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Vibrant
China

China is on the way to becoming a leading high-tech nation. We intend to take an active role in shaping this transformation with our China strategy.

Big plans
for China

China intends to become a leading high-tech nation. We are benefiting from this transformation and will soon implement an important aspect of our China strategy: increasing production and research in China for China. After a long history as one of the world’s largest sales markets, the country will now take on a key role in the realization of our global strategy.

China has big plans for the future. In fewer than ten years, it aims to become a world market leader in industries such as mechanical engineering, green technology and biotechnology. Modern high-speed trains made in China are already traveling through the country and competing with established Western manufacturers at the global level. In 2020, more than five million electric vehicles are expected to be on China’s streets. An investment program of more than € 850 billion is available for the Belt and Road Initiative, with 900 projects planned in more than 64 countries to develop the Eurasian continent into a huge economic area.

By 2049 at the latest, what is now an emerging economy intends to be the world’s leading and most innovative industrial nation. According to Allan Gabor, President of Merck KGaA, Darmstadt, Germany, in China and Head of Performance Materials in the country since February 2018, who has been managing the Per­formance Materials business in the country since February 2018, the company is orienting itself toward China’s ambitious development: “We aspire to double our Group sales within China. By 2025 we want every single person in China to come into contact with our products or services in a positive way. Given our diverse portfolio across pharmaceuticals, life science and electronic materials, such a bold vision is attainable.”

Dynamic evolution, motivated team

We are pursuing these ambitious goals with a strong and dedicated team in China. Among the team members is Christopher Neff, who has been with our company for nine years and was appointed Head of the China Office of Merck KGaA, Darmstadt, Germany, in 2018. As early as 2012, Neff spent a few months in China as part of his university degree. “It’s great to be back here now. The country is incredibly fascinating, the culture diverse and the economic development exciting and dynamic. My colleagues here are all very highly motivated and it is a great environment to work in.”

A growth market with immense potential

The optimism with which our employees work on the diverse projects in China is also a product of our current success: In 2018, we generated sales of € 1.9 billion in the country, an increase of more than 18 % over the previous year. China is thus the largest growth driver for our company, with the highest sales after the United States. And in the business units Display Solutions (Performance Materials) as well as General Medicine & Endocrinology (Healthcare), China is already the number one global market for our company.

„By 2025 we want every single person in China to come into contact with our products or services in a positive way.“

Allan GaborPresident of Merck KGaA, Darmstadt, Germany in China and Head of Performance Materials in China

That’s why part of the 2018 festivities to celebrate our 350th anniversary took place in Shanghai. During the celebration, Stefan Oschmann, Chairman of the Executive Board and CEO, spoke to 400 guests from politics, business and industry: “We look ahead to the future with curiosity – and it is precisely this future of science and technology that will be shaped to a large extent right here in China.”

Similar ideas were voiced by Allan Gabor: “When we look at China now, we see so much more than just a huge sales market; the country is becoming a key factor in shaping global trends and influencing our global strategy.”

Demand for technologies and expertise

China needs technologies and know-how for its transformation. Immense investments are earmarked for this, and we hope to benefit from these investments in our businesses.

The realization of this aim requires a host of measures, in Allan Gabor’s opinion. Among them are smart collaborations with key stakeholders in the country as well as re-thinking some of the company’s structures to be able to optimize local future growth. Other measures include increasing local production efforts and fostering talent development in China more efficiently. Finally, networking more closely with the country’s innovation ecosystem and rigorously digitalizing products, services and processes.

One of the most important steps along the way is to ensure that partnerships and networks become more effective. Gabor adds that this endeavor is particularly challenging because of “the special complexity of stakeholder management in China,” saying: “We’re looking at other, predominantly local companies and also initiating diverse collaborations with a variety of public-sector players.”

