China life sciences clusters: magnets to the global multinationalsFebruary 6, 2013 / By
Whist many life sciences companies are ‘right sizing’ in mature markets (due to decreasing sales and excess or duplicate facilities on the back of extensive M&A activity), most are strategically growing in emerging markets in Latin America and Asia.
Jones Lang LaSalle’s 2012 Global Life Sciences Clusters Report indicates that most industry leaders have aggressively expanded their footprint across Asia over the last decade, chasing potential market share and cost savings. Four of the largest global pharmaceutical companies – Pfizer, Novartis, Sanofi and GlaxoSmithKline – already earn a third of their revenues outside of their traditional markets.
Besides Japan, interest has until recently been focused primarily at the low-cost manufacturing capabilities of many Asian markets. However, governments of emerging Asian economies have begun strengthening their R&D capabilities and infrastructure, spurred on by increasing local demand and the significant potential positive impact on the economy and export revenue. Singapore has been a clear front runner, but the scale and speed at which China is making this leap has been quite extraordinary.
Life sciences clusters are strongest around the best talent pools. In China, proximity to the top-five universities and renowned hospitals has been pivotal to the development of the industry around Shanghai and Beijing. Life sciences clusters such as Beijing’s Zhongguancun Life Science park and Shanghai’s Zhangjiang Hi-Tech park have attracted huge R&D investments in recent years. For example, Merck rolled out a five-year USD 1.5 billion project to build a new facility in Beijing, AstraZeneca will open its China Innovation centre in Shanghai, while Pfizer is also relocating its antibacterial research unit there from the US.
Besides the financial incentives that many of these top tier clusters offer (such as reduced tax rates), they also aim to provide a ‘one-stop-shop’ across the value chain for domestic and international players. Most of these parks are very large (ranging from 90 to 7,500 hectares) and host a wide variety of properties, from core industrial production factories to commercial offices (sales teams and regional HQs), R&D facilities and medical care areas. Moreover, virtually all include research and teaching facilities of major universities.
Whilst the life sciences clusters around Beijing and Shanghai have been the major recipients of foreign capital to date, they certainly aren’t the only hotspots for potential R&D investment. Clusters around cities such as Nanjing, Wuhan and Jinan have also attracted increasing international interest, with for example Pfizer, Novozymes and United Therapeutics, all developing new facilities in these markets. Other possible growth locations for the life sciences industry might be found in Wuxi (Jiangsu), where there is a niche for stem-cell research; Tianjin, where there is a strong presence of large domestic players (collaboration with domestic firms is strongly encouraged by the government); and Chengdu with its strong government support, proximity to the western/inland market and great ability to retain talent.
Away from the major clusters mentioned above, Chinese companies are expanding their R&D presence beyond the traditional eastern and south eastern regions. Multinationals have not followed domestic players into these locations in great numbers yet, and for them to do so will depend on investment in new academic university and healthcare programmes, combined with supportive local governments.