Thinking about entering China now? Consider Why, How and Who

Mar 08, 2019
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My first blog post noted that an increasing number of foreign bio-entrepreneurs are visiting China with the hope of finding money, and my follow-up explained why most of them are likely to be disappointed. But I also commented that if you want to understand the Chinese market, then it makes sense to start getting familiar with it now.

China will soon become the world’s second largest healthcare market, and in the long run, you simply cannot ignore it. But before jumping on the next flight to China, make sure that you can convince yourself why and how it’s crucial to act on your China plan now instead of later.

And I really do mean convince “yourself” — not just some potential investor — that it really makes sense to get involved in China now. For the reasons mentioned previously, if you are an early-stage biotech company, you may not be able to gain much money by visiting China. So you should have some other reason to think about getting into China now. And you should be very confident that you have the capability to actually execute your plan.

1. Don’t go just for the sake of finding money; go when it can actually give you a good current advantage or a strong anchor point.

I explained in my previous blogs that most early bio-ventures are unlikely to be able to gain much funding in China right now. So if you plan to be in China, you should have a compelling reason that goes far beyond just money. I have come across many business plans from overseas which contain a China angle — which isn’t surprising, because bio-entrepreneurs are well aware that this is essential in order to attract interest from China-based funds.

Of course, it’s not difficult to devise reasons why your long-term business case may involve China. At a minimum, multiplying the incidence rate of your target disease by the Chinese population base, you can probably derive a huge number of potential patients, which may get the VC very excited. However, trying to convince the VC is one thing — but making sure that you are convinced yourself is a completely different matter.

A good reason to begin investigating China now would be if this can give you a strong current advantage. For example, if your company makes medical devices that involve large volumes of labor-intensive manufacturing, then you might consider having this portion of the manufacturing process implemented in China — providing that you can do so without sacrificing on quality.

But even if you cannot find an immediate advantage to be in China, I think it may still be worth spending a year or two to explore the country, to learn about the market, and to see if you can find potential partnership or collaboration opportunities. These partnerships do not have to be commercial in nature —they can involve research collaboration with leading hospitals, or perhaps outsourcing some of your R&D work to an academic institution. China now boasts many clinical resources, including patient samples and very experienced doctors. If you can find a way to work with them, then you may gather valuable insights for your R&D, and you may also make friends and build relationships with key opinion leaders who will be able to help you navigate the complexities of the local market, when you do come to China for real sometime in the future.

2. Make sure you have strong local execution capability: hiring Chinese returnees may not be sufficient to guarantee that you can achieve your goals.

Having convinced yourself of the “why”, you must also convince of the “how and who” for carrying out your plan in China. From the outside, China may look like a relatively homogenous market; but in reality, there is considerable diversity across the country in terms of market conditions, the policy environment, and the characteristic local working styles. There are over thirty provinces and provincial-level cities, and most of them have similar populations and cultural complexities to a medium-to-large European country.

As a consequence, entering China is a big task. There are plenty of global-scale biotech companies who still do not have much presence in the country, such as Celgene or Gilead. So you should ask yourself, What are your goals, and how do you think you can maximize your chances of achieving them?

In my opinion, one of the key requirements for success in the China market is to have a strong execution team in place locally, and a firm commitment from headquarters to support the local management with considerable on-the-ground decision making. My experience has been that having “remote control” from headquarters, or “fly- in management” with periodic visits, simply does not work. You should plan to hire experienced local managers with strong execution capabilities and track records. Typically, such people have been in the China market doing a similar job in a relevant sector for several years.

Some bio-entrepreneurs have tried to short-circuit the challenges of identifying and hiring a strong local execution team by instead hiring a “returnee” — someone who is ethnically Chinese but who has lived and been educated abroad, so that they speak fluent Chinese and English, and are able to communicate easily with the firm’s headquarters back in North America or Europe. Admittedly, such people don’t suffer from the language barrier, which would affect a westerner arriving in China for the first time. But someone returning to China after more than five or six years outside the country are unlikely to be familiar with all the nuances of evolving local conditions.

My view is that if you really want to build up your capabilities in China, then you will need to invest time and energy into finding good people who can help you achieve your goals. You shouldn’t expect that you will be able to find them right away just by relying on help from headhunters. Instead, you should start exploring and learning about the market at a relatively early stage, so that you can begin to make contacts in your particular market niche —and by doing so, you will naturally get to know people who might become great recruits when you do start to build out your China capabilities.

(Karen Liu is a healthcare investor at a leading China based PE and VC fund. The views and opinions expressed here are entirely personal and may not represent those of her firm.)

Karen Liu

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