"Chuhai" (going global) – a term used to describe Chinese companies expanding abroad – has become a buzzword this year. Expanding beyond China seems to offer a solution for companies looking to offset the country's slowing domestic consumption rate and a long winter for its capital market. The internationalisation of a firm, however, is a significant undertaking. It's a commitment that requires overcoming numerous challenges, from commercial development to transformation of governance models.
At a recent sharing session entitled "The Challenges and Opportunities of Going Global – In-depth dialogue with Chinese Biopharmaceutical Companies" hosted by the CEIBS Global EMBA programme, CEIBS Professor Eric Bouteiller, alumnus Mike Chen (Global EMBA 2021), Founder, Chairman, and CEO of ACROBiosystems, and alumni Gilbert Li (Global EMBA 2010), Board Secretary and CFO of Pharmaron, discussed their companies' successful global expansion efforts and the implications for other Chinese firms looking to go global.
Prof. Eric Bouteiller is an Adjunct Professor of Management at CEIBS. He teaches courses on the pharmaceutical and healthcare industries, with a focus on strategy and market access.
ACROBiosystems was established in 2010 and has since grown to become a leading provider and developer of various products and services, including proteins, antibodies, assay kits, and analytical testing. The company went public in 2021. Currently, it has set up offices in 13 regions worldwide, with over 800 employees serving more than 9,000 clients.
Pharmaron is a research and development service provider for the life sciences industry. The company was established in the United States in 2003 and opened its first office in Beijing the following year. With over 20,000 employees and 21 operating sites globally, Pharmaron generates 85% of its business from overseas.
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Going global now requires a vision that spans 30 years into the future
According to data from the World Bank, life expectancy in China has increased from just over 40 years to 77.1 years from 1960 to 2020. Moreover, from 1970 to 2020, China's infant mortality rate has declined from 8% to 5.4%. Both indicators are now roughly on par with those of developed countries in Europe and North America.
China's health industry has seen rapid growth, yet its healthcare expenditure accounts for only 5% of GDP, lagging behind the United States (17%) and some European countries (11%-12%) as reported by the World Bank and the World Health Organization in 2019. It is evident that China's health industry has significant potential for growth.
The 2022-2023 Big Data and Decision Analysis Report on the Global and China's Health Industry, published by iiMedia Research, indicates that China's health industry generated revenue of 8 trillion RMB (~1.26 trillion USD) in 2021. The United States led with a revenue of 10 trillion USD, making China's health industry the second largest in the world. This growing market in China is attributed to its vast population and, crucially, rising per capita income.
Eric Bouteiller, Adjunct Professor of Management, CEIBS
Thanks to the rapid pace of globalisation, there are three shortcuts for developing countries to penetrate the global market and establish a foothold. First, the government aims to drive economic development and provide necessary support. Second, countries should identify and address any gaps in certain areas with concrete steps. Third, they must become part of existing global value chains to draw on knowledge and networks already in place.
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Establish motivation, strategise, and then lead from the front
How did ACROBiosystems and Pharmaron expand their operations globally? What were the driving forces behind their decision?
Mike believes that all upstream companies should target the global market. As a result, ACROBiosystems established a US branch a year after its founding and launched an innovation lab there in 2018. In 2022, the company set up a new subsidiary in Switzerland. Currently, approximately 70% of its business comes from overseas.
Mike Chen, Founder & CEO, ACROBiosystems, CEIBS Global EMBA 2021
He then elaborated on the company's international operations, underlining the significance of identifying the target market prior to addressing three key questions:
Are you familiar with the target market and its customers, including their pain points, habits, and the local competitive landscape? Where can you find your target customers and how can you make them perceive the value of your products? How can you ensure the delivery of products, taking into account customs regulations and local policies?
Pharmaron's original motivation for going global was somewhat different. Gilbert said that the company has two goals: securing the latest technology and recruiting the top talent. Accordingly, Pharmaron is taking a step-by-step approach to expansion, focusing first on learning about the operations of the health industry in more developed Western countries.
The company opted for mergers and acquisitions (M&A) to achieve its goals and penetrate the local market. As a comprehensive service platform, Pharmaron places significant emphasis on integration during the M&A process. However, Gilbert recollected that, in most cases, the process tends to be slower and more challenging than anticipated. Every acquired company needs a "nurturing period", particularly in Europe where operating costs are high. It may take two to three years to see profits following a successful M&A, a phase of heavy investment that many Chinese companies might find difficult to sustain.
