Foreign pharmaceutical companies in Belarus: how to choose the right model of representation?

There are various forms of representation (operating models) of foreign pharmaceutical companies in the Belarusian pharmaceutical market. In particular:

1. a representative office of a foreign organisation;
2. subsidiary legal entity;
3. operating through a “classic” distributor;
4. a combination of options, typically I and III.

Let’s briefly look at the advantages and disadvantages of the main working models.

I. Representative office of a foreign pharmaceutical company

Objectives: preparatory and support activities, including advertising, promotion of medicines, market research.

A representative office of a foreign pharmaceutical company may be established only for the purpose of carrying out activities of a preparatory and support nature in relation to the parent organisation, such as the promotion of goods or registration actions in relation to medicines.

Such representative office is not allowed to conduct commercial activities, including agreeing the essential terms of dealings, signing commercial contracts, making decisions when participating in public procurement, etc.

If the above restrictions are violated, the consequences may be:

• recognition of a foreign organisation operating in Belarus as operating through a permanent establishment for tax purposes, which will result in additional unpaid taxes, penalties and administrative and criminal liability (if applicable);
   
• forced termination of the activities of the representative office.

II. Subsidiary legal entity

Objectives: independent import and sale of medicines in Belarus and the EAEU, localisation of production, participation in public procurement.

• Independent import and sale of medicines

Allows to increase the margins of the supply chain in the group of companies, distribute financial flows across regions, etc.
 

• Localisation of production

The EAEU market is over 180 million people which motivates many pharmaceutical companies to set up local production facilities.

Localisation of production may provide customs, tax, administrative and other advantages.

For example, when participating in public procurement, domestic producers are entitled to a preferential adjustment of 15 per cent for goods originating in Belarus.
 

• Participation in public procurement

Foreign companies can participate in public procurement procedures, but, as a rule, it is difficult in practice due to language barriers, lack of necessary infrastructure, and short timeframes for submitting bids.
 

• Ability to conduct business activities under the parent company’s brand

Such a legal entity can be responsible for the certain “region” in the group of companies: participate in public procurement with understanding of the parent companies’ pricing procedure, import medicines to the EAEU market, export goods within the EAEU and not only, advertise and promote products.

III. Operating through a local distributor

Objectives: minimal presence in the jurisdiction, minimising risks and/or transferring them to a third-party distributor.

In this model of operation, by transferring the goods to the carrier, the pharmaceutical company removes a number of different potential risks (licensing, incorrect pricing, storage, promotion, sales, etc.).

A sub-species of this model of operation is operating through pharmaceutical companies, which represent separate business units of transnational biopharmaceutical corporations.

In distribution agreements, pharmaceutical companies reward sales growth, advertising and marketing activities with various incentive payments. In other words, the distributor fulfils the function of both distributor and advertiser in relation to the products.

If the foreign pharmaceutical company itself wants to set the “advertising” policy, this model of work is supplemented by the establishment of a “non-commercial” representative office of the foreign organisation for the purposes of product promotion.

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