IMS Consulting Group conducted an independent study in China to seek the perception of pharmaceutical and medical device manufacturers of the distribution industry in China. Read this white paper to discover the unmet needs of medical device and pharmaceutical manufacturers, arising from changes in industry structure and regulatory environment.

1. 1
Understanding Unmet Needs in China’s
Pharma and Med Device Distribution
Overview of Industry Survey Results | September, 2011

2. 2
1
Tier I: Beijing, Shanghai, Guangzhou; Tier II: 22 Cities: Changshu, Changzhou, Chengdu, Chongqing, Cixi, Dalian, Dengfeng,
Dongguan, Fuqing, Fuyang, Hearbin, Jimuo, Jinan, Nanjing, Shenyang, Shenzhen, Taiyuan, Tianjin, Wuhan, Wulumuqi, Xian
As follow-on to a global study jointly conducted with IFPW
in 2010, IMS Consulting Group conducted an independent
study in China during the second quarter of 2011 to seek
the perception of pharmaceutical and medical device manu-
facturers of the distribution industry in China. The study
indicates several opportunities for the distribution industry to
partner with manufacturers, and unlock value in the health-
care supply chain.
In the study, we evaluated a range of services that distribu-
tors offer in China,understood their importance and gauged
the current levels of satisfaction of manufacturers. We un-
covered unmet needs of medical device and pharmaceutical
manufacturers,arising from changes in industry structure and
regulatory environment.
Some of the key findings of our study are highlighted below.
Pharmaceutical distribution
• Market access and penetration support is the most
important service sought by manufacturers from
distributors. While manufacturers valued the strategic
importance of distributors in market access, they also
cited opportunities for improvement.
• Manufacturers believe that distributors can play a
larger role in gather and analyzing sales data, timely
and accurately.
• Manufacturers highlighted that efficient distribution
infrastructure can lower cost and improve time to
market, thereby facilitating deeper penetration into
regions and channels that are not supplied to directly.
• Distributors can also provide contract sales support
beyond Tier I & II cities1
, and support point-of-sale
activities at retail pharmacies.
• Other areas of collaboration for distributors with their
clients include currently ‘in-house’ services such as
aspects of market access and pricing, patient education
programs and pharmacy/hospital training programs.
Medical Device distribution
• Hospital listing and sales is the most important service for
medical device manufacturers. However, manufacturers
find it difficult to manage multiple distributors in a
highly fragmented distribution industry.
• Increasing fragmentation is also adversely impacting
supply chain efficiency, with manufacturers already
dissatisfied with both cost and service levels.
• Clear opportunities exist for distributors to provide
better data services such as track and trace solutions,
given the ‘cash and carry’ nature of contracts.
Manufacturers need to closely track distributor inventory
and actual sales, to manage credit cycles and avoid
distributor bankruptcies.
• Patient related services are another important unmet need
in medical devices. However, none of the companies
interviewed have developed concrete plans,either in-house
or through partnerships.
• Training services for lower tier distributors, hospital
staff as well as physicians are other areas for collaboration
with clients.
Executive Summary

3. 3
Research Background
Strategic Imperatives & Project Objectives
In early 2010, IMS conducted a joint study along
with IFPW (the global trade association of pharma-
ceutical wholesalers),to gain insight into pharmaceu-
tical manufacturers’ perceptions of wholesalers. The
study spanned key global markets in North America,
EMEA, Latin America,Asia and Australia. IMS iden-
tified a core set of services that were perceived as im-
portant, including several new growth opportunities,
for the distribution industry.The study identified key
steps to enhance the strategic partnership between
pharmaceutical manufacturers and distributors.
Given the significant transformation of China’s health-
care market, and its increasing importance in the glo-
bal context, IMS extended the IFPW study to gain
specific insights into opportunities and challenges in
distribution in China. Our China survey aimed at un-
derstanding how the distribution industry can adapt
to meet the needs of pharmaceutical and medical devices
industries in a rapidly changing environment.
