Entering the Middle East market at a low price? It's easier to succeed by changing positions
Text: "Caijing" reporter Ling Xin
Editor|Wang Xiao
It would be hard to believe that three out of 10 cars on the streets of Israel came from China unless the locals confirmed it themselves. But that's what Ilan Maor, president of the Israel-China Chamber of Commerce and managing partner of SHENG-BDO in Israel, sees.
From Chinese restaurants, Yiwu small commodities, to electronic products, new energy vehicles, more and more people go to the Middle East to make money. In the investment circle in 2024, a saying began to circulate, "It's too late to go to the Middle East". In the past six months, the UAE China Innovation Center alone has received 400-500 Chinese companies to visit, of which 10% have the intention of landing.
Engaged in international technical cooperation and business development for more than 20 years, Ma Yiliang has increasingly felt the interest of Chinese in Middle East business. At the beginning of June, Ma Yiliang contacted a pharmaceutical company and a medical device company. Medical companies may be one of the groups with the greatest interest in going overseas to the Middle East in 2024. "In the past six months, many peers have come to us and said that we must do the internationalization of several products, especially the 'Belt and Road'." Wu Huafeng, deputy general manager of Xuantai Pharmaceutical, said that the pharmaceutical company has two drugs that are being sold in the Middle East.
On June 19, Shanghai held the World API China Exhibition, and a prayer room for Muslims was set up in the venue. "Do you know what two days the Arabs have on the weekend?" A BD business development officer of a pharmaceutical company who is exploring the Middle East market asked himself, "It's Thursday and Friday. ”
For religious reasons, Friday is the most important day of the week in some Middle Eastern countries, and even shops are closed until the service is over. Since 2006, the United Arab Emirates, Saudi Arabia and other countries have successively changed weekends to Fridays and Saturdays in order to be in line with international standards. It's a nuances that only people who really deal with the Middle East, and it's like a sign that it's a new market and a completely different world.
How high-end products break into the Middle East market
Small profits and quick turnover occupy the low-end market, which is a consistent path for Chinese commodities to "go to sea". In today's Middle East market, this is not entirely true.
"Countries like Egypt, Lebanon and Syria are very concerned about prices. But Saudi Arabia, the United Arab Emirates, and Israel are not so sensitive to prices. Like all those who are really engaged in China-Middle East trade, Ma Yiliang analyzed that the Middle East and North Africa is a complex market with very large national differences.
Saudi Arabia is the preferred destination for most Chinese companies going to the Middle East. It is the largest economy and flag in the Arab world, the first country with a gross domestic product (GDP) of over one trillion yuan, and a per capita GDP ranking among the top 40 in the world. "Especially for medical products, other Arab countries can be said to be Saudi Arabia. After the success of the Saudis, it will be easier to enter other countries. Wu Huafeng said.
"Small but strong" countries such as the United Arab Emirates and Israel, which have economies similar to Singapore, are also popular with Chinese businessmen.
"The whole world knows that Jews are not good." Ma Yiliang, who is an Israeli, used a self-deprecating sentence to express their requirements for quality and innovation. In the eyes of this Middle Easterner, if you want to enter the local quality market, price is only the third influencing factor, and the first and second places are quality and international recognition, especially for medical products related to life safety.
Medical products, in any national security and quality are the first priority. In these rich countries, low prices and low-quality products do not sell. In 2013, Pang Yan began to be in charge of business development in the Middle East at a domestic medical device company, which was a rather difficult time, "and they were full of doubts about Chinese products".
After many years of exploration, China's two major medical device leaders, Mindray Medical and United Imaging Medical, have chosen to take the high-end route in the Middle East.
During the Arab International Medical Equipment Exhibition from January to February 2024, Mindray signed a strategic cooperation agreement with Cleopatra Hospitals Group, Egypt's largest private hospital group, involving high-end product lines such as innovative products, digital and intelligent solutions, and telemedicine. Its vital information and support equipment will be located in Dallah Hospital, a high-end private hospital group in Saudi Arabia.
United Imaging Healthcare's partners include King Hussein Cancer Center in Jordan, the largest holistic cancer treatment center in the Middle East, as well as Health Garden Clinic, a private hospital in Morocco, and the I-ONE Nuclear Medicine and Oncology Center at King Abdul Aziz University in Saudi Arabia.
