TPP will exert a significant impact on Vietnam’s economy in general and its pharmaceutical sector in particular, according to experts. How will Vietnam, one of the biggest beneficiaries among 12 signatories to the Trans-Pacific Partnership (TPP), grasp this opportunity and how it will face challenges arising from this historic agreement? Vietnam Business Forum interviewed Mr Nguyen Thanh Binh, General Director of Hanoi Pharmaceuticals Joint Stock Company (Hanoi Pharma). Giang Tu-Thu Ha report.
How do you assess TPP’s impacts on Vietnam’s pharmaceutical sector?
The pharmaceutical industry will face very fierce, probably the fiercest, competition, when Vietnam joins the TPP. Pharmaceutical growth is forecast to be over 20 percent through 2017 and pharmaceutical expenditure per capita in Vietnam is projected at US$200 a year.
However, like some other trade agreements, the TPP will boost Vietnam’s medicine imports. According to the TPP Agreement, import duties on pharmaceuticals will be slashed from current 2.5 percent to zero. As tariff barriers are quite low, the abolition of import duties is trivial. Even so, this reaffirms increasing competition from foreign firms and the rivalry is stiffer among parental drug producers than among generic medicine manufacturers.
Besides, the TPP extends the protection period of copyright drugs, thus restricting the approach to and production of new drugs by local drug-makers. This is a major challenge to Vietnamese pharmaceutical manufacturers because they are, in fact, quietly turning out patented drugs in the form of generics to meet the local demand for cheap medicines.
At present, a lot of foreign drug-makers are entering Vietnam to catch opportunities from the TPP and domestic firms will face intense competition. Do you think many brand names will disappear? What have Vietnamese pharmaceutical firms been doing, and what will they do, to avoid that?This is the biggest concern of the pharmaceutical industry for the time being. With the TPP, foreign-invested companies manufacture and import more drugs for the Vietnamese market.
For example, when Vietnam joins the TPP, pharmaceutical auctions will be made public. Foreign drug makers will have a fair playground with Vietnamese firms in this effect. If we do not have a special mechanism, foreign players will overshadow domestic ones in Vietnam because they are very strong in financial capacity, science and technology, marketing and business levels, particularly in patent-protected production.
Besides, Vietnamese pharmaceutical firms are both weak and small while lacking interconnection; therefore, some foreign drug-makers will team up to push back domestic firms to gain more market share. Vietnamese pharmaceutical companies will only compete with each other on the remaining segment for existence.
Finance and technology are two major barriers to investment decisions. However, if Vietnamese firms cannot to invest for improvements of high-grade product lines to sharpen their competitive edge and choose to continue their reliance on State protection, they will face the high risk of losing the market.
To grasp TPP opportunities and to avoid being losers on the home market, Vietnamese pharmaceutical businesses have promoted investment, improvement and standardisation of production standards and product quality. For example, DHG Pharmaceutical Joint Stock Company completed building new pharmaceutical production plants to double its designed capacity to more than 9 billion product units a year. Imexpharm, a pharmaceutical company with the most modern drug plants in the country, built new penicillin injection plants in Binh Duong province. Hanoi Pharmaceutical Joint Stock Company (Hanoi Pharma) invested thousands of billions of Vietnamese dong for injection production lines and distilled water production lines using BFS technology. These moves show that Vietnamese firms have carefully prepared for the upcoming race.
It is undeniable that the TPP is opening up many new opportunities for businesses in Vietnam, including pharmaceutical firms. Nevertheless, opportunities themselves cannot generate interests and Vietnamese businesses must work hard to not only keep market share, but also expand exports to potential markets.
Most pharmaceutical inputs in Vietnam are imported from China, a non-TPP country. So, how will input sources of Vietnamese pharmaceutical manufacturers be affected by TPP enforcement?
According to statistics, domestic pharmaceutical producers now account for over 85 percent of drug-makers in Vietnam but imported items make up for 60-70 percent of the market share. Biggest suppliers of pharmaceutical materials for Vietnam include China, India, Austria, Spain and Thailand. Particularly, China and India already accounts for nearly 70 percent of the market share of pharmaceutical raw materials in Vietnam. This is a considerable challenge for domestic firms which have long lacked interest in investment for technology, research and chosen to rely on foreign input suppliers.
The lack of autonomy in input materials resulted in a lot of consequences such as low competitiveness, non-guaranteed product quality, and market volatility which may cause businesses to terminate production of some products on lack of input materials.
To be active in pharmaceutical input production is a big issue because it requires big fund while such matters as land, environment, technology and management are bottlenecks to enhance competitiveness.
But, domestic pharmaceutical firms will invest more in cooperation with foreign firms. Meanwhile, non-TPP countries will also seek to cooperate with Vietnam input import and outsourcing processing. This may be a huge opportunity for pharmaceutical industry to change, not only serve the domestic demand but also export to foreign markets.
How has Hanoi Pharmaceutical Joint Stock Company prepared for the TPP?
The chance will only come when business get prepared. Knowing that the path to the TPP is not covered with roses, Hanoi Pharmaceutical Joint Stock Company has actively sought out new business plans to prepare for TPP impacts.
The biggest concern for the pharmaceutical industry is still technological investment to triumph over fierce competition. The most urgent question facing domestic drug-makers is now not the consumption market, but how to overcome obstacles to capture opportunities from this historic agreement.
We hope the government will have policies on capital support and scientific and technological support to enable domestic firms to shape long-term development orientations.
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