By Gibson Haynes
On Thursday, Nov. 5th, NexGen Global Forum fellows met with Leon Wang, President of AstraZeneca China and Hong Kong. Detailing his long involvement in multinational corporations, he described the strategies that, in his experience, can help such corporations thrive in China's often perplexing business sector.
Engaging with the local government: Restrictions are a fact of life for multinational corporations operating in China, but developing a habit of frequent, positive communication with local regulators and governments can prevent a corporation from running afoul of regulatory restrictions. In China's atmosphere of increasingly institutionalized regulatory frameworks, old rules and modes of operation are rapidly changing, so corporate practices must be equally nimble to stay abreast of legal developments. The multinational nature of companies can also negatively affect local governments' perceptions of those companies; for example, frequent use of tax loopholes and complex financial structures to move money out of China understandably displeases local government officials, whose programs are supported by tax revenue. Another common perception issue is that multinational corporations enter Chinese markets in order to 'take advantage' of them; hiring and promoting Chinese talent, on the other hand, indicates genuine desire to integrate with the local business environment.
Engaging with the local economy: In addition to hiring local talent, Mr. Wang spoke highly of the ability of local companies to produce complementary and intermediate products to the advantage of the MNC. Developing good working relationships with local suppliers builds a corporation's crucially important reputation while integrating it into local supply chains. For AstraZeneca China, this has meant a shift from caring solely about pharmaceuticals research and production to a "3D" strategy of digital, devices, and diagnoses. Digital medicine apps and practices offer unparalled growth potential, and medical device partnerships allow for the promotion of complementary treatment options. At the same time, these smaller companies also benefit from AstraZeneca's experience, name brand, and market share.
Engaging with the local community: Local companies have more than purely logistical benefits to offer, however. Many multinational corporations find it most advantageous to begin operations in one of China's many special economic zones (SEZs), where certain legal restrictions are relaxed and other incentives are offered. Many domestic firms also take advantage of these offers, and Mr. Wang pointed to the environment of ambition and aspiration that is engendered by so many forward-looking companies all sharing a close geographical space. Convening groups of local companies to talk with one another about their research and methods creates a rising-tide effect, where multinationals' experience with best practices and local firms' energy can promote productivity across the whole zone.
Understanding local markets: A key component to success in China and throughout Asian markets is an abiding understanding that local market needs may not match those of other areas in a multinational corporation's purview. For example, the medical maladies faced most often in China are quite different from those encountered in the United States; these differences in epidemiology can be a function of genetic, environmental, dietary, or social differences. AstraZeneca China's focus on 'translational science' is just such a tactic, aiming to address health concerns like liver, lung, and gastric cancers which occur much more commonly in China than elsewhere. By focusing research in these areas, the products AstraZeneca develops will be guaranteed to meet a local demand and (considering China's population) will have a high sales potential. An understanding of patient practices in China also contributes to the company's strategy - for example, patient compliance with extended treatment regimens is lower in China than in other markets, so AstraZeneca gets more benefits from medicines to treat acute diseases in China than it does in America, where chronic treatments are the money-makers.
Innovating: Of course, the creation of new products is fundamentally important for succeeding in the China market. Tremendous financial and ideological resources are being channeled into the promotion of Chinese innovation, so multinational corporations that promote indigenous research are viewed as favorable partners in this mission. For AstraZeneca, this is most tangibly demonstrated by the research facility in the Shanghai Free Trade Zone, where their first compound discovered in China has been added to the company's production pipeline. However, innovations are not confined solely to products sold; expanding to markets previously ignored can offer substantial rewards. Rather than focusing solely on the "30 cities" - provincial capitals and metropoli like Beijing, Shanghai, and Guangzhou, forward-looking corporations can conceive of the "300 cities," encompassing many more of China's rapidly developing interior and peripheral areas, and serve a much wider swath of the country.
In China, it seems, the watchwords are local and new.