For Dr. Wu Xiaobing, president and managing director of Wyeth China, leadership is a passionate subject. In a recent interview with China Knowledge at Wharton, Wu discussed the opportunities and challenges of leading the multinational pharmaceutical giant’s China operation, particularly during this period of economic uncertainty and in the wake of the country’s tainted baby formula crisis. The most important element of leadership, according to Wu, is creating a vision that inspires a management team to work together toward a specific goal, regardless of the obstacles.
Below is an edited version of the interview.
China Knowledge at Wharton: Wyeth has a very established presence in China. As head of the company’s China operations, what do you see as the major opportunities here?
Wu: Indeed, we have been developing very quickly over the past four years in terms of sales revenue. We’ve gone from having several hundred million yuan in annual sales at the beginning to several billion yuan in sales this year, and our annual growth rate has been more than 50% in recent years.
The major driving force, above all, is China’s fast-growing macro economy, [which has led] Chinese consumers to have a huge demand for high-end products like our baby formulas. All of us are concerned about the health of the next generation. Secondly, the growth rate of China’s pharmaceutical market in recent years has been amazingly high as well.
Another very important factor in our success is that we have an excellent management team. In a fiercely competitive talent market like China, it’s very unusual to have a management team [like ours] that is very stable; in the past three or four years, no one has left the company.
China Knowledge at Wharton: Why does the company have such a strong appeal to the management team?
Wu: The first reason is what I mentioned earlier: Our business has been developing very well. We have done a lot of hard work, and our accomplishments are enormous.
The strongest motivation keeping our team together is [a shared] vision and spirit to develop [our business here]. We have done a lot and witnessed a lot of results as well. We see a lot of consumers using our products; many babies have taken our formulas and they have been growing up very healthily. This is the strongest motivation leading our team ahead.
For the team, [the belief is that] they not only have to work very hard, there have to be good results, too. I would not apply the common Chinese saying, “Even if there is no achievement, there is sweat.” Sweat alone doesn’t count.
China Knowledge at Wharton: What are Wyeth’s biggest products in China?
Wu: Our biggest products are our baby formula milk powders.
China Knowledge at Wharton: Have you developed an R&D force in China?
Wu: Our products are mainly developed at our headquarters in the U.S. Discovery is made globally. But we have a clinical trial center based in China covering all of Asia.
China Knowledge at Wharton: Compared with other multinational pharmaceutical companies in China, what is your strategy?
Wu: Our products came to China a bit later than those of other multinationals. So we mainly focus on large hospitals in big cities. Many multinational pharmaceutical companies have been in China for a very long time, so they have started doing business in inland cities or rural areas, but we have not made a substantial footprint in those places. But we have managed to gain very strong support from our headquarters to start several momentous projects in China, and we will make very significant steps.
China Knowledge at Wharton: We learned that Wyeth has invested in a large manufacturing plant which cost US$ 0.4 billion. What’s the driving force for such an investment?
Wu: We did it mainly because we have a fast-growing business and market in China. The momentum of our growth is very strong. Just last week, we launched our pneumonia vaccine for the Chinese market. Pneumonia is the number-one ranked disease for babies, and it’s also the number-one cause of infant death. Wyeth is the first company in the world to develop a vaccine to prevent Streptococcus pneumonia for babies under two years old. It’s now officially available in the Chinese market. As you know, parents in China have only one child, and they don’t want their child to have any diseases, so the demand for this vaccine is huge across the whole country — which means a big, flourishing market for us.
China Knowledge at Wharton: How did you develop your strategy to compete with other pharmaceutical firms?
Wu: As long as you are doing business, competition is everywhere. Some people take competition as a war, but in our company, we take competition as a sports game. The game will not be exciting if there are no qualified competitors. If our performance is far ahead in the market and there are no competitors, the game will be boring. So we are passionate about facing competition. We take our competitors, from multinationals to local players, as friends. We’ve learned a lot from them, and I believe they have learned from us as well. Through competition, innovation is facilitated and quality is improved, which results in wellbeing for consumers and patients alike.
China Knowledge at Wharton: What’s unique about your strategy in China?
