Investing in shares of companies with operations in developing countries can be difficult, and it is often made more so since these businesses are subject to more drastic political, legal, and regulatory changes than their counterparts in the developed world. With operations predominantly in China, health products distributor American Oriental Bioengineering
The governing body that controls prices decreased the top price that companies are allowed to charge for their medicines an average of 15% across a broad range of products. It's worth mentioning that this isn't just a Chinese phenomenon, and that European governments have been putting the squeeze on pharmaceutical companies as well.
The good news for American Oriental is that the governmental agency actually increased the price ceiling on a few health products, and AOB's top compound, a respiratory injection powder, was among them. This compound accounted for 25% of American Oriental's $110 million in sales in 2006 and was one of its top-growing products, with sales increasing 69% last year.
American Oriental didn't mention whether any of its other products had their price ceilings altered, and the injection powder does face competition, so it's not clear yet whether it will even be able to take advantage of the improved pricing environment for this product.
More important than the immediate effects of the agency's actions is the realization of just how fast the business climate can change in China. In 2005, shares of Rule Breakers pick Shanda Interactive
Assessing the changing market and political winds in developing countries is just as important as analyzing a company's financials when it operates in places like China. Fortunately, The Motley Fool has a team dedicated to this task with our Global Gains newsletter. Come take a 30-day risk-free trial and get started on investing in international stocks.