MULTINATIONAL PHARMACEUTICAL INVESTMENT IN ASIA:
IMPLICATIONS FOR VIETNAM
SUSAN NGA HOANG
A THESIS
Presented to the Interdisciplinary Studies Program: International Studies and the Honors
College ofthe University ofOregon in partial fulfillment ofthe requirements for the
degree ofBachelor ofArts
June 1999
' ..
APPROVED:.:..:...-=~~--------
Dr.Gerald~
-
r
An Abstract ofthe Thesis of
Susan Nga Hoang for the degree of Bachelor ofArts
in the Interdisciplinary Studies Program to be taken June 1999
Title: MULTINATIONAL PHARMACEUTICAL INVESTMENT IN ASIA:
IMPLICATIONS FOR VIETNAM
Approved:
-
The pharmaceutical industry is one ofthe most lucrative industries in the world.
The emergence of foreign pharmaceutical companies in Asia is a very hot prospect for
both the companies and the countries. Examining Japan's and Singapore's
pharmaceutical industries, the two largest in Asia, provides insights into the strengths and
weaknesses other countries and foreign companies should consider. Furthermore,
comparing these characteristics with Vietnam's will provide insight into how Vietnam
can be a contender as a host country to foreign pharmaceutical companies.
11
ACKNOWLEDGMENTS
The author expresses sincere appreciation to Professors Fry and Ramsing for their
assistance in the preparation ofthis manuscript. In addition, special thanks are due to
Gabriella Solis, whose grammar expertise has made my thesis more comprehendible. I
also would like to thank my family and friends who have supported me throughout this
entire process.
iii
Chapter
TABLE OF CONTENTS
Page
I.
II.
INTRODUCTION .
OBJECTIVE and METHODS: Framework & Aims ofthis Study.....
1
3
Selection ofCountries. 3
III. THE PHARMACEUTICAL INDUSTRy .
4
The trends ofthe global drug market. .. .. .. .... .. .. .... ... ..... 4
Concerns of investing in developing nations ofAsia. ...... .. 8
IV. COUNTRY ANALySIS .
13
Japan................................................................. 13
Singapore...................................... 21
Vietnam.............................................................. 27
Economic Background: Doi Moi's progress........... 27
V. WHY SHOULD VIETNAM CONSIDER THE PHARMACEUTICAL
INDUSTRY AS ONE OF ITS STAR INDUSTRIES?................... 33
Domestic Pharmaceutical market- current problems & future
considerations............................................... 33
Foreign Pharmaceutical Investment in Vietnam- Current problems
& future considerations.................................... 38
Sanofi & its struggle to start from ground zero....... .. 39
Rhone Poulenc Rorer face unfair disadvantages created by
the VN government. ... .... ......... ........ .... ........ .... . 40
VI. CONCLUSIONS 44
BIBLIOGRAPHy................ 46
iv
INTRODUCTION
People have used medicine for thousands ofyears to treat the ailing. As our
world becomes increasingly global, methods oftreatment also blend cross-culturally.
Aside from traditional medications, modem medications such as antibiotics have
proliferated all parts ofthe world.! Today, modem medicine is even used in most remote
areas ofthe world, and is often times recommended by developing countries' government
agencies over traditional methods. Therefore it is not striking to see the pharmaceutical
industry as one ofthe top global industries. A testament to the phannaceutical industry's
prominence is the fact that most ofthe competitive multinational phannaceutical
companies are "eyeing" the emerging markets ofdeveloping countries. Furthermore, the
growth ofthe global phannaceutical industry has been astounding within the past thirty
years, and has yet to show signs ofslowing growth. For example, the world
pharmaceutical market in 1975 was approximately $30 billion; today it is more than $300
billion.
2
There are several reasons for this: continual research and development, untapped
markets, various modes ofproduction possibilities and the increasing global demand.
One ofthe younger global markets is the Southeast Asian market. With the increasing
population, growing economies and newly forming government policies favoring
transnational corporations, phannaceuticals must consider this part ofthe world as the
"hottest" new area ofinvestment ifcontinued profit is the goal ofthese companies.
Asia is in a unique position as a market for several reasons. First, there is a large
spectrum in how developed individual nations are. From Japan to Vietnam, there is a
disparity in their position as global competitors. Second, each country has unique
I The difference between traditional and modem is that modem medicine is made through synthetic means.
1
r
qualities that allow them to be niche competitors. These qualities vary, but can include
natural resources, skilled labor, geographical location, and market demand. Third, Asia
represents a fairly untapped market for pharmaceutical industries in comparison to other
industries such as textiles and electronics. Not only does Asia have a large consumer
market; it has the potential ofbeing an efficient and profitable area ofinvestment.
2 W Mattson, Global Phanna 20/20. Phannaceutical Marketing in 21st Century (New York: Haworth
Press, 1996) 3-18; hereafter cited as: Global Phanna.
2
OBJECTIVE & METHODS:
Framework & Aims ofthis Study
The impetus to study this topic is a result ofmy interest in Vietnam, medicine and
international business. After spending three months working at a trading company in
Vietnam, I found that this country is definitely living up to its name as the next economic
Asian tiger. I also studied this topic because medicine is one ofhuman's basic needs
along with food and shelter. Lastly, the huge influential power pharmaceuticals exert on
various aspects ofsociety intrigues me as well. It is my hope that this study will provide
some reasons as to why Vietnam should make itselfamenable to the international
pharmaceuticals as well as why pharmaceutical multinationals should seriously consider
investing in Vietnam now.
Therefore, in this thesis I aim:
To highlight the current trends ofpharmaceutical industry investment, with
emphasize the top multinationals. The areas offocus are: the regions of
investment concentration, the direction research anddevelopmen~istaking,
and the current and future market.
To highlight the strengths and weaknesses ofvarious Asian countries as host
countries to the pharmaceutical industry and to indicate areas Vietnam should
enhance and strengthen to become a competitive host country.
To present specific case studies that will exemplify issues that need to be
considered by Vietnam and interested pharmaceutical corporations.
The content ofthis thesis is largely based on my analysis and findings ofstatistics, trends,
case studies ofthe pharmaceutical industry trends and the comparison ofvarious aspects
of four Asian countries with emphasis on Vietnam.
3
- -----,
THE PHARMACEUTICAL INDUSTRY
Selection ofCountries
The selected countries, from "most developed" pharmaceutical market to "least"
are: Japan, Singapore and Vietnam. Each ofthese countries were selected on the basis of
their stage in economic development and how developed their pharmaceutical markets
were. The factors ofdevelopment that I considered were: skilled labor, technology
transfer, infrastructure, governmental policies and other strategic advantages offered to
pharmaceutical industries that invest there. Since Japan is only second to the U.S. in its
pharmaceutical industry size, this country serves as an example ofthe most advanced
stage in pharmaceutical industry development. Although Singapore's drug industry is
~
smaller, it is one ofthe more developed nations among the ASEAN members. The
strengths and weaknesses ofthese countries' pharmaceutical industries will be compared
to Vietnam to provide insight into future steps Vietnam should take in order to become an
attractive host country. A more detailed explanation ofthe reasoning for selecting these
countries will follow.
The trends ofthe global drug market
Ifone examined the pharmaceutical market ofthirty years ago, she would find
that regions that had the largest sales, largest amount ofR & D and the largest
pharmaceutical companies were the United States, Europe (particularly Germany and
France), and Japan. Hot growth prospects considered at the time were Japan, Latin
America, and the Middle East. Today, Europe, North America, and Japan are still the
fiercest competitors. However, other parts ofAsia aside from Japan have become the
new hot growth prospects. Moreover, Mattson et al. believe that in twenty years, China
4
---------------------------------------------------------
y
will be included among the ranks ofthe leading global marketcountri~s.3Regardless of
the home country ofthe top global companies, these companies have operations in many
parts ofthe world.
