International public procurement is an important part of global trade, with a market share of about 12% of global GDP and a cumulative purchase volume of more than US $1 trillion. The main entities of procurement involve international organizations, governments and multilateral financial institutions. Participation in international public procurement is a good opportunity for Chinese enterprises to develop diversified markets, promote international goodwill and establish Chinese brands.
In international public procurement, the relevant United Nations agencies are the main purchasers. Every year, the United Nations releases the Annual United Nations Procurement Statistical Report (ASR) on the official ungm website (www.ungm.org), which provides an overview of the annual United Nations procurement. In 2022, the total purchase volume of the United Nations reached US $29.6 billion, basically the same as that of the previous year. However, due to the recovery of the COVID-19 epidemic, the purchase volume of anti-epidemic supplies, COVID-19 vaccines and other products decreased, and the share of health products was US $7.6 billion, down 28%. China's participation in UN procurement also dropped to 15th place, with $500 million in purchases.
Health products lead the way
The health sector remains the largest share of UN procurement, with $7.6 billion in health products in 2022, or 25.6% of total purchases. Of this total, the purchase of medicines, contraceptives and vaccines amounted to US $5.69 billion, or 19.2 per cent of the total; Purchases of medical devices and equipment amounted to $1.7 billion, or 5.7% of the total; Procurement of health services amounted to US $130 million, or 0.4 per cent of the total; The rest was $52.544 million, or 0.2% of the total.
In terms of procurement agencies, the United Nations Children's Fund (UNICEF) has been the largest purchaser of health products, with purchases of $4.8 billion in 2022; The Pan American Health Organization (PAHO) came in second with $970 million; The United Nations Office for Project Services (UNOPS) ranked third with $550 million.
From the perspective of supplier countries, Belgium, the United States, India, the United Kingdom, France and other major suppliers, the purchase amount of 1.42 billion US dollars, 960 million US dollars, 800 million US dollars, 790 million US dollars and 360 million US dollars; From the perspective of recipient countries, Myanmar, Syria, Jordan, Afghanistan and other countries are key recipients of pharmaceutical products.
In 2021, due to the impact of the COVID-19 epidemic, the purchase of health products, such as epidemic prevention supplies and COVID-19 vaccines, reached a record high of 10.6 billion US dollars. In 2022, as various countries and regions declared the end of the COVID-19 pandemic, related procurement demand fell, and the total purchase of health products decreased by $2.4 billion compared with 2021. There are several reasons for the decline: First, UNOPS purchased $2.2 billion of health products for projects in Mexico in 2021, resulting in a surge in purchases in 2021 and a pullback in procurement demand by 2022; Second, the demand for epidemic prevention supplies and COVID-19 vaccines has plummeted, and the share of relevant supplier countries represented by China in the procurement of health products has decreased.
Among health products, medicines, contraceptives and vaccines have been the largest product categories purchased since 2010, with $5.69 billion in 2022, led by immunomodulatory drugs, with $4.71 billion in purchases. UNICEF continues to be the largest purchaser of medicines, contraceptives and vaccines at US $3.9 billion in 2022, of which US $3.7 billion will be spent on immunomodulatory medicines, including vaccines. PAHO purchases were $890 million; UNOPS purchases amounted to $330 million. In addition, UNICEF and PAHO have reduced their purchases of COVID-19 vaccines. Most major procurement agencies saw their purchases of medicines, contraceptives and vaccines decline, with only the World Health Organization (WHO) and the United Nations Population Fund (UNFPA) increasing their purchases by $4.9 million and $37 million, respectively.
China's share of purchases fell
In 2022, China supplied US $500 million worth of products in UN procurement, accounting for 1.69 percent of the total UN procurement, dropping to 15th place from third place in 2021. In 2022, 13 UN agencies procured medical products from China, with a total procurement volume of US $229 million. Among them, the most important procurement category was medical devices and equipment, with purchases of $140 million; This was followed by medicines, contraceptives and vaccines at $89 million. UNICEF accounted for the highest amount of purchases at $140 million, or 61 percent.
