BUILDING A BETTER
GOVERNMENT AFFAIRS
FUNCTION IN CHINA
By employing a more
sophisticated approach,
multinationals can better
position themselves for
long-term success in China’s
fast-growing market for
pharmaceuticals.
HEALTHCARE AND LIFE SCIENCES PRAC TICE
New standards for the clinical and
regulatory approval process of foreign
drugs and treatments destined for
China’s massive pharmaceutical market
are clouding future revenue projections
for multinational drugmakers. They also
represent an opportunity.
Indeed, a closer look at the regulatory
challenges multinational pharmaceutical
companies face in China suggests ways
that forward-looking multinationals can
get more value from their government
affairs (GA) functions there. By
employing a more sophisticated and
thoughtful approach — and better
understanding the talent needs that are
required — multinationals can better
position themselves for long-term
success in China’s fast-growing market
for pharmaceuticals.
The lure of growth
China’s pharmaceutical market has grown tremendously
in the past 20 years and is now poised to overtake Japan
to become the second-largest market, behind the United
States, by spending on drugs and For its part,
Morgan Stanley estimates that Chinese pharma spending
will likely double over the period between 2012 and 2017,
by which time it could represent 15% of the $ trillion in
expected global spending on
As these numbers suggest, sales have not been an issue
for drug producers, as the Chinese government continues
to expand its social insurance blanket and widen the role
of the private sector (for example, the country’s Ministry
of Health has suggested that up to 20% of hospital beds
could be privatized by the end of 2015). Growth, however,
has come with challenges. Margins, for instance, are lower
in China than in the West. Moreover, even as Beijing has
encouraged foreign drugmakers to partner with domestic
peers, scandal has, at times, touched both global and
domestic players and provoked a stern official
Beyond stamping out corruption, the government has
other plans for the industry — most notably, reshaping
the country’s domestic pharmaceutical market by
redistributing expertise from foreign entrants to domestic
peers, as it has done in other technology-based industries.
1 Philip Leung, Grace Shieh, and Ellon Xu, “Embracing China’s brave new
pharmaceutical world,” Bain & Company, June 4, 2014.
2 Dimitra DeFotis, “Pharma Sales Growth in Emerging Markets Could Top
8%, Margins Need to Improve,” blog, , January 6, 2015.
3 Adam Jourdan, Kazunori Takada, and Ben Hirschler, “Bribery scandal
dents Big Pharma sales in China,” Reuters, September 18, 2013.
BUILDING A BETTER GOVERNMENT
AFFAIRS FUNCTION IN CHINA
2 Building a better government affairs function in China
No longer content to drive Chinese GDP growth through
foreign direct investment, the current administration is
emphasizing China’s domestic capabilities and looking to
achieve a sustainable rate of growth through innovation.
To that end, the government encourages partnerships
between foreign and domestic drugmakers as well as with
local Chinese clinical laboratories.
Moving the goalposts
For multinational pharmaceutical companies, these
external factors ratchet up pressure on management,
raise levels of uncertainty, and cloud profit forecasts.
Meanwhile, increased government oversight raises the
bar for the performance of foreign pharmaceutical firms’
GA functions.
Nowhere was this on more vivid display than in early
2014, when the Chinese Food and Drug Administration
(CFDA) announced that foreign drugs would henceforth
require three applications and three approvals, up from
two applications and two approvals. This move caught
many drugmakers by surprise, and the absence of details
around implementation and the grandfathering in of
existing applications left some multinational corporations
(MNCs) wondering whether there should have been
advance notice. In retrospect, the lack of communication
perhaps shouldn’t have been so surprising. Apart from
the government’s historical reticence in such matters, it’s
worth noting the resource constraints involved: China’s
Center for Drug Evaluation (CDE), under the country’s
CFDA, with a staff of roughly 110 employees, regulates
more than 4,000 pharma companies. By contrast, its US
counterparts, The Center for Drug Evaluation and Research
(CDER) and The Center for Biologics Evaluation and
Research (CBER) of the US FDA, regulate about 200 pharma
companies and collectively have a staff in the thousands.
Moreover, the entry barriers in the United States, in the
form of application fees, are much higher.
