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TALKING POINTS • L.E.K. CONSULTING


Through regulation and competition, the pharmaceutical distribution industry as a whole is being forced toward lower profit margins


mation on provincial and sub-provincial market dynamics is still challenging in an industry that has traditionally been char- acterized by a lack of transparency. Com- panies should proceed, but with caution.


Weighing the odds


Te rapid changes in the structure of the pharmaceutical distribution industry will continue to have ramifications both inside and outside the sector. Trough regulation and competition,


the pharmaceutical distribution industry as a whole is being forced toward lower profit margins. While the strategic win- ners are likely to continue to deliver good


returns reflecting the industry’s strong underlying growth, others will struggle or be forced to exit outright. Rapid consoli- dation, both organic and inorganic, will continue to be a feature of the industry as margins shrink in years to come. Te flipside of this is that companies will see big opportunities for improving the effi- ciency and transparency of their distribu- tion channels. Pharmaceutical companies seeking to


distribute their products in China have historically focused on market reach. In the future, as the China market becomes easier to address, reach will become less of a differentiator. In this environment, the competen-


cies that major international distribu- tion players can bring to bear from more developed markets will become more highly valued, and domestic distributors will need to invest significantly to repli- cate this expertise. Te optimal “next generation” busi-


ness model in pharmaceutical distribu- tion for China remains far from clear, as is the path to achieving it. But undoubt- edly there will be big winners, and losers, in finding the way forward.


Sales share of top 100 pharmaceutical distributors in China


100 15% 30% 80 27% Rest of market*


60 32% 40 14% 20 31% 24% 0 2010 2011 Source: MOFCOM, L.E.K. analysis 2015 target MOFCOM #1-3 15% #4-10 85%


27%


#11-100


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China Economic Review • November 2012


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