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    Bitter pill
JIANG JINGJING
2005-09-05 08:31

Daniel Smith knows that actions speak louder than words. The company executive is tired of saying "sorry", and he is actively trying to correct his mistakes.

He has apologized hundreds of times to Chinese customers, the authorities, distributors, and the company's hundreds of employees.

Smith, chairman of USA Pharmaceuticals Co, a leading US healthcare products provider, says he and his management team blundered when they used an agency to sell the company's products rather than doing it independently.

Smith has recently made bold decisions in an effort to rectify the problem. He established a subsidiary in China to take back the master distributorship and he invested US$50 million to introduce most of the company's 4,000 products to the Chinese market over the next few years.

The product line includes health products, personal care products and cosmetics.

"We will build our own factories and a research centre here," Smith says.

This move comes almost one year earlier than the firm's original strategy.

The scandal dates back to May of this year, when the Chinese central healthcare authority sent out a bulletin on banned drugs, including one of USA Pharmaceuticals' most famous products, Silver 2000+. The report claimed that the listed products overstated their effectiveness on packaging labels and advertisements.

Silver 2000+ was registered in 2002 with the Ministry of Health as a sterilizing product, but it was sold as a medicine.

The product only kills germs that cause faucitis and rhinitis, but some distributors described it as a cure.

Smith does not blame anybody, but says that their agency, Shenzhen Biofortune Co Ltd, was unable to handle everything that happens in this fast-paced industry.

Silver 2000+ is sold throughout more than 20 provinces in China, but the problem only occurred in isolated minority areas, he says.

Smith says he and his management team should take responsibility.

"If I had known that the master distributorship was so hard to control, I would have used our own people to manage things."

USA Pharmaceuticals' business model focuses on forming strategic partnerships with local distributors, while the company itself concentrates on research and development (R&D).

"We found that this business model does not work in China," Smith says.

The company acted quickly to correct the problem. It recently established a subsidiary in Beijing to control its distribution network throughout China.

Smith says that one of the company's main responsibilities is to learn local laws and regulations.

"We are new to China. Our products are technology-intensive and are new concepts here. Sometimes there is no standard to follow," Smith says.

Silver 2000+, for example, was approved by the US Food and Drug Administration years ago, but it took more than two years for Silver 2000+ to be approved by the Chinese Government, he says.

Currently USA Pharmaceuticals has at least 600 products that have been approved or are still being evaluated by the government. They will start selling these products next year.

"A total of 4,000 products, which are mainly health food and biological products, will be introduced in China in the coming few years," Smith says.

He says that their multiple vitamins and anti-ageing cosmetics will also soon be available on the mainland.

China's improving market environment conditions encouraged the company to invest heavily.

"(Healthcare giant) Amway's great success here has proven that Chinese customers will accept healthcare products. The government has also been working hard to regulate the market. We're going to see dramatic growth over the next few years," Smith says.

Zhu Kangnian, secretary-general of the China Healthcare Association, says at least 20 foreign healthcare companies have contacted the association about entering the Chinese market since the beginning of the year.

Large foreign companies will enter a market that is already fiercely competitive, Zhu says.

"The structure of China's healthcare market will change with the involvement of foreign players because they are experienced and have R&D and complete product lines to draw from."

USA Pharmaceuticals is a full service company providing healthcare products. It has over 100 years of experience in the nutritional field. Its products have been sold in more than 50 countries and regions, including Europe, North America and Asia, with revenues of US$2 billion last year. The company only sells Silver 2000+ in China.

(China Daily 09/05/2005 page3)

 
                 

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