This research explores international alliance in a Chinese context to understand the relationships and decision-making processes between Chinese and foreign pharmaceutical firms. We adopt static and dynamic game theory approaches to create models and use mathematic methods to deduct and explain the events under the various situations. Our results suggest that foreign pharmaceutical firms should mainly engage in research and development with higher profit, and the Chinese pharmaceutical firms should mainly engage in manufacturing with lower profit. The repeatedly unlimited game (long-term) is better than the two-stage game (short-term). Furthermore, it is suggested that the government to guide the industry to build and develop an appropriate direction according to the relative advantage of the country, and it should consistently welcome foreign investment and encourage the integration of local industry with international companies, as well.
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