Sinopharm steps on reform pedal to enhance growth

China National Pharmaceutical Group (Sinopharm) will invest in more private companies and attract investors from both private and State-owned businesses to further increase its earnings potential this year.

The company has already made a good beginning in this regard by bringing nearly 90 percent of its subsidiaries in the reform push by the end of 2017. It involved 660 group companies and accounted for over 85 percent of the group's revenue contributors.

"We have been bringing in strategic investors in sales and pharmaceutical equipment," said Shi Shengyi, deputy general manager of Sinopharm. "Investing in selective private companies can generate high growth potential as it helps further diversify the company's sales and supply channels."

Since State-owned enterprises play a significant role in China's economic growth, the central government has been promoting a series of reforms to cut overcapacity and low-productivity, which had dragged down profits.

Reforms include changing shareholding structure and reducing non-core assets. SOEs have also been encouraged to foster innovation and streamline management.

"Such industrial reform benefits pharmaceutical SOEs in general through attracting more research funds, shortening development processes and enhancing their overseas performance," said Zhou Mi, a researcher at the Chinese Academy of International Trade and Economic Cooperation.

As a major SOE and mainstay for China's pharmaceutical industry, Sinopharm started its reform by adopting a mixed ownership.

"Reform in pharmaceutical industry differs from the others because it stresses much on patent protection and information management, as product development is a long-term process that needs huge investment," said Zhou.

To better collect market information and facilitate research, Sinopharm established a management team with the task to attract talents and private investors, as well as offer executive board memberships in its subsidiaries, as a major step.

For instance, Sinopharm Group Co Ltd, a key member of Sinopharm, was established in January 2003 through investment from both Sinopharm and privately-owned Shanghai Fosun Pharmaceutical (Group) Co Ltd. Under the deal, the group adopted a shared executive board with members coming from both Sinopharm and Fosun.

In addition to attracting private investors, Sinopharm has also been working on mergers and acquisitions.

CMDC, another Sinopharm subsidiary specializing in pharmaceutical equipment trade, started its reform in 2014. It has been working on mergers and acquisitions ever since the reform for building a national distribution network of pharmaceutical equipment.

In addition, Sinopharm has also invested in private companies and become some of their major shareholders. It invested in China Traditional Chinese Medicine Holdings Co Ltd and became its shareholder in 2013.

"Mergers and acquisitions between SOEs and private companies can be challenging due to possible conflicting corporate culture and changes to each other's corporate structure," Zhou said.