The key objectives of this survey are:
• To understand current industry view on the importance
of various distribution services currently provided by
distributors or managed in-house by manufacturers.
• To assess satisfaction levels among pharmaceutical and
medical device companies with these services.
• To identify and prioritize unmet needs in distribution,
separately for pharmaceutical and medical devices sectors.
• To identify opportunities for distributors to position
distributors as partners in success.
Methodology & Scope
The study has been conducted in three main phases:
Phase 1 - We identified a set of services relevant to the
Chinese market,based on the results of the IFPW survey.
Phase 2 - We interviewed senior executives in the
pharmaceutical and medical devices industries.
Phase 3 - We aggregated results to understand industry
wide implications and derive conclusions.
We targeted stakeholders within top MNCs in China to
address unique challenges faced by companies with differ-
ing portfolios and ambitions for the market. One-on-one
interviews were conducted with 32 executives from 18
different pharmaceutical and medical device companies.
We interviewed two types of stakeholders - (1) General
Managers on strategic issues and imperatives, including
their distribution strategy and their view on implications
of the current consolidation in the industry,and (2) Com-
mercial Directors (or heads of the commercial function
directly responsible for managing distributor relationships
for a more nuanced perspective on satisfaction levels and
challenges faced in managing distributors.We used ‘rank-
ing’ and ‘rating’ (e.g. on a scale of 1 to 5) techniques to
quantitatively assess level of satisfaction.This generated re-
sults that allowed us to develop and standardize industry
wide insights.

4. 4
The survey was structured around the following seven
broad areas:
1.MarketAccess
2.Hospital related services/solutions
3.Cold storage related services
4.Patient solutions
5.Retailer services
6.Contract Sales and Marketing services
7.Channel intelligence
A sample of sub-sections within Market Access is
illustrated below.
Study Limitations
The analyses and results in this research project are qual-
itative,leveraging‘top of mind’primary research insights
and IMS expertise. Reasonable best efforts have been
made to cross validate findings and outcomes, but no
quantitative analysis has been undertaken in the process.
While a sizable number of stakeholders have been con-
tacted (32 interviews in total), respondents are a cross
section of the collective view of MNCs, and as such
only representative of the larger MNC marketplace,and
may not represent the viewpoint of domestic operators
within China.
Standalone
services
Knee implant
system (Yes/No)
Hip implant
system (Yes/No)
Bearing surfaces
(Yes/No)
Trauma implant
system (Yes/No)
Clinical Therapies
(Yes/No)
Relevance
to BU
Service
1.1
Importance or
relevance of
this service or
parameter
1.2
Currently used
by your
organization
(Yes/No)
1.3
Is this service
being done
internally or
by an external
service provider
1.4
If internal,
does the
distributor sup-
port you in any
manner
Satisfaction of current
service based on (none if
not currently used)
(Yes/No) (Yes/No) (Yes/No) 1 - 2 - 3 - 4 - 5
1 - 2 - 3 - 4 - 5
1 - 2 - 3 - 4 - 5
1 - 2 - 3 - 4 - 5
1 - 2 - 3 - 4 - 5
(Internal/
Extermanl
Regulatory
Services
Pricing
Approvals
Market Ac-
cess
Provincial
Tendering
Hospital
Listing
Broad Market
Expansion
Support
(Internal/
Extermanl
(Internal/
Extermanl
(Internal/
Extermanl
(Internal/
Extermanl
(Yes/No) (Yes/No) (Yes/No)
(Yes/No) (Yes/No) (Yes/No)
(Yes/No) (Yes/No) (Yes/No)
(Yes/No) (Yes/No) (Yes/No)

5. 5
Pharmaceutical Distribution Industry Structure
Distribution is a strategic focus area for most respondents,
and distributors are seen as strategic partners who comple-
ment pharmaceutical company capabilities with:
• Better ability to manage pricing and market access
• Strong hospital relationships for product listing
•Ability to rapidly create logistics and storage infrastructure
to penetrate deeper into the country
Respondents believe that the current wave of consolidation
driven by government policy initiatives will benefit the phar-
maceutical industry.The key future benefit of having two to
three large and regionally focused players (as envisaged in the
China government’s healthcare reform policy) is reduction in
the number of tiers in distribution.This would reduce dis-
tribution margins and hence lower the final price. It would
also lower logistics and storage cost due to economies of
scale, and enable increased penetration of drugs beyond
large cities, which is a focus area for almost all interviewed
stakeholders.