Gilbert Li, CFO, Pharmaron, CEIBS Global EMBA 2010
On the business side, Pharmaron empowers acquired companies by leveraging its global clientele and funding resources. It streamlines the services of these companies to ensure seamless integration with their current operations and also identifies new growth opportunities for them. Furthermore, it carries out effective integration efforts in human resources, accelerating the process under the guidance of experienced local executives.
Mike also stressed the importance of local leadership. Even with cultural differences across countries, the core principles of business operations stay consistent. This was a key lesson he learned from the CEIBS Global EMBA programme.
In his studies, Mike realised that many concepts were not new to him. However, a more thorough review showed that although some tasks were accomplished, their lack of organisation made it difficult to sustain momentum. Moreover, the GEMBA programme enables students to extend their networks and gain an appreciation of cultural diversity, which, according to Mike, is particularly important for global expansion. Interaction with international peers offers a more nuanced understanding of different cultures. "This is achieved not only through socialising after class, but also by observing their unique communication styles during class," he explained.
For Gilbert, the programme offers effective solutions to many of his challenges. Over the past few years, nearly twenty Pharmaron executives have studied at CEIBS. A common thread in their feedback was that by bringing actual business issues to the table and working through them with classmates, solutions could be found. "The value lies not so much in gaining a particular piece of knowledge, but rather the programme provides a framework for individual reflection and development," he added.
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Build a high-trust team abroad
Despite the similar business practices across various contexts, it is still a significant challenge to build a new corporate culture and establish trust within a team in a new environment.
Mike underscored the invaluable nature of the top leader's presence for strategic overseas ventures. Even in the face of disagreements, the leader should be present and promote open communication. This approach, he believes, provides a golden opportunity for developing mutual understanding and fostering trust.
Mike Chen, Founder & CEO, ACROBiosystems, CEIBS Global EMBA 2021
In Gilbert's view, this is a top-down process that requires sufficient time for top executives to implement. On the other hand, we also need to understand the challenges and anxieties of the overseas colleagues and find ways to motivate them to become part of the organization. Gilbert explained. "For example, most of our frontline colleagues are scientists and they can be motivated and energized if they can continue to get hold of the latest technologies and get involved in the latest R&D works."
Gilbert Li, CFO, Pharmaron, CEIBS Global EMBA 2010
"If a company wants to go global, its entire management needs to embrace the concept," said Mike. As ACROBiosystems has pursued a global approach from its inception, it doesn't stress its Chinese origins in its operations. Instead, it portrays itself as an international company.
"Initially, many clients didn't know where our company was based. It was only after a period of time that they gradually learned about us. However, our high-quality products and services have already left a positive impression," Mike noted. "After that, clients are no longer concerned where you came from."
Gilbert also mentioned the complex global context and geopolitical conflicts that are beyond the control of both individuals and businesses. However, what they can manage is continuously upgrading the products and services to their customers that can overshadow any political concerns.
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Going global is not an "option" but a "must"
Is it a good time for smaller startups, which have yet to establish overseas operations, to go global?
Gilbert revealed that Pharmaron embarked on its overseas expansion only after its domestic operations started to show potential for profitability. The company also allowed plenty of time for the team to adjust to the transitions. He admitted that the risks of going global are higher in today's climate. However, for numerous firms, going global is not an option; it is a must. Therefore, even in a time of increased risk, companies should be fully prepared to mitigate risks and increase their chances of success. Drawing from Pharmaron's experience, finding targets that vary significantly in size can, to some extent, provide some security against failure.
Mike, on the other hand, emphasised the importance of a company's rationale for going global. In his view, if the goal is to gain market share and boost sales, smaller companies may be less sensitive to risk. The key question is what value the company can contribute to the local market, rather than focusing too intently on what value it can secure for itself.
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GEMBA instils a Global Mindset
Going global may be a necessity for all manner of Chinese companies but it remains a complex process fraught with risk, uncertainty and, above all, change. To make a success of Chuhai, a company's business leaders must be equipped with the right mindset, alongside the relevant aptitudes.
The Global EMBA programme is designed to nurture precisely this kind of global mentality supported by cross-culture management capabilities. With this level of "China Depth, Global Breadth", executives are perfectly placed to guide their companies through the hazardous journey of expanding overseas.
The CEIBS Global EMBA's mission is to be the bridge between China and the world. This means promoting mutual understanding, cooperation, discussion and capability sharing at every opportunity. Through an ever-expanding series of events and gatherings, the programme continues to bring China and the World closer together. This is an attitude instilled in every Global EMBA student and alumni.
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