26/03/2024
Recent years have seen major upheaval for the global economy due to various factors - including covid, the Ukraine war and increased geo-political/trade tensions between the U.S. and China. These situations are now having a knock-on effect on pharmaceutical companies' chemical sourcing strategies, with many looking to make a move away from a reliance on Chinese chemical manufacturers and suppliers.
But why is this making such an impact?
China is - and continues to be - the largest global chemical manufacturer and exporter of raw materials for the pharmaceutical and chemical industries.
A long history of investment in technology & infrastructure combined with a large, skilled workforce in chemistry and chemical engineering has seen China become the dominant player in the global chemical industry. Factoring in the historically low costs of production has meant that it has maintained an economic advantage in global chemical export.
China manufactures the whole gamut of chemicals from basic chemical components such as methanol, ammonia and ethylene to high value products for pharmaceutical development and manufacturing such as API’s, advanced intermediates and peptides. China also has an abundance of drug development companies carrying out custom synthesis and other development work for a global client base - including those companies that have grown from small companies to become major global players.
Despite this, within the pharmaceutical development industry, we are starting to see a strategy - primarily from U.S. companies - to avoid sourcing chemicals from China and to look to other chemical markets to remove China from their supply chains.
The escalating trade tension between the U.S. and China started during the Trump presidency in 2018 when increased tariffs were placed on Chinese imports into the U.S., which have continued during the Biden presidency.
Although tensions between China and the U.S. have cooled a little with Biden at the helm, there is still significant tension between the respective superpowers in areas of geo-politics and trade. Increased uncertainty of what the future holds for these relations could affect supply chains in the future.
To reduce the impact of future events between the two countries negatively affecting supply chains - such as a potential second Trump presidency which could mean even heavier tariffs on Chinese imports to the U.S. - many companies are looking to avoid sourcing from China altogether.
Within the U.S. government, there is also a desire to remove the overreliance on imported critical medicines from China and other countries, to ensure that the supply problems experienced with API’s, medicines and PPE during the pandemic can be avoided in the future.
The American Made Pharmaceuticals Act introduced in 2022 is seeking to remove dependence on foreign countries for pharmaceuticals by boosting production in the U.S. and creating federal incentives to onshore manufacturing of essential medicines. All of which is having a bearing on future supply chain planning.
While there are strong incentives in the U.S. to remove dependency on China for pharmaceutical supply chains, the trend to move away from sourcing from China is also being seen in Europe, which undoubtedly shares the same political concerns as the U.S. Considering the interconnection of U.S. and European, many multinationals will look to adopt similar global sourcing strategies.
The perceived threat of intellectual property theft has also become more prominent recently, with warnings from Western intelligence agencies of increased levels of IP theft and cyberespionage being blamed on China.
Finally, the trauma of the disruptions to supply chains caused by Covid are not easily forgotten by companies who were involved with sourcing materials from China during the pandemic.
In 2022, after most of the world was coming out of the pandemic and looking to return to a sense of normality, Shanghai went into a hard lockdown for several months, during which time many companies were forced to completely shut down operations.
The move away from China has resulted in Western companies increasingly looking towards India for their supply of raw materials, intermediates and API’s. Whilst India has historically had a very strong API market - especially in supplying generic medicines but now with the turn away from China - the Indian pharmaceutical market is forecast to grow from $65 bn by 2024 to $130 bn by 2030.
Historically, when sourcing intermediates and APIs from India, many of the raw materials have come from China. So will India really remove the dependence of supply chains on China?
Already, we are seeing an increased move by Indian manufacturers to move more of their supply chains to India, bringing more steps of their manufacturing process into India and away from China and reducing their exposure to Chinese supply chains.
Despite the move away from China's chemical sourcing by some companies in the pharmaceutical industry, China will remain a key source for many pharmaceutical raw materials, intermediates, and API’s. Even moves towards Indian sourcing will not completely remove the reliance on China, but chemical sourcing from China can be conducted with greater due diligence and fall backs in place in order to mitigate against any future events.
At FB Pharmtech, we have worked with a close network of trusted Chinese partners for many years and envisage a future continuing to work with them in order to provide our customers high quality products, at an attractive price, combined with excellent service.
However, as well as sourcing from China, we also have a proven track record of successfully sourcing intermediates and APIs from trusted partners in India.
With these resources at hand, we can support our China chemical sourcing with additional sources from our Indian partners. We continue to help our customers access products and manufacturers in the Indian market, whilst de-risking from the Chinese market, if that is the strategy they choose to follow.