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Chairman of the Harvard China Fund, Dr. William C. Kirby, talks about the potential impact on multinational western pharma firms of disruption in China.
In this installment of the Harvard Business School Healthcare Alumni Association (HBSHAA) Q&A series, Harvard Professor and Chairman of the Harvard China Fund, Dr. William C. Kirby, talks to Michael Wong about the potential impact on multinational western pharma firms of disruption in China.
Michael Wong: During the past two decades, several Fortune 500s’ growth engines have been driven by successful engagement with China. With firms, such as AstraZeneca, Merck, and Pfizer1 experiencing tremendous growth there, what happens if/when disruption occurs in this key market?
William C. Kirby: In my decades of engagement with China, I have seen how the country can change on a dime. Politics can undermine business strategies overnight. Yet China is only becoming more important to the global economy, and so it is not surprising that business leaders with interests in China plan for many different scenarios.
Pharmaceutical executives would be wise to align themselves with the Chinese government’s goal of transitioning from mass manufacturing to high quality manufacturing. This is the best way to compete with the growing number of capable Chinese entrants in the industry. Foreign firms must ensure they understand this changing landscape. To do so, they should utilize China’s growing talent pool. Chinese investments in human capital are among the most significant to the country’s future. Young Chinese are world-class in their abilities. At Harvard, Chinese students are the largest portion of our international student body. Tapping emerging leaders such as these, who know China and its relations with the world so well, would position these companies for success in China no matter its political trajectory.
As readers of this Q&A series come from various roles at biopharma firms, what are your top three recommendations as they strive to successfully engage with the China market?
Modern Chinese history demonstrates how the country’s development is deeply shaped by its foreign relations. The tighter China’s ties with the world, the greater the possibilities in its development. Isolating China, especially during difficult periods such as this, may seem the easy prescription, but it is not prudent. I recommend other approaches:
First, recognize the innovation that occurs within China today. In the early 2000s and before, Fortune 500s tasked expatriates with leading their China operations to share best practices from the US and Europe. Times have changed. Companies like Taikang Insurance company have developed a cradle-to-heaven model of client development that international firms could only hope to replicate. For example, the firm had accumulated over 80,000 high net worth clients in slightly less than six years, and then the number started to expand by more than 20,000 per year.2 Their success is tied to an intimate understanding of China today.
Second, remember that indigenous innovation can now outpace even the best-run international companies. In 2000, Yunnan Baiyao sold about $12,000 worth of medicated adhesive bandages. Up until that point, J&J, which recently placed in the top twenty of Fortune’s list of the World’s Most Admired Companies for 2021 while earning the #1 ranking in the pharmaceutical category for the eighth consecutive year, was the dominant market leader. Still, by combining bandages with their medicinal formula, Yunnan Baiyao’s adhesive bandages reached a 40% market share by 2007; overtaking J&J’s which had contracted to just 30%.3
Finally, change your frame of mind when it comes to how your company’s success in China impacts you. Even if you happen to be located outside of China and work in an area that is not directly tied to your company’s progress in China, imagine what might happen if that particular business unit’s growth contracts. When executives need to meet their forecasted global top-line sales, will they accept lower forecasted revenues; or will other units, like yours, be asked to step up and shore up the sales target? There are many ways to align your business with China’s social developments and challenges. Take the case of China’s aging population and minimal safety nets in healthcare. The private sector has an important role to play in finding solutions to these problems. For instance, while elder care was first introduced in the early 2000s, the industry has developed at a 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 T. M. Chang Professor of China Studies at Harvard University.Professor Kirby serves as Chairman of the Harvard China Fund, the University's academic venture fund for China, and Faculty Chair of the Harvard Center Shanghai, Harvard's first University-wide center located 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 were 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 Heaven: 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-Owned Enterprise, Harvard Business School, April 3, 2018.