Business operating plans for FDI enterprises in pharmaceutical business activities in Vietnam

Pharmaceuticals are an essential industry and have a special influence on human life. Conditions impacting the pharmaceutical industry’s development include increased average income, population and urbanization rate. Until now, Vietnam has been one of the countries with the above conditions converging, attracting investment from FDI enterprises choosing to enter the market. However, the pharmaceutical industry is one of the specific industries. According to current legal policies, FDI enterprises are allowed to exercise the right to import but do not have the right to distribute in Vietnam. This article will not cite why investors should choose to do business in this field because whether to invest will be decided based on a long-term process/plan, such as research on market demands, identifying its competitive advantages, benefits compared to domestic products. Instead, this article aims to propose plans for FDI enterprises to face the limitations of market entry conditions according to Vietnam’s current legal policies. From there, FDI enterprises can consider, evaluate and choose business plans that satisfy their goals and demands.  

1. What is pharmaceutical distribution? 

Pharmaceuticals are drugs and medicinal ingredients. In which: 

Drug means a preparation that contains active ingredients or herbal ingredients used for prevention, diagnosis, treatment, alleviation of diseases in humans, regulation of human physiological functions, including modern drugs, herbal drugs, traditional drugs, vaccines, and biologicals. 

Medicinal ingredient means an ingredient incorporated into the drug which may be an active ingredient, herbal ingredient, excipient, or capsule shells used during the manufacture of drugs. 

Specifically:  

From the perspective of consumers, consumers may only know the term drug because this is a finished product that consumers buy to treat diseases. However, in business activities, FDI enterprises must determine very clearly the type of product they want to trade, whether it is trading in drugs or medicinal ingredients or both. 

As mentioned in the introduction, FDI enterprises have the right to import but do not have the right to distribute pharmaceuticals in Vietnam. Thus, the limitation of distribution rights for FDI enterprises will be the distribution rights for drugs and medicinal ingredients. 

Drug distribution is the activity of dividing, moving, and preserving drugs during the process of moving from the warehouse of the drug manufacturer, drug importer, or from the distribution facility to the user or distribution points or between distribution points using different means of transportation. 

2. Policy regulations restricting pharmaceutical distribution rights of FDI enterprises in Vietnam 

Considering the market entry conditions, it is impossible not to mention the WTO Commitment Schedule. On January 11, 2007, Vietnam was recognized as the 150th member of the World Trade Organization (WTO). In addition to general commitments, distribution services are one of the sectors covered by 11 specific commitments. Accordingly, in the commencement section of the Distribution Services in the Schedule of Commitments, it is stipulated as follows: 

“Cigarettes and cigars, books, newspapers and magazines, recorded items, precious metals and gemstones, pharmaceuticals (excluding non-pharmaceutical nutritional products in the form of tablets, capsules or powder), explosives, crude oil and processed oil, rice, cane sugar and beet sugar are excluded from the scope of commitment.” 

The exclusion from distribution services is one of the industries with a relatively sensitive nature, and the establishment of barriers can be seen as a protection mechanism. Protect the balance and harmonious development between domestic and FDI enterprises. Especially in the pharmaceutical field, products impact consumers’ health, so specific management is required in accordance with the law. 

Besides WTO regulations, other legal documents also have relevant regulations on pharmaceutical distribution rights, specifically: 

Based on the above legal regulations, distribution activities and other activities directly related to distribution will be restricted. Except for the case of drugs and medicinal ingredients produced by their facilities in Vietnam, FDI enterprises have a very high possibility of having to use the transportation and storage services of the drugs and medicinal ingredients of Vietnamese enterprises. 

This is a challenge and an opportunity for FDI enterprises and domestic enterprises. Specifically, FDI enterprises can focus on research and product development. Distribution will be executed via a distributor with an effective distribution system that takes advantage of a wide distribution network, saves transportation costs, and has reasonable and competitive pricing policies. On the contrary, FDI enterprises must consider choosing a reputable distributor, as the expense of hiring/cooperating with distributors and drug storage is not humble. Enterprises operating in the field of pharmaceutical distribution and storage must meet business conditions according to legal regulations. 

3. Business operating plans for FDI enterprises to deal with the “barrier” 

Identifying market entry restrictions will be the foundation for FDI enterprises to find opportunities that suit their business goals and financial capabilities. Under the current policy of restricting distribution rights, FDI enterprises can consider: 

• Establishing a pharmaceutical factory in Vietnam; or 
• Registering drug circulation and importing drugs to Vietnam. In which: 
  • FDI enterprises will register drugs and hold their name on the Market Authorization; and 

FDI enterprises will select a distributor that fulfills the conditions prescribed by law to represent/cooperate in distribution. Specifically: 

(i) Conditions of drug-importing enterprises 

• Be established and operating with an appropriate business line to import drugs according to the business registration and investment registration (if it is a foreign-invested enterprise). 
• The enterprise must have a Certificate of eligibility for drug business (Scope of drug import and export). 
• The enterprise is granted “Good Storage Practices” (GSP) certification.

(ii) Conditions of drug distribution enterprises 

• Be established and operating with an appropriate business line to wholesale drugs according to business registration. 
• The enterprise must have a Certificate of eligibility for drug trading (Scope of wholesale drug export). 
• The enterprise is granted “Good Distribution Practices” (GDP) certification.  
• If the business imports and distributes, the above licenses must fully demonstrate the functions of importing and distributing drugs and must have GSP and GDP. 

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