These observations and forecasts suggest that companies should consider Asia as
the place ofinvestment. In examining the formidable pharmaceutical industry and its
seemingly never-ending growth, there are distinctive features distinguishing the
pharmaceutical industry. First, pharmaceutical products are highly patented since the
success ofa single drug can be the life or death ofa drug company. The success of
Viagra illustrates this point; it helped make Pfizer's stocks become one ofthe most
lucrative in the 1998 stock market. Second, pharmaceutical products' demand usually is
not dependent upon price because medicine is a good that is inelastic, because people will
always need their health. Third, in this highly cutthroat industry, successful companies
have relied on innovation to distinguish themselves from their competitors. Furthermore,
Thomas' study showed a strong correlation among the international competitiveness ofa
nation's drug industry, innovations, and its ability to meet the needs ofthe global market
(Table 1).4
3 Ibid.
5
r
TABLE 1
COMPETITIVE PERFORMANCE, MARKET STRUCTURE AND INNOVATION TYPE FOR NINE
MAJOR COMPETITOR NATIONS
Nation World External Number of Number of % %
Market Share Firms Firms Discovery, Discovery
Share 1985 That That Global Local
1985 Innovate Innovate
per R&D
U.S.A 43.3 19.1 20.1 3.6 44 28
Switzerland 8.0 7.4 3.1 2.2 38 41
U.K. 7.4 5.8 5.8 4.8 51 25
Gennany 10.2 6.2 13.2 5.9 18 49
France 4.1 1.0 15.6 13.0 13 60
Italy 2.5 .5 20.1 26.8 10 75
Japan 20.2 .1 27.5 12.2 9 77
Sweden 1.0 .7 2.9 9.7 38 32
Netherlands 0.6 .4 3.1 10.3 33 35
Source: Thomas (1992)
Thomas' results showed that at first glance Japan's 20% world market share seems
fonnidable. However, examining Japan's miniscule external shares (0.1 %) and weak
global discovery (9%) shows that the growth ofits drug industry is limited to the its
national borders. On the contrary, other countries, which are more global in vision, have
the potential to become stronger global competitors. With the exception ofJapan, whose
strong protectionist policies render their drug companies to locate primarily in the home
market, the most competitive countries also have the most external shares. External
shares is defined as the sales that finns ofa given nation achieved outside that nation's
borders as a share ofpharmaceutical sales in all external markets. Additionally, it is
evident that the strategies taken by the global competitive countries are diverse.
However, an attribute shared among the top global competitors is the tendency to
innovate primarily global products. Global products are defined as new drugs that diffuse
4 L Thomas, "Industrial Policy and International Competitiveness, Competitive Strategies in the
6
t
?
to at least six nations, out ofa maximum possible twelve nations measured for this study.
This further supports the notion that not only is innovation crucial, the need to meet the
demands ofthe global market is equally important.
Although it may not be hard for drug corporations to accept the importance of
innovation, it is difficult for companies to have the resources needed for global
innovation. A study found the size ofthe firm to be important, because it takes an average
$260 million (some estimates exceed $300 million) to produce a marketable drug that
will take eight to twelve years to produce.
5
Consequently, it is nearly impossible for
pharmaceutical industries in developing nations to compete with the industries of
countries such as the United States that have such large capital. Hence the rationale that
developing drug industries need the investments oflarge transnational companies in order
to strengthen themselves. The strong correlation between competitive performance and
globalization ofpharmaceutical companies indicates that there is technology transfer and
introduction ofdifferent ways ofknowing and doing.
Furthermore, transnational corporations also benefit from investment in newly
emerging markets because of"first mover" benefits, increasing number ofconsumers,
and the possibility to trade with other countries. Based on the predictions that Asian
countries have strong growing industries, it is not a stretch to include pharmaceutical
industry among this prediction. This leads into the idea that the strong companies take
the initiative to invest in Asia. However, there will be investment variation among the
Asian countries by leading companies, partly due to the countries' spectrum ofhow
complete and well-developed the industrial base and infrastructure is, how educated the
Pharmaceutical Market (Washington DC: AEI Press, 1992)
7
T
n
skilled workers are, and how stable economic system is. These factors should be
considered by pharmaceuticals that plan to invest in Asia.
Concerns ofinvesting in developing nations ofAsia.
The three most common protests corporations have against investing in
developing nations are the over-hyped drug market, the lack ofguarantee ofintellectual
property and unregulated drug quality. After the wake ofthe Asian economic "crisis"
analysts were quick to judge the downfall ofAsia. Indeed the facts ofless-than-expected
sales can disappoint investors. Some suggest that business forecasters have
overestimated or over-hyped Asia's potentials. However, pharmaceutical investors
should not be discouraged from committing to Asia, because this region is "bouncing
back" from the economic crisis. Consider this anecdotal observation, ifAsia was not
influential in the global market, then the economies on the other side ofthe Pacific Ocean
would have not experienced the rippling effects ofthe crisis. This observation would
suggest that Asia is not an "over-hyped" market, and it would be a major loss to any
corporation that would not consider it a location ofinvestment. The Economist
Intelligence Unit was quoted in a recent article attributing this same economic crisis to
the region's healthcare market dramatic transformation. The EIU's study reported that
global pharmaceutical companies must change their strategies in Asia, since its
pharmaceutical market nose-dived. Before the crisis East Asia, with halfthe world's
population, seemed the ideal place to invest for future growth and the major
pharmaceutical were looking at the region as their future nest egg. Although East Asia,
5 R Rogowsky, Competitive Strategies in the Phannaceutica1 Industry, ed. R Helms (Washington DC: AEI
Press, 1996) 155-164.
8
-
T
excluding Japan, represents only 8% ofthe global pharmaceutical market, it is expected
to be the largest consumers on Western medicine by 2010. The study concluded by
recommending local investment, but not imports.
6
Many developing countries do not have an established effective policy to protect
intellectual property. This has lent many nations the notoriety ofpirating and has
deterred many companies that deal with high technology to look elsewhere for
investment location. The pharmaceutical trade is no different from the technological
trade in its need to protect its R&D. It is understood that the maintenance ofquality and
integrity requires the enactment ofstringent national regulation. Granted, many
developing countries do not have established patent protection laws as the United States,
but this does not suggest that the developing countries oppose these protection laws. If
this were the case, then these countries would be turning away the opportunity to
introduce high technology into their economy.
These issues are hindrances to the globalization ofthe pharmaceutical industry.
However, like many other global issues these requires international intervention.
International patent laws and international drug quality regulations can prevent such
concerns. International provisions have been established; for instance, the 1883
Convention ofParis has made patents a stable international system. This is duly efficient,
because it is as wasteful for an American to duplicate research already done by a German
and vice versa.
7
Due to the international character ofthe patent system, it is common for
a single firm to control a drug patent in all major countries, but not all countries abide by
6 G Platt, "Phannaceutical finns told to shift Asian strategies," Asian Weekly, 17 November 1998, sec.
Finance: 2A.
9
>
these rules, particularly developing countries. However, with the increasing pressures of
countries to become global, they are compelled to confonn to certain international norms.
Aside from the policies that have been created by nations with established pharmaceutical
industry, developing nations have come together to create provisions to enhance
cooperation and industrialization. Examples ofsuch efforts include the Lima Declaration
and Plan of Action on Industrial Development and Cooperation for the negotiation ofthe
relocation ofproductive facilities from the developed to the developing world. Other
international efforts are being made to design and implement a broad strategy relating t6
phannaceuticals. The World Health Organization (WHO), the United Nations Council
on Trade and Development (UNCTAD) and UNIDO have recently fonned a Joint Task
Force to implement under the auspices ofthe United Nations Action Program on
Economic Cooperation (UNAPEC).
8
Based upon international pressures, developing countries that plan to attract
transnational drug companies should consider the detrimental effects caused to countries
that have disregarded international standards on intellectual property. For example, one
ofthe United States largest drug company, Pfizer, invested millions ofdollars and a
decade to develop Diflucan, an anti-fungal agent. However, upon the introduction ofthe
drug onto the market in 1990, an identical drug was produced in Spain and exported to
Chile and Venezuela, and Pfizer could do little. Like many developing countries today,
Spanish law at the time granted "process" patents for the way a drug was created not for
the drug itself. In fact, Brazil and Argentina do not allow life-sustaining drugs to be
7 E Kitch, "The Political Economy ofInnovation in Drugs and Drug Regulation Reform," The
International Supply of Medicine, ed. R Helms (Washington, DC: American Enterprise Institute, 1980) 71 
85.
