HONG KONG – As a part of efforts to encourage innovation and internationalization of biotech companies, the Chinese government is now actively encouraging outbound investment from Chinese enterprises. The aim is to get Chinese companies to sell products abroad and, in turn, bring back advanced technologies. The push could generate significant opportunities, but will require companies to overcome a series of practical challenges and provide products of uniformly high quality.

Between 2009 and 2013, Chinese outward direct investment grew about 17.5 percent per year to $108 billion by the end of that period. Asian countries accounted for 70 percent of all that investment. Cities like Shanghai, Wuhan and Suzhou emerged as biotech clusters with local governments pushing for the internationalization of biotech enterprises with regulatory support, guidance and funding.

These efforts ensured relatively fast progress and expansion; they also meant that much of the low-hanging fruit has been picked. The question for the government and the clusters themselves is where to go from here.

As China's long-standing commercial center, Shanghai has been constantly exposed to international business. The city's experience working with international companies and with Chinese companies expanding abroad has led to a supportive and relatively easy to navigate business environment. And between 5 percent and 10 percent of Shanghai's overseas M&A deals in 2014 and 2015 were in the health care sector, according to LEK Consulting, a health care-focused firm that was commissioned to develop an outbound investment report, "From China to the World: An Investment and Market Access Guide for Chinese Biopharmaceutical Companies."

"The government of Shanghai is generally thought to be more professional [in outbound investment] compared with some of the other cities," LEK's director and partner, Helen Chen, told BioWorld Asia. "Shanghai is one of the earliest international hubs in China with international flights and has more global exposure. . . . The government is encouraging companies to 'go out.' Other cities are also doing the same thing."

For many companies, the challenge when expanding internationally is how to present a uniform image.

Different markets have their different perspectives on Chinese products. Overall, price is the biggest advantage of Chinese products but perceptions vary wildly between markets, according to the LEK study.

In Thailand, physicians think that Chinese brands are of better quality and more reliable than local brands, but after-sales service is not as good. Chinese products are also well received in markets further away, such as Colombia, in terms of value, quality, price and reliability. Consumers in Russia have had very limited exposure to Chinese products and have doubts about them. In Turkey, India and Brazil, there is a definite tendency toward products by multinationals or local brands, even though many believe made-in-China products have a price advantage. Similar trends can be seen in Mexico.

To compete with local companies or multinationals in foreign markets, especially emerging markets, Chinese companies will need to boost their marketing capability by emphasizing the quality and R&D of their products and build stronger customer bases, according to LEK. They will also need to provide more high value-added products and find ways to solve clinical problems.

For years, companies that depend on manufacturing, such as makers of generics, had the advantage. As companies moved up the value, funding issues became a consideration. Chinese companies with sufficient funding have been able to buy or license products and find partner targets globally.

The new breed of biotechs out of China is expanding globally and building on a knowledge and funding base.

"In order to export to a regulated market you have to invest a fair amount in dealing with the regulatory standards such as going for good manufacturing practices or WTO qualification for vaccines," said Chen. "That's very resource intensive and requires skills and willingness.

"The [companies] with better R&D are willing to consider products that are at earlier stages because they can evaluate them," said Chen. "The weaker ones are also looking but they're focused on phase III or even commercialized products because they don't want to take much scientific risk."