China’s domestic healthcare market attractive to logistics providers such as UPS

According to a recent Wall Street Journal article, UPS has big plans for the Chinese healthcare market. Indeed, according to Jim Barber, President of UPS International, UPS is interested in acquisitions to broaden its healthcare supply chain within the country. In particular, the company appears to be in search of domestic transportation companies.

While much of the focus has been on the export market, China’s domestic market holds great opportunities for logistics providers such as UPS. In 2011, China’s government adopted a national strategy to expand and improve the country’s healthcare system. With a population of over 1.3bn, the potential is great and opportunities abound for all involved in the healthcare industry.

However, according to Barber, one of the biggest challenges in China’s healthcare sector is delivery. True, infrastructure connecting cities, towns and villages is problematic. The unevenness of the transportation infrastructure, for example, has resulted in regionalised networks. Because of this, Barber noted that UPS is considering multiple acquisitions of domestic competitors that have regional advantages.

While the opportunities are great, the competition is strong and fragmented. Domestic express providers such as SF Express and STO Express have been working towards expanding their reach across China by acquiring regional providers. Meanwhile, pharmaceutical manufacturers/distributors, such as Sinopharm, are also expanding their geographic reach. Sinopharm has built out both its national distribution and retail network by focusing on acquiring regional distribution leaders, expanding into second and third tier cities and into traditional retail channels, as well as emerging channels such as e-commerce. Since 2009, the company has made over 60 acquisitions.

Sinopharm operates its logistics network through its subsidiary, Sinopharm Logistics, which manages eight major regional hubs in Shanghai, Beijing, Guangzhou, Shenyang, Xi’an, Xinjiang, Wuhan and Chengdu. Sinopharm Logistics provides such services as warehousing, distribution and delivery of medical devices, pharmaceuticals and clinical
trials. It has its own fleet of over 300 vehicles.

While Sinopharm is one of the largest domestic manufacturers/distributors of healthcare solutions, its market share remains relatively small in the fragmented market. In fact, the three largest Chinese distributors, including Sinopharm, comprise less than 30% of the domestic Chinese market.

The domestic healthcare logistics market is even more fragmented with no clear leader. However, Sinopharm’s logistics subsidiary is perhaps one of the more established and also one with a broader reach than most other providers.

A challenging strategy for UPS to undertake for sure, but one that could provide many benefits if successful. The company has invested in specialised healthcare distribution centres in China and has also received government approval from the Chinese government to provide domestic express transportation in several cities. A good start as it sets its eyes towards inland China and plans its national healthcare logistics network.