While most acknowledged that bargaining power of dis-
tributors will increase with consolidation,they also believe that
it will allow the government to better control distribution mar-
gins in the long run.
The benefits are not yet visible to pharmaceutical companies
and most think it will take significant time for them to actually
materialize (anywhere from several to ten years).The top three
distributors, although pursuing aggressive M&A, have not yet
integrated their acquisitions.The acquired entities continue to
operate as before,and sometimes with lower efficiencies due to
the lack of management attention.
Relative Importance of Service Offerings
Pharmaceutical companies believe that market access and mar-
ket expansion related services are‘must haves’for a long term
strategic partnership. Sales and stock data aggregation and
contract sales force (especially in NDC, or Non-Direct
Coverage areas) is also very important. Pricing approvals
and key account management are also valued by pharma-
ceutical companies.
Logistics and storage services are viewed as basic requirements
from a distributor. Interestingly, specialized storage services
such as cold chain hubs and transportation infrastructure are
lower on priority. “Value added services” like channel ana-
lytics, track and trace solutions, retail pharmacy sell through
enhancement services etc. are also lower in priority.
Also, some services that were identified in the IFPW survey
as growth opportunities globally, are “low in importance” in
China:
• Contract marketing support
• Compliance monitoring & adherence data
• Patient registry
• Drug administration support
• Medical/Merchandizing management
• Pharmacy management & training services
• Agency model
• Contract sales force support (for DC)
• Hospital pharmacy related training
• Hospital associated pharmacy management programs
•Trade/wholesaler/modern trade target programs
• Pharmacy integration
Key Findings: Pharmaceuticals
Figure 1: Relative importance of distribution services in China
Market Expansion
Market Access
Channel Information
Cold Storage
Patient Services
Retail Services
Supply Chain Integrity

6. 6
Satisfaction Levels with In-house Activities
The following chart summarizes the satisfaction levels of dis-
tribution related activities currently kept in-house by phar-
maceutical companies:
Among important services,satisfaction levels of market access
related services were lower. Respondents felt that in the en-
tire market access activity spectrum (product approvals, pric-
ing approval, provincial tendering, hospital listing and volume
quotas) there were several activities that could be more effi-
cient. It was felt that the overall time to penetrate the market
for new products needs to come down significantly, both due
to internal capability improvements and increased involvement
from distributors. Provincial tendering could benefit from in-
creased support from distributors.
Large distribution companies have their own pharmaceutical
products and hence an inherent conflict of interest.While this
is not seen as a major barrier currently, pharmaceutical com-
panies seek better transparency and obviously leaves several
question marks in how and who with which to partner.
For patient education, regulatory barriers were cited as the
reason for very low (almost no) activity.However,respondents
also strongly believed that patient education services would be
more important in future; hence, specialized service providers
could evolve to bridge this gap.
Most pharmaceutical companies acknowledged significant in-
ternal investment in sales and stock data gathering infrastruc-
ture (IT) and are satisfied with the outcome thus far.This raises
the question of whether this is an effective use of internal time
and resources, given it is being replicated over and over again,
company by company.They pointed out data visibility as a tan-
gible benefit of current and future consolidation.
Figure 2: Level of satisfaction with ‘in-house‘ activities in the pharmaceutical industry
Key Account Management
Provincial Tendering
Trade/Wholesaler/Modern trade programs
Downstream Cold Chain Storage Training
Pricing Appovals
Hospital Pharmacy related training
Track & Trace
Disease Management Programs
Pharmacy Management & Training Services
Patient compliance tracking
Drug administration support
Channel Analytics
Patient Education
Satisfaction levels

7. 7
Satisfaction Levels for Distributor Services
The following figure summarizes the satisfaction level
of services provided by distributors:
Hospital listing,although fairly satisfactory,is an area of focus
for distributors, since MNCs would rather involve distribu-
tors than invest in trying to build direct relationships.
