Guanxi and Complex Pharmaceutcal Market

Guanxi and Complex Pharmaceutcal Market

GUANXI ........."WHAT IS IT?" "Often more important than the bureaucratic and political aspects of doing business in China is the basic character of the Chinese... Their attitudes and behavior are rooted in a culture that is diametrically opposed to Western thought." _Boye Lafayette De Mente I often say to clients you can walk into someone's office on a cold call with the best product in the world and your targeted customer will nod and say "Yes, yes very good!" but without an introduction you will never hear from them again. Therefore it is imperative your partner in China has "guanxi" In order to make your products presence in China last, and ensure your business expansion successful in the long run, you must understand one of the most important elements of running your business operations in China - the concept of ?guanxi?. Understand this is more important than all the work researching, establishing foreign offices, and making initial contacts with freight forwarders. Even after completing your first successful move into this vast market of opportunity, you will find all your efforts pointless and fail terribly in China without this practice. Technically, ?Guanxi? stands for any type of relationship. In the Chinese business world, however, it is also understood as the network of relationships among various parties that cooperate together and support one another. The Chinese businessmen mentality is very much one of "You scratch my back, I?ll scratch yours." In essence, this boils down to exchanging favors, which are expected to be done regularly and voluntarily. No matter how much experience you have in business management, the right ?Guanxi? in China will make all the difference in ensuring success. The inevitable risks, barriers, and set-ups you?ll encounter in China will be minimized when you have the right ?Guanxi? network working for you. It takes time and experience in order to be able to observe and identify who will be most beneficial to you. Developing and nurturing ?Guanxi? requires time and resources. Your immediate Chinese network can indirectly link you to new acquaintances and information resources. The Chinese and Western cultures conduct business differently, even if, on the surface, transactions seem to be the same. The Chinese prefer to work with people they know and trust, so are less inclined to simply close a deal. With a strong relationship, however, you can be trusted and even favored. This relationship extends between companies and also between individuals at a personal level on an ongoing basis. "Guanxi" can take on many forms. It does not have to be based on money. It is completely legal in their culture and not regarded as bribery in any way. So, there is no need to feel uncomfortable about it. Trustworthiness of both the company and individual is an important component. Following through on promises is a good indication of this. Treating someone with courtesy while others treat him or her unfairly is another aspect. Frequent contact fosters friendship as well. Chinese feel obligated to do business with their friends first. There are risks with this system, as well. When something goes wrong, the relationships are challenged, and friendships quickly disappear. Establishing ?Guanxi? with high rank officials is also helpful. Although Chinese companies are increasing having to survive without government subsidiaries, many foreign companies still need strong relations with government officials. For example, the process of obtaining a new license to market your products in a new region of China is greatly accelerated and much less expensive with the right connections. The time and money necessary to establish a strong network is well worth the investment. What your business could get in return from the favors for your partners are often more much more valuable, especially in the long run, and when you?re in need. Even domestic businesses in China establish wide networks with their suppliers, retailers, banks, and local government officials. It is very common for individuals of an organization to visit the residence of their acquaintances from other organizations, bringing gifts (such as wine, cigarettes, etc.). While this practice may seem intrusive, as you spend more time learning the Chinese culture, it will become easier to understand and take part in this practice that is so central to successful Chinese commercial activity.The main decision makers in the hospitals are the directors and purchasing chiefs.Section chiefs and senior physicians may also play an important role. Because of the "guanxi" culture, decision-makers are easily influenced by their relations with other people. It is important for non-Chinese to understand how the role guanxi plays in business. Most successful U.S. medical device suppliers in China employ a highly aggressive staff of local Chinese who have been recruited from the Chinese health care system. U.S. firms should consider setting up offices in China to facilitate the marketing of products. Special attention should be paid to human resources. Having a staff of experienced professionals which are familiar with the market, policies, and regulations,and also adaptable to U.S. firms' business methods are essential to the success of marketing campaigns.? Last Updated: Tuesday, 10 August 2004 12:22 PM GMT+08 :: Comments/Trackback (0-0)
CHINESE BUSINESS CULTURE Politeness and consideration for others is like investing pennies and getting dollars back. Thomas Sowell (1930 - ) Below you will find detail on negotiating in China and remember arriving late to a meeting here is considered extremely rude!? You'll find it beneficial to bring your own interpreter, if possible, to help you understand the subtleties of everything being said during meetings.? Speak in short, simple, sentences free of jargon and slang. Pause frequently, so that people will be able to understand everything you've said.? You will have to make presentations to different levels of the organization.? Before you arrive, have at least 20 copies of your proposal ready for distribution.? Printed presentation materials of any kind should be only in black and white. Avoid colours that are attributed special meanings in this culture, many of them negative.? Generally, the Chinese treat ?outside? information with caution.? Except for those educated in the West, Chinese businesspeople largely rely on subjective feelings