies as a part of their market entry strategy to venture into these markets. Pharma companies must also identify ways to leverage the potential of China’s rapidly growing Tier 3 and Tier 4 cities. Mergers or joint ventures with established Chinese firms who have built up knowledge and a profile in these areas is one of the best ways to pursue this.
China’s overlapping demographics with each of them requiring a tailored approach could prove to be a severe challenge for pharma companies. Furthermore, inadequate knowledge of geographical and cultural differences in Chinese markets could also prove to be significant market entry barriers for companies in the pharma sector. Even two cities such as Shenzhen and Guangzhou which are in close proximity, speak different languages and represent very different social clusters. Marketing in these two cities or even the case of Tier 1 and Tier 4 cities in the country would necessarily require two separate approaches.
Planned price restrictions
The Chinese government has recently indicated that they intend to review their current drug pricing scheme, which could increase the market entry barriers for foreign companies. They are planning to dramatically increase the number of drugs covered under the essential drugs list. China’s pharma industry is heavily weighted towards producing generics which are better placed to compete under such criteria, posing major market entry barriers for foreign companies wishing to profit from more expensive branded drugs. In this case, foreign pharma companies can increase their profit margins by targeting consumers directly.
Supply chain challenges
Once the drugs have made their way through the registration process, it will need to be distributed, and the fragmentation of the supply chain makes this a much more complicated process in China. Often, there are several layers of distributors to get through before reaching the customer in Chinese markets, which raises the distribution costs and also diminishes supply chain visibility, making it difficult to monitor the product once it has left the factory, contributing to further market entry barriers.
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