Pharmaceutical Tendering In Vietnam



Last year, my firm wrapped a research project in Vietnam. Led by Damjan Denoble, its primary focus was on how Vietnam’s pharmaceutical market was developing, with particular attention to structural changes around distribution and public hospital tenders, and how these changes were impacting MNC pharma. The research report is available now, and has some interesting findings, particularly around how the tendering process is shaping up.


There are a handful of markers that signify the evolution of an emerging economy’s healthcare system. One is a broad increase in public sector spending on healthcare writ-large. The second is how additional healthcare money is spent, and the processes used to attempt and best prioritize a limited but growing government spend. One of the earliest structural reforms that attempts to address the latter is the inevitable development of a tendering process, specific to pharmaceuticals sold to government-run hospitals.


Most of the time in emerging economies such as Vietnam, these tenders begin with the most basic medicines (termed an “essential drug list” or “EDL”), and reflect what the WHO has established as an ideal formulary government hospitals should have on-hand. These are very basic medicines – in fact – when I was in Myanmar several of the medicines on the list the government was then using were so old no manufacturer could be found (and, in fairness, this disconnect could also have had to do with the age of the WHO essential drug list the Myanmar government was using at that time).


These public tendering processes are necessary, and reflect what you might think of as early stage “best practices” from the point of view of a government bureaucrat; however, many times they are unevenly implemented, used to carve out preference for domestic distributors, rife with non-compliant behavior, and focused on cost above anything else. Consequently, as hospital tenders become more important to a MNCs strategy in a healthcare economy such as Vietnam, the importance of local relationships and distribution networks grows.


Why is this? Well, for one, the best intentions around public tendering for hospitals many times amounts to in practice a list of medicines printed out and stapled to a bulletin board in the hallway of a public hospital. The list has the required date for the tender to be priced by your team, and the submission process. If your sales team is not physically in the hospital making regular contact, chances are you are going to miss the tender. Yes, some public tenders are more sophisticated, but in a country like Vietnam, you cannot rely on top-level guidance or promulgated regulations; you have to have extremely competent local distributors able to proactively navigate these environments.


I found what Damjan knit together after his time in Vietnam to be quite interesting. Specifically, that for public health and financial officials in the country, the public hospital tendering process is essentially a way for them to learn what MNCs will and will not respond to, and what policies have the biggest impact on access and affordability, or as Damjan called this, “a public learning process.” He added, “Currently, the tender process has become chaotic, with multiple policy changes having been announced over the past three years. Changes in policy are frequent, not transparent, input from industry is not solicited, and the policies themselves compete with the goals of Vietnam’s Vision 2030. The process can best be seen as a public learning process. Changes in policy direction are a signal that tender process designers have learned that something does not work as intended.”


As with what has happened in China, as top-line growth levels out in the largest cities, MNC pharma companies find they have to start hunting for revenue, which inevitably means going into more rural markets. Damjan pointed out, “Within the past three years, with renewed regulatory focus on the pharmaceutical industry, the rumored revision of device importation laws, and palpable saturation of urban markets in the big cities, companies have started to think about a more carefully thought out, strategic approach to expanding into less accessible markets in the provinces.” This approach makes a lot of business sense, but MNCs have to keep front of mind that compliance risk goes up, and dramatically so, as they expand from the largest metropolitan areas of a country like Vietnam into smaller, less regulated, and more cost-sensitive geographies.


The public tendering process typically evolves, as it has in Vietnam, to ultimately drive economic development policies as well. This is starting to happen in Vietnam in what has been called the Vision 2030 document, which is an attempt to create a domestic pharmaceutical manufacturing sector in country. This presents more of a threat to Chinese, Indian, Thai and Indonesian pharmaceutical manufacturing companies, as their products tend to be the lowest hanging fruit of such a policy.


Such an evolution deserves to be seen as an important signal that an emerging economy is emerging from an unsophisticated and income-deprived time and can now consider more complex industrial development policy. While this may be seen at first glance as a challenge to MNCs, it also increases the likelihood that a viable and sustainable economy, with its own middle class, is in the midst of its own emergence, an extremely important stage of development.

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