Global Trade Wars and Innovation Shake Up the Life Sciences Industry

In 2024, the worldwide life sciences sector is moving away from peak globalization. The Asia-Pacific region, especially China and Japan, is expected to see significant growth. China is focusing on advancing national interests and technologies, while Japan maintains a high level of trade openness. This trend is contributing to evolving global trade patterns, which are shifting towards shorter supply chains and more government involvement. Meanwhile, the US-China tech wars are having an impact on both the medtech and technology sectors. Consequently, companies are increasingly focusing on collaborations to drive growth. Many are adapting by moving towards global function management and expanding into emerging markets. A report by Deloitte explores how life sciences and medtech companies are adapting to a shifting global landscape, where traditional globalization declines and glocalization drives changes in trade, manufacturing, and R&D, with countries like China and the US playing key roles, while talent attraction and retention strategies remain critical.

US-China Tech Rivalry Shakes Medtech, Semiconductors, and Biotech

The ongoing US-China tech rivalry is increasingly impacting the medical technology (medtech) and semiconductor industries. In 2024, the US medical device market is projected to generate $182 billion in revenue, while China’s market is expected to reach $36.38 billion. The US leads as both the top exporter and importer of medical instruments, while China ranks fourth in imports and fifth in exports. Both China and Japan are major exporters of semiconductor devices, which are vital for therapeutic medical devices. However, China has seen sharp declines in semiconductor imports, and both countries face export restrictions from the US on high-end chips. This geopolitical tension has triggered strategic shifts in the semiconductor market, with China pushing for self-sufficiency through domestic production and advanced research and development.

Additionally, the US and China remain deeply intertwined in biotechnology, with increasing scrutiny of foreign investments. The Committee on Foreign Investment in the United States (CFIUS) is intensifying its oversight of Chinese investments in US biotech, particularly those involving critical technologies or sensitive data. This heightened scrutiny may impact multinational companies (MNCs) operating in both countries. Consequently, MNCs are urged to closely monitor policy shifts and adapt their strategies accordingly.

Asia-Pacific Poised for Life Sciences Growth Amid Shifting Global Trade Dynamics

The Asia-Pacific region is set to drive significant growth in the life sciences sector in 2024, with China and Japan playing central roles. However, each country is taking a different approach. China is focusing on national interests and advancing domestic technologies, while Japan maintains high levels of trade openness. This divergence is shaping global trade patterns, leading to a shift toward shorter supply chains and more government involvement. The ongoing US-China tech wars are also disrupting the medtech and technology sectors, pushing companies to adapt. Collaboration and innovation have become key growth drivers, while businesses are increasingly adopting localization strategies to tackle talent competition and ensure sustainable growth.

Despite concerns over deglobalization, international trade continues to show resilience. The World Trade Organization (WTO) is closely monitoring these evolving trends, with global trade volume expected to rise by 3.3% in 2024, following a dip in 2023. Growth varies by region, with the rise of “glocalization”—a blend of globalization and localization—reshaping trade. This trend emphasizes shorter supply chains, a resurgence in domestic manufacturing, and greater government intervention, all of which are contributing to the changing dynamics of global trade.

China and Japan Navigate Shifting Trade Dynamics Amid Global Economic Challenges

China remains the world’s leading exporter but may be nearing its peak. Between the end of 2022 and 2023, exports dropped by 3.39%, primarily due to a significant decline in trade with the US. Despite this, China’s main trading partners are the US, Vietnam, South Korea, and Japan. Moreover, China is increasing imports, with the US, South Korea, and Australia as major partners. China’s economic growth focus is shifting toward becoming a high-income economy, prioritizing quality growth over GDP expansion.

Meanwhile, Japan, the third-largest economy globally, conducts a quarter of its trade with China. In 2022, Japan’s exports rose by 4.1%, surpassing pre-pandemic levels. Japan’s pharmaceutical market plays a significant global role, importing more than it exports. The US is a major exporter to Japan, while China’s pharmaceutical trade is more balanced. Both the US and China rely on each other for pharmaceutical products, with the US exporting semi-finished goods and China supplying active pharmaceutical ingredients (APIs). Despite ongoing challenges, including trade barriers with US companies, the two countries maintain substantial pharmaceutical trade ties.

Adapting to China’s Evolving Market Landscape: Challenges and Strategies for MNCs

Despite geopolitical tensions and regulatory challenges, many multinational pharmaceutical and medtech companies continue to operate in China. The size of the Chinese market remains attractive, driving firms to adjust their business models. Pharmaceutical companies, in particular, are coping with price cuts and shifting internal priorities. The medical device market is also growing, with companies like Medtronic reporting stronger-than-expected recovery in procedure volumes. However, multinational companies must navigate China’s anti-corruption efforts and evolving regulatory changes, which could significantly impact their operations in the healthcare and pharmaceutical sectors.

Operating in China presents various challenges, especially with increasing local competition. Issues like intellectual property disputes, forced technology transfer, and market access barriers remain persistent obstacles for foreign firms. Since the introduction of the “Made in China 2025” strategy, China has aimed to capture a larger share of global biopharma and medical device markets. To succeed, multinational companies must adopt focused strategies. They should align global leadership teams with local management to address the unique challenges of operating in the Chinese market.

Divergent Approaches Driving Innovation in Life Sciences

China and Japan’s contrasting strategies in the life sciences sector highlight the diverse paths to innovation. While China prioritizes national technologies and domestic interests, Japan embraces international trade and open innovation. The sector faces multiple challenges in 2024, including pressures on drug and device pricing, the need for effective localization, and the competition for talent in a globalized workforce. To overcome these hurdles, companies are focusing on collaborations, efficient global function management, and expanding into emerging markets. The Asia-Pacific region remains pivotal, with both China and Japan poised to lead the charge in driving growth and innovation in the life sciences sector.

Author

Bernice Lottering