Wu: Our strategy is very clearly set, and we focus mainly on babies’ health. We offer vitamin products for mothers during pregnancy to ensure they get enough nutrition. After the babies are born, we have milk powder ranging [through multiple stages] to make sure they get suitable nutrition after breast feeding ends. And now, as I mentioned earlier, we have vaccines for kids under two years old. So, we focus on babies’ health from every dimension. This is very important, and we are very pound of what we are doing.
Doing business in medicines and nutrition products [generates] a very proud feeling, as the more we sell, the better people feel. We really contribute to the health of the people.
China Knowledge at Wharton: What has been the impact of the recent tainted milk crisis in China?
Wu: Food security is a big issue everywhere because it involves people’s lives. This event is a huge test of the production process and of a company’s credibility as well. But Wyeth’s products have stood apart in this [crisis].
As required by the authorities, we have inspected one thousand batches of our products and no single one was tainted and we are very pound of that. The other very important thing is that [over the past few] months, there has been a shortage of baby formula milk powders and we were the first to announce that we would not raise our product price, which had a great impact on market stabilization and helped to re-instill consumer confidence.
China Knowledge at Wharton: Where is your milk sourced from?
Wu: All of it comes from New Zealand. We have also suggested to Chinese regulators that despite the institution of relevant laws and regulations, there have to be regular investigations and inspections in place as well.
Meanwhile, we also have a big after-sales service team with hundreds of our staff taking phone calls from our consumers through [toll-free] hotlines. In case there are any quality complaints or questions, their messages will be brought to the attention of the core management team and we will deal with them in a fast manner.
China Knowledge at Wharton: What has been the biggest obstacle for implementing your strategy in China and how did you overcome it?
Wu: First of all, our country’s regulation is not too sophisticated. So when there is a vague space in the regulations, you won’t know what to do. For example, it takes a very long time, at least three to five years, to get a drug registered in China, which is a big time lag for any good medicines to be brought into the market in a timely fashion. We know that our State Food and Drug Administration and Health Ministry have worked together to improve that process, although it hasn’t yet achieved the international standards. This is the biggest challenge we have met in China.
China Knowledge at Wharton: How long does it take to get one of your vaccines registered in China?
Wu: It has taken eight years for us.
China Knowledge at Wharton: What are your thoughts about China’s health care reform proposal?
Wu: Health care reform is a huge and daunting issue for [all] countries, and no one has ever managed it well. It’s a complex issue and a very complicated system. But there is one important point, in my view — that there has to be in place very good insurance coverage for health care service.
The private savings in China is now close to an entire year’s worth of the country’s GDP. That was why U.S. Treasury Secretary Henry Paulson said in his visit last year that Americans are spending too much and the Chinese are saving too much. Now, the Chinese government wants to encourage a lot of domestic consumption, but why can’t this huge amount of money be released? Why doesn’t it create domestic demand?
It’s because our country doesn’t have very good medical insurance or social security system. Therefore, people have to put aside their money in the bank for the worst case scenario. If the insurance system is well established, all this money will be released.
China Knowledge at Wharton: What do you think about the future possibility of separation between drugs and hospitals?
Wu: As a matter of fact, the expenditure on health care is relatively low in China. In the world, the medical expenditure on average normally accounts for 10% of a country’s GDP. It is 15% in the U.S. I don’t think China should look at U.S. as the goal, but China only has 5%, or even less. This number is relatively small compared with other countries.
As for medicine pricing, I also hope that the medicines will be priced reasonably. But in China, much of the price goes toward distribution and much is [paid to] hospitals. For example, the price we offer in China is very low compared with the prices we have internationally, but the prices for end-consumers here is not low.
But for hospitals, China has to have a good mechanism to supplement the financing of hospital operation. If the medical subsidy is not going up….then the authority has to offer a consolidated solution for that issue.
China Knowledge at Wharton: What should a company like Wyeth do to build its brand during this period of economic uncertainty?
Wu: It’s a very good thing that the financial crisis isn’t having too much of an impact on China’s domestic [pharmaceutical] business. Also, babies’ health is an issue every family is deeply concerned about. I believe there are not too many changes in store for us in terms of the macro environment. So, this will ensure that our business will continue to grow. Of course, it is a crisis, and it will have some impact [on the industry] in certain ways.
We actually cleaned up our business even before the crisis happened. We organized a big conference at the beginning of this year to discuss our future strategies. We