■ Eye on China

■ In the news
■ People to watch
■ Views from the region

the market partner

Issue 44 | March 2009
contents letter from the chief executive officer

Uncertainty in these troubled eco-

nomic times and plotting a future
demand creation investments
by delayering distribution.

3 In the news
Recent events and people
making news at Zuellig Pharma
Asia Pacific
course is forcing the pharma
industry to evaluate strategies,
and increasing focus on the faster-
Sophisticated IT systems provide
transparency. In addition, a rigor-
ous quality management system
growing emerging markets. In that has been rolled out across all
our region, many eyes are now Zuellig Pharma sites in the region
focused on China hoping that the offers superior and consistent

6 China distribution moves country’s energetic growth of the standards of operations.

Logistics services are advancing
but efficiency problems remain
past few years can be sustained.
Even at reduced levels, forecasts
of economic growth still remain
optimistic. In the pharmaceutical
and healthcare sectors, the
Hospitals are also benefiting
from Zuellig Pharma China’s “last-
mile logistics”, giving them rapid
access to the products they need.
This makes it easier to manage

10 Buying into healthcare

China’s consumers are turning to
self-medication as income levels
prospects appear particularly
bright as the country gears up for
extensive healthcare reform and
inventory and also allows them to
concentrate on patient care.
In this issue, IMS offers further
and health awareness rise
socio-economic factors create new analysis of China’s pharmaceutical
opportunities for manufacturers. market outlook. The market has
doubled in value (ex-manufacturer

12 All clear
Zuellig Pharma China is pioneering
direct distribution solutions to
value) in the past five years,
according to IMS China hospital
audit data. It is expected to con-
streamline the pharmaceutical tinue its sharp upward surge as
supply chain urbanization, an ageing popula-
tion, increased government spend-
ing, and rising income levels build

17 Wider vision market momentum. OTC special-

Growth opportunities in the China
market remain optimistic In Issue 44, we make China our
focus, with a number of articles
looking at different aspects of the
rapidly evolving market. Our
Feature Story examines the phar-
maceutical landscape and the need
for new distribution models to
boost transparency and efficiency.
in house 18 Views from the region
Our country managers in Asia Transparency and visibility of all
Pacific speak out on the issues areas of the China healthcare mar-
that concern them the most ket will be critical for healthcare
companies to effectively target,
evaluate, and manage business
23 & Company
investments as healthcare reform
Information about Zuellig Pharma
increases government investment
and opportunities.
Zuellig Pharma China, a pio-
Issue 44, March 2009. Entire contents © Copyright, 2009. Zuellig Pharma Asia Pacific. neering force in healthcare
All rights reserved. Reproduction in whole or part without express written permission is prohibited. product distribution for over 15
It is hereby expressly stated that neither Zuellig Pharma Asia Pacific nor any of its subsidiaries,
affiliates or their respective directors, employees or representatives makes any representations years, is again at the forefront of
or warranties, expressed or implied, with respect to any information or materials contained in this
publication. No liability whatsoever, whether in contract, tort or otherwise and including liability for
change. Unlike the unwieldy,
negligent misstatement, is accepted by any member of Zuellig Pharma Asia Pacific for accuracy or multi-tiered wholesaler model
completeness of any of the information provided or opinions expressed by or on behalf of Zuellig
Pharma Asia Pacific or for any errors, omissions or misstatements. that has traditionally dominated
The Market Partner is published by Zuellig Pharma Asia Pacific Corporate Office. distribution in the country, Zuellig
Editor: Mr. Joshua Leung, jleung@zuelligpharma.com Pharma China is leading the way
Design: Minick Jiao Design, Hong Kong, www.minickjiaodesign.com
in providing customized supply
Please address any comments to our office: Zuellig Pharma Asia Pacific, Corporate Office, 13th Floor chain solutions that support
Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong, Tel: +852 2845 2677, Fax: +852 2877 5647
www.zuelligpharma.com/ip healthcare company in-market
ists Nicholas Hall & Company
also see growth in the consumer
market as a middle class continues
to emerge over the next decade.
As the People to Watch column
notes, Zuellig Pharma China has
expanded its senior management
team to make the most of all these
exciting opportunities. Zuellig
Pharma Asia Pacific’s executive
management team has also adjust-
ed its organizational structure to
advance future growth for the
company overall.
In other Zuellig Pharma news, I
am delighted to report the official
opening of our latest distribution
center in Singapore, as featured in
our In the News section. Further
news on individual locations is
available in our regular round-up
from country managers around
the region.
Wishing you a prosperous
Spring.
Eric Zwisler
Chief Executive Officer
Zuellig Pharma Asia Pacific