Market expansion requires efficient logistics and the coverage
to tap target hospitals beyond top cities, and is a significant
gap in the industry currently. Prohibitive logistics costs and
limited coverage of only large cities have deterred respond-
ents. Several companies stated successful joint initiatives of
expanding into specific geographies/regions or hospital tiers.
However, it was widely acknowledged that no distributor
currently has the requisite depth of penetration in any region
beyond the Tier 1 and 2 cities.This was even more severe
for products requiring specialized storage and transportation
(such as cold chain).
Data services have seen rapid improvements recently and are
expected to show significant enhancements in the medium
term.However,there were specific instances where respond-
ents referred to hiring third-party audit services to ensure
data integrity.The time it took (minimum of a week,in many
cases much longer) was seen as a major area of improvement
in data gathering. However data analytics was seen as cur-
rently satisfactory.
Figure 3: Level of satisfaction for distributor provided services within the pharmaceutical industry
Smart Solutions
Cold chain hubs
Cold chain transportation
Compliance to storage specifications
Cold-chain equipment
Hospital listing
Hospital associated Pharmacy management
Agency Model
Space & Product display management to..
Contract sales force support (for DC)
Sales & stock data
Medical/Merchandising Management
Data Capture & Analysis
Patient Registry
Contract sales force (NDC)
Market expansion
Contract marketing support
Satisfaction levels in distributor provided services

8. 8
Prioritization of Unmet Needs
The following figure distinguishes ‘internal’ and ‘external’
services provided by service providers ranked by the current
satisfaction level.
Within ‘internal’ services distributors can aim to collaborate
with clients to enhance satisfaction levels. Niche services
within market access could be very beneficial to pharmaceu-
tical companies. Also, evolving current data gathering into
analytics services aimed at decision-making is a clear oppor-
tunity to build relationships with clients.Patient education and
other training programs provide opportunities for collabora-
tion, but remain relatively small given reservations around en-
gaging patients directly.
Among ‘external’ services, activities that are low on satisfac-
tion are immediate areas of focus or potential opportunities for
distributor-led solutions.While cold chain storage is perceived
as satisfactory, cold chain transportation is clearly an unmet
need. Market expansion and contract sales support provide
opportunities to get involved in offering segments that are less
competitive currently.
Among important services,which are perceived as satisfactory
currently,it is important for distributors to innovate to achieve
a higher level of differentiation to either enhance their strategic
relationships or begin relationships with new clients. Hospital
listing, provincial tendering, cold chain storage infrastructure
and track & trace services fall under this category.
Figure 4: Internal vs. External services ranked by satisfaction
Satisfaction
Internal Services External Services
Key Account management Hospital Listing & Provincial Tendering
Trade Programs & Incentives Cold chain, Storage
Pricing Approvals for Imported products Smart Solutions (R FID, GPS)
Patient Education Programs Cold Chain Transportation
Channel analytics Broad Market Expansion Support
Pharmacy Training & Management Programs Contract Sales Force (NDC)
Retail Pharmacy BTL Services
Stock & Sales Data Collection

9. 9
Implications for the Pharmaceutical
Distribution Industry
Based on our research,we see a few key implications for Chi-
na’s distribution industry along two aspects of their business
model, as they consider their strategies for the rapidly evolv-
ing healthcare environment:
1.What role to play:What role should the distribution in-
dustry aim to play in the pharmaceutical landscape in China?
Unlike in developed countries,large distributors in China play
a direct role in selling products.They take on greater risk (credit
risks ofTier 2 level and below distributors,provincial tendering,
hospital listing,tendering,etc.) and hence command significant
premium compared to the global distribution industry.
