Q&A with Michael Zakkour of Technomic Asia

Part of what we hope to do here at the AsiaHealthcareBlog is go a bit deeper beyond a pure presentation of the opportunities in China for the biotech / pharma / medical device space.  While talking about the general opportunities available for companies in China, we want to explore in more detail the structural, cultural and operational challenges that business needs to understand and address in order to be effective.  That is why I was particularly interested to hear (and see) of Technomic Asia at the China Business Network discuss his thoughts about what the 12^th Five Year Plan tells us about the challenges of operating in the Chinese healthcare market.

Earlier this week, Michael was kind enough to spend an hour discussing his experiences and insights into what North American healthcare companies need to understand for the readers at AsiaHealthcareBlog.  As way of background, Michael is a principal of Technomic Asia, based in Shanghai.  I have known the folks at Technomic for some time and cannot speak highly enough about their research capabilities in terms of on-the-ground due diligence in the Chinese market.  As a China-focused consulting firm, they have been operating in the market since 1985.  Michael has more than fifteen years experience in international market strategy and consulting, primarily in China.  Michael’s contact information is provided at the end of the post, as is a great presentation Technomic recently did on the market opportunity for healthcare companies in China.

Our conversation follows:

Ben Shobert:  You make reference to what you call China’s policy of ”  Can you explain where that comes from and what it means to companies looking at China as an opportunity for their healthcare business?

Michael Zakkour:  That phrase came from my extensive and repeated readings of the Chinese government’s 12^th five-year plan.  I tried to formulate in my mind what the commonalities across sectors were as the country pursues growth.  What I saw was an admission by China that to sustain growth and continue to move in the right direction they had to admit that the country has some unhealthy things happening.  To address this, they see that they need to approach the health of the people, the country and the environment.  I saw a really striking focus in that plan on improving the healthcare system – all aspects of it.

From the point of view of companies seeing bio and pharma in China as a key growth area the 5 year plan communicates pretty clearly the idea that anything healthcare related is going to be an important pillar of growth.  Healthcare actually becomes important for China to become a consumer economy.  Because people in China don’t have a social safety net they are going to continue saving 40-50% of their incomes and not become a consumer economy, which was key in the 5-year plan.

The government is saying “we need to take care of our citizenry for the country to continue prospering … we need to increase the social safety net so they can spend on what they want and not on what they need.”  In addition, they see it as an important pillar of foreign direct investment to gain the technology and the best practices that goes along with it.

The second main pillar of the 5-year plan was the focus on cleaning up the environment and protecting from further degradation.  As the government sees it, “If we have healthy people that is great, but if people are drinking dirty water and breathing dirty air, it doesn’t matter.”  They are saying “yes, we need to improve the health of the people”, but also the health of the environment which consequently explains the country’s focus on green-tech.

The third is the health of society – it is the harmonious society 2.0 – the truth is what we are really talking about is more equal distribution of wealth and cultural / social development.  Wealth through health means let’s make sure our society is healthy.

Ben Shobert:  I know that one of the major investors in a recent eldercare facility in China made the comment publicly that they elected not to invest in China’s hospital market because of their fear over the government’s role whereas this is not the case with China’s eldercare facilities.  In a general sense, for healthcare investors, does government involvement help, or is it restrictive?

Michael Zakkour:  Because of its prominence in the 12^th five year plan I think there is an argument to be made that healthcare and hospital care is one of China’s national security concerns.  If we look at the places you still can’t invest in China – oil, natural resources, media – these are all areas which the government feels are central to their continuity and control.  What I see more of is less a fear of government involvement and more a fear of what they have to give away in terms of intellectual property and losing the rest of the world.

Ben Shobert:  With that in mind, can you comment on how US companies deal with their concern of giving away IP?