"It's not convincing for you to go and tell someone that it works well in a hospital that he hasn't heard of. You can only use it well in top tertiary hospitals or high-end hospitals first, and then convince other small and medium-sized hospitals. Xia Jusong, president of United Imaging Healthcare's international business, said
For customers in the Middle East, United Imaging Healthcare adopts a brand strategy of "holding high and fighting high". "Participating in exhibitions, from leasing to decoration, an exhibition will cost one or two million yuan, or even seven or eight million yuan, which is part of showing the strength of the enterprise. Of course, the product also needs to make customers feel that it is of high quality. Xia Jusong made an analogy, "It's like shopping for clothes, using materials and design, looking at it, touching it, and trying it, you can feel it." ”
It's all about building the trust of Middle Eastern customers in Chinese medical devices. Xia Jusong was troubled by the negative effects of some peers who made quick money, "Some companies made some quick money by engaging in low-price strategies in the Middle East, but the after-sales service did not keep up, and no one repaired the broken products." It kind of affects our 'Made in China' brand image."
The medical market in the Middle East is relatively closed, but it has a fairly high level of internationalization, and the penetration rate of the three international medical device giants GPS (GE Healthcare, Philips, Siemens) is very high. In Israel, for example, people have a very high percentage of health insurance and are willing to pay more for better medical care.
"In fact, many of the local doctors have studied in Europe and the United States." Xia Jusong found that they preferred innovative, high-end products, "such as magnetic resonance, not only for faster scanning, but also for some other functional improvements."
The use of scientific research cooperation to develop channels for top local hospitals is the experience of United Imaging Healthcare in China and the United States. Cai Tao, secretary of the board of directors of United Imaging Healthcare, analyzed that this can not only help products enter the market faster, but also, "The research of these high-end hospitals will provide us with many parameters to help improve products." ”
In Ma Yiliang's view, Israel has a characteristic, they prefer to be the first to eat crabs for breakthrough new technologies. Unlike some Chinese who want to see if there are any successful precedents from other countries, Israelis are very willing to be the first to try them, and many new products will choose this place as a test place. Israel has a population of only 1 million, but there are various car brands in the world, and many Japanese and Korean companies will choose to test the waters in Israel. "The Europeans are very receptive to the Israeli market testing the waters, because the Jews are not easy to handle."
The first generic drug is only fast and not broken
In 2020, the new crown epidemic broke out, and with China's various epidemic prevention items going to sea in an all-round way, some local businessmen in the Middle East found this business opportunity.
An Israeli company took a fancy to several drugs in the pharmaceutical database and wanted to introduce them, and found that several Chinese pharmaceutical companies could supply them. So they approached SHENG-BDO and made a list of products that had been approved for marketing by the U.S. Food and Drug Administration (FDA).
Yang Lina, director of SHENG-BDO, recalled that the aforementioned Israeli companies were interested in Posaconazole enteric-coated tablets of Xuantai Pharmaceutical. This is an antifungal drug, in the United States, the original drug is $58 a tablet, and the first generic drug of a Chinese company is $40 per tablet; In China, the price of the first generic drug is also nearly 300 yuan per tablet.
and Israeli companies, a Saudi company also took a fancy to this drug in 2021. As Zhang Jianwei, Chief Executive Officer (CEO) of the UAE China Innovation Center, said, the key points to attract Middle Eastern businessmen are the high-tech content, high unit price, and large profit margins.
In the U.S., a first-of-its-kind generic drug has been approved for marketing and can occupy more than 40% of the market share within a year due to its price advantage. Saudi Arabia and Israel are also markets where the first generic drug can be quickly scaled up after approval. Drugs approved in the EU or the United States can enter Israel and Saudi Arabia through fast-track approval, which generally requires at least 2 years of registration approval process, which will be shortened to less than 1 year.
Xuantai Pharma did not disclose the specific revenue of posaconazole in the Middle East. According to the company's financial report, in 2022, the revenue of antifungal drugs will be 53.9411 million yuan, which will increase to 60.6614 million yuan in 2023. In 2023, Israel was added to the approved region, and in Saudi Arabia, it was approved in August 2022.
The listing in more countries reversed the momentum of Xuantai Pharmaceutical's posaconazole revenue decline. In the first half of 2021, with the approval of the second generic drug in the United States, the drug's market share in the United States began to decline, and the terminal selling price also fell by about 30%. Previously, the United States was the main source of revenue for the drug.
"Yes, there is no loss, and you can still charge more than 100,000 US dollars in agency fees." Wu Huafeng admits his mindset when he first worked with dealers in the Middle East. In fact, posaconazole will have a revenue increase of nearly 6 million yuan in 2023, the cost will only increase by more than 300,000 yuan, and the gross profit margin of a single product will increase by 4.22 percentage points.