10
t
b
patented. Experiences such as these have prompted the 1993 GATT agreement on world
trade to include rules on trade-related intellectual property (TRIPs). Under these rules,
drugs such as Diflucan are protected for 20 years, including the time to develop the
drugs. Additionally, the companies have sole control over who is allowed to produce the
drugs. Most opponents ofthis law argue that patent holders come from rich countries
such as the US, Japan, and Germany, and that this law would further exploit poorer
developing countries. Since patent holders will have control over drug pricing, there are
concerns that the prices are over inflated and unable to be met by people from developing
countries.
9
However, I believe it is wise for developing countries such as Vietnam to
adopt TRIPs before other developing countries do, because it will benefit the nation's
reputation and further the amount offoreign investment.
The last concern for investing in developing nations is the lack ofskilled labor and
resources. Foreign companies should consider various ways ofdistribution and
production to ameliorate this concern. My proposed four stage plan for long term
investment is outlined in figure 2.
Stage 1 Manufacturer sells to wholesalers and other middlemen.
Stage 2 Naming a local company as sole distributor. The local company has
the responsibility ofhandling regulatory activities and other local issues.
Stage 3 Set an office for a region in a capital city that is responsible for several
neighboring countries.
Stage 4 Regional office is responsible for R&D as well as distribution of
drugs. Figure 2
8 S Lall, The Growth ofthe Pharmaceutical Industry in Developing Countries: Problems and Prospects.
{New York: United Nations, 1978.)
11
tr
My proposed four stages ofinvestment will gage the commitment a company may have
for investment in a country, with stage 4 being the highest level ofcommitment. As will
be mentioned in later sections, the more the number ofcompanies that are in the more
advanced stages ofinvestment the more mature is the host country's pharmaceutical
industry.
Despite the aforementioned concerns the benefits from investments in Asia more
than outweigh the risks. For example, we could consider the strength ofJapan and the
"tiger" countries such as Singapore, Taiwan, and South Korea, and the influential
ASEAN nations. Also, one cannot forget the formidable economic player China is
anticipated to be. Lastly, for those transnational drug companies who have foresight and
are enterprising, they will find the younger emerging "tigers" such as Vietnam the key to
long term success. The leading pharmaceutical corporations seem to follow the
philosophy, "Scientific progress involves high risks, but can reap fruitful rewards." Thus,
investment in Vietnam, despite the consideration ofthe "roadblocks" to entering the
Vietnamese pharmaceutical market, should result in long term profits for the foreign
companies and Vietnam. With the wide range ofAsian countries, the question that should
be addressed is where to locate the investment. In the following sections, I will highlight
the strengths and weakness each country has, and ultimately explain why Vietnam is a
serious competitor for the ideal pharmaceutical host country.
9 "Intellectual property---is theft," The Economist, 1994 v330 n 7847, 72(2).
12
.0
...
COUNTRY ANALYSIS
Although it maybe tempting to lump all Asian countries into one entity for sake of
efficiency, but this can result in dire business investment. Therefore, it is better to
understand there are certain things that overlap among the various countries, but there are
also things that distinguish these countries. An example ofsomething that potential
pharmaceutical investors should understand about the Asian market is the different ways
medicine and health services are provided to patients, and the various types ofmedication
aside from western medicine that is used in Asian society. In the following section I will
examine the selected countries' overview and business environment, with emphasis on
issues that pertain to the pharmaceutical industry. It is not my intent that this is the end 
all statement to the issue ofthe pharmaceutical potentials ofthese countries. Rather, it is
my goal that this analysis will incite future more detailed studies to support or refute my
proposed ideas.
Japan
This country serves as an example to Vietnam as a country with a highly
developed pharmaceutical industry. In fact, Japan has the most developed
pharmaceutical industry among all Asian countries. Furthermore, Japan's pharmaceutical
industry has been considered an "equal" competitor among the Western Europe's and the
United States' pharmaceutical industries since the 1960s. The most recent data shows
that Japan is only second to the United States in size ofthe pharmaceutical market. 10 The
success ofthis country's pharmaceutical industry is a culmination ofits innovations, its
large consumer market, and its globalizations.
13
...,..
lO Global Phanna.
14
T
...
Japan's established economy allows for the growth ofthe pharmaceuti'cal industry. The
success ofthe economy can be attributed to Japan's government-industry cooperation, a
strong work ethic, mastery ofhigh technology, and a comparatively small defense
allocation (roughly 1% ofGDP) have helped this country advance with extraordinary
rapidity to the rank ofsecond most powerful economy in the world. One notable
characteristic ofthe economy is the collaboration ofmanufacturers, suppliers, and
distributors in closely knit groups called "keiretsu". However, within the past decade,
this seemingly invincible economy is beginning to show its weakness. For instance, one
ofthe basic feature has been the guarantee oflifetime employment for a substantial
portion ofthe urban labor force; which appears to be eroding. Another weakness of
Japan's economy is its lack ofnatural resources. Therefore, although industry is the most
important sector ofthe economy, it is heavily dependent on imported raw materials and
fuels, which results in higher costs.
Reflecting on Japan's past economic record, it is simple to understand why their
pharmaceutical industry is successful. Consider Japan's remarkable economic rise, for
three decades overall real economic growth had been spectacular: a 10% average in the
1960s, a 5% average in the 1970s, and a 4% average in the 1980s.
11
The strength of
Japan's overall growth suggests there was commitment to investment as well as
production. As noted before, investment is crucial to innovation, a integral part ofa
successful pharmaceutical industry. Interestingly, when the growth slowed markedly in
1992-95, some analysts attributed the slowed growth to over-investment during the late
1980s and contractionary domestic policies intended to wring speculative excesses from
the stock and real estate markets. Growth picked up to 3.9% in 1996, largely a reflection
15
I
..
ofstimulative fiscal and monetary policies as well as low rates ofinflation. But in 1997
growth fell back to 1%. As a result ofthe expansionary fiscal policies and declining tax
revenues due to the recession, Japan has one ofthe largest budget deficits as a percent of
GDP among the industrialized countries.
A dynamic industry is important sector ofthe Japanese economy, because ofits
contribution to GNP as well as trade. There are several key industries, including
pharmaceuticals and bio-industry that are given extra attention and support by the
government. The pharmaceutical industry and bioindustry experienced strong growth in
the late 1980s. Pharmaceuticals production grew an estimated 8 percent in 1989 because
ofincreased expenditures by Japan's rapidly aging population. Leading producers
actively developed new drugs, such as those for degenerative and geriatric diseases, and
also internationalized operations. Pharmaceutical companies were establishing tripolar
networks connecting Japan, the United States, and Western Europe to coordinate product
development. They also increased merger and acquisition activity overseas.
Pharmaceuticals is only one aspect ofbiotechnology research and development, which is
progressing steadily. Human hormones and proteins for pharmaceutical products were
sought through genetic recombination using bacteria. However, the government cautions
Japanese producers, however, against optimism regarding biotechnology and bioindustry.
The research race both in Japan and abroad intensified in the 1980s, leading to patent
disputes and forcing some companies to abandon research. Also, researchers began to
realize that such drug development continually showed new complexities, requiring more
technical breakthroughs than first imagined. Yet despite these problems, research and
development, especially in leading companies, was still expected to be successful and to
II CIA Factbook, March 21, 1999
16
!
I
*'
end in product commercialization in the mid-term. An increasing number of"best-
selling" drugs found have come from Japanese laboratories. Sankyo, which vies with
Takeda for the top spot in Japan, invented the anti-cholesterol drug pravastatin. It is the
largest selling drug in Japan (worth over YEN 100 billion per year); it is also the second
largest earner for Bristol-Meyers Squibb, which distributes the drug outside Japan under
the tradename Pravachol. Yamanouchi, the third largest pharmaceutical company in
Japan, makes Merck's forth biggest worldwide seller, and an anti-stomach ulcer drug,
Pepcide.
