Yet another U.S. company has learned the hard way that doing business in China is too tough — and too unproductive — to bother with the effort.
Generic drugmaker Actavis (ACT) has joined Home Depot (HD), Best Buy (BBY), Walmart (WMT), Revlon (REV), and a handful of other American brands that have decided to partially or wholly leave China, never realizing the success they had hoped for.
Actavis CEO Paul Bisaro decided enough was enough after observing the way the regulatory environment in China seemed to be constantly morphing into something that somehow kept U.S.-based drug companies at a disadvantage. The explanation, however, is a microcosm of a much trickier reality of doing business in China. That reality? China’s love for western brands isn’t an unconditional love.
It raises the question … is there a universal success formula for American companies with a presence in China?
Actavis Sees the Writing on the Wall in China
To be clear, Actavis wasn’t in the crosshairs of China’s regulatory environment. Bisaro had simply watched peer GlaxoSmithKline (GSK) get run through the wringer in China, facing accusations of bribery that ultimately led Glaxo to offer a peace offering in the form of lower drug prices.
As odd as that response was, even odder is that GlaxoSmithKline didn’t appear to do anything particularly uncommon within China’s pharmaceuticals arena. Yet, the row’s ripple effect has made doing business in China difficult for all American drug companies.
How so? Elsevier Business Intelligence development director Joshua Berlin explained one possible way by observing that “Doctors and hospitals are restricting access to sales representatives of other drug companies.” Odds are good that at least some U.S. and European drug companies are going to suffer from this new — not to mention arbitrary and unofficial — policy in a way similar to the way GlaxoSmithKline a quarter ago. The company’s sales in China slumped 61% in the third quarter in the wake of the bribery allegations.
In the meantime, French drugmaker Sanofi SA (SNY) has also become the subject of a bribery investigation in China. The Sanofi investigation is even more surprising, in that the total amount money in play was a mere $274,000 shared among 503 doctors … in 2007.
To be fair, the nation-state’s regulators are scrutinizing all pharmaceutical companies, including Chinese ones. It wouldn’t be a stretch to say it looks like China’s National Development and Reform Commission (the NDRC) is aiming to fulfill its mission of lowering healthcare costs for the country’s 1.3 billion residents by shaking-down U.S. suppliers first. And not only is the NDRC willing to cap drug prices, it has assumed the right to investigate (and even dictate) a corporation’s production costs.
Seeing where it all was going, Bisaro simply decided China “wasn’t worth the aggravation, the frustration or the concern.”
Not Just Pharmaceuticals, Not Just Regulations
As frustrating as China’s National Development and Reform Commission may be for international drug suppliers, it’s not just the U.S. pharmaceutical names that are experiencing regulatory headaches. Take retailing for instance.