Tasked with monitoring developments in government
policy and attitudes, the GA functions at many
international pharmaceutical companies were in many
cases the most surprised of all. After the change was
announced, many GA leaders struggled to gain insight
into the decision from either policymakers or other
regulatory stakeholders, and some found that they lacked
both the strategy and execution channels to mitigate
the challenge.
While some questions regarding the policy
reinterpretation remain unanswered (and likely will),
the business of developing and producing drugs and
treatments for Chinese patients carries on. For senior
pharma executives and the GA functions that support
them, the relationship with government stakeholders
must improve to meet new challenges, even as they work
harder to learn from the lessons of the past.
Indeed, forward-looking MNCs are starting to recognize
that these events present an opportunity to reframe the
way the GA function engages with stakeholders, while
also preparing their organizations to successfully compete
for a future in which strategies, structures, and talent
are recalibrated to anticipate and engage a changing
market rather than merely react to it. In our experience,
organizations that professionalize their GA functions will
be best placed to navigate this new environment.
Time to collaborate
The CFDA’s departure from the “two applications, two
approvals” process created immediate issues for the
regulatory affairs (RA) teams of multinational pharma
players. While the regulatory changes might appear as
an RA challenge at first, it was actually an area where
GA teams could best support, coordinate, and lead the
response (see sidebar “Pharma is different”).
The core challenge the regulatory change highlighted
is the relative lack of regulatory clarity in the industry,
especially for projects currently in the approval process.
Industry trade press has spilled considerable ink over the
issue, but the CFDA itself has been, characteristically, quiet.
Letters of inquiry were sent by most firms to the CFDA
seeking clarification on the ruling; the response, however,
was to acknowledge that the letters had been received
and were under consideration.
Heidrick & Struggles 3
In such circumstances, more nuanced channels to share
messages with the regulators and the broader Chinese
public might have had a material effect (and could again
in the future). Quiet phone calls arranged between the
local CEO and a policymaker, or meetings on the sidelines
of a public event or other engagements, should be staples
of GA best practice — but often aren’t. The lack of visibility
into the Chinese government’s motivations on such a vital
issue to the success of MNCs in China draws attention to
the increased role the GA function can play. While more
effective coordination and support for the RA function
would almost certainly not have changed the policy, it
might have given pharmaceutical executives an earlier
opportunity to comment — or, at a minimum, prepare.
More than ever, RA professionals in China need the
help of their GA colleagues. The magnitude of the shift
in regulatory policy and the competitive environment
necessitate greater assistance and coordination between
these typically siloed departments to build and maintain
successful relationships with regulators. Five steps can be
taken today to improve that most vital relationship, both
at the level of individual firms and as an industry.
1 Harness public
relations and corporate
social responsibility programs
The pharmaceutical industry in China has suffered from
lackluster public relations (PR).4 Since pharmaceutical
distribution and sales practices were thrust into the
spotlight, the industry has been saddled with blame
for high drug and treatment prices in China. In reality,
pricing is a more complex issue, involving international
and domestic drugmakers, policymakers, and
healthcare providers.
One way the GA function can adapt is to shift from
a purely responsive organ to a proactive partner of
the pharma company’s corporate communications
department. In addition to relaying policy considerations
to executives, GA leaders should be actively working
4 Andrew Ward and Patti Waldmeir, “Big pharma fights back from China
scandal,” , April 3, 2014.
Pharma
is different
Often viewed as synonymous
in other countries and
industries, government affairs
(GA) and regulatory affairs (RA)
provide distinct services to
pharmaceutical firms in China.
GA covers the traditional roles
as an external government
liaison and an internal source
of insights into policymaking.
RA, on the other hand, is
a more narrowly focused
scientific function that aides in
preparing for and navigating
the clinical approval process of
specific treatments.
4 Building a better government affairs function in China
with the PR side of the business to inform and engage
with stakeholders, including government officials, on the
issues facing their company and industry. When the CFDA
announced the change in approval policy, GA leaders
might have resourced their PR teams with clear, tactful
messaging to communicate the effects of this change
on public health issues. Most did not, however, in part
because corporate PR has a relatively short history in
Chinese business and is not as sophisticated as it is in the
West. Indeed, in the China offices of some pharmaceutical
companies there is no PR function at all. Moreover, even
where it is well developed, the levels of cross-functional
collaboration are often poor.
