Until the mid-1990s, major Korean conglomerates had pursued an aggressive diversification strategy, often muscling into fields that were not related to their core businesses. These days, they seldom make the headlines with large-scale investments aimed at foraying into new business areas.
This is partly because Korean conglomerates have become more cautious after a debt meltdown during the 1997-98 financial crisis. Another reason may be there are not many new business areas left they have not yet ventured into.
For one reason or another, Korean conglomerates have recently been far less aggressive than before in moving into new industries. Their lack of entrepreneurial spirit is cause for concern as it is these companies that should create new growth engines for the nation.
It is against this backdrop that Samsung Group’s plan to advance into the biopharmaceutical industry draws attention.
Samsung BioLogics, the group’s pharmaceutical arm, announced Monday it would invest 850 billion won ($722 million) to build the world’s largest biologic drug plant in Songdo, Incheon.
The company has already built two drug manufacturing plants there. The third plant, scheduled to go online in 2018, will make the company the world’s No. 1 contract manufacturing organization for biologics.
A CMO refers to a company that provides drug development and manufacturing services to pharmaceutical companies.
The global pharmaceutical market is huge, with the total sales estimated at about $781 billion in 2014. Biologics accounted for 23 percent with $179 billion, more than double the $82.5 billion memory chip market.
Contract manufacturing still accounts for a small share of the global biologics market. But it is a growing trend. Five years ago, the market for contract manufacturing was $4.6 billion, but it is expected to surge to $7.2 billion by 2017.
Samsung says its strategy is to accelerate the ongoing shift in the drug manufacturing paradigm from self-production to outsourcing. It seeks to lead this shift by providing high-quality manufacturing services at competitive prices.
Samsung has many things going for it. Biologics production requires clean rooms. When it comes to clean room technology, few companies can beat Samsung as it has long been using clean rooms for chip production.
Samsung is also familiar with the processes used to produce complex biologics, such as recombinant DNA technology, as its chip foundry uses nanotechnology.
Samsung’s announcement drew added attention as it came following the multibillion-dollar biologic drug licensing deals that Hanmi Pharmaceutical landed from major global drug makers in November.
Hanmi clinched a license agreement worth $4.2 billion with Sanofi and another $915 million deal with Janssen, demonstrating that biologics can be a future growth engine for Korea.
If Samsung emerges as a world leader in contract manufacturing of biologics, it will create a new high-growth business for itself and the nation.
Other conglomerates need to emulate Samsung’s example. Instead of settling for their current businesses, they should revive their entrepreneurial spirit and look for new growth opportunities.
The government, for its part, needs to foster the biomedicine industry by providing support for research and development in this field and promoting deregulation. Strengthening entrepreneurship education for young students is also necessary.
