When thinking about traditional Chinese medicine (TCM), one might assume China to be the biggest producer. However, the surprising truth is that China only accounts for 5 percent of the production of TCM. Meanwhile, countries like Japan and South Korea produce nearly 80 percent, beating China by a large margin. And Japan-based Tsumura & Co. recently entered into a partnership with a Chinese business, planning to become the biggest supplier of TCM in China.
Partnership with Ping An Insurance Group
China’s Ping An had secured a 10 percent stake in Tsumura in 2017. And this year, they set up a joint venture together, with Tsumura contributing 56 percent of the US$158.2 million pumped into the business. The JV plans to set up a research facility by 2020 in order to improve the drug-making operations of Tsumura.
Currently, the joint venture aims to carry business operations related to “analysis and research focusing on traditional Chinese medicines, and to traditional Chinese medicines, health foods, and healthcare-related daily necessities, and other operations and markets,” Nutra Ingredients Asia quotes a statement released by Tsumura.
Tsumura reportedly accounts for 80 percent of Japanese TCM sales in China. However, China only accounts for 0.1 percent of the company’s total sales as of now. It expects the JV with Ping An to boost the sales figures to bring in significant profits over the next 10 years.
Considering that Ping An operates an online chat service and a number of clinics that connects 60,000 doctors to more than 250,000 patients every day, experts believe that Tsumura made a smart move aligning with the Chinese company.
“We will take advantage of big data, artificial intelligence, and other technologies to bring about innovation in the Chinese market,” the Nikkei Asian Review quotes Tsumura President Terukazu Kato.
Capitalizing on Chinese demand
China’s demand for TCM is considerably huge and was estimated to be worth US$130 billion in 2016. Traditional medicine reportedly accounts for one-third of China’s medical-industrial output. The country also passed a law last year that stressed on promoting TCM. Tsumura sees such developments as a guarantee of future growth.
The Chinese seem to have a very high demand for Japanese manufactured TCM, largely thanks to the standardized, high-quality manufacturing processes that Japanese companies like Tsumura follow.
Both Japan and South Korea have been aggressively looking to dominate the Chinese market that they together hold almost 70 percent of TCM patients. In contrast, China only has 0.3 percent patents of its own traditional medicine.
Domestic herbal plant sites
Tsumura currently owns around 70 herbal planting sites in China, which is a huge number when taking into account that the biggest Chinese TCM manufacturer, Tongrentang, only owns 8 such sites. The Japanese firm used to import raw ingredients from China to produce the medicines.
However, Tsumura has started to set up plant sites in Japan itself in order to source ingredients locally rather than importing them from China. While this would give the company a cost advantage, a bigger benefit is in the form of tighter production control.
Having plant sites in Japan allows Tsumura to ensure a stringent, streamlined production process for its medicines, right from the planting of the herbs to the final output. Tsumura has set an ambitious sales target of US$1.5 billion in China by the year 2027.