Given the government’s focus on reducing overall distribution
margins to control healthcare costs,these premium margins will
come under pressure.We see distributors adapting their business
model to offset this pressure - Expansion into ‘fee for service’
value added offerings such as contract sales & marketing that
complement MNC capabilities and thereby form separate rev-
enue streams that don’t necessarily qualify as‘distribution mar-
gins’will form the platform of this new business model.
For the largest domestic distributors, it would seem there is a
need to clearly separate distribution related activities from their
in-house pharmaceutical business (branded and unbranded ge-
nerics and in-licensed products) to inspire trust among their
MNC clients.
The industry offers significant synergies to pharmaceutical
companies (especially MNCs).The current focus is on enabling
market access and expansion, and rightly so. In the future dis-
tributors should aim to break the mold of traditional services
and seek further avenues to complement strengths of pharma-
ceutical companies, like R&D, sales, marketing and product
quality.
2.What services to offer: Which markets/service offerings to
focus on, which to re-evaluate, and which new opportunities
to pursue?
For large tier 1 distributors, two strategic services are vital for
survival currently – providing regional coverage and market ac-
cess related services (especially provincial tendering support and
hospital listing). Large distributors hence need to differentiate
and remain ahead of competition.
Specialized storage infrastructure and data services are becom-
ing increasingly relevant and could provide immediate avenues
to strengthen existing relationships and provide a source of
competitive advantage. Seamless cold storage & transportation
infrastructure is a clear unmet need currently and could provide
opportunities in specific regions in the immediate future.
By collaborating with existing clients on certain services (name-
ly training programs for retail and hospital pharmacies, pricing
and reimbursement consulting services, patient education pro-
grams), distributors can increase their strategic importance and
strengthen their client relationships.
3. How to win: What approaches will ultimately position dis-
tributors for success with manufacturers?
As mentioned earlier, distributors need to proactively take
positions that complement capabilities of their clients. Large
pharmacos (who are MNCs), are facing several challenges that
are unique to China; for instance training and retaining a high
quality sales force.Distributors who can recognize these as op-
portunities can proactively build capabilities that will be valued
by clients.
Innovation need not be confined to building new capabilities
but improving on current offerings – both in terms of serv-
ices and pricing structures will provide value to pharmaceutical
companies. For instance, logistics costs and lead times are sig-
nificantly higher in China,when compared to global standards.
Another example is the pricing structure where distributors
command a proportion of price irrespective of their inherent
cost structures.
Finally, ensuring that the significant investments being made
on acquisitions currently translate into direct and immedi-
ate benefits to clients is important in the short term. This
will lead to pharmaceutical companies becoming more com-
fortable with working with a significantly lesser number of
distributors and hence with higher strategic importance and
interaction.

10. 10
Medical Device Distribution Industry Structure
Medical device company executives interviewed were of the
uniform view that fragmentation in the distribution industry
was significantly higher.The reason for this is a mix of policy
and business model factors.The policy reform framework for
medical devices is not as evolved as in pharmaceuticals in the
current day.The primary focus of health policy reformers in
China today is on increasing access and affordability - medi-
cal devices have not yet become a high priority given their
relatively smaller contribution to the overall cost of health-
care in China. Hence there is no external push or incentive
that is driving consolidation in the medical devices distribu-
tion space.
The other reason is the credit terms and cycles in the medical
devices industry. Medical devices are sold by manufacturers
on a ‘cash and carry’ basis to distributors, along with a ‘sug-
gested’ selling price.This is true even for high value medical
devices which are not sold directly to hospitals.
As a result, apart from few exceptions, a typical medical de-
vice distributor (commonly referred to as ‘dealer’) handles
only $ 1-2 Million USD of business with its principal, with
a significant number accounting for even smaller revenues.
Dealers also tend to specialize in certain devices depending
upon their relationships and prior experience and do not
usually have the incentive or desire to expand their portfo-
lio. Given the capital constraints they face, it is beneficial for
them to generate higher volumes in their preferred device
types than expand their portfolio.