New innovation centers

We are also greatly intensifying our R & D in China. Research centers and laboratories have existed in Shanghai, Suzhou and Beijing for some time, and a new OLED technology center was opened in Shanghai in 2018. In Guangzhou, an agreement was signed with the local authorities to build an Innovation Hub. Located at the heart of Guangzhou International Biotech Island, this hub will serve as a place of knowledge exchange for experts, partners and customers in all three business sectors, enabling them to develop and enhance in­no­vative technologies for strategic markets in the Pearl River Delta and beyond.

Stefan Oschmann announced the launch of innovation hubs in China during his visit to the country in February 2018. To achieve this goal, a team of representatives from science and industry is being set up in Shanghai to form our China Innovation team. The team members have ex­tensive knowledge in the areas of healthcare, chemistry and digital technologies and are led by Sophie Sun, Head of our China Innovation Hub. Together, they will explore the opportunities in the Chinese innovation ecosystem. “A very lively innovation ecosystem is developing in China, allowing the country to become an industry leader for technological innovation,” says Sun. “The Chinese government promotes innovation and industry developments through a number of programs and initiatives that are also highly relevant to our areas of business and expertise. We therefore want to collaborate closely with startups, academic institutions, industry players and local governments so that we can jointly develop new technologies and solutions for China and for the world.”

We support further innovations with our Accelerator program, which is already established at the company’s headquarters in Darmstadt, Germany and was recently launched in China as well. Selected startups can work for three months on collaboration projects with our experts at the Innovation Hub in China. In addition, they have the opportunity to continue their projects at the Innovation Center in Darmstadt to explore the European market. They are thus able to make an important contribution on China’s path to becoming a global innovation leader. This development enables China to potentially contribute more innovative solutions supported by us.

Swifter decision-making, a more pragmatic approach

To achieve our ambitious goals in this extremely dynamic business environment, we must also make some changes. “We have to be more agile and flexible so that we can adapt to the incredibly high speed of change in China through fast decision-making and processes. We must also be even more open to taking risks, trying new things and being more pragmatic in the best sense of the word,” explains Allan Gabor.

At the end of this transformation, we will produce and offer our services in China for China – and thus grow along with the country as part of the local ecosystem, boosted by a national focus on innovation.

The health plat­form for every­one

Our Healthcare business sector has great ambitions in China – take, for instance, our partnership with the Internet giant Alibaba.

People in China who want to keep an eye on their health need only scan the barcodes on their medication with a mobile phone. Users then re­ceive the digital package information leaflet along with instructions on how to take the medication as well as details on the disease and the drug itself. All of this information is provided by Alibaba Health’s drug tracking platform to help ensure safe drug use. Medication reminders and the contact between doctors and patients help enhance therapeutic compliance among patients.

The service is delivered by us and Alibaba Health, a subsidiary of the Chinese Internet giant Alibaba, and it represents one of the first results of a cooperation that the two companies began in 2018. Rogier Janssens, Managing Director of our Biopharma business in China, describes the partnership as “a great step forward in China’s digital ecosystem.” Every year, more than 600 million consumers are active on Alibaba’s retail marketplaces in China. Its subsidiary Alibaba Health develops digital hospitals and connects them with bricks-and-mortar clinics, and the two companies want to expand this digital infrastructure with a joint health platform. This opens up very interesting opportunities for offering services and solutions that add value beyond the medications themselves and thus create a solid foundation for reaching the ambitious goals of the Biopharma business.

“By 2025, we want at least 40 million patients to be treated with our medications every year, and sales in Biopharma will triple compared with today,” says Janssens. Other than tracking and tracing drugs, the joint health platform with Alibaba will be used above all for online health services in areas such as diabetes, thyroid disorders, colorectal cancer and cardiovascular diseases. “Demand in China is immense,” says Janssens. Every second case of a common illness such as diabetes or cardiovascular disease is believed to be undiagnosed. “That means that millions of sick people in China are currently not being treated. We can help these people with our digital solutions,” says Janssens. The right diag­nosis is a precondition for effective therapy. Millions of patients can gain access to much needed medi­cations through these new digital tools.

