Foreign companies in China are pushing for greater localization as they increase their investments and seek profitable innovations. Multinational healthcare firms are reorganizing their operations, with Johnson & Johnson (JNJ, Financial) recently adjusting its business structure in China, leading to reports of layoffs. The company, which began a new round of layoffs affecting multiple units, has not officially announced these job cuts, although sources confirm it’s part of a global restructuring effort.
An industry insider links the instability in multinational healthcare firms to the impact of consumable centralized procurement on profits, intense market competition, and the reassessment of Chinese operations by their headquarters to adapt to new market conditions. Other companies like GlaxoSmithKline (GSK) and Medtronic have also experienced layoffs in China recently.
Earlier this year, Johnson & Johnson China underwent an internal overhaul following the departure of its long-time China president. This restructuring was furthered by the appointment of a new president in July, leading to the creation of a new business development division and internal adjustments across its sectors.
One significant change involved the resignation of a senior director managing the MONARCH surgical robot division, a key innovation approved last year but facing market entry challenges. The technological advantage is not enough for success in China without addressing market access, pricing, and sales capabilities.
Facing fierce competition from products like the iON robotic system, J&J is deepening its localization efforts, including maintaining a factory in Suzhou. However, critical components remain largely unlocalized, highlighting the long journey ahead for complete adaptation to the domestic market. Greater localization allows access to beneficial government policies, vital for hospital entry and payment systems.
The Shanghai Biopharmaceutical "New Excellent Drugs and Devices" catalog indicates limited success in localizing foreign innovations, with only a few multinational products featured among 51 listings. Companies are recalibrating their strategies to minimize market risks and enhance localization, a necessity for significant market penetration in China.
Experts believe innovation sustainability requires a model encouraging re-investment in innovation, crucial for both foreign enterprises and the local market. China remains vital for multinationals, underscored by AdvaMed’s senior executives’ visit during a trade show, where they reaffirmed China’s significance. Over the past decade, AdvaMed members have established substantial facilities and R&D centers in China, indicating a robust presence in the market.