and personal experiences in forming opinions and solving problems. ? Belief in the Communist party line will be a dominant influence in all negotiations.? Empirical evidence and other objective facts will be accepted only if they do not contradict Communist party doctrine and one's feelings.? In this country, responsibility for all decisions rests with the Communist party and assorted government bureaucrats. Individuals working within this network, however, are still accountable for their own actions.? Local decisions are made by the head of the collective.? In Chinese business culture, the collectivist way of thinking still prevails, even in sectors experimenting with free enterprise.? ?Saving face? is an important concept to understand. In Chinese business culture, a person's reputation and social standing rests on this concept. Causing embarrassment or loss of composure, even unintentionally, can be disastrous for business negotiations.? The Chinese are very keen about exchanging business cards, so be sure to bring a plentiful supply. Ensure that one side is in English and the other is in Chinese, preferably in the local dialect. ? Include your professional title on your business card, especially if you have the seniority to make decisions. In Chinese business culture, the main point of exchanging business cards is to determine who will be the key decision-makers on your side.? If your company is the oldest or largest in your country, or has another prestigious distinction, ensure that this is stated on your card.? It's an asset to have your business cards printed in gold ink. In Chinese business culture, gold is the colour of prestige, prosperity.? Present your card with two hands, and ensure that the Chinese side is facing the recipient.? When receiving a business card, make a show of examining it carefully for a few moments; then, carefully place it into your card case or on the table, if you are seated at one. ? Not reading a business card that has been presented to you, then stuffing it directly into your back pocket, will be a breach of protocol.? In accordance with Chinese business protocol, people are expected to enter the meeting room in hierarchical order. For example, the Chinese will assume that the first foreigner to enter the room is head of the delegation.? Since there is such a strong emphasis on hierarchy in Chinese business culture, ensure that you bring a senior member of your organization to lead the negotiations on your behalf. The Chinese will do the same.? Only the senior members of your group are expected to lead the discussion. Interruptions of any kind from subordinates are considered shocking by the Chinese.? In Chinese business culture, humility is a virtue. Exaggerated claims are regarded with suspicion and, in most instances, will be investigated.? The Chinese will not directly say ?no? to you. Instead, ambivalent answers such as ?perhaps?, ?I'm not sure?, ?I'll think about it?, or ?We'll see? usually mean ?no.?? The Chinese tend to extend negotiations well beyond the official deadline to gain advantage. On the final day of your visit, they even may try to renegotiate everything. ? Be patient, show little emotion, and calmly accept that delays will occur. Moreover, do not mention deadlines.? At the end of a meeting, you are expected to leave before your Chinese counterparts.? You may have to make several trips to China to achieve your objectives. Chinese businesspeople prefer to establish a strong relationship before closing a deal. ? Even after the contract is signed, the Chinese will often continue to press for a better deal.? Last Updated: Tuesday, 10 August 2004 2:36 PM GMT+08 :: Comments/Trackback (0-0)
GLOBAL HEALTH POLICY AND CHINA The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger - but recognize the opportunity. Richard M. Nixon (1913 - 1994) The World Health Report says the main failings of many health systems are:? Many health ministries focus on the public sector and often disregard the frequently much larger private sector health care. ? In many countries, some if not most physicians work simultaneously for the public sector and in private practice. This means the public sector ends up subsidizing unofficial private practice. ? Many governments fail to prevent a "black market" in health, where widespread corruption, bribery, "moonlighting" and other illegal practices flourish. The black markets, which themselves are caused by malfunctioning health systems, and low income of health workers, further undermine those systems. ? Many health ministries fail to enforce regulations that they themselves have created or are supposed to implement in the public interest. Fairness of financial contribution: When WHO measured the fairness of financial contribution to health systems, countries lined up differently. The measurement is based on the fraction of a household's capacity to spend (income minus food expenditure) that goes on health care (including tax payments, social insurance, private insurance and out of pocket payments). Colombia was the top-rated country in this category, followed by Luxembourg, Belgium, Djibouti, Denmark, Ireland, Germany, Norway, Japan and Finland. Colombia achieved top rank because someone with a low income might pay the equivalent of one dollar per year for health care, while a high- income individual pays 7.6 dollars. Countries judged to have the least fair financing of health systems include Sierra Leone, Myanmar, Brazil, China, Viet Nam, Nepal, Russian Federation, Peru and Cambodia. Technically advanced medical devices that are affordable to medium and small-sized hospitals are selling well in Southwest China. Hospitals have a preference for U.S. medical equipment because of its superior quality, reliability and technical data. However, competition is strong. Large domestic manufacturers, joint ventures, and foreign firms from Japan, Germany, France and Israel are major competitors. Price and after-sales service are also important factors. U.S. companies should focus on the export of medium-level medical devices to increase market share. Experienced agents and good after-sale services are essential in marketing medical devices in this region.China is considered to be the largest medical device market in Asia outside of Japan. With strong economic growth and an increasing and aging population, the rise in living standards is driving research, production, and technology to search for high-quality equipment from foreign countries.

