Taps Coogan – July 5th, 2022

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The following chart, from Statista.com, highlights the world’s dependence on China for antibiotics. According to data from the International Trade Center (ITC), China is responsible or 42% of the world’s exported antibiotics, following by Italy at 10%, and India at 8.8%.

China’s domination of the pharmaceutical manufacturing supply chain doesn’t stop with antibiotics. China is responsible for 95% of ibuprofen imported into the US, 91% of hydrocortisone imports, 70% of acetaminophen imports, and 40% of US heparin imports.

Many people point to China’s relatively cheap and abundant labor as an explanation for its domination of various manufacturing industries such as pharmaceuticals. However, labor is typically a very small component of pharmaceutical manufacturing costs and unit manufacturing costs are in turn usually a small component of pharmaceutical prices, even with generics. The real secret to China’s domination of the pharmaceutical supply chain is the reality that if you want to successfully sell into China’s massive market, you’d better partner with a local company and manufacture in China.

If you build a plant in the US, you’ll only be able to sell into the North American market. Regardless of what the rules technically say, you’ll get stonewalled trying to export to China, and for that matter, Europe, India, Japan, and most everywhere else too. On the other hand, if you build in China, you can sell in China and pretty much everywhere in the world without problems. So what does everyone do? They build their plants in China. That asymmetry, far more than labor costs, is what drives China’s domination of so many markets.

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