We are moving forward vigorously with the implementation of our plans. For instance, we and Tencent, a leading provider of Internet-based services, agreed in January 2019 on a cooperation. “As part of this cooperation, we will work with Ten­-cent to investigate the innovative combination of patient-centered healthcare and digital platforms,” says Rogier Janssens, describing the goals of the agreement. These co-operations with Alibaba Health and Tencent complement each other, adding huge value to our current and future products in China through using more efficient and effective digital methods.

Two sectors, two sites in Nantong

Since 2017, the medications for which our company and Alibaba offer these additional services on their joint platform in China are packaged in Nantong, a city on the Yangtze River not far from Shanghai. More than € 250 million have been invested in two modern production facilities there. After Darmstadt, Nantong is our second largest pharmaceutical production location in the world. Here, we produce the diabetes medication Glucophage XR®, the thyroid medications Euthyrox® and Thyrozol®, and Con­cor® for the treatment of cardiovascular disease. In the future, the Life Science business sector will also produce inorganic salts and biochemical cultures for environmental audits in Nantong and deliver them to pharmaceutical manufacturers and laboratories from there.

New partner

A chat with Steve Vermant, Managing Director of our Life Science business sector and Head of Research Solutions in China, about the partnership with Tongji University under the CRISPR Core Partnership Program and the potential for CRISPR/Cas9 in China.

What role do technologies such as CRISPR/Cas9 play in academic research in China?

Steve Vermant: Biotechnology is one of the Chinese government’s main areas of investment at the moment. The focus on research at universities has been rising rapidly, with us also seeing increasing demand for our supplies and materials. In the world of highly complex biotech research, our CRISPR Core Workflow and other new technologies are very attractive to both universities and our renowned industry partners, and we help them use these technologies efficiently for their research.

Do we also provide expertise?

Of course. After all, our aim is to solve the biggest challenges in the life sciences – and we want to accomplish that together with our customers. For this purpose, we provide our scientific and technical expertise as well as our extensive portfolio of more than 300,000 products. Genome editing tools, for example, have become much more readily available thanks to our technology. This also includes CRISPR Cas/9, for which we hold fundamen-tal patents.

Which concrete products do we offer for CRISPR Cas/9?

A molecular biology reagent kit that makes it possible to edit gene se­-q­uences quickly and simply with the help of gene scissors. Thanks to CRISPR, a procedure that used to take months can now be completed in just one week. That’s a real breakthrough in biomedical research. Simpler access and faster processing mean that far more researchers can work on fundamental questions, such as the influence of individual genes on various illnesses.

What role does the collaboration with Tongji University play in all of this?

We provide Tongji University with tech-nologies and train the employees there. Besides Tongji University, more than 80 other academic institutions worldwide are part of our international CRISPR Core Program. They get access to our CRISPR products and technical expertise and can attend the program’s board meetings in North America and Europe, where they can talk about the latest intellectual resources with scientists from lead-ing industry and research organizations. In this way, we help our Chinese customers and partners set foot in the world of top-level research.

In 2011 China’s Ministry for Science and Technology (MOST) published a Five-Year Plan for the development of modern biotechnological science and the corresponding technology. The aim was to establish an inno-vative biotech­nology sector in China.

In its 13th Five-Year Plan, which was published in 2015, the Ministry confirmed that innovations in biotechnology and the corresponding indus-try play a significant role in the economic and social development of the entire country. It is therefore important that the number of high-tech companies and growth technologies in this sector continues to grow.

How did the partnership with Tongji University come about?

We have been collaborating with the university for many years. Tongji is currently one of the leading universities in China, especially in the areas of stem cell research and genetic modification.

How do we benefit from this partnership?

We are able to establish our brands in China and cement our leading position for CRISPR in the Chinese re-search community. Right after the announcement of our partnership with Tongji, we we received inquiries from other universities in the country. We have a clear plan and an extensive portfolio of solutions ranging from equipment and reagents to la­-boratory devices and services. As a partner to the life science research community, we want to accelerate innovation.