COMPLEX PHARMACEUTICAL MARKET

Never discourage anyone...who continually makes progress, no matter how slow.
Plato (427 BC - 347 BC)
For many multi-national pharmaceutical companies, they will very soon have to face many puzzles: According to the plan, medicine expenditures in Shanghai tenders will reach 4.4 billion RMB, among them more and more drugs used in large quantities in clinical settings. Some of the medicines are on the medical insurance list that have not yet gone out to a standardized purchasing tender, and their tender will complete the first round of medicine tenders. Some single-use and disposable medical equipment will also be put up for trial tenders.
?This means that the critical and sensitive products are all coming later, for example stomach medicine [changwei yao], stroke medicines [xinnaoxueguan yao], and high blood pressure medicine, these three types,? said one person familiar with the trade, ?many of these foreign businesses will be affected.?
But from the view of the multi-national pharmaceutical companies, the current situation isn't the worst possible. ?Shanghai's regulation is only the beginning of the biggest shock since entering the China market, it isn't the end. There will certainly be other measures released later.?
Therefore, what the foreign pharmaceuticals are worried about now is if Shanghai's regulation goes ahead smoothly and produces efficient results, other areas may strive to use the same methods. ?This is something that many localities have all along wanted ? but not dared to do, to reduce the price of medicine. But one has to consider the political environment, the path of economic development, the reaction of foreign business, etc. If Shanghai is successful in pushing this through, it will surely give other areas confidence [to do the same].?
The reply of departments in charge of price tenders at the Ministry of Health have doubtless confirmed the worries of the foreign companies: ?What is important is the reaction of the common people to this policy, if it is implemented smoothly it is very possible that it will be extended nationwide.?
And for the foreign pharmaceutical companies, the least desirable result would be a drop in prices. ?As soon as the price falls, that will have a big effect on us, because our ability to withstand a drop in prices is relatively low.? The logic of the foreign companies is that, no matter if you?re doing Research and Development or market investment, originator medicine is always more expensive to make than generic copies of that medicine. Even if they produce the medicines locally, machinery, staff, and transportation costs will be much higher than for local companies, ?which means there's little room to lower prices.?
It is worth pointing out that the State Planning Department has a rule: The price for Originally researched and developed medicine must not exceed the price for a generic copy by more than 30%. But this rule is not enforced strongly, and the price often exceeds this limit. ?If this were really enforced, many foreign invested companies would have no way to exist in China, because their capital expenses are too high.?
Actually, the prices of many imported medicines in China are much higher than they are in other countries. ?It is mostly because of the large number of middle-men that the capital costs are so high,? explains one trade insider, ?we cannot directly sell the medicines that we import, the factory sells to a level One company, which adds 5% profit and re-sells it to a level two company, which then adds another 7-8% profit, and finally when the hospital sells it to the patient they may add another 20-30% profit to the cost.?
He explains that in 1998 Guangdong province issued a notice called ?Overall control and adjustment of medical institutions' fees and income?, but it was not like the one issued in Shanghai. The notice stated that annual income from medicine sales could not grow more than 15% per year, and from imported and joint venture medicines 30% a year. However, because of opposition from both hospitals and companies, the regulation was recalled after only half a year.