Although China's medicine distribution market has been fully open since the middle of last month, foreign investors will not rush in over the next few years as once expected.

"Many foreign investors are just watching the market," said Hou Dakun, general manager of Beijing-based Kevin King Management Consulting Co Ltd, one of the leading consultants in the pharmaceutical industry.

"Most foreign companies in the sector will probably not enter in the next few years," he said.

According to China's commitment to the World Trade Organization (WTO), the country removed all restrictions on foreign invested medicine distribution companies on December 11.

But few foreign investors have responded to the policy change.

For example, GlaxoSmithKline (GSK), the first solely foreign-funded company to receive a medicine distribution licence in China, has no ambition of entering the market.

GSK, the world's second largest drug maker, applied for the licence last February, in accordance with the Ministry of Commerce's new regulation that foreign funded companies are allowed to market their own products in both domestic and overseas markets.

"We got the medicine distribution licence in October last year from the State Food and Drug Administration," said Xiao Weiqun, media manager of GSK (China) Investment Co Ltd.

However, "GSK has no plan to invest in China's medicine distribution sector, at least not at the moment," Xiao said.

The company will only manage part of their own products and not those of other firms, to make up for inefficiencies in its current business system, she said, adding that Chinese partners will continue to act as the company's distribution agents.

"The aim of applying for the licence is to make the distribution of GSK's products more smooth in China.

"We will still focus our business on the research and development of new drugs and drug manufacturing, as we do all over the world," Xiao said.

To a certain extent, GSK's move reflects foreign investors' attitudes towards China's medicine distribution market, said Hou Dakun from the consultancy.

"Profitability always comes first when investors enter a new market," he said.

Foreign investors will not boldly enter when profitability is uncertain, he said.

According to Hou, most companies in the sector have very tight margins, with profit standing at a meagre 5 per cent, a figure much smaller than that of other retail sectors.

The immature competition environment, government involvement in the sector, regional protectionism, undeveloped logistics and other problems have also hindered foreign investors' entry to the market, Hou said.

This is not to say foreign firms have given up all ambitions on this potentially huge market.

A few foreign medicine retailers have announced plans to test the market's waters.

It is reported that an Australian medicare company signed letters of intent with Shanghai Citizen Drug Store in mid-December on selling medicines for severe illnesses such as cancer and diabetes, with the Chinese company holding the majority share.

Meanwhile, a UK-based medicine retailer is in talks with Shanghai Zhilin Drug Store on a similar deal.

They are just the beginning.

"Most foreign investors are watching the market and waiting for the right time," Hou said.

Source: China Daily