Well-founded bioethical positions

The Bioethics Advisory Panel of Merck KGaA, Darmstadt, Germany, (MBAP) is staffed with international biomedical experts. It develops guidelines for research in which our business sectors are involved, including the investigation or use of genome editing. The panel looks at important ethical issues related to processes of discovery, development, manufacturing, sales, and distribution of genome editing technology, such as clustered regularly interspaced short palindromic repeat (CRISPR).

Our Bioethics Advisory Panel (MBAP) has defined a clear operational position under consideration of scientific and social questions to provide a framework for the use of promising therapeutic approaches in research and application. For instance, we reject any CRISPR/Cas-mediated heritable human genome editing in embryos and any manipulation of germ cell lines.

Semi­conductors as a new driver of growth

With local production and development sites, the Performance Materials business sector is moving even closer to its partners and customers in China. In the future, it will concentrate on the continued growth of its semiconductor solutions business.

Winnie HuiHead of Business Planning, Specialty Accounts Business Field, Semiconductor Solutions

„The demand from chip manufacturers in China for innovative materials will probably continue to rise.“

The semiconductor industry is another focal point of China’s development strategy. In the medium to long term, China aims to operate on an equal footing with leading countries such as the United States or South Korea. According to the “Economist”, China’s goal is to nearly quintuple the sales vol­ume from local chip manufacturers in the coming years – from USD 65 billion in 2016 to more than USD 305 billion in 2030. By the same year, it also wants most of the domestic demand to be met with products made in China. So far, this is only true for a third of the country’s total demand. China intends to invest about USD 150 billion in its domestic industry – a plan that also offers us the opportunity to further enhance our position as the leading solution provider for the electronics industry.

The Performance Materials business sector sees enormous growth potential for semiconductor materials in China. “The Semiconductor Solutions sec- tor is active in specialized markets. Our innovative materials contribute to the development of new processes. Demand for innovative materials among Chinese chip manufacturers will probably continue to rise in the future,” says Winnie Hui, Head of Business Planning and acting representative of the Semiconductor Solutions business unit in China. Born in Hong Kong, Hui grew up in New Zealand and has now returned to her home country, where she works in a team at our company that is restructuring the semiconductor business in China.

Technology megatrends such as AI are driving an increase in demand for increas-ingly smaller but more powerful microchips.

Our high-tech materials are essential for the manufacture of powerful microchips.

Continuous technological advances help shape the industry

Technology megatrends such as big data, the Internet of Things and artificial intelligence call for in­- creasingly smaller but more powerful microchips. These technology megatrends are also driving the growth of the materials market. If China evolves into a leading microchip manufacturer and in- creases its domestic IC production, demand for high- tech materials will continue to rise. Our company is regarded as the global technology leader for many of these high-tech products. Its portfolio includes, among other things, high-precision materials and solutions based on colloidal silicon dioxide as well as process and deposition materials. We have developed materials in which polymers arrange themselves along the conductive structure to address the miniaturi­zation process. This directed self-assembly (DSA) technology, as it’s called, is used in the computer chips of tomorrow.

The Chinese government intends to invest as much as
US$ 150 billion

into its domestic industry – a significant part of which should flow into the chip industry – offering opportunities for us.

Winnie Hui sees the development of local production as a key prerequisite for maintaining successful business relationships with national and international customers in China in the future as well. This is only logical, since we focus on long-term partnerships in our business and will continue to supply specialized materials and customized solutions that require a great deal of technical expertise.

According to Winnie Hui, partners who set up local production operations are our most important customers, yet regulatory institutions are also key, since they have – and exert – a lot of regional influence in shaping requirements from central government. She also expects to see mergers bet­ween local companies: “If we want to stay successful in this competitive environment, we have to be agile and maintain our high pace.”

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