Restructuring the Production of Medicines: An Investigation on the Pharmaceutical Sector in China and the Role of Mergers and Acquisitions

Abstract

In places like China, an ageing population coupled with changes in living standards and increases in disposable income, imply a shift of the demand for health-related goods and services which is likely to affect the whole organization of the industries that supply such goods and services at the global level. One of the industries most likely to be affected is the pharmaceutical sector. In the early 2000s China was already the second largest global producer of pharmaceutical ingredients. The pharmaceutical sector has become one of the most important industries promoted by the Chinese government and Five-Year Plan of China’s Strategic Emerging Sectors, mergers and acquisition (M&A) activity has been the key strategy to restructure the sector and increase its competitiveness. This paper firstly provides an updated picture of the evolution of M&As in the pharmaceutical sector, compared to other sectors, in China in the period 2005–2013. Secondly, we develop a composite indicator to measure the industrial performance of all Chinese industrial sectors over time, which allows us to assess the performance of the pharmaceutical industry compared to that of other sectors of the Chinese economy. Finally, we develop and estimate an empirical model that tests the relationship between the number of M&A in a sector and its performance, with a particular focus on the pharmaceutical case. The results offer some initial evidence of positive effects from the process of restructuring of the pharmaceutical sector in China.

Investigating the linkages between industrial policies and M&A dynamics: Evidence from China

“…Both empirical and theoretical studies have highlighted that the strategic advantages and synergies that can be activated through M&As, as well as their impacts on industrial competitiveness and structure, are different according to the typologies of the M&As (Gugler et al, 2003;Anderson et al, 2013). One of the most important distinctions lies in the features of acquiring versus targeting firms (James and Wier, 1987;Barbieri et al, 2017). Following their differences in terms of sectors and position along the value chain, the literature usually distinguishes among horizontal, vertical and conglomerate M&As.…”

“…1 Horizontal M&As are widely studied and are those for which industry-level components appear to be more relevant (Huyghebaert and Luypaert, 2013). They are regarded to generate the most important increase in sectoral efficiency and R&D, but they are those causing more problems in terms of the concentration of market power, even stronger in the case of market contraction Kin and Singal, 1993;Sapienza, 2002;Schweiger and Very, 2003;Anderson et al, 2013;Barbieri et al, 2017). The rationale behind vertical integration is different and related to the change in the supplier-customer relationship (Anderson et al, 2013).…”

Exploring determinants of health provider choice and heterogeneity in preference among outpatients in Beijing: a labelled discrete choice experiment

“…This places a heavy revenue burden on the government and has resulted in an inevitable deterioration in the quality, efficiency and even the accessibility of tertiary hospitals 4. As a partial consequence, and because the Chinese population is growing older and wealthier, a great gap has emerged between supply and demand 5…”

Institutional logics and social enterprises: Entry mode choices of foreign hospitals in China

“…Furthermore, the Chinese government has adopted an evolving and dynamic approach toward foreign hospitals, foreign doctors, and the healthcare sector. For instance, the pharmaceutical industry has experienced several mergers and acquisitions (Barbieri, Huang, Pi, & Tassinari, 2017), and policy has an important bearing on FDI localization in China (Li, Angelino, Yin, & Spigarelli, 2017). According to the 2015 China Health and Family Planning Statistics Yearbook (2015 中国卫生和计划生育统计年鉴) 1 , by the end of 2014, there were over 200 hospitals and health service providers that involved foreign investment in China, of which 55% were clinics, 30% were comprehensive hospitals, and 15% were specialized hospitals.…”