12
The government plays a crucial role in supporting the global pharmaceutical
activities such as international research alliances. For example, Japan's Ministry of
International Trade and Industry (MIT!) has primary responsibilities for formulating and
implementing international trade policy, arbiting industrial problems and disputes, and
regulating. A major objective ofthe ministry has been to strengthen the country's
industrial base. This has been accomplished by providing industries with administrative
guidance and other direction, both formal and informal, on modernization, technology,
investments in new plants and equipment, and domestic and foreign competition. The
close relationship between MITI and Japanese industry has led to foreign trade policy
that often complements the ministry's efforts to strengthen domestic manufacturing
interests. For example, it supports global activities such as alliances among Japanese and
foreign pharmaceutical companies. Moreover, MIT! is an effective governmental
organization, because it has a flexible overarching capability. This is evident by the
observation that MIT! has been responsible not only in the areas ofexports and imports
12 "Too small to compete: drugs in Japan," The Economist, 1994335:7911,65(2); hereafter cited as:
TSMC.
17
,..
but also for all domestic industries and businesses not specifically covered by other
ministries in the areas ofinvestment in plant and equipment, pollution control, energy
and power, some aspects offoreign economic assistance, and consumer complaints. This
span has allowed MITI to integrate conflicting policies, such as those on pollution control
and export competitiveness, to minimize damage to export industries. Vietnam should
consider a governmental agency that is capable ofa such a wide variety oftasks.
Despite Japan's established government agencies and the industry's established
market; there are many limiting factors to Japan's potential as the ideal host country for
transnational pharmaceuticals. The pharmaceutical market crowding, limited resources
and trading policies that inhibit trade among other Asian countries render Japan as a
limiting site for a multinational pharmaceutical corporation. Japan strongly believes in
the need to promote exports and Japan's self-image as a "processing nation." A
processing nation must import raw materials but is able to pay for the imports by adding
value to them and exporting some ofthe output. The theory behind Japan's goal to be a
processing nation is the beliefthat nations grow stronger economically by moving up the
industrial ladder to produce products with greater value added to the basic inputs.
However, rather than letting markets accomplish this movement on their own, the
Japanese government feels the economy should be guided in this direction through
industrial policy. Furthermore, this "processing' theory suggests that Japan relies too
heavily on protectionism, and this may be a deterrent to many foreign pharmaceutical
corporations.
Aside from the government's and indigenous corporations' contribution to the
strength ofthe pharmaceutical industry, the Japanese market demand for pharmaceutical
18
,.....
?
goods is crucial as well. Examining Japan's health care will provide insight as to how
modem medicine is used by consumers. A person who becomes ill in Japan has a
number ofoptions. One may visit a Buddhist temple or Shinto shrine, or send a family
member in his or her place. There are numerous folk remedies, including hot spring baths
and chemical and herbal over-the- counter medications. A person may seek the assistance
oftraditional healers, such as herbalists, masseurs, and acupuncturists. However, modem
biomedicine dominated Japanese medical care in the postwar period.
The good public health services and universal medical insurance provided by the
government allow easier access to modem medications. Consider the wide range of
locations where a patient might obtain medicine. In the early 1990s, there were more than
1,000 mental hospitals, 8,700 general hospitals, and 1,000 comprehensive hospitals. In
addition, 79,000 clinics offered primarily out-patient services, and there were 48,000
dental clinics. Most physicians and hospitals sold medicine directly to patients, but there
were 36,000 pharmacies where patients could purchase synthetic or herbal medication. 13
Indeed, Japan has a large drug market, and this proved by Japan's health expenditures.
National health expenditures rose from about ?1 trillion (for value ofthe yen--see
Glossary) in 1965 to nearly ?20 trillion in 1989, or from slightly more than 5 percent to
more than 6 percent ofJapan's national income.
However, foreign pharmaceutical corporations should not be too quick to assume
that the Japanese drug market is similar to the United States' or European markets. For
example, there are more eastern-medicine professionals than western-medicine
practitioners. In the early 1990s, there were nearly 191,400 physicians, 66,800 dentists,
13 http://dir.yahoo.com/RegionaIlCountries/Japan/Country Guides/Japan March 18, 1999
19
-------------
,...
and 333,000 nurses, but more than 200,000 people licensed to practiced massage,
acupuncture, moxibustion, and other East Asian therapeutic methods. Since around 1900,
Chinese-style herbalists have been required to be licensed medical doctors. Training was
professionalized and, except for East Asian healers, was based on a biomedical model of
disease. However, the practice ofbiomedicine was influenced as well by Japanese social
organization and cultural expectations concerning education, the organization ofthe
workplace, and social relations ofstatus and dependency, decision-making styles, and
ideas about the human body, causes ofillness, gender, individualism, and privacy.
Anthropologist Emiko Ohnuki-Tierney notes that "daily hygienic behavior and its
underlying concepts, which are perceived and expressed in terms ofbiomedical germ
theory, in fact are directly tied to the basic Japanese symbolic structure." The different
outlook Japan has on health will affect how modem medicine medication is consumed.
The differences between the Japanese drug market and the western countries' can
be seen by the different ways the drug companies are operating. Unlike western
industries, the Japanese firms are less likely to form huge conglomerates such as Glaxo 
Wellcome. Furthermore, it seems that despite the fact that it is the second largest market
($75 billion/year), it is also considered one ofthe most fragmented and unprofitable.
Japan's largest drug company, Takeda, is ranked 18
th
in the world based on capital with
$10 billion. This is a minute amount when comparing the United States' $53 billion
Merck. Aside from protectionist policies, another reason for the Japanese drug industry
shortcomings is the difference in how medicine is practiced. Japan's medical tradition
has grown out ofChina's, with its emphasis on prevention rather than cure, and constant,
low-level intervention with "tonics" rather than acute treatment with potent bio-
20
-
T
chemicals. Japanese doctors, whose salaries are partly linked to the quantity of
medication they prescribe, can commonly prescribe ten or more drugs. However, the
Ministry ofHealth and Welfare has been cutting costs by limiting the coverage on drugs
and doctors' salaries are being unlinked from the quantity ofdrugs they prescribe. Also,
the MHW is cutting prices with an average price cut of6% in 1996.
14
Singapore
Although Singapore does not have a large pharmaceutical industry as
Japan, it is considered a popular location for foreign pharmaceutical companies. This is
because ofSingapore's open policy toward foreign investment, its highly educated work
force, its reputable patent laws, and its connection to various countries through alliances
like ASEAN. The foresight ofSingapore's government has resulted in one ofthe fastest
growing economies. Pharmaceuticals and biotechnology are among the most actively
promoted foreign activities by the Singapore government. IS
14 TSMC 7911: 65-67.
15 DOiiliBusiness in Singapore (USA: Price Waterhouse, 1992.)
21
-
T
22
Singapore was one ofthe first developing countries to open up to multinational
companies in the 1960s and 1970s. The result: Singapore is way ahead ofthe global game
among Southeast Asian countries. Although Singapore is often grouped with the dragons
ofEast Asia- the newly industrialized economies ofHong Kong, Taiwan and South
Korea- but its distinguishing export orientation depends on MNC investments, rather than
local entrepreneurs or local capital inputs. Therein lies its strengths as well as its
weakness for long term foreign pharmaceutical investments. Singapore began export-
oriented industrialization immediately after separation from Malaysia in 1965. The key
strategy was vigorous promotion offoreign direct investments to achieve rapid export-
oriented industrialization. The legal and institutional framework for this policy was
quickly set up within the first few years. The Economic Expansion Incentives Act of
1967 provided a structure offiscal incentives for foreign investors, the main one being a
tax-free holiday ofup to ten years for "pioneer" activities. Government agencies were
revamped to launch an aggressive investment promotion drive overseas and to provide
the infrastructure and facilities needed by MNCs. At the same time, import substitution
policies were quickly dismantled and import tariffs removed. During the 1980s, the
government focused on high value-added products made by technology intensive
industries. Furthermore, an array offiscal and other incentives was also put in place,
emphasizing activities such as research and development, and information technology. 16
Through these activities, pharmaceuticals and biotechnology were among the new
industries introduced in the 1980s.
16 S Natarajan and TJ Miang, The Impact ofMNC Investments in Malaysia, Singapore & Thailand,
(Singapore: Institute ofSoutheast Asian Studies, 1992.)
23
,....
,
?
