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The Chinese way

Knowledge sharing and 'good guanxi' are needed to benefit from the country's aggressive expansion

Mocked up issues of Pharmaceutical Marketing ChinaWhen the Olympic torch is carried into London for the 2012 Olympic Games, China may already have one competitive win under its belt. It is likely to have replaced the UK in the Big Seven pharmaceutical markets. By the time the 2040 Games roll around, it will probably have knocked the US off the top spot as the number one market. How the pharmaceutical world will have evolved by then is subject to speculation, but the China known presently for cheaply producing generic and biosimilar molecules is sure to have evolved beyond recognition.

Taking a combination of homegrown and foreign-educated scientific talent, together with the largest production infrastructure and capacity in the world, China will have redefined not only itself, but also the face of global pharmaceutical marketing. The US may no longer represent the traditional counterpoint to 'Rest of World' (RoW). In fact, marketers may well be talking of 'China and RoW'.

China's current economic expansion, combined with improvements in the regulation of intellectual property and rising investment in R&D are driving the pharmaceutical market, which is set to become the third largest in the world by 2011. International pharma has a clear rationale for market entry into China. Its population size and growth distinguish it from other markets. It has approximately one-fifth of the world's population and contains more than 100 cities the size of Berlin. This economic growth has been driven further by China's entry into the World Trade Organisation and the subsequent inflow of foreign direct investment, which has had great influence.

Prescription sales are also increasing strongly, both for treating life-threatening conditions such as lung cancer (China is one of the few markets to have a rising number of smokers) and lifestyle-related issues.

In terms of ability to pay for private treatment, the market divide in China is far wider than in the West and continues to grow, with a much greater division between rich and poor. Those who are classified as wealthy in major commercial centres are usually so rich that cost is no object, particularly regarding drugs for life-threatening illnesses. This has significant implications in terms of access, as there is a far higher level of brand affinity than in Western populations. This also affects pricing and the standard Western approach of determining most reasonable pricing versus that of competitors, through quantitative market research, must be used with caution.

For non-reimbursed drugs, there is actually a potential threat in under-pricing pharmaceuticals as there is frequently a correlation between expense and quality. This has obvious implications when considering targeting non-reimbursed drugs to wealthy populations. Sometimes, for market success in China it is worth considering having more expensive products than those of your competitors.

Growth drivers
The primary growth drivers behind the Chinese healthcare market are an ageing population, urbanisation and economic growth. Areas such as diabetes and cancer have gained prominence since 2008, following the Chinese Government's announcement that it would reimburse more drugs for treating these indications.

Ongoing healthcare reform has seen a steady increase in the proportion of people covered by insurance and receiving at least partial reimbursement. The stated goal of the Government is the provision of universal coverage for the whole country. However, this 'universal' coverage will only be partial in reality and, for premium-priced Western therapies, it will only cover a modest percentage of the total overall cost.

Universal healthcare reform is only the start and, as further significant developments are planned, close and ongoing monitoring will be required to see how they impact the pharmaceutical industry. One example of this is the aggressive expansion of retail pharmacy in China, which Western retail pharmacy is already seeking to exploit, as demonstrated by the deal Alliance Boots brokered with the state-owned Guangzhou Pharmaceuticals Corporation in 2007.

The specialist hospital market in China is highly centralised, with a significant proportion of private business. Hospitals are classified according to the types of department and the equipment that they have. Tier I hospitals primarily serve local healthcare needs. They have limited equipment and few, if any, specialist staff. Tier II hospitals cover both primary healthcare and specialist medicine needs and largely serve the local population. Tier III hospitals are the biggest, and focus on specialist medicine needs at both local and national level.

The centralised nature of the Chinese hospital market for specialised treatment has implications for patients, and consequently for pharmaceutical companies wishing to target the maximum patient population with premium priced therapies. Chinese patient populations tend to be highly ambulatory, with patients prepared to travel hundreds of kilometres for treatment by a 'star' physician. In the very hierarchical chain of physicians in Chinese centres of excellence, these 'superstars' can exert considerable influence on prescribing decisions across their institution. Consequently, these stakeholders need special attention from any pharma company seeking to develop a relationship with that institution. In addition, in many cases, senior physicians are rewarded in part based on the financial success of their hospital. Hence, there are many levels - medical, economic and political - from which access in Chinese hospitals needs to be approached.

The role of the brand in Chinese pharmaceuticals, though on one hand far more nascent than in Western markets, is pivotal, particularly in the private market. China's recent economic explosion has brought a reverence for brands that is not seen in Europe or the US, with young Chinese paying the equivalent of a month's salary for a particular brand of mobile phone or item of clothing. Similarly, pharmaceutical brand recognition appears to be king in the Chinese private market. Many wealthy patients pay premiums for branded therapies, rather than accepting generic equivalents.

China's strongly access-driven market puts significant power in the hands of the salesforce, giving it substantial leverage potential with physicians. This influence cannot be underestimated. Salesforce penetration probably represents the single greatest lever to engineering sales in hospitals. This, combined with the centralised nature of specialist hospital therapy, makes strong account management within hospitals vital for sales success. However, corruption has historically been an issue among unethical operators in China and tales of backroom deals abound.

There is much speculation surrounding cases where prescription sales are driven through spurious relationships between reps and physicians. Indeed, there have been stories of the disappearance of sales overnight with the loss of a single pivotal rep. The role of the rep could, in certain cases, be described as the "daily creator of the brand from scratch". However, there is clear movement to tighten control and raise standards, so this issue should soon be a thing of the past.

What is a guanxi? The basic translation for 'guanxi' is 'friendship' or 'contact', but it goes further than that, because guanxi is vital to success with key stakeholders in China. Essentially, someone is described as having 'good guanxi' if their network of influence could assist in the resolution of a situation, like accessing a KOL or connecting to key stakeholders in a target hospital.

It can be defined as exchanging time or a favour to obtain a service from someone. Good guanxi can be accrued, like money in the bank, for later use. However, rather than necessarily being corrupt, it is viewed by the Chinese as a culturally acceptable, honourable exchange between individuals. Guanxi is vital in every area, from KOL interactions, to public affairs, to gaining approval and reimbursement. Without it, no one can navigate the Chinese market.

With the EMEA and US regions showing modest growth, the double-digit expansion of the Chinese market is a tantalising prospect. Undoubtedly, Western pharma marketers have a great deal of value to add and significantly more sophisticated experience than is generally found in China at present. However, those who will make the best inroads will be those brokering partnerships with well-connected Chinese concerns, combining both knowledge and experience with good guanxi. Right now, success depends both on what you know and who you know.

The Author
David Kane, PhD, is a global director with Ogilvy Healthworld in London, UK.

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6th July 2010


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