How to navigate digitization in healthcare in China

Julien Legrand / Yenching Scholar & Mines ParisTech Engineer / 2016-09-02

The Chinese healthcare system is facing numerous challenges, which means great opportunities for those western players in the industry who have relatively mature solutions and experiences to offer. However, when looking at the size of China and its current infrastructure gap, one can easily understand that what worked in a constellation of small European states that have been through several industrial revolutions one step at a time over three centuries is unlikely to work in a populous country that went through everything in less than 50 years. Instead, the country is increasingly designing its own way, fully leveraging the power of digitization to bridge the gaps.

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The Chinese healthcare system is facing huge challenges. On one hand, there’s a greying population, multiplying chronic diseases and poor health literacy. On the other hand, there are too few qualified doctors working in overcrowded top tier hospitals, while lower tier institutions are deserted. This leads to increasing tension between doctors and their patients, regularly triggering aggression toward doctors and their medical staff. Digitalisation of the healthcare system is one way to alleviate the pressure, and the Chinese government understands this very well. In its 13^th five-year plan, as well as in its recent and more focused “Internet+” initiative, it pushes a digital transformation of the industry. As a result, different players are rushing in to get a share of a market that should be worth USD 110 billion by 2020, as estimated by BCG.

However, the fight to secure that share is going to be a ferocious one. There are large incumbent players that are strong in financial power and industry expertise but unfamiliar with the challenges of digitization. There are fast-growing internet companies that understand the value of data but don’t really know the industry they are entering. And then there are agile and adaptable start-ups that are able to explore business models suitable for a digitized health system, but lack the money and networks to make their vision come true. This article aims to provide guidance to the first category of players, and more specifically, multinationals. How can those actors thrive in a digitizing health industry?

As mentioned, the Chinese healthcare system is facing numerous challenges. Solutions that could be expected are those that have already been tested and approved by western multinationals in their home countries. In this scenario, China would purchase their products and services to gradually improve the current system while hoping to achieve cost reduction, either through localization of production or economies of scale. However, when looking at the size of China and its current infrastructure gap, one can easily understand that what worked in a constellation of small European states that have been through several industrial revolutions one step at a time over three centuries is unlikely to work in a populous country that went through everything in less than 50 years. Instead, the country is increasingly designing its own way, fully leveraging the power of digitization to bridge the gaps. This is the actual goal behind the “Internet+” program launched by Premier Li Keqiang: combining internet with traditional industries to give birth to tomorrow’s economy, in which China aims tobe a global leader. And this has three direct consequences for the way multinationals should address the Chinese digital health market.

The first is that the Chinese healthcare system will not follow a western-like pattern of development: there will be leapfrogs.Digital is being fully leveraged by local competitors, offering patients alternatives to a traditionally painful user experience. To solve the problem of endless queuing times at the hospital, Baidu Doctor, WeDoctor or Haodaifu will help you get an appointment. To help you pay more quickly and easily, Alipay, WeChat Pay or Qiyuan provide you with e-payment solutions. Purchasing prescription drugs after a consultation has also never been so easy, thanks to Alihealth, Yiyao or Yapingguo. They will deliver them directly to your place. Last but not least, PingAn accelerates the speed at which you get your medical fees reimbursed, thanks to its “Good Doctor” app. Note that those are not already mature solutions in developed countries. Innovations like home drug delivery actually might never appear in European countries, where e-commerce still has low penetration and it is still very convenient to just go to the local pharmacy. Consequently, multinationals can no longer simply take their best-sellers from their home market and “localize” them to suit Chinese needs. They will increasingly have to develop local solutions and take into account those leapfrogs, or else see their products increasingly become inadequate for the local infrastructure. Consequently, it will become more and more challenging for headquarters to design strategies from their home countries for the Chinese market. Strategy, or at least innovation, will need to be thought of locally.

Second, digital will develop locally.China protects its digital industry through stringent policies. They enabled local digital champions to emerge by forcing western companies to remain outside of the local market. Furthermore, Chinese have distinctive ways of using the internet compared to Europeans and Americans: mobile first, e-commerce is the norm, not the exception, etc. This poses huge obstacles for foreign companies to establish a presence in China. This was the case for eBay a decade ago (facing Alibaba), Google five years ago (facing Baidu) and it is the case forUber today (facing DidiChuxing). Therefore, not only is a local design needed but also an integration with local platforms: e-commerce is done through Alibaba or Jingdong; socializing and reaching out to customers is mostly done through WeChat and Weibo, etc. They offer access to a large user base just a few clicks away. Multinationals might be reluctant to do so because they usually think that they could develop their own platform and are afraid of nurturing a potential future competitor. There are two arguments against this: First, given the resources needed for the development of such a platform and the huge associated culture shift, developing platforms needs to be part of the company’s core business. Second, even if it managed to do so, the platform would most likely be fit for the European and/or American markets only. Could you really be successful where eBay, Google, Uberand so many others were not? Instead, it is much better to integrate local platforms into your local strategy, as they are the best gateways to Chinese users.

This leads to the third consequence, which is the necessity to see the company not as a unique link between a need and a solution, but rather, as ecosystems composed of platforms nurturing modules.Such ecosystems have very interesting dynamics, in which modules can turn into platforms and platforms into modules. Let us have a look at an example here: When WeChat created its electronic wallet, it was supposed to be only a module of its already successful instant messaging app (the initial platform). But it turned out to be an incredible way to deliver a much larger array of services, from sending hongbao (red envelopes) to ordering a taxi (DidiChuxing); from buying through chat (Weidian) to booking a consultation at a nearby hospital (Weiyi). WeChat’s electronic wallet turned into Tencent’s strategic platform to build its Big Data strategy, gathering data from all these services, among which WeChat was just one among others, to deliver more and more value to its users. The initial module turned into a platform and the initial platform turned into a module. This is actually a very common phenomenon when digitization happens: mobile phones used to be a platform where the OS was only a module (before Android), search engines used to be only a module of portals with much wider missions (before Google), until now, chatting was only one subpart of e-commerce but it is now changing with actors like Tencent or Facebook envisioning a new generation of e-commerce done through chatting only. Multinationals can exploit this dynamic to their advantage by developing their own platform from a position of module within Chinese platforms. They mostly need to understand the ecosystem they evolve in, both to create value for the platforms they are building from – so that they won’t try to shut you down – while creating value for themselves, as well as for the modules they want to nurture when creating their own platform. Finally, in a digitizing environment, it should be noted that “value” is often synonymous with data: companies need to find proper ways to collect and share it so as to create an attractive ecosystem delivering value to the above-mentioned stakeholders, as well as to the final user.

The three words introduced in the three previous paragraphs need to be integrated into multinationals’ strategies to turn the potential of a digitizing the health market into a reality: leapfrog (they need to be identified), localisation (products and services need to be offered through the local digital infrastructure), and ecosystem (“win-win” open partnerships aiming at creating your own platform). Interestingly enough, Axa seems to have made steps in this direction recently. Taking into account that China was massively leapfrogging, it decided to localize innovation capacities, with teams specifically in charge of digitization in China for China. In an effort to localize, they signed a partnership with Alibaba and Ant Financial to sell insurance through their platforms. And, so as to build their local ecosystem, they have set up a local lab with the mission of looking for promising start-ups to invest in.