Merck Makes Foray Into China

| About: Merck & (MRK)
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So Merck (NYSE:MRK) now says that they're going to spend 1.5 billion dollars to build a new research center in China, eventually employing 600 people. Considering the number of people they've laid off here in the US, this news is not going to make a lot of people here very happy. Mind you, I believe that they've let a lot more than 600 positions go in R&D over here, so it's not like a zero-sum game - given the state of the drug industry, it's a lot worse than a zero-sum game. And it's worth remembering that this is actually a very small part of Merck's research budget.

And that's why they're doing it. China is, famously, a big market, and for the drug industry it's getting bigger all the time. And while costs are going up there, you can still get more people (and a larger facility) there for the same amount of money than you can get here, and many of those people are going to be hard-working and capable. Most importantly (I think), you're also purchasing clout and goodwill with the Chinese government, by showing that you're serious about their country, and seriously friendly when it comes to spending money there. You'll also get to know a lot of very useful government agencies, and a lot of very useful government people. I'm not overjoyed that it works like this, but it does work like this. Given the tangle of business and government interests there (where does one start and the other stop?), it's really the only way to get anything accomplished.

Now, in the long run, I don't think that this is good for China, doing business this way. But Merck (and the other companies going similar deals, both inside and outside the drug industry) are betting that it'll keep on going like this for some time, and that this sort of money will turn out to be well spent.