According to statistical data, the pharmaceutical sector in Vietnam is currently experiencing the fastest growth rate in the Asian region, with a growth rate of approximately 14.6% from 2010 – 2015 and projected to maintain at least 14% growth until 2025. Additionally, due to the impact of the aging population trend and a significant rise in per capita income, healthcare has increasingly become a top concern for many people.
These factors have turned the Pharmaceutical industry into the hottest field today, with the participation of numerous domestic and foreign enterprises, corporations, and major brands. So, what are the components involved in the distribution system of the Pharmaceutical sector in Vietnam?
I. The Role of Distribution in the Pharmaceutical Industry
In the pharmaceutical business, distribution channels facilitate the timely and comprehensive delivery of drugs from manufacturers to end users, satisfying usage needs optimally.
Distribution channels play a pivotal role in drug consumption. Additionally, they have a significant impact on the pricing of products. To devise an effective marketing strategy, businesses need to identify distribution channels that align with the current conditions.
Specifically, the roles of distribution channels extend to pharmaceutical manufacturers and consumers:
1) For Manufacturing Businesses:
- Establishing credibility and building the brand for the enterprise.
- Gathering information and effectively exploiting market potential to mitigate threats from competitors.
- Creating relationships with customers through intermediaries such as hospitals, pharmacies, etc.
- Assisting businesses in customer care and impacting production through quantity, quality, and drug efficacy.
2) For Consumers:
- Instilling trust in the product for customers.
- Ensuring timely and effective treatment for patients.
- Through distribution channels, customers can easily share their experiences with the drug’s effects.
As a result, foreign businesses can swiftly understand needs and enhance their products.
II. Participants In The Pharmaceutical Distribution Matrix
In most countries, pharmaceutical manufacturers and distributors are usually independent entities aiming to specialize, but in Vietnam, the pharmaceutical distribution system has a rather complex structure and the involvement of multiple parties. Specifically, the pharmaceutical distribution system in Vietnam involves the participation of several main components:
- State-owned pharmaceutical distribution enterprises: Pharmaceutical Company TW1 (CPC1); Pharmaceutical Company TW2 (Codupha), Dong A Pharmaceutical…
- Private pharmaceutical distribution enterprises: Do Thanh Pharmaceutical, Dong Do Pharmaceutical…
- Foreign pharmaceutical distribution enterprises: Diethelm Keller Siber Hegner (Switzerland), Zuellig Pharma (Singapore), Megalife Science (Thailand)…
- Pharmaceutical companies involved in both production and distribution: Traphaco, Sao Thai Duong, Hau Giang Pharmaceutical, Domesco…
- Wholesale market system
- The public and private hospital system
- Pharmacy system
- Private clinic system
According to statistics from 2015, the three largest wholesale pharmaceutical distributors in Vietnam were Zuellig Pharma, Diethelm Vietnam, and Mega Product, holding a combined market share of 40%. Furthermore, there were over 304 other foreign distributors operating in Vietnam, along with around 897 domestic distributors capturing the remaining market share.
However, in practice, the most dominant element controlling drug distribution in Vietnam is the wholesale market system in Ho Chi Minh City (To Hien Thanh Market and Ly Thuong Kiet Market) and Hanoi (Ngoc Khanh Market and Lang Ha Market). This is a unique organizational model found only in Vietnam. For instance, at To Hien Thanh Market, there are more than 270 pharmacy stalls operated by over 140 officially registered companies. In addition, there are more than 300 unofficial suppliers, including multinational pharmaceutical corporations from the US, UK, France, Germany, South Korea, etc. (such as Zuellig Pharma, Diethelm Vietnam, and Mega Product), along with over 800 domestic distributors. On average, there are more than 5,000 transactions per day, providing medicines to pharmacies, hospitals, and clinics.
III. Drug Distribution Model
According to a report on the pharmaceutical industry by analyst Hoang Hieu Tri, to bring medicines to consumers, they go through the following pathways:
1) Legitimate Imported Medicines (Blue Arrows):
Import -> Distributor or Imported Distributor (Foreign or Domestic) -> Hospital Tendering -> Patients
Import -> Distributor or Imported Distributor (Foreign or Domestic) -> Pharmacy/Clinic -> Patients
Import -> Distributor or Imported Distributor (Foreign or Domestic) -> Wholesale Market -> Pharmacy/Clinic -> Patients
2) Locally Manufactured Medicines (Green Arrows):
Manufacture -> Tendering -> Hospitals -> Patients
Manufacture -> Pharmacy/Clinic -> Patients
Manufacture -> Wholesale Distributor (Foreign or Domestic) -> Wholesale Market -> Pharmacy/Clinic -> Patients
Manufacture -> Wholesale Market -> Pharmacy/Clinic -> Patients
3) Low-Quality, Counterfeit, Smuggled Medicines (Orange Arrows):
This group of medicines primarily flows through the wholesale market channel before being distributed to pharmacies/clinics or sold directly to consumers.
It’s important to note that the color-coded arrows represent different distribution pathways for different types of medicines in the pharmaceutical industry in Vietnam.
IV. Drug Retail Channels
1) Hospital Channel – ETC (Ethical Drugs):
This is the main channel that both pharmaceutical manufacturers and distributors aim for. This is due to several reasons:
- Largest consumption in the channels: Patients don’t have the authority or enough knowledge to choose medicines based on prices. Everything relies on treatment protocols and doctors’ instructions.
- Efficient and rapid promotional channel with the fastest dissemination if trusted by doctors.
- For end-line hospitals in Hanoi and Ho Chi Minh City, this is the last hope for patients with serious illnesses.
Thus, not only the demand for specialized medicines is high, but the prices are also quite high.
2) Pharmacy Channel – OTC ( Over The Counter):
The most common drug distribution channel in Vietnam with over 55,000 private pharmacies. This is usually the first choice for people when they fall ill due to convenience and the habit of using common medicines. Although this channel currently accounts for just over 30% of retail sales, it will surely increase as the shift from ETC to OTC occurs. Recognizing the importance and attractiveness of this distribution model, many enterprises are investing in opening GPP-standard pharmacy chains with advantages like:
- Ensuring quality with the clear origin of pharmaceuticals and invoices.
- Generally, unified and competitive prices don’t pass through multiple distribution layers.
- Patients are advised on medicine use directly in the pharmacy by pharmacists with GPP-standard certification.
- Modern facilities with strict room regulations.
3) Private Clinic Channel:
Currently, there are over 35,000 private clinics nationwide, a number continuing to grow rapidly over the years, mainly concentrated in Hanoi and Ho Chi Minh City. This is a significant link in drug distribution because:
- Most of the clinic managers are doctors from large hospitals.
- The demand for private clinic visits is increasing as large hospitals can’t meet the demand.
- Modern facilities, advanced equipment, and good service quality, whereas public hospitals face challenges in this aspect.
It’s evident that there are numerous pathways to deliver medicines to consumers (patients), with ETC and OTC channels still dominating. As regulations on drug distribution become more flexible and with the participation of many “outsider” companies, traditional drug distribution entities are pushing the OTC channel, establishing their own drug distribution systems to avoid falling behind in the market.
X. SUMMARY
It can be observed that distribution channels play a crucial role in business, particularly in the pharmaceutical industry. International enterprises need to understand the roles and choose appropriate distribution channels. Furthermore, evaluating the effectiveness of these channels is essential for devising a long-term development strategy.
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