To be sure, the conversation with government officials
will always be primarily about listening, but corporate
communications can certainly do more to share the value
that multinational firms provide to the communities in
which they operate. A practical example is to draw tighter
links between pharmaceutical companies’ corporate
social responsibility (CSR) efforts and their interactions
with governments. One global pharma company, for
example, has been supporting the Ministry of Health in
an important public health initiative by providing data
and technical know-how. Such connections can only
bolster the credibility of foreign firms in the minds of
government officials.
Multinational GA teams can also aid their RA counterparts
in managing the effects of regulatory change by tactfully
presenting the views of the public and their downstream
customers to government officials. To do so effectively,
many pharmaceutical companies operating in China
will need to get better access to providers so they might
develop stronger, broader, and deeper relationships with
patients. Leveraging such relationships to present the
regulators with a richer picture of the effects of any policy
changes on patients’ lives can only improve the nature
of the company’s relationship with regulators. This shift
to a more proactive form of GA should not be alien to
most foreign firms operating in China, as the practice is
common in the United States and Europe.
Smart companies address organizational disconnects
head-on, recognizing that while the benefits of greater
coordination between functions such as PR and GA far
outstrip the effort required, the effort must be led by
senior leaders within the company and supported by
dedicated resources at the country level.
2 Demonstrate the
policy’s effects on patients
Multinational pharma companies can also benefit by
reframing the discussion away from costs and toward
patients and quality of care. The stated rationale for the
“three applications, three approvals” change was a greater
assurance about the safety of drugs and treatments
introduced to the Chinese market. Focusing more clearly
on this same goal could help MNCs open a broader
discussion with regulators.
One of the clearest ways companies can demonstrate
a new drug approval policy’s effects is to support their
conclusions with data, by commissioning research, for
example, from a respected third-party provider. Such
data could examine the clinical and commercial effects
of the changes on bringing new treatments to market,
for example, and include the implications for patients’
access to treatment. Data should also be employed to
demonstrate the economic effects on domestic drug
manufacturers. High-quality empirical research of this
type helps create an authoritative external reference point
that government officials and management can discuss
without the latter party risking the perception of being
unnecessarily provocative.
Data-based advocacy could significantly improve the
level of engagement with regulators and broaden the
discussion. Facilitating a collaborative relationship where
industry representatives and regulators explore together
the economic and scientific effects of policy changes
should always be the goal. Argumentative language and
aggressive posturing should, of course, be eschewed at all
times in favor of measured, collaborative dialogue.
Direct advocacy is also important. As the Chinese
government nurtures the domestic pharma industry
and looks to stamp out improper sales techniques and
other forms of corruption, it may bring a natural wariness
toward foreign pharmaceutical companies. Thus far,
much of the resulting advocacy burden for multinational
Heidrick & Struggles 5
Government affairs self-evaluation
5 questions to ask
PR / CSR COORDINATION
How integrated is your company’s
government affairs (GA) function
with public relations (PR) and the
organization’s corporate social
responsibility (CSR) activities? Would
your PR and CSR functions know how
to assist your GA function?
PUBLIC CONVERSATION
Does your firm have a compelling,
concise description of the effects
of the “three applications, three
approvals” process? Could you easily
articulate its effects on the public’s
access to quality healthcare?
DOMESTIC ALLIANCES
Who are your domestic GA partners?
Would you have access to and
working relationships with executives
at your Chinese peers if you wanted
to collaborate or discuss an issue?
VOICES OF INFLUENCE
Whose voices could best represent
your company’s interests in public
and private GA discussions?
Do you have respected advocates
and ambassadors, both in China
and internationally?
GLOBAL RESOURCES
When was the last time your global
GA resources were deployed in
China, either through personnel or
research? Are your global executive
leaders adequately briefed on
the impact they can have on local
market discussions?
