China's pharmacies, now striving to expand their market shares in the country, will face an uphill reorganization period designed to survive global competition.

Yu Mingde, director of the Pharmaceutical Department under the State Economic and Trade Commission (SETC), said coalition was the only way forward for pharmaceutical circulators in order to sharpen their competitive edge and head off drastic hits after China joins the World Trade Organization.

Three years after China becomes a member of the world trade body, foreign traders will be allowed to run drug retail and wholesale in the country.

The cooperative intention, expressed recently by the Medicine Shoppe International Inc, the world's largest chain of franchised pharmacies, sent a warning to the domestic medicine stores that they will have hard times ahead.

The US-based Medicine Shoppe, which has 1,300 outlets, showed its interest in helping local drug retailers build a practical Sino-foreign pharmacy chain.

"To face the coming challenges, the government will encourage mergers in the sector and key enterprises will be encouraged to build large enterprise groups,'' Yu said.

A chain will be recommended as it is a quick way of expansion.

According to Yu, some 70 per cent of the drugstores will be part of a chain in two or three years.

China now has 16,000 pharmacies but only 400 have an annual turnover over 20 million yuan (US$2.42 million).

Yu said he expected 10 chains of drugstore conglomerates in the next five years, each with more than 1,000 outlets and a turnover of 5 billion yuan (US$604 million). To give the domestic drugstores more time to get used to the fierce competition and to learn about the ways of their overseas counterparts, two joint ventures of chain medicine stores have been allowed to open on a trial basis in Shanghai and Shenzhen, Yu said.

Earlier this year, the sector was opened to private investors, rather than continuing to be monopolized by State-owned enterprises, Yu said.

"The move also aims to grabbing the medicine retail market before overseas dealers enter it,'' Yu added.

Cui Jun, president of the Sanjiu Medicine & Pharmaceutical Chains Co, said the domestic players should be secure before the foreign giants flood in.

Currently, none of the domestic pharmaceutical circulators has the ability to compete with overseas counterparts, Cui said.

Sanjiu, the famous medicine producers, decided to take the lead in occupying the market share before the country's WTO entry.

"We aim to invest 1.3 billion yuan (US$157 million) in opening 8,000 outlets in three years,'' Cui said.

Cui has refused some foreign giants who have asked to join him in providing management methods.

"The most important thing for us is to seize more market share and become stronger, then we will have the strength to decide about cooperation or not in 2003,'' he said.

(China Daily 08/21/2001)