If you want to extend the life cycle of generic drugs, you can only continue to explore new market areas. Now Xuantai Pharmaceutical has begun to take the initiative to find partners in Bahrain, Qatar, the United Arab Emirates and other countries. There are also two other A-share listed companies Shuangcheng Pharmaceutical and Puli Pharmaceutical, which will obtain Saudi registration approval for their products in 2024. Big pharma companies such as CSPC have also begun to reach out to partners in the Middle East.
For pharmaceutical companies that have experience in going overseas, as long as the product has been successfully declared for marketing in the US FDA and the information is complete, in the registration stage, the R&D company only needs to be able to assist the distributor, and even does not need to hire another person.
Grab business with Indians
For pharmaceutical companies, the real lifeline of going overseas to the Middle East is not money, but "fast". At least faster than the Indians.
Because, multinational pharmaceutical companies are committed to developing the Middle East market. Registration channels, patient education, market cultivation, the original drugs have been done, and as long as the generic drugs keep up quickly, they can get a piece of the pie.
"What customers in the Middle East want is a high-end first generic drug, and they should also become the first generic drug locally. Previously, another customer of ours also wanted to introduce a product from China, and when we were approaching, we found that an Indian company had already preemptively declared and gave up. Yang Lina revealed.
India is the world's largest exporter of generic drugs, exporting drugs to more than 200 countries, accounting for 20% of the global market share. In the United States, about 40 percent of generic drugs come from India, and in the United Kingdom, 25 percent. "They are too familiar with the rules and laws of the US FDA, and basically every product is approved in the United States, and there is a complete range of products." Wu Huafeng said.
Indians have a lot of experience in business warfare. "When you find that a product is being inquired about all over the country, there is a chance that there is an Indian company behind it." A medical person who has robbed business with Indians analyzes that you feel that your offer is already very aggressive, and the Indians may be more aggressive than you.
Compared with China, Indian drug production has always met the compliance market requirements of the European and American markets, and the number of DMFs (drug master files) declared for registration in the United States every year is higher than that of China, which is very competitive in the international market. Moreover, India also has advantages in language, policy, etc.
Chinese pharmaceutical contract development and manufacturing (CDMO) companies that are "going overseas" are facing competition with their Indian counterparts. Both parties have a thriving biotech industry, a skilled workforce, and competitive cost advantages in this space. Indian research firm Mordor Intelligence at the end of 2023 expects India's CDMO industry to generate $15.6 billion in revenue that year, compared to $27.1 billion in China, with India's CMDO industry growing at an average annual rate of more than 11% over the next five years, while China's growth rate is about 9.6%.
It is not only necessary to compete with Indian companies for business, but also for talent. "Recently, the few people we wanted to recruit were robbed by the Indians, and Indian pharmaceutical companies are everywhere, and they will be extremely strong competitors." Wei Jianzhong, President of Chime Biologics, said.
However, Chinese companies have their own advantages - reliable and supported by strong manufacturing capabilities.
In many countries and regions, there are strict requirements for the supply guarantee of drugs, and if the goods cannot be delivered when they are due, they will not only be fined, but also the cost of temporary procurement by the government from a third party will also be borne by the original supplier. "Because Chinese pharmaceutical companies generally produce large volumes, especially products that are marketed in China and the United States at the same time, they may be produced every day. If a downstream customer suddenly has an urgent order and needs to be delivered in one or two months, I will have it from the existing inventory. Moreover, China's complete supply chain and raw material market can also ensure supply. Otherwise, the lead time for general drug production is at least 3 months. Wu Huafeng analyzed.
Like China's leading medical devices, Chinese pharmaceutical companies are also trying to establish a "reliable" image of Made in China in the Middle East. After a long time of cooperation, a dealer privately said to Lu Lei, who started to do international BD in 2013, "I prefer to do business with Chinese."
Investment and financing, embedded in the industrial chain
Chinese companies are interested in the Middle East, not only to sell medicines, but also to raise money.
In May 2023, KPMG China brought 14 Chinese biotech companies to the Middle East. In September of the same year, AstraZeneca and Legend Capital took more than a dozen medical companies such as CanSino and Changchun High-tech to the Middle East for inspection, and specially arranged exchange visits with the Abu Dhabi Investment Office (ADIO) and the Saudi Ministry of Investment (MISA) in the United Arab Emirates.
Even Chinese who don't know the Middle East have heard of their powerful sovereign investment funds. In the latest 2024 sovereign fund list released by the Global Sovereign Funds Institute (SWFI), four of the top 10 are from the Middle East. Among them, the Abu Dhabi Investment Authority (ADIA) ranks fourth in the world with $993 billion in assets, and the Saudi Public Investment Fund (PIF) ranks fifth with $925 billion.
