Local knowledge is the key to success in China

Chinese lessons

15 May 2008 00:00  [Source: ICB]

For 30 years, Hovione has taken a methodical approach to sourcing and manufacturing in China

Clay Boswell/New York

SIGNIFICANT CHANGES in the pharmaceutical markets of emerging nations such as China, India and Brazil have created new opportunities for companies making high-quality active pharmaceutical ingredients (APIs) for highly regulated markets, according to Luis Gomes, vice president of generics at Portuguese API manufacturer Hovione.

In March, the company acquired a manufacturing facility near Shanghai. The move will serve as a keystone of the company's new approach to emerging markets.

"These markets that 10 or 15 years ago were not so interesting now have very good dynamics, in terms of growth," explains Gomes. "At the same time, they are becoming more regulated, so it is not the Wild West anymore. They are something we have to look at now."

Hovione is familiar with the Chinese market, having sourced raw materials there since 1979. In 1986, the company began operations at an API manufacturing facility in Macau, which has been inspected by the FDA every four years or so.

THE LOCAL ADVANTAGE

Low costs have always been one advantage of the Macau facility, but another has been a large pool of Hovione-trained Chinese employees who can contribute their linguistic and cultural knowledge to the process of identifying reliable suppliers among the thousands in China.

"The quality of information that they provide when you go to a visit with a supplier is very different than you would get from a translator or third party, so this allows you to have quite a good understanding of your suppliers," Gomes points out.

The Macau operation now has 150 employees, the majority of whom are Chinese. That most of them are locals is a deliberate strategy.

"We want persons from Macau," says Gomes. "Their parents are already in Macau. Otherwise these people will sooner or later move back to their town in China. We want people with roots."

Hovione has audited and qualified 100 suppliers in China who supply raw materials not only to Macau, but also Hovione's primary site in Loures, Portugal, near Lisbon.

TIME TO MOVE

Hovione's recent acquisition of a 75% stake in Hisyn Pharmaceutical, a Shanghai API manufacturer with 180 employees, is an outgrowth of these sourcing activities. The relationship between the two companies began with Hisyn supplying intermediates, but a greenfield facility commissioned in 2005 will now supply two of Hovione's largest-volume products.

"This comes as a natural consequence of the relationship that we developed with them," says Gomes. "At the beginning, it was like any other relationship that we have with so many other suppliers in China, but we enjoyed very much working with them, and the approach they have to business, and also the way the company was being managed."

Managerial practices have typically been a weakness in Chinese companies, but Hisyn is different, particularly in giving employees autonomy, he notes.

"Instead of having a boss who micromanages the company, who is the only person to make decisions, Hisyn is managed in a way that allows their own staff to grow," says Gomes.

"For many years we felt we'd be better off being an important client of Chinese plants through contract manufacturing deals, because at that time there many joint ventures going very wrong," he adds.

"Now is the right time for Hovione to acquire infrastructure in China and tap into a growing market and leverage China's manufacturing abilities."

Hovione plans to invest $5.5m in Hisyn this year. The capacity of the greenfield facility, about 200m3, will be doubled, and the existing capacity will be upgraded.

"This is a plant where we have good capacity and space for expansion, even after this expansion," Gomes observes. "It's clearly a facility where we think we can have cost-competitiveness in products and markets where that is an issue."

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