Frank Zhou, General Manager of Abbott International China, a leading U.S. pharmaceutical company, has a dual educational background: a U.S. pharmaceutical doctoral degree and an MBA from Wharton. During his 10 years with Abbott, he has worked in critical markets like the U.S., Japan and now China — where, he says, the biggest challenge to running a business is execution. In an interview with China Knowledge at Wharton, Dr. Zhou talks about his experiences in the Chinese market, and how a company like Abbott can keep its brand strong during the current economic downturn.
Below is an edited version of the interview.
China Knowledge at Wharton: Global markets are experiencing a lot of turmoil right now. How do you think the economic crisis will affect China?
Zhou: I am not very familiar with other industries. For the pharmaceutical industry, the impact should be relatively small because we are dealing with human disease, which is [not affected by] the financial crisis. Also, China’s pharmaceutical industry is at an emerging stage, so it has more positive elements pushing it forward, and that should help to alleviate the impact of the financial crisis on the market here.
China Knowledge at Wharton: When did you join Abbott? What are the major differences between managing a business in China and in the U.S.?
Zhou: I joined Abbott after my graduation from Wharton in 1998 and worked at Abbott’s headquarters in the U.S. for four or five years. Then, I was sent to Japan in 2004 for two years. I was sent here to become the general manager for the China market in 2006.
Compared with the markets in Japan and the U.S., China does have some unique aspects. First of all, market access here is more difficult than in the U.S. or Europe…. For example, no matter how good your medicines are, this doesn’t create value if your medicines can’t be sold to the hospitals. Market access in China has a longer cycle and is also more complicated.
Secondly, we are competing with 5000 state-owned and private enterprises in China. Different companies have different ethical standards and varied models for doing business. Hence, keeping a high ethical standard in an international enterprise like Abbott, while at the same time competing with local companies in China, is a unique challenge, too.
The third issue is talent. Since China is developing very fast and all the multinational pharmaceutical companies are here to expand and to compete at the same time, the result is a very high turnover rate. Recruiting and retaining good talent in a highly competitive market is a huge challenge.
The last challenge is communication with [our] head office, which is in Chicago. Some colleagues at our headquarters have less hands-on understanding of China like they do for the American or European markets. So, if we would like to convince the head office about certain strategies for China, especially investment strategies, good and effective communication is certainly indispensable.
China Knowledge at Wharton: How have you dealt with these challenges?
Zhou: My view is that in China, execution is a big issue. All the pharmaceutical multinationals have more or less similar strategies: They all know that China is a huge market, they all need to invest here and they all know we need to bring different product lines into China.
However, what makes a company successful in the end is determined by whether or not it can be really good at doing what it wants to do. As I just mentioned, in terms of accessing the market, retaining talent, establishing ethical standards and communicating with your head office, if you can do better than your competitors on these things, you will achieve better results.
Therefore, in my two years here, I have focused mostly on execution in every respect. No matter if it’s recruiting, training, communicating with the head office, establishing ethical standards or cooperating with relevant government authorities to improve my market access, the most important thing is execution. We need to focus more on details, and to follow through and get things done.
[To do this,] you need to have a good, talented team; that is true in all markets.
China Knowledge at Wharton: What is Abbott’s strategy in China? How have you tried to differentiate yourself from other pharmaceutical companies?
Zhou: From what I have seen, the strategies for multinational pharmaceutical companies in China are all similar; everybody thinks it’s a big country and the market potential in the health care sector is huge. So, they can’t afford to not be here ten years from now. From that perspective, I personally don’t see much difference in terms of strategy.
The difference is that some companies take a more bold approach and they make more investments. Some companies are more cautious, and they do things step by step. As I noted earlier, I don’t think any company can succeed with a different strategy; it’s all based on execution.
Every multinational company is here to make an investment, to hire people, and whoever [executes] best will win. This is particularly true for China, unlike the European and American markets, [where] things are pretty well structured … and the rules of the game have already been established. In those markets, people function and you can predict [outcomes]. In China, there are so many uncertainties. In that sense, the quality of people and the impact of execution are bigger than in Western markets.
China Knowledge at Wharton: What are the principal obstacles to execution? What lessons have you learned?
Zhou: I think the first one is organization, because many people in professional management in China are pretty young. Ten years ago, there were few pharmaceutical marketing people; today, everybody is a marketing manager. Some people become directors or managers at a very young age and they have not had extensive experience compared to their counterparts in Western markets. So, how can you impart discipline and professional skills in these young, ambitious and sometimes impatient people? That’s the key.