Funds from Middle Eastern countries have invested in many medical companies in China. The Abu Dhabi Investment Authority has a higher shareholding ratio of Tonghua Dongbao and Laobaimin Pharmacy, while the Kuwait Investment Authority is Xinjing Pharmaceutical and Fangsheng Pharmaceutical. The withdrawal of dollar funds and the rise of oil funds are also the reason why some people in the medical investment circle shouted that "it will be too late if you don't go to sea in the Middle East".
In the primary market, most of the closing investments of Middle East funds at the end of 2023 and the beginning of 2024 flowed to biomedicine.
At the end of 2023, Prosperity7 Ventures, a fund of Aramco Ventures, led the B round of financing of over 100 million yuan for Juhe Biotech, a women's health product research and development company. At the beginning of 2024, the same fund announced a $63.3 million lead investment in radiopharmaceutical company FullLife Technologies. Funds from Qatar, Bahrain and Israel have also invested in Chinese biotech companies.
"It's not easy to invest in the Middle East." Zhang Jianwei poured some cold water on the eager financiers, "The whole UAE is engaged in made in UAE. If you don't do localization and production capacity, it's hard to get money.
Starting from the "Saudi Vision 2023", the "reform and opening up" of all countries in the Middle East is committed to getting rid of dependence on the oil economy and seeking industrial diversification. These countries not only have a demand for product landing, but also hope to introduce technology to upgrade the local industrial chain and complete the construction of their own pharmaceutical industry chain.
During the "China Biopharmaceutical Cohesion Overseas Forum" held on June 18, 2024, Wu Zhaowei, head of medical investment at VMS Group, said that if Chinese medical companies want to meet the capital needs of the Middle East, it would be a better choice to start with the production industry, "China has built a large pharmaceutical industry system in the past few years, and there are many opportunities for landing in this regard. ”
Not only pharmaceutical companies, but also Chinese pharmaceutical supply chain companies are also looking for business opportunities in the Middle East. In March, a Chinese company approached SHENG-BDO to set up a local factory to supply prefillable syringes (syringes with medicine) for the production of vaccines, heparin sodium, medical aesthetics and other products.
Middle Eastern countries have put in place measures to encourage the localization of the pharmaceutical industry, including fast-track approval, registration and price concessions for locally produced drugs. Pfizer, a multinational pharmaceutical company, has set up a production base in King Abdullah Economic City (KAEC), one of the four special economic zones in Saudi Arabia, and has obtained a trade and investment license issued by the Saudi Total Investment Authority (SAGIA) to directly supply innovative drugs and essential drugs to the Saudi market.
United Imaging Healthcare, which has achieved initial results in the Middle East market, is fully localized. It has not only set up a wholly-owned subsidiary in the United Arab Emirates, built a regional headquarters in the Middle East and North Africa, but also set up a secondary parts center in Dubai, and equipped with a third-level spare parts warehouse and engineers for other countries or regions. "Now our Middle East team is a Chinese." Xia Jusong introduced.
Yes, after investing, setting up branches, and building factories, you have to use local employees. In Saudi Arabia, there is a technical term for this called "desertification rate". According to the requirements of the Saudi Ministry of Human Resources and Social Development (MHRSD) by the end of 2023, companies employing five or more salespeople will have a desertification rate of 15% for sales positions. The desertification rate requirement is 50% in the procurement industry and 35% in the project management field.
"It's important to do a good job of localization. Language is only a basic requirement, cultural integration is more important. Zhang Jianwei believes that Chinese companies that are accustomed to using Chinese are more lacking in this point, which will limit the promotion of their brands in the Middle East.
In the Middle East, people are more willing to do business with people they trust to reduce risk. "When you go to a new market, it's always the right choice to find a local partner and hire local employees." Ma Yiliang said that the locals are always more aware of the taboos in the business field, what competitors in the supply chain should not be touched for the time being, and how to do business more easily. "Otherwise, you make a mistake in the overseas market, and you don't even know where you are wrong."
Ma Yiliang further analyzed that this is not something that can be opened up by taking the "high-level line" through state-to-state exchanges. For example, in the United Arab Emirates, project decisions must be made by the top head of the agency, who is the only one who speaks; In Israel, opinion leaders are not necessarily the top leaders.
More and more Chinese medical companies are realizing that if they want to get more here, they must not stop at selling products, but must plan a more long-term "Middle East story".