Small Enterprises will be Knocked Out, with the Implementation of the “Two-Invoice System”

The Chinese pharmaceutical logistics industry will face big chances, as the "two-invoice system" will be fully implemented this year, the original "license borrowing or leasing mode" of agents will be transformed to direct delivery by manufacturers, 10,000 wholesalers will quit the market, and the pharmaceutical logistics leaders will enter the peak period of "big fish eating small fish" M&As, with the industry scale effect more prominent.

According to the report of the Ministry of Commerce of the People’s Republic of China not long ago, the pharmaceutical circulation field is encouraged to "establish warehouses across regions, and coordinate distribution from multiple warehouses" after the full implementation of the "two-invoice system" in 2018, which means that the transregional pharmaceutical product circulation groups and pharmaceutical logistics centers will rise. According to the industry estimation, a large batch of "middlemen" will be eliminated, and around 10,000 small and medium-sized pharmaceutical product wholesale enterprises will be merged or directly knocked out. China Food and Drug Administration and other units have repeatedly expressed in the nearly one year of pilot work of the "two-invoice system" that among the 13,000 relevant wholesale enterprises, 3,000 would already suffice.

According to the 2016 financial report data of the 23 listed enterprises on the pharmaceutical business plate in China, there had been three pharmaceutical business giants exceeding RMB 100 billion market value—Sinopharm Group, CR Pharmaceutical, and Shanghai Pharma. The Development Plan of Domestic Drug Circulation Industry (2016-2020) issued by the Ministry of Commerce of the People’s Republic of China at the end of 2016 proposes: "Increase the industry concentration, and develop pharmaceutical circulation enterprises that exceed RMB 500 billion scale."

The current development of the Chinese pharmaceutical e-commerce and pharmaceutical circulation enterprises is rapid and flourishing, which have begun to test the "internet + pharmaceutical product circulation" and "internet + pharmaceutical service", etc., and may focus on transforming into integrated service provider with online and offline integration and multi-field crossover integration in the future, as seen from the industry trends.

Pharmaceutical circulation enterprises scramble for profits through pharmaceutical distribution

S.F. and Jingdong, representatives of the socialized logistics companies, are both constantly striving for the pharmaceutical distribution market: S.F. established the Pharmaceutical Logistics Division at the beginning of 2014, and established the Cold Chain Division two years later, to separate the pharmaceutical cold chain and raw food cold chain resources. According to the 2016 financial report of S.F., its cold chain network had covered 26 cities and surrounding areas at the end of the report period, including 2 pharmaceutical cold stores and 12 pharmaceutical trunk lines, running through core cities in Northeast China, North China, East China, South China, and Central China.

However, socialized logistics enterprises still have weaknesses in terms of the professional and fine services for pharmaceutical distribution. "Pharmaceutical products are special commodity. Mistaken or late delivery, or anything that goes wrong during the refrigeration or light avoidance process will lead to compromise of drug safety and effectiveness, and affect consumers’ health and even lives," expressed by an industry observer. Pharmaceutical distribution is absolutely a skilled task, and although logistics giants think that they have the effective tools, they still need to improve in terms of professional talent reserve, and pharmaceutical distribution before-sale, in-sale and after-sale services, etc.

Weaknesses in the old pharmaceutical distribution mode

On the other hand, after bidding farewell to the "small and scattered" distribution situation, there are several giants in the logistics distribution, including the Sinopharm system, China Resource system, Shanghai Pharma system, and Jointown, etc. "The ‘cake’ seems to become bigger as small enterprises quit, and giants could carve up the market, but many pharmaceutical logistics companies actually have weaknesses in terms of technology and idea." According to the said observer, the long-term regional inherent distribution pattern in the industry has made enterprises easily "rest content with old practice", without staffing professional teams to process data information, being not as efficient as socialized companies in the acceptance, storage, and sorting, etc. during the distribution, and still in the old pharmaceutical distribution mode. Therefore, according to him, professional pharmaceutical enterprises shall also learn to use the modern IT, shorten the distribution time, and improve the logistics level.

Source: Dayoo.com-Guangzhou Daily

Author: Guangzhou Daily All-media Reporter Tu Duanyu

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