Michael Zakkour:  On the often mentioned issue of China’s Indigenous Innovation policies, I have talked to some of our senior folks at Technomic and after the big blow up in 2010, their take seemed to be all this stuff was on the books already – there was nothing really new here.  Beijing decided to reiterate what was already out there.  For US pharma companies, I don’t think it’s so much about the Indigenous  Innovation policy, it’s more about the fear of losing what you own when you go into China.  There are instances in solar and green-tech – where that has happened.   China basically shut off all access by foreigners in these areas, I don’t see it as much in healthcare.

Coming back to the eldercare question – I still believe that is an area where there are great opportunities for Westerners.  China just doesn’t have the background and the scale to take care of this problem.  If we just isolated it into the question of how we take care of these people – for thousands of years it was the responsibility of the sons and daughters and the communities to take care of the parents.  You have to start with the viewpoint of what 30 years of the one child policy has led to:  we are going to have 450m people over 60 within 15-20 years and we don’t know how to take care of them.  There is a huge need for build out in infrastructure and best practices.

Ben Shobert:  Tom Barnett has written about China “no country will get as rich and old as fast as China will.”  Do you think Beijing understands the potential problems their demographics could create?

Michael Zakkour:  Most of the time Beijing gets it.  They really don’t brush these issues under the rug – the problem is usually on implementation.  The problem is what they do after they recognize the problem.  This is partly again my interpretation of the health through wealth.

Ben Shobert:  Can you expand on the sectors and opportunities in the healthcare space you believe are most interesting and exciting in China that western companies need to be paying attention to?

Michael Zakkour: Who is doing a really, really good job are companies like P&G, Unilever who are selling the basic consumer day-to-day consumer products.  They market well, they do social media well.  One of the growth areas you are seeing is “vitaceuticals” which are vitamins and supplements that have a medical application; that is going well.  You are seeing that the average Chinese consumer has a lot of faith and trust in foreign made vitamins and supplements, toothpaste, whiteners – at a really basic level there is a real demand in the market for J&J products.  As American consumers, we want J&J band-aids, not “Mr. Wu’s special” band-aids – it translates as much – if not more so – in the minds of Chinese.  It surprises us when something we put into our body is not safe versus the Chinese who expect their own products to not be up to snuff.

So now you move up the chain and talk about a blood pressure medicine or stents or devices, medicines and pharmaceuticals – foreign healthcare companies have the opportunity to engage with the Chinese consumer at the most basic level with OTC products and then to engage the consumer up the chain with more sophisticated products and services.

Ben Shobert:  Does that give a company like J&J who has the product breadth from band-aids to surgical devices an inherent advantage in China?

Michael Zakkour:  It can, but even for a big company like J&J the biggest problem is distribution – actually getting the products to market and working the products through the system at the institutional level.  These companies are still struggling with how to sell directly into hospitals.  What you are seeing over the last couple of years – whether in medical devices or pharma – are US companies who are buying small to mid sized Chinese pharma companies not because they are interested in what they make or their intellectual property, but instead purely for distribution.  The Chinese companies have the relationships already, and the US companies need them.

I had a meeting over the summer with the largest pharma distributor in China  She wants to attract US companies to distribute their products into Chinese hospitals, but she was not working with any of them (keep in mind she is the largest but does not have a single foreign account).  Because  foreign pharma looks at them like as competition – the foreign companies have to put development, marketing, distribution and manufacturing under one roof – their position with her is “no way.”  You go down the list of US pharmas making investments in China and can easily see the deal volume was primarily due to distribution.  There are quite a few 2011 deals that demonstrate the point.

Overall, healthcare in China is still a market and a category that western companies should be working very hard to penetrate.  The opportunities are there, but as with so many things in China you need to align yourself with the direction the country is going.  That is what we do.  Technomic helps companies in the healthcare / bio / pharma and even FMCG (body/OTC) markets to identify opportunities in China and the right market entry strategies in China.  Essentially, if you are operating in China we can help you expand in the country but we have very, very deep experience in healthcare in China.  Clients include J&J, Medtronics, Cardinal Health.  If they want to know where opportunities are (and are not) we can help them.

Michael Zakkour’s Contact Information:

Email: 

Phone (US): 

URL:  www.TechnomicAsia.com