The Singaporean highly educated and skilled labor force attracts foreign drug
companies in addition to the open trade policy. Based upon the study conducted by
Natarajan et aI., the Singaporean labor force has high qualifications, and gains great
respect from foreign companies. Interviews ofthe MNC executives showed that they
were satisfied with the quality ofthe Singaporean labor force. The data showed that
MNCs have increasingly cut down on the number ofexpatriates from the parent company
and have used local personnel to run their Singapore operations. This is indicative ofthe
Singaporean labor force's comparable skills to expatriates. Unfortunately, the labor force
at the operator level has several disadvantages. Among the concerns is the inadequate
education level ofoperator workers, with the majority having less than six years of
primary education. Furthermore, there is a shortage oflabor; with a workforce of 1.2
million, Singapore has found the need to hire foreign workers or contract out their
production.
The highly developed infrastructure is another attractive strength ofSingapore.
The study showed the country's utilities and telecommunications were reasonably priced
and ofexcellent quality. However, MNCs expressed concerns that lease charges and land
costs were higher than neighboring countries due to scarce industrial land. The Changi
airport was highly rated for its efficiency and amenable services. As for seaports,
Singapore has emerged as the leading hub and transshipment port in the region. In
addition to its natural advantage ofstrategic location, Singapore has continually upgraded
and expanded its facilities to meet the burgeoning needs oftrade.
Although Singapore has the most liberal policy towards foreign investment, this
has caused the country to rely on foreigners. This can be truly devastating when
24
,....
-------------- ....l.-
multinational companies decide to leave because it is no longer profitable due to the labor
and raw material costs, the shortage oflabor and limiting land. Therefore a broader
economic strategy that promotes domestic and foreign companies may lessen the reliance
on MNCs. However, Singapore has yet to show signs ofthese concerns. Rather, major
drug companies such as Merck, Upjohn and Schering have continued to expand in
Singapore despite the recent economic crisis. Singapore's latest tax break for research
and development expenses has brought about significant investments from various high 
technological industries, including pharmaceuticals. Economic Development Board
chairman Philip Yeo said: "Effective from Jan 1, 1999, companies will be able to claim
tax deduction for contract R&D expenses involving any ofthe 22 approved research and
tertiary institutions." He also added the approved list will focus on high-tech areas such
as cell and molecular biology, bioprocessing and microelectronics. 17 US-based Pharmacia
& Upjohn, the 1i
h
largest drug company in the world with 30,000 employees worldwide
is among the companies that have taken advantage ofthis tax break.
Pharmacia & Upjohn recently expanded its business in Singapore beyond a
distribution center. Singapore will be the location ofPhamacia & Upjohn's Asia-Pacific
drug development center; and it is expected to at least double the region's contributions to
group turnover in five to 10 years. The drug company's Singapore drug development
center will be responsible for: developing antibiotics, treatments for cancers, infectious
diseases and the central nervous system; coordinating and managing drug trials carried
out in all Asia-Pacific countries, except Japan; helping the group roll out new products in
the region earlier and bring in higher revenues; and developing data at an early stage and
put in registration applications to various governments. According to Goran Ando,
17 E Rahita "Tax claims for R&D work cover more bodies." Singapore Business Times 16 March 1999: 3.
25
-
executive vice-president and president for research and development, Pharmacia &
Upjohn will spend "tens ofmillions ofUS dollars" a year on research and development in
the region over the next five years, he said. "The more successful the Singapore center is,
the higher will be its R&D investment. And I expect it to grow very fast.".'8 However,
the amount that will be invested in the center is still unknown. "Our total R&D budget in
pharmaceuticals is US$ 950 million (S$ 1.6 billion) a year. How much ofthat will end up
here, I have no idea. The more successful the center is, the more will be done here."
19Furthermore, the company aims to shorten the time-lag ofnew drug launches from two
years to closer to zero. This will allow Asian consumers access to all drugs just like their
western counterparts and increase the company's revenues.
Singapore's aggressive recruitment ofhigh technological industries has proven to
be successful thus far. The case ofPharmacia & Upjohn showed that tax incentives and
other open policies toward foreign investors could bring in billions ofdollars into the
country. Singapore seems to have truly embraced the global economic theory that open
trade can be profit for the entire nation. However, Singapore's success will be limited in
the long run, due to its limited resources and labor. Furthermore, as other Asian-Pacific
countries, which do not have the limitation ofan island nation, become more
economically stable, technologically advanced and increased skilled labor, MNCs will
look to these countries as a better place ofinvestment.
18 Yeow Pei Lin. "US drug finn sets up Singapore regional center" The Straits Times 16 March 1999.
26
I
----
Vietnam
Although Vietnam is far behind Japan and Singapore in infrastructure, economics,
governmental policies and other aspects, it is a very promising nation for economic
growth. Vietnam came late into the game ofcapitalism. While the other two countries
started earlier this century, Vietnam began its economic renovation, doi moi, in 1986.
Furthermore, the US embargo that significantly obstructed Vietnam's economy was only
recently lifted 6 years ago. Therefore, despite Vietnam's seemingly small changes and
"milestones" when comparing to Japan and Singapore oftoday, is truly impressive rapid
transformation. Mark Gillon, one ofthe top foreign consultants in the country, suggests
that the potential ofVietnam is tremendous, that the country will surpass Thailand or
Malaysia. "Hong Kong and Singapore were in first and way ahead, while China is big,
but Vietnam is going to grow in a major way. The Vietnamese know exactly what they
want and many know how to get it.,,20 Other foreign investors have also observed this
and the number offoreign investment have increased dramatically. Although
pharmaceuticals may be wary ofentering this new market due to the copious risks, but
taking a wait-and-see approach may be even riskier, given the tangible advantages that
early comers gain in emerging economies.
Economic Background: Doi Moi 's progress
Vietnam's current economic situation is in the implementation phase ofdoi moi.
With the aims ofbecoming a free market, the country has embraced various policies from
other countries that have been successful. For example, from Singapore, Vietnam has
enacted a body of liberal foreign investment law, which has already resulted in over $10
19 Rahita Elias, "Tax claims for R&D work cover more bodies," Singapore Business Times 16 March 1999
3.
27
,.....
billion ofpledged foreign investment. Additionally, similar to Japan, it has adopted the
idea ofan industrial master plan; Mitsubishi designed such a plan for Vietnam's
automobile industry in the early 1990s. Despite the nickname "a tiger on a bicycle", due
to huge obstacles such as insufficient industrial infrastructure, Vietnam's immense
potentials are being realized. The dramatic changes in Vietnam's economy can be
attributed to the government's commitment to doi moi. Examining the state ofthe
economy prior to and during the economic renovation will allow one to appreciate these
dramatic changes.
20 C Engholm, Doing Business in the New Vietnam, New Jersey: Prentice Hall 1995.
28
+
29
r
Since 1976, the year ofreunification for the country, Vietnam's economy has been
centrally run and guided by five-year plans. Prior to Doi Moi of 1986, economic reforms
focused on the agricultural sector and heavy industry to stimulate production.
Furthermore, with the concern ofloss of autonomy, the government never allowed
liberalizing reforms to last for long. Instead, there have been cycles ofreform and
retrenchment since the early 1980s. Additionally, close central control and poor
management ofthe economy led to a decline in industrial and agricultural production.
Thus, the stagnant growth, a severe shortage offood, deficit budgets, soaring inflation
and chronic trade imbalances compelled the government to make dramatic changes. The
Sixth National Congress ofVietnam's Communist Party, held in December 1986,
initiated an overall economic renovation policy. Popularly known as Doi Moi the policy
aimed at making the country self-sufficient in food production and improving the
standard ofliving ofthe people. The core ofDoi Moi was to reduce state intervention in
business and to open the country to foreign investment.
In the effort to develop a multi-sector economy with the state sector playing the
lead role, many conflicts have arisen. The problems revolve primarily around the lack of
support private industries receive from the government, the unstructured law system and
the underdeveloped infrastructure. Furthermore, many ofthe reforms still favor
government-run operations, such as prioritizing loan availability for state-owned
enterprises (SOEs) and favoring foreign/government joint ventures and trade. Among the
reform policies proposed is equitisation, a concept in which SOEs sell shares ofthe
company to its workers and to the public, with the state in most cases retaining a 20-30%
30
share ofthe company.21 However, the process has been slow, stemming from several
reasons: Vietnam's commitment to ensure that the state sector plays the leading role and
reluctance on the management's part to face the inconstancies ofa market-driven
economy. Merging SOEs, is the second proposed method to reduce government
operations. Unfortunately, the debts accrued by SOEs have far outweighed its turnover.
