Digital health companies and startups are dreaming about scaling up their business in Asia. China is tempting entrepreneurs with enormous economic growth at around 6%. Japan is considered one of the most innovative countries in the world. But are you a good fit for these markets? Julien de Salaberry, Founder and CEO of Galen Growth Asia, illustrates the Asian digital health scene, guiding us through the opportunities and traps.
If a digital health company from Europe wants to enter the Asian healthcare market, what should be considered first, before the decision is made?
I am assuming that the team have done extensive research to understand the Asian healthcare landscape — it is radically diverse from any other market. Whereas a European company is familiar with the universal healthcare system that has a central reimbursement mechanism and a vibrant set of potential customers, and the same can be true of the U.S., it is definitely not the same in the Asia Pacific. The first thing that should be considered is the fact that this market is entirely different. The fact that you have had success with your solution in Europe does not automatically mean you have success in the Asia Pacific.
And so the first question you should ask yourself is “Do I understand the game rules and do I understand which markets are aligned to the value proposition that I bring to market with my company, and is there a fit?”.
What are the most common prejudices that usually stop companies from scaling up their business in the Asia Pacific? Which of them are wrong?
This is a tough question. Some of the prejudices, to be honest, are linked to a self-belief. Some think: “Because we have had reasonable success, and traction in Europe, the same will be true if we take the solution to the Asia Pacific.” It is also potentially erroneous and therefore blindsides you as an organisation.
The other of course is that you assume that these markets being huge in demographics are therefore huge markets. Another concern is the semi-informed people in Europe. They often think it’s too complicated, culturally too tricky. They believe that the language gets in the way or their systems are very different etc. And most of those perceptions are misleading because it is, in fact, a fast-growing ecosystem that has a great deal of sophistication to it.
8.2 billion US dollars were invested in digital health in the U.S. last year, whereas 6.4 US billion dollars were invested in digital health in the Asia Pacific in the same period. These numbers prove the fact that digital health is incredibly vibrant and increasingly growing. It has the support of government regulators, as well as many corporations, not to mention the investors. To succeed, you have to make sure you are the right fit for that market.
How would you describe the Chinese and Japanese digital health markets? Are they business-friendly for companies from Europe? What are the most significant barriers and challenges to overcome?
Technically and theoretically, both those markets are open to a foreign company entering them. There are plenty of examples of that being done. The Japanese health market is very domestic, self-serving and has several barriers to entry that need to be overcome — none other than language, for example, and culture but also a specific resistance to change. The average age of a doctor in Japan is 65. Most of them run their business practices on paper, and EHR penetration in Japan is very low. Certainly below most of the OECD countries. But there are tremendous opportunities — bear in mind that Japan is one of the fastest ageing population among the OECD countries.
The Chinese market is much larger, less mature, but there is strong government support. Again, I would describe it as a reasonably domestic market and what I mean by that is that there is enough to solve in China, for the Chinese digital health ecosystem to focus on its own market rather than, let’s say, going abroad. Therefore there are many opportunities for foreign companies with proper solutions to enter the market. For each of those markets, it is strongly recommended you find a local partner to help you navigate and successfully enter the market. Trying to do so by yourself is usually going to end up in tears.
Which factors should be taken into consideration for the companies from Europe that want to join the Japanese market?
While leaving aside culture and language, and looking at the dynamics of the market, the Japanese market is a universal healthcare market, like most European markets with a reimbursement mechanism and a very domestic, national approach to how they solve issues. So a foreign arrival is not necessarily welcome, so you do need to be aware of that.
Other than that, the steps to enter the market, the steps to get regulatory approval etc. are similar. It is essential and imperative for any organisation wishing to enter Japan from Europe, to fully understand that process and to ally themselves with experts who understand the process, regulatory pathway etc. to establish themselves correctly and therefore get traction in the market successfully. One thing that you certainly need to bear in mind is to allow time. This will not be achieved quickly, and market traction will take time, and therefore it needs to be looked at that way rather than a quick solution to a market expansion question.
The interesting thing is that there are several Japenese, large corporations that are very interested in foreign technology to import and integrate that within their business models. Be they tech suppliers, pharma companies or healthcare providers. There are examples where American digital health companies have built some decent relationships/partnerships for their solution with a large Japanese pharma to get market entry. That kind of collaboration is undoubtedly beneficial and should be considered as a means of accelerating scale within Japan.
In China, there are already many successful companies embracing digital health and telemedicine. This is, among others, for example, Ping An Good Doctor. Is there a place for solutions made in Europe?
There is, definitely, but it would have to be a solution that is addressing a specific pain point in China. It needs to be a solution that is a model run with the right set of partnerships and allies around it to ensure or certainly increase the potential success of implementation within that market. The mistake not to make, I guess, the health warning here is the fact that if your solution is working well in Europe, it is not a prediction that you will do well in another market like China.
