Bain & Company estimates that by 2020, China’s healthcare industry is likely to be valued at $900bn. It is a huge market and one that is slowly opening more to foreign investments. This increasing opening up of China’s healthcare industry to foreign investment bodes well for the logistics market. In May, China’s State Council announced new guidelines allowing more private and foreign investment into China’s hospitals. In addition, China’s Food and Drug Administration allowed online drug operators to sell prescription drugs.
In August, Walmart’s Yhd.com received official permission to sell over-the-counter (OTC) drugs online. According to the company, there are currently at least ten pharmaceutical retailers that have set up store fronts on Yhd’s platform. However, as of yet, the license does not permit the sale of prescription drugs, which is the largest sector of the pharmaceutical market in China. While it waits for permission to sell prescription drugs, Yhd has set a goal to provide over 200,000 OTC drugs by the end of the year. By receiving this license to sell OTC drugs online, Yhd is now ahead of much of its e-commerce competition such as JD.com which is waiting for similar approval.
Large e-commerce companies such as Yhd.com and JD.com already have established distribution channels, a huge plus. According to AT Kearney, unlike the US in which the top three pharmaceutical distributors have more than a 90% market share, China’s top three distributors have about a 20% share. As a result, this fragmented market results in multiple handoffs before pharmaceuticals reach their destination.
Ti estimates China’s pharmaceutical logistics market to be about €7.6bn, a 14.3% increase from 2012. As mentioned previously, opportunities are great for logistics providers and quite a few are indeed taking advantage. For example, earlier this year, UPS opened a contract logistics distribution facility in Beijing. The 6,500 sq m of non-bonded warehouse space is located close to the Beijing Capital International Airport and is able to service contract logistics orders with four-hour delivery within the metropolitan Beijing area and next-business-day orders for major cities throughout China. According to UPS, its warehouses including facilities in Beijing, Shanghai and Chengdu, enable it “to effectively support national and regional order fulfilment and give customers better warehousing and distribution access to developing cities throughout the country.”
FedEx expanded its Shanghai hub to provide additional space for health-related products while DHL operates two life sciences and healthcare competency centres – Beijing and in Shanghai.
FedEx and UPS will also be able to take advantage of licenses received from the Chinese government to deliver domestically. However, the two US-based companies will likely be in competition with quite a few domestic companies, including the pharmaceutical distributors such as Sinopharm and US-based distributor, Cardinal Health which has made investments in the Chinese market.
Similar to other countries, China’s healthcare industry requires specialized logistics and transportation needs. The size of the Chinese market is quite attractive and as logistics providers look for opportunities within Asia, those that are knowledgeable of the healthcare industry and with established networks in place will be rewarded.
For more information on healthcare logistics, and the pharmaceutical sector, take a look at Ti’s Global Healthcare Logistics 2014 report.