William C. Kirby: In my decades of engagement with China, I have seen how the country can change in no time. Politics can undermine business strategies overnight. Yet China is only gaining in importance to the global economy, and so it’s no surprise that business leaders with interests in China are considering many different scenarios.
Pharmaceutical executives would be wise to align themselves with the Chinese government’s goal of moving from mass manufacturing to high-quality manufacturing. This is the best way to compete with the growing number of skilled Chinese entrants in the industry. Foreign companies need to make sure they understand this changing landscape. To do this, they should use China’s growing talent pool. Chinese investments in human capital are among the most important for the future of the country. Young Chinese are world class in their abilities. At Harvard, Chinese students make up the largest part of our international student body. Calling on emerging leaders like these, who know China and its relations with the world so well, would position these companies for success in China, regardless of its political trajectory.
Given that the readers of this Q&A series come from various positions within biopharmaceutical companies, what are your top three recommendations as they strive to successfully engage in the Chinese market?
The history of modern China shows how deeply the country’s development is shaped by its foreign relations. The closer China’s ties to the world, the greater the possibilities for its development. Isolating China, especially during difficult times like this, may seem like the easy prescription, but it’s not safe. I recommend other approaches:
First, recognize the innovation that is happening in China today. In the early 2000s and before, the Fortune 500 commissioned expatriates to lead their operations in China to share best practices from the United States and Europe. The times have changed. Companies like Taikang Insurance Company developed a cradle-to-paradise customer development model that international companies could only hope to replicate. For example, the company had accumulated over 80,000 high net worth clients in just under six years, and then the number began to grow by over 20,000 per year.2 Their success is tied to an intimate understanding of China today.
Second, remember that local innovation can now overtake even the best-run international companies. In 2000, Yunnan Baiyao sold approximately $ 12,000 worth of medicated adhesive plasters. Until then, J&J, which recently made the top twenty on the Fortune list of the world’s most admired companies for 2021 while also ranking # 1 in the pharmaceutical category for the eighth consecutive year, was the dominant leader. of the market. Yet by combining bandages with their medicinal formula, Yunnan Baiyao Adhesive Bandages achieved 40% market share in 2007; exceeding J & J’s who had contracted at just 30%.3
Finally, change your mind about how your business success in China affects you. Even if you are located outside of China and working in an area that is not directly related to the progress of your business in China, imagine what could happen if the growth of that particular business unit slows down. When executives need to meet their overall sales forecast, will they accept lower expected revenue? or will other units, like yours, be called upon to step up and consolidate the sales target? There are many ways to align your business with China’s developments and social challenges. Take the case of China’s aging population and minimal health care safety nets. The private sector has an important role to play in finding solutions to these problems. For example, while care for the elderly was first introduced in the early 2000s, the industry has grown at breakneck speed. How might your team evolve to meet the needs of an increasingly educated Chinese consumer market in healthcare? As China changes, so must your business.
William C. Kirby is Spangler Family Professor of Business Administration at Harvard Business School and TM Chang Professor of China Studies at Harvard University. Professor Kirby is chairman of the Harvard China Fund, the university’s university venture capital fund for China, and faculty chairman of Harvard Center Shanghai, Harvard’s first university center outside the United States.
Michael Wong is an Emeritus Board Member of the Harvard Business School Healthcare Alumni Association.
1. For 2020, China’s sales contribution as a percentage of total sales was 20.2% for AstraZeneca, 7.7% for Merck and 6.0% for Pfizer.
2. Kirby, William C., Lin, Shu, McHugh, John P., Wang, Yuanzhou, From cradle to paradise: Taikang Insurance Group, Harvard Business School, March 6, 2020.
3. Chu, Michael, Kirby, William C., Dai, Nancy Hua, Wang, Yuanzhou, Yunnan Baiyao: Transforming a Chinese State-Company owned, Harvard Business School, April 3, 2018.