The government sector debts since 1995 amounted to a staggering $25 billion, which was
20% greater than SOEs' turnover. Despite the fact SOEs currently account for 44% of
Vietnam's GNP, up from 32% in 1991, they are not growing on their own merits. Rather
the figures are inflated by participation in joint ventures with foreign investors. 22
On the flip side ofthe suffering state sector, the fledgling private sector has
dramatically increased its share ofVietnam's GDP. According to Murray Hiebert, there
are an estimated 350,000 small private businesses, employing less than 20-30 workers,
that sprung up in the past five years. In Ho Chi Minh City, Vietnam's economic hub,
private enterprises accounted for 44% ofthe city's output in 1991. In Hanoi, the private
sector controlled 67% ofthe city's trade, services and restaurant facilities. Unfortunately,
government obstacles and discrimination have hampered further private industry growth.
For instance, private enterprises often face discrimination when finding capital. State-run
banks reserve 86% oftheir credit for state enterprises, at least one-third ofwhich incur
losses and are saddled with bad debts. When the private companies do receive bank
loans they are charged with 4.5-6% a month- state companies pay 2.7% or less. Due to
the shortage ofcredit, most private companies tum to friends, relatives or Vietnamese
overseas, who charge as much s 10-12% a month!
2\ "State Sector Blues," Vietnam Economic Times, August 1997: 18-19.
22 M Hiebert, Vietnam Notebook, (Far Eastern Economic Review, 1994.)
31
The government recognizes the capital shortage problem, and has relaxed its
policies towards foreign ventures. However, foreign investors are frustrated and
discouraged by the ambiguities ofthe trading laws. As Vietnam transforms into a
market-directed economy, there have been reforms in Vietnam's judiciary and civil
service since "doi moi" was introduced in 1986. The Commercial Trade Law of 1998 is
the latest attempt to provide explicit regulations, but has yet to show any effect on trade.
The law is suppose to apply to the majority oftraders in Vietnam and will apply when
traders are dealing both with fellow traders and with consumers. However, the
legislation is vague and because it is interpreted and enforced locally, it is subject to a
wide array ofinterpretations. The difficulty ofregulating interpretations to clarify the
vagaries ofthe law is another concern. Despite these troubles in reform, the government
has shown concerted effort in opening its doors to foreign investors. Perhaps Vietnam
can benefit from re-evaluating which foreign industry investment it should attract.
32
+
-
WHY SHOULD VIETNAM CONSIDER THE PHARMACEUTICAL INDUSTRY AS
ONE OF ITS STAR INDUSTRIES?
As mentioned in the previous sections the global pharmaceutical industry is a
profitable industry, and would bring in much needed capital. Japan and Singapore have
benefited in numerous ways from supporting this industry in their own country.
Currently, Vietnam's government has not given the pharmaceutical industry the same
attention it has with industries such as consumer electronics textiles. Aside from the
increase influx ofcash flow, the pharmaceutical industry can contribute to the country in
many ways other industries cannot. Perhaps the pharmaceutical industry is not given the
focus that it is due, because ofinsufficient resources such as capital and skilled labor.
However, foreign pharmaceuticals can assist the domestic industry in these aspects and
more. An examination into Vietnam's current pharmaceutical situation will explain how
foreign investment will boost the domestic industry and ultimately the entire economy.
Import growth Year Total import Growth rate (percent)
value (US(USDollar) )
1990 61,360,379
1991 84,079,171 + 37.025
1992 106,989,137 + 27.248
1993 132,379,418 + 23.731
1994236,319,688 + 78.516
1995280,052,114 + 18.505
1996349,409,000 + 24.765
1997387,096,000 + 10.785
1998400,000,000 + 3.333
(estimates) Medicine industry's production and trade records Order Unit Figures
Comparison
reached estimated in 1997
for 1998 (percent)
1 Total output value VND mil. 1,405,807 1,600,000 113.8
2 Production turnover VND mil. 1,385,036 1,700,000 122
3 Total export value US(USDollar) 1,000 11,627 13,000 111.8
4 Total import value US(USDollar) 1,000387,096400,000 103.3
5 Funds used for buying US(USDollar) 5.2 5.7 109.6
Source: Vietnam Pharmaceutical
Management Department 1999 33
f'
---
Domestic Pharmaceutical Market -current problems & future considerations
The market demand for medicine is steadily growing in Vietnam. According to a
report by the Ministry ofHealth, funds used for buying medicine by Vietnamese
increased in recent years, from USDO.3 per capita in 1990 to USDO.5 in 1991, USD5.2 in
1997 and USD5.7 in 1998.
23
According to the Ministry ofPublic Health,
pharmaceuticals consumption in Vietnam is estimated to grow by 25%/y. Per capita
expenditure for pharmaceuticals is forecast to rise to between $ 8-10/y by the year
2000.
24
The increase shows that people's health care services have improved remarkably.
It was also reported that only USD1.5 out ofthe USD 5.7 was used for buying
domestically made medicines. 25 It is apparent that imported medicine dominate the
market, due to several disadvantages that include lack ofcapital, limited production, and
lack of legal policies. Entry offoreign investors will accelerate the development of
Vietnam's pharmaceutical industry.
Statistics by the Vietnam Pharmaceutical Management Department reveal that the
turnover reaped from domestically produced medicines was estimated to reach VND1.7
trillion in 1998 while the relevant import turnover was USD400 million (roughly
VND5.2 trillion). There are currently 213 foreign medicine suppliers coming from 30
different countries which have been licensed to operate in Vietnam, accounting for 70
percent ofthe domestic medicine market and the remaining 30 percent is occupied by 150
Vietnamese enterprises.
26
This data further supports the notion that foreign medicine is
overwhelming domestic goods and may suppress the domestic industry from growing.
23 "Medicine industry needs medicine," Vietnam Economic News 8 February 1999.
24 "Chemical industry in Vietnam," Chemical Business Newsbase 11 August 1998.
25"Medicine industry needs medicine," Vietnam Economic News.
26 Ibid.
34
"P
I
I
---L
Some suggest this is a result ofan underdeveloped domestic medicine manufacturing
industry. Ofthe eight phannaceutical finns in Vietnam that have achieved GMP (Good
Manufacturing Practice) standards for their entire plants and production lines, only three
companies are wholly domestically owned. The three local finns are Dong Thap
Phannaceutical Company, Hau Giang Phannaceutical Factory and Mebipha.
27
The introduction offoreign phannaceutical companies into Vietnam through joint
ventures, etc. benefits both domestic and foreign drug industries. Foreign phannaceutical
corporations can transfer technology and know-how. Additionally MNCs can fulfill the
needs ofcapital, which is the greatest problem according to deputy general director ofthe
Vietnam Phannaceutical Corporation, Tran Tuu. He stated that only 30 out ofthe 150
medicine production enterprises are operating with a capital ofover VND100 billion and
many producers have a capital ranging from VND1 to VND10 billion each. Eliminating
problems ofcapital shortages will boost product quality and quantity; which otherwise
hinders domestic companies from buying new machinery and other material facilities that
are necessary. Moreover, without capital, they cannot implement effective advertising
campaigns for their products. This is duly needed to promote the consumption of
domestic medicine over foreign-made medicine. Although there is some foreign
commitment to Vietnam, many are only representative offices. There are 20 foreign
capitalized projects involved in medicine production, including 12 JVs and eight 100
percent foreign invested projects, which have been licensed by the Ministry ofPlanning
and Investment (MPI). Only six ofthese are in operation and the remainder are in the
construction stage or preparing to start production.
27 "Eight phannaceutical finns win GMP standards," The Saigon Times Daily, 24 February 1999.
35
,....