Although the share of China's participation in United Nations procurement in 2022 showed a downward trend compared with 2020 and 2021, the purchase volume increased by 103% compared with 2019, indicating that Chinese enterprises are more involved in United Nations procurement, and Chinese products have won world attention and recognition because of their outstanding performance during the epidemic. As the WHO declared on May 5, 2023 that "the novel coronavirus epidemic no longer constitutes a public health emergency of international concern", the international community's demand for health products such as ventilators, protective suits, novel coronavirus vaccines and medicines related to epidemic prevention has plummeted, reducing China's participation in UN procurement.
In general, in 2021-2022, China's pharmaceutical industry shines on the stage of United Nations procurement, with both sufficient production capacity to supply global basic medical supplies and research and development capabilities that meet international standards. In 2021, three new coronavirus vaccines independently developed by China passed the WHO EUL (Emergency Use List) certification and were purchased by United Nations agencies, which is an example.
International public procurement, represented by United Nations procurement, has attracted more and more attention from Chinese enterprises, and public market has become another focus of concern for Chinese enterprises going overseas, expanding their business layout ideas; At the same time, in order to enter the international public market, product quality, production site and GMP compliance to international standards is a "stepping stone", enterprises are increasingly concerned about Europe, the United States, Japan, WHO and other SRA evaluation standards and ISO and other international standards, which is of great significance to improve the competitiveness of Chinese products and increase the voice of Chinese enterprises. Chinese enterprises have been actively exploring opportunities to join the United Nations procurement, and the number of Chinese suppliers registered on the ungm platform has continued to increase, reaching 8,927 in 2022.
Focus on "soft" standards
Due to the consistent pursuit of building a human health community around the world, governments have become more complete and transparent in their regulatory requirements for drug safety and medical device use norms. In the international public procurement market, various procurement entities have a more comprehensive and three-dimensional inspection of suppliers, not only focusing on product quality, production process standards supervision and international standards, but also paying more and more attention to soft factors such as corporate governance, environmental protection, corporate social responsibility, women and labor rights. Taking United Nations procurement as an example, factors such as ESG objectives, sustainable procurement and cooperative procurement have gradually been highlighted in recent years. In the future, the full cycle and multi-dimensional standard compliance investigation of supplier operation, production, transportation and after-sales will become the only way for all procurement entities to optimize supplier selection.
ESG goals and sustainable sourcing
In 2004, the United Nations released the "Who Cares Wins" report, which officially put forward the concept of ESG, the core of which is the harmonious and sustainable development that takes into account Environment, society and Governance. Since the adoption of the 2030 Agenda for Sustainable Development in 2015 and the establishment of the United Nations Sustainable Development Goals (SDGs), the United Nations system has been asked to internalize the SDGS in policy, operations, and administration.
Sustainable Procurement can be seen as a "soft" governance mechanism that encourages the market to produce more sustainable products and contributes to improving resource conversion rates globally, addressing climate change, and promoting human rights and gender equality. The United Nations Sustainable Development Goal 12, which refers to "ensuring sustainable consumption and production patterns", and its goal 12.7, which refers to the need to "promote sustainable public procurement practices in line with national policies and priorities", clearly identifies public procurement as one of the strategies to achieve the Sustainable Development Goals.
ESG is the assessment of the sustainability of enterprises through environmental, social and governance assessments, so as to lead the global sustainable investment, strengthen environmental protection and promote social justice. The main evaluation factors of ESG are as follows:
Economic factors are the cost performance, price, quality, availability and function of the product.
Environmental factors, namely green procurement, refers to the impact of the entire life cycle of products and/or services on the environment from birth to death.
The impact of social factors on issues such as poverty eradication, equitable distribution of international resources, labor conditions, and human rights.