Respondents also believe that consolidation in medical de-
vices distribution is inevitable in the long run and will bring
several benefits to manufacturers and the healthcare industry
on the whole.Although large pharmaceutical distributors are
increasing presence in medical device distribution, their cur-
rent focus is on rapidly consolidating and scaling up in their
core business.Hence,medical device distribution in the short
to medium term will continue to remain dealer driven.
Relative Importance of Service Offerings
In comparison to pharmaceuticals, medical devices compa-
nies highlighted a wider number of services as ‘important’.
This is clearly a reflection of the state of the distribution in-
dustry,which is currently driven by dealer relationships rath-
er than professional expertise.
China being a growth market, services related to market ac-
cess and market expansion (Market expansion support, hos-
pital listing,tendering,pricing) are the most important.Inter-
estingly, data services (Sales/stock data, channel analytics etc)
are also rated as very important.The reason for this is that the
current fragmentation makes it challenging for medical de-
vice companies to accurately track sales and stock informa-
tion and manage their supply chain.Another reason for the
higher importance is the need to help dealers manage their
cash flows and minimize the risk of stock returns from (and
possible bankruptcy of) aggressive dealers.
Another service that rates high on importance is dealer train-
ing. This is understandable as dealers who bring inherent
strengths of hospital relationships need to be trained on other
core distribution and product-related skills.
After sales services is rated highly again,since medical devices
companies intend to outsource after sales/procedure service
completely, but with systems to monitor service efficiency.
However, unlike in developed markets as highlighted in the
global IFPW joint study,‘high-touch’ patient services aren’t
deemed significantly important in China. Remote and GPS
tracking also score low overall on importance, though there
are some high end devices where respondents stated that
these could be particularly useful to track actual sales from
distributors into end users.
Key Findings: Medical Devices

11. 11
Satisfaction Levels in In-house Activities
The following chart summarizes the satisfaction levels of
distribution related activities done in-house by medical de-
vice companies:
Training related activities seem to be a major area for im-
provement for ‘in-house’ services in medical device compa-
nies. Given the scale of China and the need to continuously
penetrate newer regions, training is an area where medical de-
vices companies are looking for external training partnerships.
Due to the nature of the very technical sale of many of these
products, the relative talent level of recruiting is high and may
need to be spread across more than one portfolio to pay divi-
dends on the investment. Sales and stock data collation is anoth-
er area where medical devices companies have already invested
significantly (both IT and audit processes).While respondents
claimed to have begun to witness improvements,the satisfaction
index indicates there is significant progress to be made.
Satisfaction Levels in Distributor Services
The following chart summarizes the satisfaction levels of
distribution related activities done in-house by medical de-
vice companies:
Market access related services (Hospital listing, broad mar-
ket expansion support) experience a significantly lower sat-
isfaction in the medical devices industry. This reflects the
challenges faced by medical device companies to enter new
markets and hospitals, where they need to find specific dis-
tributors who have the right relationships or are willing to
invest to do so.
Figure 5: Level of satisfaction with ‘in-house‘ distribution services in the medical device industry
Key Account Management
Dealer Training
Disease Management Programs
Provincial Tendering
Regulatory Services
Downstream training
Pricing Appovals
Other training
Sales & Stock data
In-theatre support
Physician education/training
Channel Analytics
Key needs for in-house services
Figure 6: Level of satisfaction for distributor provided services in the medical device industry
Storage hubs
Ensuring compliance
Receivables Management
Storage specifications adherence
Hospital listing
Quality of storage & transport equipment
Order taking & processing
Broad market expansion support
Smart Solutions
Hospital inventory management support
Sales & Stock data
Track & Trace
Diagnostic campaigns
Contract sales forc (NDC)
Satisfaction levels in distributor provided services

12. 12
Traditional distribution services like order taking, sales and
storage data score poorly on satisfaction.These activities are
significantly more important in medical devices due to the
prolonged credit cycles (6-18 months), which affect working
capitals of small and medium sized dealers. Recognizing the
obvious advantages of float and lack of transparency in some
of these aspects, those that can develop capabilities and serv-
ices that will address these issues may become valued strategic
partners.