-
According to a number ofexperts, the second problem- the incomplete
operational structure ofthe domestic medicine industry- causes shortcomings in drug
development and production and be unable to bring its potential into play in the local
market. Funds annually used for buying antibiotics for in-patients in Vietnam account for
33 percent oftotal capital spent on medicines sold domestically (according to statistics by
the Treatment Department under the Ministry ofHealth), while the country's antibiotics
production industry has almost been neglected. It is regrettable that this is a result of
material shortages. Only six to seven percent ofthe demand for materials used in
producing antibiotics in Vietnam (300 - 350 tons per year) is able to be met by
Woopyung-Mekopha, a JV between Central Pharmaceutical Enterprise 4 and Woopyung
Company (South Korea), the exclusive establishment producing materials used for
manufacturing antibiotics in Vietnam. Moreover, the price to buy local materials for
manufacturing antibiotics is higher than that offered in the international market. Head of
the Vietnam Pharmaceutical Management Department, Nguyen Vi Ninh, said: "The
industry producing materials used in manufacturing medicines in Vietnam is so small
scaled and its support industries such as micro-biology and petro-chemistry are also in
the same situation."
Due to the shortage ofdomestic medicine, the reliance on foreign medicine has
been reported up to 70% ofthe market. The market has been highly vied for by foreign
imports due to the increase consumption ofmedicine. Vietnam licensed 221 foreign
pharmaceuticals companies to sell their products in this country so far. The Ministry of
36
Public Health officially registered 3088 foreign products (2802 end-use products and 286
. 1) 28
raw matena s .
Directors ofmany medicine production enterprises said there are so many other
reasons why the domestic medicine market is overwhelmed by foreign made goods with
the notable reason being that the government has yet to issue a relevant law. Due to this,
domestic medicine manufacturers operate arbitrarily according to their own capabilities,
without consistent control from decisive authorities, resulting in improper investment in
different production activities. Some enterprises imitate product designs ofeach other. As
a consequence, many enterprises produce the same products, resulting in stockpiles. A
director said: "Without a law, medicine traders and manufacturers do not fear violations."
Authorities acknowledge the need to issue a law on medicine trading and
production operations and are actively preparing for this. The Vietnam Pharmaceutical
Management Department plans to submit to the Ministry ofHealth a draft law in June
1999 and then to the National Assembly in 2000. The Vietnamese medicine market is
predicted to have a potential turnover of(USDollar) 1.5 - 2 billion in the future. To
satisfy the demand, the domestic medicine industry must increase its operations by 15 -
20 times over the current level. Accordingly, the Ministry ofHealth has set up an overall
plan to develop Vietnam's medicine industry for the period from 1996 to 2010. The
overall plan includes smaller plans for the antibiotics industry and those for developing
the medicine supply network, which have been approved by specialists from the
ministries ofHealth and Planning and Investment. These plans are estimated to be
completed soon for submitting to the government for approval. Under this greatly
anticipated project, USD150 million will be invested in centrally controlled enterprises in
28 "Chemical industry in Vietnam," Chemical Business Newsbase, 11 August 1998.
37
the first phase (1998 - 2005). The capital will be used for constructing material
production factories and upgrading several production lines. Hence, serving the
development ofthe domestic medicine industry in the future.
Although this proposal will improve the current pharmaceutical situation, it is
apparent the government does not have a large agenda for Vietnam' pharmaceutical
industry. Ifthis campaign only increases production ofantibiotics and enhances the
medicine supply network, it will be difficult to expect a pharmaceutical industry that can
rival Singapore's or Japan's in the future. However, Vietnam should consider a multi-
pronged mission that augments its drug industry beyond the realm ofgeneric antibiotic
production. A pharmaceutical industry that is able to satisfy domestic medicine needs,
become the distributing center for other countries and perform R&D, shall bring in
capital and technology transfer that other "favored" industries cannot. For example, the
skills and wages gained from the textile industry is far less than those ofa highly
developed pharmaceutical industry. Based on the analysis ofthe Ministry ofHealth it is
apparent that the drug industry must rely on foreign investment in the form ofjoint
ventures and wholly owned companies to stimulate the growth ofthe industry. Thus,
Vietnam should adopt policies similar to those ofJapan and Singapore to attract foreign
investors.
Foreign Pharmaceutical Investment in Vietnam-current problems & future
considerations
To develop effective incentives for foreign pharmaceutical investors,
consideration should.be partly based on the current situation offoreign pharmaceutical
investment in Vietnam. The pharmaceutical industry has so far attracted 12 joint venture
and nine 100% foreign-owned projects with a total pledged investment ofabout
38
US(USDollar) 150 million. Eight pharmaceutical companies have achieved the ASEAN's
Good Manufacturing Practice (GMP) Standard. (Figure 3). Acquiring the GMP
standard, these companies will enjoy favorable conditions to produce medicines for
export. They are given priority in bidding for the supply ofmedicines for national drug
programs and essential medicines for hospitals.
DOMESTIC & FOREIGN PHARMACEUTICAL INVESTMENTS IN VIETNAM
with the ASEAN's Good Manufacture Practice Standard
Domestic Firms 100% Forei2n-owned Firms Joint Ventures
Dong Thap Pharmaceutical Hisamitsu Sanofi Pharma VN
Co.
Hau Gian Pharmaceutical Novartis Rhone Poulenc Rorer
Factory
Mebipha Rohto Mentholatum
Source: THE SAIGON TIMES DAILY 2/24/99
Despite their difficulties, many pharmaceutical producers have maintained
production and developed long-term strategies for the future. The three greatest
problems facing current foreign pharmaceutical investors are the convoluted legal
structure, deficient resources, and an underdeveloped infrastructure. Foreign
pharmaceutical investment have shown losses in the first few years ofstart up. However,
many pharmaceutical JVs have shown signs ofgrowth as their turnover is increasing year
after year, thus reducing losses.
Sanofi & its struggle to startfrom ground zero
Speaking with the Saigon Times Weekly on September 8, 1998, Antonio Rizzotti,
director general ofthe Sanofi Pharmajoint venture (JV), admitted, "Since its
establishment in 1993, Sanofi Pharma has not earned a penny. In 1994, the venture
incurred a loss ofVND19.25 billion and VND7.34 billion last year. The figure this year
39
r
I
is estimated to be VND5.94 billion." Why have pharmaceutical producers faced losses?
Discussing the cause ofSanofi's loss, director general Rizzotti affirmed, "Not only
Sanofi, but also almost all other Vietnam-foreign JVs have posted losses during their
start-up years." He attributed his company's loss to high "marketing, advertising, training
and production costs, and land rent." The business "has invested US(USDollar) 150,000
to develop an IS09000 quality control system in a major drive to export its products to
the world market," he said. "These expenses are acceptable as they are not too big in such
a venture. Ifwe had not spent as much as we have, Sanofi could have shut down."
Sanofi's loss might have resulted from the production and trading ofSanofi-imitated
products in the country. Mr. Thai Hy Dien, finance and administration manager of
Sanofi, said his enterprise is producing KIM, a traditional medicated oil product of
Central Pharmaceutical Enterprise No. 23, the local partner in the venture. However,
another pharmaceutical company counterfeited KIM by marketing a medicated oil under
the brand name ofVIM, even exporting it to Russia. Although Russian authorities have
seized the fake product, Sanofi has not been able to sell KIM in the Russian market.
"Sanofi has incurred a loss ofVND15 billion, accounting for about 20% ofthe firm's
estimated sales in 1998," said Sanofi's Dien. "The devaluation ofthe dong against the
u.s. dollar has resulted in a 13% increase in staff salaries and has boosted other
expenses, such as land rent, as Sanofi has to make all payments in dollars." Sanofi's
figures show that the firm's total sales were VND14.5 billion in 1994 and grew to
VND40.9 billion last year. Ifit has not lost the Russian market, its losses may drop to
VND5 billion this year.
29
29"Vietnam- To Weather Tough Times," The Saigon Times Magazine 240ctober 1998.
40
Rhone Poulenc Rorerface unfair disadvantages created by the VN government.
