In 1997, there were over 17,000 distributors operating in China, channeling medicine to hospitals, retail pharmacies and stores. In a bid to ensure higher quality and efficiency, MOH forced this distribution network to consolidate to roughly 6,000 companies. Within five years, it hopes to create 45-50 large distribution groups that would handle 70 percent of all sales in China. Foreign firms must use these distributors, but as the distributors are not exclusive agents, they do not promote the products. Instead, the distributors simply take orders from hospitals and retailers. As more products flood the market, the power of distributors increases, with the result that they tend to direct orders to drugs with the highest profit margins. To survive, pharmaceutical companies must either offer more lucrative margins, or create market pull by generating consumer demand for their products.
