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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 problems. China is one of the most lucrative markets for pharma companies across the globe. China’s growing middle class and an ageing population mean new opportunities for companies to widen their portfolio in this area. However, entrants into the Chinese market encounter several challenges while expanding their operations effectively in 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.
Chinese market entry barriers
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 poses 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. Foreign pharma companies can increase their profit margins by targeting consumers directly.
Once the drugs have made its 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.
Strategies for Success in Asia’s Emerging Markets
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Potential Barriers to a Foreign Market Entry and Strategies to Overcome Them
New and emerging markets open up numerous opportunities and have limitless potential for growth. However, when to take a closer look at the annals of business history, it shows that for every successful market entry, about four fail. Interestingly, it is not just inexperienced startups that face the heat from new markets while implementing their market entry strategies, several sophisticated corporations also face the same fate. Industrial strategists at Infiniti Research agree that successful market entry strategies depend largely on factors including timing, scale relative to the competition, and the ability to leverage complementary assets. Moreover, it is vital to undertake detailed analysis and market research before entering into a foreign market.
The rising rate of globalization is prompting brands across the world to ‘think global’. In the long term, every modern business wants to expand their reach to international markets, which would eventually spike their profit and growth graphs. The lucrative scope of doing business in foreign markets are attracting many ventures, big and small, to explore these opportunities. However, while formulating international market entry strategies, chances are that a company might overlook certain barriers that might prove to be fatal for the business. Here are some of the key barriers that companies must watch out for before formulating their international market entry strategies:
Monopoly in the market
The existence of a monopoly in the market often poses as a tough barrier for companies planning to build international market entry strategies for their business. A monopolistic market situation is when one company or a group of companies hold an entire chunk of the market share, making them the primary providers of products/ services in that market. Monopolies often block the entry of other substitutes or competition in the market by using patents and licenses, controlling distribution routes, resources or suppliers, or by using pricing strategies. If companies entering a new market cannot access an efficient or cost-effective distribution system because incumbent companies have a greater control over the distribution networks, the chances of their goods or services to be successful is highly unlikely.