Rhone-Poulenc ofFrance recently celebrates its 60
th
year ofoperation in Vietnam, one of
the longest foreign companies operating in the country. It began supplying
pharmaceuticals in 1938 to the Vietnamese. Rhone-Poulenc recently expanded its
operation in 1998 to include a pharmaceutical plant into operation in HCMC, following
by the opening ofthe Rhone-Poulenc Agro Vietnam plant in Dong Nai Province's Bien
Hoa City. Rhone-Poulenc, which reported sales ofFF90 billion in 1997, now has some
300 employees in HCMC and Hanoi. It is apparent that Rhone-Poulenc is committed to
more than the financial state ofits Vietnamese operation, they have donated money to the
preservation ofVietnamese culture. The Rhone-Poulenc Foundation provided financial
and technical support worth 1 million USD for the preservation ofHien Lam Cac
Pavillion, a more than 100-year-old architectural work built by the Nguyen dynasty in the
former capital ofHue. 30 These generous acts exemplify good foreign investment
models.
Despite Rhone-Poulenc Rorer Co. Ltd. Long term establishment in Vietnam, it
has also faced financial woes partly because it has invested US(USDollar) 10 million to
build a factory that meets the ASEAN's Good Manufacturing Practice (GMP) standards.
Mr. Duong Quang Trung, board chairman ofRhone-Poulenc Rorer, said that with
international standard technology and big depreciation costs, his company cannot make
profits during the first years ofoperations. "My company's factory is currently operating
at 30% ofcapacity due to fierce competition from many foreign firms," the deputy
director ofWoo Pyung Mekophar, Bui Chi Kinh, said. "Prices of foreign-made products
30 "Rhone-Pou1enc reaffInns presence in Vietnam," The Saigon Times Daily 17 December 1998.
41
f
are 15%-20% lower than Woo Pyung Mekophar's production costs. In addition, medicine
prices on the world market have been falling, especially since early this year. In 1996, the
price ofAmoxicilline was only US(USDollar) 70 per kilogram, but it has now plunged to
US(USDollar) 40. The import tax on pharmaceutical materials is also too high. Dane salt
accounts for 22% ofthe production cost, but it is subject to a 5% import tax. Therefore,
my company's domestic sales are slow due to the high prices ofits products.It Rhone
Poulenc Rorer is focusing on manufacturing new products and cutting imports to weather
tough times, said management. 31
3 I"Vietnam- To Weather Tough Times," The Saigon Times Magazine 24 October 1998.
42
,....
CONCLUSION
It is interesting to note that the weakness ofthe two most developed
pharmaceutical industries in Asia revolve around issues beyond the control oftheir
governments. The main weaknesses ofJapan and Singapore result from their geography;
they are island nations, which consequently limits their resources and labor. On the other
hand, one ofVietnam's strategic strengths lies in the fact an entire side ofthe nation faces
the South China Sea rendering the country several ideal trading ports. According to
Gerald Fry, professor ofInternational Studies at the University ofOregon, Vietnam has'
three major strategic ports lining the country from the north-Rai Phong, central-Danang,
and south-Ro Chi Minh City. These ports would make Vietnam an attractive location as
a distribution center for a pharmaceutical country in Asia. Furthermore, the area ofthe
country and its population is far greater than Singapore or Japan, thus it is not ofmuch
concern labor shortage or land shortage.
On the reverse side, Vietnam's policies toward business and foreign investment
are a great deterrent for many people. Its convoluted laws make Vietnam a risky
investment. Moreover, the government has not consistently implemented its laws. In
fact, the government has been known to favor state-owned enterprises, then domestic
enterprises, and finally foreign companies. For example, foreign business are not
allowed to rent the low floors at commercial high-rises, which are the most lucrative sites
in the cities.
32
Additionally, the Vietnamese tax system allows for imported equipment to
be taxed, resulting in higher costs ofproduction. Companies that build plants and other
capital do not enjoy tax break incentives. Other problems revolve around the lack of
control by the government. The Vietnamese law has inadequate protection for patented
43
goods. Thus, there are a number oflocal drug makers that have produced products that
directly copy the packaging offoreign-made ones. For example, Sedocardine is imitated
from French Sedocarena, a reason for market disorders and consumers' confusion.
Bigger problems are spotlighted from the side offoreign pharmaceutical firms now
operating in Vietnam. Many international pharmaceutical companies have entered this
market such as Lyka and Cipla (India), Gateway and Smith Kline Beecham (Australia),
Samchungdang, Konlon, Pharmavit and Gedeon Richter (Hungary), Roche, Rhone
Poulene and Roussel (France), plus drugs either imported from Taiwan, Hong Kong,
China and many others via official channels by companies with legal status or brought
into Vietnam in luggage, through unofficial channels, or made by foreign JVs, with 70
percent ofmaterials and production lines imported. As a result ofsuch complicated
origins, drug prices are flexible and uncontrollable. Depending on how the drug was
imported, the price differential is normally 20-25 percent.
It is apparent that the roadblocks to Vietnam as a potential location offoreign
pharmaceutical investment revolve around its laws. Ifthe government is able to swiftly
amend its laws to protect its consumers from fraudulent drugs and entice investors with
tax incentives, reliable patent protection, and fair treatment, it is hopeful that Vietnam can
surpass other SE Asian countries as the location ofinvestment. IfVietnam is to rival
countries such as Japan and Singapore, it must reform several laws and policies. The
suggested reforms are:
1.) Identify the pharmaceutical industry as one ofthe top industries to promote by
the country.
2.) Create a body ofadministration similar to the United States' FDA that is
capable ofregulating the quality ofdrugs in the country.
32 D Tan, "Vietnam- Problems and Proposal," The Saigon Times Magazine, 18 Jan 1999.
44
3.) Create and strictly enforce patent laws that protect research and development
ofnew drugs.
4.) Create incentives through tax breaks that would entice foreign pharmaceutical
investment.
5.) Eliminate policies that favor state-owned enterprises.
At the rate Vietnam has been changing, it will not be a surprise to see these reforms
implemented. However, the authorities must focus on consistency as well as swift
change in order for Vietnam to be a reliable host country. Considering Vietnam's
geographical advantage, large workforce, rich resources and burgeoning economy, a
more effective law and tax system will make the country a strong contender as a potential
host country for pharmaceutical companies.
45
BIBLIOGRAPHY
1. "Chemical Industry in Vietnam." Chemical Business Newsbase. 11 August
1998.
2. Engholm, C. Doing Business in the New Vietnam. New Jersey: Prentice Hall,
1995.
3. Helms, Red. Competitive Strategies in the Pharmaceutical Industry. Washington
DC: AEI Press, 1996.
4. Hiebert, M. Vietnam Notebook. Far Eastern Economic Review, 1994.
5. http:dir.yahoo.com/Regional/Countries/Japan/Country_Guides/Japan. March 18,
1999.
6. "Intellectual Property- is Theft." The Economist 330.7847 (1994): 72-74.
7. Lall, S. The Growth ofthe Pharmaceutical Industry in Developing Countries:
Problems and Prospects. New York: United Nations, 1978.
8. Natarajan, S. and Mian, TJ. The Impact ofMNC Investments in Malaysia,
Singapore & Thailand. Singapore: Institute ofSoutheast Asian Studies, 1992.
9. Rahita, E. "Tax Claims for R&D Work Cover More Bodies." Business Times
(Singapore) 16 March 1999: 3.
10. "Medicine Industry Needs Medicine." Vietnam Economic News 8 February
1999.
11. Platt, G. "Pharmaceutical Firms Told to Shift Asian Strategies." Asian Weekly
17 November 1998: 2A.
12. Price Waterhouse. Doing Business in Singapore. USA: Price Waterhouse Pub.
1992.
13. "Rhone-Poulenc reaffirms presence in Vietnam." The Saigon Times Daily. 17
December 1998.
14. Smith, M ed. Global Pharma 20/20 Pharmaceutical Marketing in the 21 st
Century. New Yourk: Haworth Press, 1996.
15. "State Sector Blues." Vietnam Economic Times. August 1997: 18-19.
16. Tan, D. "Vietnam- Problems and Proposals." The Saigon Times Magazine. 18
January 1999.
46
17. "Too Small to Compete: Drugs in Japan." The Economist 335.7911 (1995): 65-
67.
18. "Vietnam-Business Briefs- Eight Pharmaceutical Firms Win GMP Standards."
The Saigon Times Daily. 24 February 1999.
19. "Vietnam- To Weather Tough Times." The Saigon Times Magazine. 24 October
1998.
20. Yeow, P.L. "US Drug Firms Sets Up Singapore Regional Center." The Straits
Times (Singapore) 16 March 1999: 54.
47