6 Building a better government affairs function in China
pharmaceutical firms in China has been shouldered by
the R&D-based Pharmaceutical Association Committee
(RDPAC). Representing 40 companies, RDPAC articulates
the contributions of the international firms in China, with
an emphasis on its members’ investment in manufacturing
and research facilities. While such advocacy is necessary, it
isn’t sufficient and shouldn’t preclude pharma companies
from acting on their own behalf as well.
In fact, the way through any regulatory impasses will
be for international pharmaceutical firms to be more,
not less, directly involved in communications with the
government. Effective representation through in-house
GA leaders must acknowledge underlying Chinese cultural
assumptions that guide interactions with government
leaders — whether by individuals, a company, or an
industry body. Operating on cultural principles imported
from other markets is shortsighted and will inhibit
constructive dialogue.
For example, drugmakers’ interactions with regulators in
China are very different from the ones they have in the
United States. The difference in accessing Western versus
Chinese officials can be thought of using the analogy
of an avocado and an egg. Just as the avocado has a
soft exterior and hard core, Western regulatory officials
readily grant personal access but are typically unwilling to
grant access to core decision-making processes. Chinese
officials, for their part, resemble the egg. Although
they present a hard, seamless shell, they are more fluid
underneath. While initially slow to grant access, Chinese
decision makers may invite trusted counselors to share
their opinions.
3 Build alliances with
domestic drugmakers
Improving the relationship with government officials,
including regulators, must be a core focus of a
strengthened GA function. However, it is not the only way
forward. Just as regulators are likely to respond positively
to economic and scientific research, they are also likely
to look favorably on positive feedback from the domestic
pharmaceutical industry. Given China’s stated goal of
developing local Chinese players, cultivating relationships
with domestic management is a prudent course for
multinationals to take. There is substantial scope for
inviting domestic Chinese drugmakers to contribute their
influence and understanding to their foreign GA peers.
For example, many of the senior executives and board
members of Chinese pharmaceutical firms also serve on
committees of the Chinese People’s Political Consultative
Conference and National People’s Congress, two of the
country’s highest political bodies. Participation in these
bodies grants access to policymaking at a level that
foreign GA leaders and their executives cannot reach on
their own.
Relationships with domestic peers will give foreign GA
leaders relational, albeit indirect, access to policymakers.
Even if meetings with government regulators cannot be
arranged, the management at domestic pharmaceutical
firms can offer vital insights into the prevailing regulatory
mind-set. While MNCs should pursue only alliances and
joint ventures with a clear strategic rationale behind
them, they shouldn’t overlook the opportunities that such
tie-ups afford them when it comes to amplifying their
messages with regulators.
4 Cultivate additional
voices of influence
Balancing broad, public discussion and engagement
with experienced retired senior government officials can
also help cultivate valuable influence for multinational
firms in China. While RDPAC has successfully pursued
the bottom-up approach of engaging with the public,
more can be done to build strategic connections with
key opinion leaders, especially the growing number of
retired policymakers.
Too often the conversation between foreign drugmakers
and regulators is adversarial. Rather than frame the
discussion as between two competing positions,
influential figures in China’s public health dialogue
can help bridge the two sides. GA leaders should
actively identify and resource these key influencers
using trustworthy economic and scientific research, as
discussed earlier.
Heidrick & Struggles 7
Government officials can be invited to engage with
foreign pharmaceutical companies’ internal events. When
firms hold their annual staff gatherings, for example, the
insights and perspectives of experienced officials would
hold great value for RA staff, while potentially deepening
essential rapport between GA leaders and local officials.
Within the Chinese government’s oversight of the
pharmaceutical industry, much can also be done to
cultivate support in new quarters. Drug regulation is split
among China’s Ministry of Health, the CFDA, the National
Development and Reform Commission (NDRC), and the
Ministry of Human Resources and Social Security. At
the local level, drugmakers are confronted with similar
layers of bureaucracy as they navigate import procedures
and regulations, taxation, tendering processes, and
labor relations.
GA leaders in foreign pharmaceutical companies should
rigorously examine their levels of access and networks
beyond routine regulatory oversight. While the first
generation of GA leaders in China were more likely to
possess such connections, today’s GA leaders must now
apply themselves to improve this core responsibility.
