Pharmaceutical distribution networks in China: analysis of benefits and challenges of entering the Chinese market

Entering foreign markets is aligned with objectives related to and influenced by the market entered. Operationalisation of objectives as well as the given environment of the host country influence setup of distribution activities which demands for joint analysis of both topics. The objective of this dissertation is to contribute to research by exploration and expansion of the current thinking through identification of motivations and strategies for entering the Chinese pharmaceutical market and for distributing pharmaceuticals within this market. China reveals positive forecasts and progress in regard to market size, growth, governmental stabilisation and technological development. But, foreign companies operating in China are challenged by the current status of institutional development, economic, geographic and governmental disparities, cultural differences and complex, fragmented distribution networks. This master dissertation follows an exploratory case study approach based on desktop research as well as information received by an interview with a distribution manager of AstraZeneca in Shanghai. AstraZeneca is a global, vertically integrated bio-pharmaceutical company which entered the Chinese market in 1993. One conclusion of this dissertation is that entering the Chinese pharmaceutical market as pioneer in a particular market segment or therapeutic area may be beneficial. In terms of location decision, settlement in Eastern regions by joint venture and later development of a wholly-owned venture as well as expansion towards central regions such as Sichuan by greenfield investment is recommended. Major competitive advantages of prominent pharmaceutical companies which are proposed to be followed are (1) own, innovative research facilities, (2) wholesaler and distributor networks, (3) globally spread production networks, (4) branding regarding sales but also to increase the company reputation to enhance recruiting, (5) common marketing for all facilities but with local adaption to China also considering regional disparities and with special regards to compliance in sales and marketing, (6) mix flexibility in terms of product portfolio adaption and (7) targeting of diverse market segments. In terms of market positioning differentiation by innovation, branding and distribution channels while reaching a broad customer base is proposed. Early commitment to the Chinese market and related knowledge on local customer preferences, government policies and business practices linked with existent Guanxi provide a sustainable competitive advantage. Regarding distribution no optimal solution was found. Outsourcing as well as in-house execution reveal significant advantages in the Chinese pharmaceutical environment. In any case particular regards should be given to partner networks, securing of pharmaceutical distribution channels, temperature and humidity management in transportation as well as warehousing and shelf-life tracing