Notably, contract sales support (NDC) is deemed less impor-
tant in medical devices,but it also carries with it poor satisfac-
tion, which may contribute to such a rating.The traditional
viewpoint of medical device companies is that most high end
devices need to be marketed directly,given a significantly low-
er volume/sales ratio. A few ‘good to have’ services actually
scored high on satisfaction,reflecting that these are clearly areas
not to focus on.
Prioritization of Unmet Needs
The following figure distinguishes ‘internal’ and ‘external’
services provided by service providers ranked by the current
level of satisfaction.
2
Distributors who have direct contracts with pharma/ medical device companies
Figure 7: Internal vs. External services ranked by satisfaction
Satisfaction
Internal Services External Services
Regulatory Services Receivables Management
Provincial Tendering Spread of storage hubs
Disease management programs Storage specification adherence
Dealer Training Broad market expansion support
Retail BTL Services Contract Sales Force (NDC)
Channel Analytics
Hospital pharmacy & Staff Training
In-theatre Support
Trade target programs
Physician education/training
Sales & Stock data
Hospital inventory management
Track & trace
For tier 1 distributors,identifying and managing a large number
of dealers who have the right relationships at hospitals is the sin-
gle most important capability. Respondents have asserted that
finding new dealers who are willing to work towards common
objectives is the biggest unmet need.Hence,tier 1 distributors2
who are willing to take on this responsibility will be able to dif-
ferentiate their offerings compared to competition.However,it
is important to note that managing dealers also involves taking
on credit risk in ensuring inventory and receivables are control-
led, given long credit cycles. Investing in adequate and high
quality storage and transport infrastructure is another important
facet required to capture this opportunity. Respondents even
quoted internal debates on whether separation of 3PL services
from other distribution services would help them bring better
focus.Services that enable medical device companies to expand
beyond key cities (hospital listing, contract sales force) are clear
opportunities for distributors. Medical device companies be-
lieve that there is no one in the market currently with the right
set of capabilities to strategically partner with them for expan-
sion. Some respondents cited examples of failed experiments
of trying direct sales models in regions where they could not
identify the right dealers.
Also, improving service levels in traditional distributor services
such as inventory management,order processing,sales and stock
data services can enable distributors to gain a foothold in medi-
cal devices.Value added services like tracking hospital inventory
and implementing track and trace solutions in specific high-val-
ue markets is another such opportunity for distributors to gain
traction with clients.

13. 13
We also identified two areas for distributors to collaborate
closely with clients: data analytics and hospital related serv-
ices. Most respondents cited having invested significantly in
improving their data visibility.However,they also expressed in-
terest in analytic solutions that will enable them to make faster
decisions. In addition, hospital related services like in-theatre
support,pharmacy and technician training and physician edu-
cation were cited as areas of unmet need due to their relatively
low effectiveness. However, respondents also believed that no
distributor currently had the capability to support them effec-
tively in these areas as well.
Implications for the Medical Device
Distribution Industry
Based on our research, we believe current players and future
participants in China’s medical device distribution industry
must consider the following strategic imperatives as they for-
mulate their business model in the rapidly evolving healthcare
environment:
1.What role to play:What role should the distribution indus-
try aim to achieve in the medical device landscape in China?
In the absence of aggressive policy reform today,medical device
distribution is expected to remain fragmented in the medium
term.Hence,the imperatives for distributors to clearly separate
their core distribution offerings from value added services are
not of immediate relevance in medical devices. Several unmet
needs in core distribution exist, such as fast and reliable goods
movement and high-quality storage that need more immedi-
ate attention.
However, relationship driven sales, and hence dealers, will re-
main the single most important service sought from distribu-
tors by clients.
2.What services to offer: Which markets/service offerings
to focus on, which to re-evaluate, and which new opportuni-
ties to pursue?
Opportunity exists for players to build a large scale distribution
business for medical devices in China. However, establishing
relationships that drive hospital listing (and hence sales) is the
most important capability sought by the medical device indus-
try.The market is significantly less competitive beyond Tier I
cities; several companies interviewed acknowledged inability
to identify even a single qualified dealer/distributor in several
regions.Careful consideration on which geographies to pursue
before making significant investments will ensure distributors
are aligned to client needs.