5 Bring global leadership
and policy experience to China
Managing relationships with a wider array of current
and retired government officials requires a thoughtful,
coordinated GA strategy. Foreign pharmaceutical firms
attempting to improve influence and access without
bringing the full resources of a global organization to bear
are unnecessarily limiting their efforts.
Much of the GA work done in China by MNCs has been
driven locally, however, and companies’ failure to tap into
the experience and insight available in a multinational firm
has hindered support for their efforts. Global leadership
at multinational pharmaceutical firms needs to better
understand and more actively support the efforts of local
GA and RA functions.
Companies can start by making better use of global
executives’ time spent in China. Many of the biggest
global drugmakers send their CEOs to international
economic forums in China, yet far too many hop back
on the plane without meeting national, or even local,
government officials.
Direct engagement with Chinese officials and influencers
is the natural starting point, but much can be done
outside of China too. Numerous exchange programs
between Chinese and American government agencies,
as well as European pharmaceutical agencies, offer
invaluable opportunities to share new opinions about
regulatory issues with Chinese officials and patiently seed
future discussions.
Much of this can be done through global trade
organizations, such as the Pharmaceutical Research and
Manufacturers of America (PhRMA). Representing the
interests of the largest American drugmakers, PhRMA
could more seamlessly convey the concerns and proposals
of multinational drug companies in China as a part of the
group’s existing market education efforts.
Hire the whole package
At its most simple, GA is about business planning and
access to government. The simple view, however, is no
longer sufficient for orienting government affairs in China.
Multinational pharmaceutical companies have run sizable
GA functions for decades, but the experience levels and
skills of the teams have changed.
In the past, the heads of GA were often leaders with
impeccable access to the highest levels of policymaking
because of shared connections among the first generation
of leaders thrust into positions of responsibility when
China opened up. The small leadership pool of the late
1980s and early 1990s meant interconnectedness was
almost assumed among the governmental authorities
and corporate executives. Many GA leaders from that
first generation have since moved on to other pursuits,
opening the way for a new generation. This new
cohort, however, does not generally have the same
level of intrinsic access to government officials as its
predecessors did, in part because industry growth and
the rise of domestic players mean that multinational
8 Building a better government affairs function in China
What makes an effective
government affairs leader in China?
PERSONAL
CHARACTERISTICS
& ATTRIBUTES
Integrity
Unquestionable personal
integrity and moral compass.
Access
Strong ability in accessing
or communicating with
senior-level government
officials through either personal
or professional networks.
Adaptability
High emotional and cultural IQ;
able to relate to, and work with,
“both sides of the aisle.”
Communication
Inspirational and effective
communicator.
Maturity
Respected senior leader
with stature within the
professional community.
LEADERSHIP
SKILLS
Strong mentality to “support”
business growth with creativity,
energy, and passion.
Proven leadership skills or style
in utilizing and motivating a
sizable professional cohort at
both central and provincial
or local levels.
Ability to communicate
plans with various
stakeholders, both internal
and external, effectively.
Ability to carry out plans
through effective leadership,
as an individual contributor
or by leading a team.
INDUSTRY
OR SECTOR
KNOWLEDGE
Strong industry expertise,
in this case the pharmaceutical
and medical device industry.
In-depth understanding of
the structure, practices, and
standard policies of governing
bodies in China.
Ability to understand and
leverage PR and CSR effectively.
Ability to demonstrate policy’s
effects on patients.
Skill in building alliances
with domestic drugmakers.
Ability to bring global
leadership and policy
experience to China.
Heidrick & Struggles 9
Copyright © 2015 Heidrick & Struggles International, Inc. All rights reserved.
Reproduction without permission is prohibited. Trademarks and logos
are copyrights of their respective owners.
T/15/02/JN/TS/127
pharma companies contribute relatively less to the
overall employment and industry investment as they
once did and are therefore no longer “valued” as much.
To compensate, the accompanying skills of the GA team
leader must be that much sharper (see sidebar “What
makes an effective government affairs leader in China?”).
Within global, multifaceted pharma organizations, for
example, leadership integrity is especially valued in GA
team leaders. Recent public relations crises around pricing
and physician subsidies saw the integrity of some firms’ GA
teams exposed. Substantive business skills and access are
vital for GA function heads, but personal integrity must be
the starting point — and must be maintained above all.