With the deepening of the global consensus on sustainable development, the social requirements for enterprises in green development, energy conservation and emission reduction, social responsibility, integrity management and compliance management are becoming more and more stringent, and the United Nations will pay attention to carbon neutrality, clean energy use, green supply chain construction, logistics network optimization and other factors in the procurement process. In 2022, 24 UN agencies reported using sustainable procurement policies in their procurement processes, an increase of 14%. Sixteen organizations reported ESG training for suppliers in the past three years. The number of UN agencies requiring the inclusion of ESG standards in their procurement needs increased by 4% to 90% in 2022. For example, the World Intellectual Property Organization (WIPO) incorporates environmental criteria into its bidding process for suppliers of cleaning services at its Geneva headquarters, and the winning suppliers are required to ensure that cleaning supplies, equipment and clean technologies are environmentally friendly. WIPO procured $710,000 in industrial cleaning services and cleaning equipment in 2022.
Chinese enterprises should actively participate in the global ESG practice, participate in more public procurement and ESG compliance training organized by government departments and industry organizations such as the Pharmaceutical Chamber of Commerce, learn and learn from the best actions, and promote ESG practice with higher standards and a more rigorous attitude, continuously improve their own ESG performance level, and achieve a balanced and sustainable development of economic, social and environmental benefits.
Cooperative purchasing
In accordance with United Nations General Assembly resolution 71/243 on the quadrennial Comprehensive Policy Review, Collaborative Procurement has received attention since 2016. The resolution called for greater synergy among organizations and for entities of the United Nations system to further explore opportunities for collaborative procurement, and many United Nations organizations signed the statement.
Collaborative procurement is the joint procurement by multiple United Nations organizations or the sharing of procurement results. The goal of cooperative purchasing is to achieve lower prices or better service through increased scale and reduce process duplication between organizations.
In 2022, 25 UN agencies reported collaborative procurement, an increase of five from 2021; Cooperative purchases totaled $1.5 billion, up $390 million from 2021. Of these, the medicines, contraceptives and vaccines category accounted for $160 million, the second largest product category; Purchases in the medical devices and equipment category were $91 million. The United Nations Development Program (UNDP), WHO, and UNOPS are the main contributors to cooperative procurement.
Challenges and opportunities for Chinese enterprises
Chinese enterprises are faced with certain challenges when they participate in international public procurement.
For example, in terms of information acquisition, since the procurement information of international organizations is relatively dispersed, enterprises need to take the initiative to pay attention to and understand. In terms of quality standards, international public procurement generally has ISO and other qualification certification requirements for suppliers, drugs, medical devices have WHO PQ, CE certification, SRA certification, EUA, WHO EUL and other mandatory requirements, and many Chinese enterprises are still on the road to international certification. For complex bidding rules and contracts, Chinese enterprises often lack a team of professionals with both bidding knowledge and foreign language ability. Even if the order is obtained, there are no small challenges for enterprises in building overseas localization teams to provide after-sales service, such as the safe use of drugs, the full life cycle management of pharmacovigilance, and the installation and maintenance of medical device products. The procurement projects of international organizations tend to have a long cycle and unstable demand. After becoming a long-term supplier, it is necessary to sign a contract with a fixed price for several years, and the payment mode generally does not have a down payment, and the payback cycle is long. Enterprises need to make financial response plans in advance according to their own economic and product reserve status. In addition, international public procurement often attaches more importance to environmental protection requirements, while domestic enterprises are still in the exploratory stage in terms of sustainable procurement, and how to adapt to relevant requirements is also a comprehensive consideration of enterprises.
For enterprises that want to participate in the field of international public procurement, the requirements for their own capacity building in the public market will only increase. At the same time, in the face of international public procurement, enterprises should actively use the ability of resource integration. International organizations often consider suppliers not only for their production capacity, but also for supporting logistics, warehousing, and after-sales service. Therefore, manufacturers and experienced overseas traders, logistics companies can cooperate to provide the whole industry chain of services, domestic suppliers and foreign agents can cooperate to provide pre-sale and after-sales one-stop service.
While requiring enterprises to actively complete their own construction, we also call on international organizations to explore alternative quality standards for product procurement, such as whether China can recognize the certification and inspection results of China's medical device regulatory authorities when China has joined international regulatory coordination mechanisms such as ICH and IMDRF and actively played its role. We will explore new ways to introduce Chinese products with high quality and beautiful prices to the international public procurement market.
(Pan Yue, China Chamber of Commerce for Import and Export of Medicine and Health Products)