How a ‘local-first’ strategy in China can help global pharma and life sciences players reduce risk, drive growth

A functional assessment can help confirm that you’re on the right strategic course

Many multinational pharmaceutical and life sciences companies came to China years ago seeking to tap a vast commercial market, economical labor and raw material costs, and a solid talent pipeline. But rising geopolitical tensions, higher costs and new regulatory requirements from both the United States and China may be challenging the business projections of even a few years ago, compelling companies to reevaluate their growth assumptions.

For most pharma and life sciences companies, the question isn’t a simple, “Should we stay or should we go?” The better question — How can a holistic “local-first” strategy help safeguard and expand our business in China?

Many multinationals are already contemplating such strategies. For others, the time may have arrived to scrap earlier efforts and formulate more concrete and integrated plans to help reposition themselves in an increasingly uncertain geopolitical and business climate. A wait-and-see approach isn’t likely to succeed.

As governments and industry work to find the right balance between security and business development, some multinationals have successfully spun off parts of their foreign operations over the past decade. That’s helped parent companies better focus on the true growth areas of their business, while greater local control has spurred growth and helped avert potential political and regulatory issues.

CEOs and board members should consider how prepared they are to navigate the geopolitical regulatory environment. Beyond having a plan to safeguard the business and improve continuity, how fast could you execute?

Just how local? 5 considerations

No single local-first strategy guarantees success, but maintaining the status quo is increasingly untenable. Begin with these questions.

  1. What are the assumptions for your Chinese business? How have the assumptions that led you to China changed?

  2. What scenarios require new plans to help mitigate risk and guarantee business continuity? Consider geopolitical and regulatory developments at the governmental and local levels. Also consider economic, compliance, supply chain and health-related factors.

  3. What are the benefits of creating a more independent local entity? They may include tax benefits, patient access, increased agility and speed in markets, faster approvals, higher product sales and greater sustainable growth. Conversely, what are the costs of duplicating corporate functions and systems?

  4. If the Chinese entity is separate from the rest of the Asia-Pacific market, what are the implications of managing it?

  5. What new opportunities might a local-first strategy open for deals, joint ventures and collaborations with Chinese and other life science companies?

Three strategic options

For most pharma and life sciences companies, three scenarios can emerge. Each option comes with distinct choices for how to structure global functions.

As you assess your operations, it may make sense to diversify or even duplicate some functions so they can operate more nimbly. You may, for example, need to establish a China-specific supply chain if local content requirements call for drugmakers to manufacture at least parts of their products in China to be eligible for reimbursement by state-sponsored health insurance. Certain medical equipment is already subject to these rules and generic medicines, which are more commoditized, could be next.

While it hasn’t yet happened in the pharma and life sciences space, some multinationals have already carved out a stand-alone Chinese entity that operates as a satellite of the parent company. This generally means duplicating most functions and creating clear separation of Chinese units from the rest of the company.

Spinning off parts of the business can take many forms and may become more common if companies face significant regulatory, compliance and legal challenges in the future. Some companies may opt to leave the market completely or limit themselves to holding shares in the spinoff. Companies exiting the Chinese market could also explore licensing deals that allow limited use of brand and intellectual property.

Weighing operational impacts and opportunities

As you determine a local-first China strategy, consider the following operational impacts and opportunities such a move entails.

Research and development

Segmenting R&D efforts may involve imposing technical controls, limiting access to global systems and better detecting and responding to threats against intellectual property security. Companies that set up local research and development capabilities may be in a better position to understand what the Chinese market demands. It’s not uncommon for a multinational pharma and life sciences player’s VC arm to be globally focused on certain molecules that may not align with China’s agenda.

While China-based R&D may not lower global R&D costs, innovative drugs developed in China have made it to global markets. Although the research process might be viable within China, clinical development would still need to occur elsewhere to gain the confidence of regulatory agencies globally. Cleanly separating what is and isn’t under regulation is increasingly difficult. For example, any ideation or intellectual property that’s developed in China or by Chinese employees of US businesses will likely fall under the purview of existing Chinese data laws. 


Most pharma and life sciences companies have local salesforces. But the global corporate requirements that govern them may not apply in China. Channels for promotion in China are different from those in other established markets as well. The local Chinese affiliate may benefit from being able to make rapid, on-the-ground decisions as market conditions change. Such agility is often rewarded. Greater local autonomy helps companies be more attuned to Chinese treatment needs and how competitive pricing might look under state-sponsored medical plan reimbursement. That’s a key factor. Unlike the US model, China’s market strategy capitalizes primarily through volume rather than premium pricing.

IT and other functions

Shared data systems may run into issues with the cyber and data protection rules that China has imposed in recent years, and multinationals are awaiting more guidance from the Chinese government on how cross-border data transfers will be enforced.

While partitioning data from China might simplify some aspects of compliance, global and local units may sacrifice valuable data insights and the ability to virtually share scientific research, trial data and more. Most companies have global data lakes but, to remain local, they may need to resort to data ponds or federated data architectures. As for many of the cloud-based apps that the industry is accustomed to working with, there’s simply no 1:1 alternative. 

In reality, simply creating stand-alone servers for one country may be cost prohibitive. And beyond technology, the business should have to quantify what it would take to stand up other shared services at a local level. Even with an in-China-for-China product portfolio, options may be limited without the ability to leverage other markets without functional efficiencies at scale.

Supply chain and manufacturing

Manufacturing operations may need to be separate from the rest of the business, especially if China’s local content requirements extend to the pharmaceutical and life sciences industry. Those require significant parts of a product to be manufactured in China for it to be allowed on the market or be paid for by the government. Certain medical equipment is already subject to those rules and generic medicines, which are more commoditized, could be next. To allow for local quality control, some vaccines are already required to be manufactured within China, which would of course be a necessity to administer cell and gene therapies and personalized medicine in the future.

Moreover, as the global medicine supply becomes a national security issue for the United States and other countries, it’s conceivable that they may eventually require a company’s supply chain be independent from China — or at a minimum, require supply chain diversity for key medications, critical compounds and raw materials. 


US-China deals are likely under increasing regulatory scrutiny. In particular, deals involving cell and gene therapies and diagnostics or service providers with access to a large volume of genetic data are likely to be challenging. On the other hand, we expect deals to increase that separate biopharma supply chain and manufacturing capability and build redundancies in both countries.


Changes to operating models, people and processes may have tax effects on the use of existing intellectual property and the company’s cash tax position. This includes access to cash for the China business and the ability to use cash within the business.

If you’re considering changes in legal entity structure or a new legal entity, you should determine the tax impact of any investment decisions related to legal entity restructuring, ongoing capital requirements, internal use of debt and the funding of long- and short-term cash needs. Changes to the operating model may also have implications for existing transfer pricing policies if there are changes to the Chinese business’ functional profile. There could be impacts on operating results, related cash tax costs and the business’s overall risk profile, as well as on net indirect tax costs (such as withholding taxes, VAT and customs or duties).

Contact us

Nalneesh Gaur

Principal, TX, PwC US


Ben Rhee

Principal, PwC US


Glenn Hunzinger

US Pharma and Life Sciences Leader, PwC US


Follow us