Intelligently allocating resources within the GA function
is another vital skill that GA leaders should possess.
Establishing responsible, sustainable structures that
address the needs of such a broad group of stakeholders
(including government officials and internal company
stakeholders) requires exceptional managerial skills.
Running an expanded, energized GA function, and actively
coordinating with PR and RA counterparts, calls for
effective team-building and personnel-management skills.
A high-functioning GA leader should also be a strong
collaborator, able to effortlessly communicate and
coordinate activities and plans with both global and local
stakeholders and thus earn buy-in for future efforts.
A new opportunity
The dynamic and occasionally unpredictable environment
that characterizes China’s pharmaceutical industry calls
for new levels of coordination, leadership, advocacy,
and creativity from multinational firms’ GA leaders. More
than ever, the GA function has an opportunity to make
significant contributions to its colleagues and the industry
at large. Realizing the opportunity will require GA leaders
to coordinate with public relations and corporate social
responsibility programs, demonstrate the effects of policy
changes, build alliances with domestic drugmakers,
cultivate relationships with key opinion leaders, and better
leverage their firms’ own pools of global leadership.
Understanding the ramifications of the “three applications,
three approvals” testing process and adjusting business
plans accordingly has been a top priority for foreign
drugmakers in China since mid-2014, and it will remain an
area of focus for 2015. Smart companies are looking even
further ahead, grounded as they are in the insight that
future business projections rest on better understanding,
and resolving, these fundamental regulatory questions
through the efforts of a much strengthened GA function.
Such efforts can help the pharmaceutical industry find
solutions that meet the needs of both multinational
companies and concerned local governments. Companies
that invest in building strong GA functions will have the
upper hand in navigating the fast-changing market for
pharma in China and can position themselves well for
years to come.
About the author
Jonathan Zhu is a partner in
Heidrick & Struggles’ Shanghai office and
a member of the Healthcare and Life Sciences Practice.
jzhu@
A version of this article appeared in
Pharmaceutical Executive
Healthcare
& Life Sciences Practice
Heidrick & Struggles’ Healthcare and Life Sciences Practice helps leading
organizations in these sectors align their talent strategies and business objectives
to foster innovation and enable growth in a fast-moving, rapidly changing world.
Companies in the healthcare and life sciences sectors contend with ever-changing technology, patient
populations, markets, pricing, and regulatory environments. Their leaders must have the competencies
required to lead all aspects of the business, while understanding the value of innovation and the relevance of
science. With more than 80 professionals in major cities around the world, our Healthcare and Life Sciences
Practice team combines unparalleled search resources with a deeply consultative approach to help clients
boost their leadership capabilities.
We have expertise across all sectors in the healthcare and life sciences sectors, including biotechnology,
healthcare services, managed care, medical devices and diagnostics, pharmaceuticals, research and
development, and contract research.
Working closely with a broad range of clients ranging from start-ups to global public companies and
healthcare organizations, Heidrick & Struggles identifies succession issues, considers team composition, and
taps nontraditional talent pools. We advise and recruit in the context of an organization’s culture. We partner
with our clients to find leaders who can align and integrate the interests of complex stakeholder groups,
build their organizations, and demonstrate shareholder value year after year.
John Mitchell
Global Managing Partner
jmitchell@
Andrew Macleod
Regional Managing Partner
EMEA
amacleod@
Charles Moore
Regional Managing Partner
APAC
cmoore@
P/HLS/15/01
Leaders of Heidrick & Struggles’ Healthcare and Life Sciences Practice
Heidrick & Struggles is the premier provider of senior-level executive
search, culture shaping, and leadership consulting services. For more than
60 years we have focused on quality service and built strong relationships
with clients and individuals worldwide. Today, Heidrick & Struggles’
leadership experts operate from principal business centers globally.
T H E L E A D E R S H I P C O M PA N Y ®
T H E L E A D E R S H I P C O M PA N Y ®
WE HELP OUR CLIENTS
CHANGE THE WORLD,
ONE LEADERSHIP
TEAM AT A TIME™
HS15/01