Our guidance usually to most organisations is that you will, no doubt, need to re-think your business model completely, as you enter into China. You will have to do your research to understand what the competitive landscape looks like. The Chinese digital health ecosystem is incredibly innovative and, because of demographics, as well as different regulations, usually has, if it is successful, already quite a substantial scale.
Again, it is worth trying to enter the market through a partnership. So if you are a very successful, for example, French digital health start-up, and you have a good relationship with someone like an Axa, it may be worth trying to look at the Chinese market through that channel, for example.
Can you please mention one or two examples of companies from Europe that made it to the Asian market?
The more visible example of that is, for instance, Babylon, a UK digital health start-up that has established a strong relationship with Prudential, the insurer, and is leveraging that relationship to enter the Asian market. Another UK example is Medopad which has built a relation with Tencent Healthcare and is entering the China market that way. I guess there are many more. But those are the most visible and recent examples. In each case, the route to success has been built through a partnership.
You mentioned two start-ups. So should, in general, start-ups also keep eyes open for the Asian market?
To monetise in Asia as a digital health venture, you are increasing your potential success from a revenue perspective by building a partnership with a large organisation which has already established itself in that market in Asia. And so really that means a B2B2C model with a large player, already with a footprint in the region. It is not a guarantee of long term success, but I guess it certainly increases your potential success of getting scale in Asia.
What are the most common mistakes committed by European companies, leading straight to failure?
It boils down to the lack of research and preparation. It is two things. One, you get the organisation that is building a solution without having done sufficient research as to whether the customers will buy the solution. But this is not unique just to EU companies trying to get into Asia. It is probably common to many digital health start-ups that are building solutions before they really understand whether there is a market for their product or service.
In terms of market dynamics similarities, you need to identify whether the pain point you are solving in Europe is a real pain point as well in Asia. The other mistake, of course, is to assume that there is a robust reimbursement mechanism, which exists in Europe but does not necessarily exist in Asia. In fact, the lion share of patients in Asia either self-pay or co-pay for their healthcare, which means that your business model, your revenue model needs to be probably re-thought.
Data safety and privacy issues in China raise in Europe many questions. What is your opinion?
China has been very clear about how health or patient data is to be handled, which, for example, is forcing a large number of corporations to re-think their strategies. China has stipulated that the patient data can never leave the country. Besides, you need to be approved to be able to access that data. And so many large international companies that were initially leveraging capabilities in another part of the world on data generated in China are now having to re-think how they address that data and what skills they need on the ground in China. Now, it is fair to say that China regulations are very different from European laws. I imagine China will tighten some of these going forward, further than they have already. But regulations do exist. The Chinese government is trying to tread carefully a line between leveraging data to the advantage of innovation and maintaining control of how the data is being used.
Could you please list the most significant opportunities and perils related to launching operations in China and Japan?
These are very different markets with a very different centre of gravity. Japan’s primary focus is on elderly care. The fact that the population size is reducing, and therefore the workforce is reducing, they have challenges of needing to service this population from a healthcare perspective with a dwindling tax income, and a dwindling workforce able to provide these services. And so Japan is very much concentrating on technology to address these issues, primarily because it is not a very open market when it comes to foreign labour. Some of the challenges are not too dissimilar to the ones a lot of European countries are facing.
China is different. The country has a much less established healthcare framework. Although the universal healthcare has been implemented, the per capita pay-out is very small (currently 1.4 billion versus 120 million roughly in Japan — so it is a factor of 10), and has vast demographics. China has challenges such as primary care and specialist care all rendered out of hospitals. The Chinese government is trying to move primary care out of the hospital by leveraging technology. At the same time, organisations such as Ping An Good Doctor, WeDoctor and many others are growing fast by being able to provide primary care services outside the hospital and therefore enabling healthcare to be addressed or delivered, or to be provided when it comes to primary care needs.
So the opportunities are significant, without even talking about the disease burden in China, concerning chronic diseases, for example, mental care, diabetes, cardiovascular, and also smoking etc. And the peril is very similar to all the ones I mentioned already. Whereby, if you do not have the right partner, you have not done the right level of homework and due diligence, you will end up burning a lot of cash getting not very far. There is one perceived peril or watch-out that you need to be aware of which is much more China-related, is the one related to intellectual property, and you need to be aware of that. This potential issue should not be overblown, particularly for digital health in terms of IP protection, as few digital companies have patents. But you should be aware of the risk: it’s a highly innovative space. Therefore you are likely to find competitors in the market in China that already do to some extent what your solution as an EU digital health company is doing and therefore the success will be your business model, not through technology alone.