Poor logistics efficiency is another significant opportunity for
distributors looking to either provide a comprehensive set of
services or build standalone services based on clearly agreed
and measurable performance metrics.Track and trace solu-
tions, including bar code and RFID based solutions and data
aggregation/ analytics support can also be targeted at specific
micro markets like high end diagnostic/ICU devices.
3. How to win: What approaches will ultimately position
distributors for success with manufacturers?
Unlike in pharmaceuticals, winning in medical device dis-
tribution requires focus on building a basic set of capabili-
ties, the most important of which are hospital listing, sales
support, and timely delivery. Distributors will first need to
gain client’s confidence that they can manage sales efficiently
and effectively across chosen geographies/ regions before ex-
panding their offerings.
Moreover, showing commitment towards capability building
will require investments in training backed by tangible and
sustainable results. Giving manufacturers the confidence that
distributors can take on more strategic roles (e.g. sales and
marketing) is important to help them (clients) re-think their
current business model, which is veering towards increasing
in-house capabilities across a range of non-core activities.

14. 14
Matthew Guagenty
Managing Principal, IMS Consulting Group, China
MGuagenty@imscg.com
Anthony Morton-Small
Sr. Principal, IMS Consulting Group, APAC
AMortonSmall@imscg.com
For a deeper discussion on the distribution environment in China, contact one of the authors of this paper.
IMS Consulting Group
IMS HEALTH CHINA
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No. 689 Guangdong Road
Shanghai, PRC 200001
Tel: +86 (21) 6363-0011
Email: info.cn@cn.imshealth.com
www.imsconsultinggroup.com
About IMS Consulting Group:
Influencing the Future of Global Health
IMS Consulting Group (IMSCG) is the pre-eminent global life scien-
ces consultancy. Distinguished by our sector and client focus, interna-
tional reach,world-class methodologies and unrivaled talent,we provi-
de clients with Powerful Insights that inform Smarter Decisions.
Within IMSCG, we have a bold vision
-To Influence the Future of Global Health!
Who we are:
• 500+ specialist best-in-class consultants
•Advising Life Science leaders on critical business issues with singular focus
• Cadre of health/pharma-related backgrounds and advanced degrees
Where we are:
• Combining global reach with local market strength
• Key hubs in London, NewYork, Shanghai andTokyo
• Local experts on the ground in pharmerging markets -China, Brazil,
India, Russia,Turkey, and more
How we make the difference:
• Maximizing product & portfolio value in every phase of the
pharma lifecycle
• Deep therapy-area and industry expertise
• Passion for life sciences and commitment to clients
Conclusion
The healthcare landscape in China necessitates that manufac-
turers and distributors forge winning strategic partnerships.
There are four key stages in the evolution of strategic part-
nerships:
1.Agreement of convenience:Bothpartiesinvolveddonot
have a choice but to work with each other and have a short
term benefit oriented approach.
2. Developing a partnership: Realization that working
towards mutual benefits in the long term is beneficial to
both parties involved.
3.Defining a common strategic vision:Clearalignmenton
a win-win partnership model, with significant investments
from both parties towards reaching the goal.
4.Mature strategic alliance:A clear and complimentary set
of capabilities are established.
We believe that in pharmaceuticals, the manufacturer-dis-
tributor partnership has matured at stage two and several ini-
tiatives are being taken to define a common strategic vision.
Our research has clearly identified next steps required to fur-
ther this partnership.
However, in medical devices, manufacturers and distributors
need to take concrete steps in developing a long term part-
nership. Currently, the focus is still on entering into ‘agree-
ments of convenience’, especially beyond Tier I cities.While
policy impetus is currently not very strong, we have been
able to identify how distributors can proactively commence
building such a partnership, and hope our initial recommen-
dations can help medical device companies and distributors
move the needle towards ‘developing a partnership’ for mu-
tual benefit going forward.