The way I do this is by being vigorous in terms of follow up, in terms of details. If you just give [employees] a speech, or some directions, and then walk away, this may work in the U.S. or Japan, but it may not work in China. So, in China, you have to be more determined, more focused on details, and spend more effort.
The other issue, I think, is that there are many barriers in the regulatory environment. So again, in China you need to be more patient; you can’t say, “I made some efforts last month, and in the next month or next quarter I need to see the results.” Sometimes it will take longer……Sometimes there is a lot of foundation work to be done and a lot of things are not in your control. So it’s very important to take a long-term perspective in China.
China Knowledge at Wharton: How is the Abbott brand viewed in China, and how are you planning to build your brand in the Chinese market?
Zhou: People know Abbott in the U.S. as a health care company, with a variety of offerings in pharmaceuticals, nutrition and medical devices. But in China, our brand image is somewhat different. People know we are a nutrition company because of our baby formula. People say, “Oh, I know Abbott because they have very good baby formula.” So that’s what we need to change; we are not a baby formula company, we are a health care company. That’s why in the past two years, we have hired more people on the ground who engage health care professionals…. By doing that, people now know [we] are a health care company.
Meanwhile, we are also working with the government — including the health care ministry, the social security ministry and the development and reform committee — to let them know we are a diversified health care company instead of a pure nutrition company. But this is a long-term effort that will not change everything in just one or two years.
Also, we are engaging with ad agencies and the media to do some promotions. So it will take some time to reposition our brand.
China Knowledge at Wharton: Do you have an R&D center in China?
Zhou: We have established a R&D center with more than 30 staff in the Zhangjiang area of Pudong in Shanghai. It’s more of a bridgehead, we will possibly introduce more R&D activities into China step by step.
China Knowledge at Wharton: On the reform of China’s medical system, which is now open for public input, what suggestions would you have as a representative of a multinational pharmaceutical company?
Zhou: Overall, the reform [proposal] is beneficial to pharmaceutical companies. Now that the government thinks it’s a big issue, more and more attention will be paid to the medical system, and there will be more investments made to give Chinese citizens [access to medical care], and the market will be expanded.
However, we have some concerns, too. For example, the pricing issue. The pricing should reflect the quality and innovation of a product. After all, you can see from the recent infant milk crisis that the product quality and ethical standards among different companies are different. Smaller factories can bring the price down to a very low level, but may not produce the same quality or innovative products as multinational companies.
China Knowledge at Wharton: How do you view the suggestion to remove pharmaceutical sales from the hospitals?
Zhou: They have a very good blueprint. But on the other hand, the blueprint needs fiscal support. For example, if you keep medicine sales out of the hospitals, where would hospitals’ financing come from? This issue is not very clearly discussed in the current scenario. If there is no fiscal support, many reforms may not be realized. In the U.S., if the president would like to push for medical reform, it won’t happen without the appropriate funding. The same applies to China: The blueprint is good, but we haven’t seen plans in detail. This is an uncertainty. But overall, the direction of the reform is right.
China Knowledge at Wharton: How can you keep your brand strong in an economic downturn? What advice would you give to other companies?
Zhou: I just interviewed some candidates, and they asked me the same question.
My approach is to keep the focus on the management level and to improve management quality. By doing so, you enjoy good business in good times, and in down times you can still be competitive. So, that’s my philosophy.
In good times, business can grow 100%, and people do a lot of things casually because the money is easy to make. And when the bad times come, they are in trouble. So, I tell my team that now is a good time — China’s market is booming, especially for healthcare — but we can’t reduce our standards for managing our business. We should bear in mind that in the next one or two years, some things may be difficult. That’s why we don’t spend money casually, [and we] don’t hire people casually: I want to have the best people, so when the bad times hit, we are better prepared to survive.
China Knowledge at Wharton: In your own experience, what is the biggest leadership challenge you have encountered and how did you overcome it?
Zhou: I have had a unique experience working for Abbott in the U.S., Japan and China. I have found that it’s important to demonstrate leadership differently in different cultural environments. The way to communicate and motivate employees is different in Japan than it is in China. As a manager, relying on past experience and adapting as soon as possible to a different work environment while still showing strong leadership is the biggest challenge I have met. If you are good at this, you can be successful in different regions, especially in a multinational enterprise.
China Knowledge at Wharton: What are some of the key characteristics of the “cultural environment” in China?
Zhou: Relatively speaking, the managers’ experience is not so mature and cultivated as in Western countries. On the other hand, this happens to coincide with the talent shortage in the market. I’ve found that some people are not so patient about promotions or career development. As a manager, I have to think about adapting what I have learned in the U.S. about leadership or coaching skills to the Chinese culture. If you are good at doing this, your company will perform better.
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