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EDITORIAL

Guanxi!

o question China is tertiary care or advanced institutions. emerging as a world Of the nations almost 19,000 hospileader. With its overtals, only 1,000 are Level 3. whelming demographics, A key attribute of the healthcare ingrained work ethic, and proven system is the role of the government. educational value, China already has Through the Ministry of Health, reached a tipping point triggering an China maintains centralized control economic cascade effect and trans- over research, policy creation, and forming its enormous potential into the implementation of government a true and giant world marhealth policies. The State ket (MarkeTech 2005). NoPharmaceutical Administably, Chinas 400 million tration of China oversees all urban population represents production, marketing, and a marked equivalent to the distribution of pharmaceuEuropean community as a ticals and medical equipwhole. ment. Total health expendiAs biotechnology beture in 2003 dollars was comes more of a global sci$817 million. Of course, the entific and economic en- DAVID B. NASH, U.S. spends more than 3 gine, China will be viewed MD, MBA times that with a fraction of as a critical market. But Chinas population. In 1980, those with Guanxi a deep under- however, Chinas healthcare expendistanding of the culture and business ture grew by $6.4 million, and by 2003 environment will be at a great ad- its annual growth exceeded $140 milvantage. Though China often is seen lion. The pace of change is evident. as one large market, in reality it is composed of many smaller markets. THREE CONUNDRUMS Let me first give a brief overview of Biotechnology companies in China the healthcare industry in China.Then face key management challenges, priI will outline the key challenges for marily a serious shortage of seniorbiotechnology in particular. level managerial and technical talent. Healthcare spending, as a portion China has the worlds fastest growing of the gross domestic product, is 5.7 aging population, a result of the napercent. Do not be misled, however, tionwide famine of 19591961 and as the total per capita GDP is only the countrys one-child policy. The current workforce, according to many $5,600 meaning that per-capita experts, was raised in an environment healthcare spending translates to just of limited choice and education (Corover $63 annually. Healthcare is fiporate Board Member 2006). In a nutnanced by a 17 percent contribution by the government, a 27 percent con- shell, the workforce lacks business cretribution through social health ex- ativity. The second challenge is the theft penditures, and the remainder by perof intellectual property. Nearly 20 sonal financing. percent of the products coming into Chinese hospitals are divided into the United States from China are three levels: Level 1 hospitals offer counterfeit, according to the U.S. Emlocal basic care, Level 2 hospitals are equivalent to our large community bassy in Beijing. Also, American companies doing business in China hospitals, and Level 3 hospitals are
6 BIOTECHNOLOGY HEALTHCARE AUGUST 2006

ranked the potential loss of intellectual property as their top concern, according to a recent survey by the U.S.-China Business Council. The third challenge this one to potential investors in Chinas biotech industry revolves around governance structure and key board-level talent. Only 11.4 percent of U.S. Fortune 500 companies have an Asian on their boards. Though Asians account for 5 percent of the U.S. population, they hold just 1.2 percent of Fortune 500 board seats. Therefore, a governance structure for U.S. companies with sufficient Guanxi local knowledge, and relationship-building capacity will be a critical leadership challenge. I am convinced that China will be a biotechnology powerhouse early in the 21st century. I would like to recommend the MarkeTech Group Minute to our readers as a source of outstanding market intelligence about healthcare in China. I also have drawn heavily from the magazine Corporate Board Member, which devoted an entire issue to opportunities and risks in China. As usual, I am interested in your views, most especially if you are currently conducting business or contemplating an investment in China. You can reach me by e-mail at david.nash@jefferson.edu. BH

REFERENCES
Market Opportunities in China. The MarkeTech Group Minute. Fall 2005. Available at: http://www.themarketechgroup. com/minute/tmtg-min15.pdf. Accessed July 27, 2006. Corporate Board Member. A Directors Guide to China. January/February 2006. Available at: http://www. boardmember.com/issues/2006_1. Accessed July 27, 2006.