Zuellig Pharma Vietnam
brings safe water to
flooded areas
In December, Zuellig Pharma Vietnam
helped to provide safe drinking water
to flood-hit areas of the country. It did
so by donating more than 2.5 million
Aquatabs tablets, worth 1.3 billion
Vietnamese dong, to Vietnam’s
Department of Preventive Medicine
and Environmental Health under the
Ministry of Health.
Aquatabs were supplied to Hanoi,
Ninh Binh and Ha Tinh, where people
had been seriously affected by flood-
ing, and other remote areas that lack
COMPANY DEVELOPMENTS
| in the news
donated a total of 2,592,000 tablets,
enough to treat more than 52 million
liters of unsafe water.
With Zuellig Pharma Vietnam’s
effective distribution network to over
Avian Flu Update
60 provinces, the company was also Our initiatives to fight bird flu around the region
able to offer support to the Ministry
of Health in delivering the tablets.
Aquatabs have been used by the Joint
Food and Agriculture Organization/
World Health Organization Expert
Committee on Food Additives,
UNICEF, Médecins Sans Frontières,
International Red Cross, other non-
governmental organizations and many
defense forces since the mid-1980s.

the market partner

clean water for daily use. The effer-
vescent tablets, produced in Ireland
and aligned with
Business continuity planning in Indonesia.
European GMP
standards, Business Continuity Planning (BCP) Indonesia through our value chain
are used to is running smoothly with team mem- process mapping methodology.
kill micro- bers engaged and supportive as During these discussions, BCP team
organisms programs expand beyond avian flu members organized and guided BCP
in water to in Zuellig Pharma’s office locations and scheduling. With Tony’s support,
avoid cholera, around the region. All offices have activities have been scheduled for
typhoid, completed general BCP, including the next three years. 2 |3
dysentery and one test procedure and an emer- As the BCP program has grown in
other water- Mr. Stefan Heitmann, General Manager, Zuellig gency fire scenario. sophistication, and now not only
Pharma Vietnam (right) and Dr. Nguyen Huy
borne diseases. Nga, Director of the Department of Preventive
Mr. Tony Xu, Business Continuity deals with avian flu, this column
Zuellig Pharma Medicine and Environmental Health. Management Manager, recently will change to Business Continuity
guided Thailand, China and Corner in future issues.

S$40 million DC opens in Singapore

Zuellig Pharma Singapore officially opened its cutting-edge S$40 million distribu-
tion center at Changi North Way on March 2. The 28,000-square-meter facility, located
in Changi International Logispark, doubles storage capacity. In addition, it houses Zuellig
Pharma’s Specialty Solutions Group (SSG), set up in September 2008 to provide customized,
end-to-end bio-logistic solutions for pharmaceutical products, clinical trials and niche markets.
Mr. Eric Zwisler, Chief
Executive Officer, Zuellig Pharma
Asia Pacific, said the company
was committed to Singapore and
confident about the pharmaceuti-
cal and healthcare product distribu-
tion market. Despite the current global
downturn, Mr. Zwisler pointed out that
healthcare and medical issues were
usually separate from business condi-
tions. “Generally, we expect the health-
care industry to do well through this
period or at least better than other
industries,” he said.
Senior Minister of State for Trade and Industry
Mr. S Iswaran officiated at the opening ceremony. From left to right: Mr. Eric Zwisler, CEO, Zuellig Pharma Asia Pacific, Mr. Kevin
Westley, Chairman of the Board, Interpharma Investments Ltd, Mr. S Iswaran,
Zuellig Pharma is the largest healthcare distributor in Senior Minister of State for Trade and Industry, Dr. Thomas Zuellig, Director, The
Singapore, with over 60% of market share. Zuellig Group, Dr. Daniel Zuellig, CEO, Zuellig Investments (Singapore) Pte Ltd.
in the news | COMPANY MOVE S
People to Watch
The new Market Partner talents who are responding to the demands of our
ever-expanding businesses
Corporate Office
The executive management team has
adjusted its organizational structure to
further advance the
company’s growth
and future opportu-
nities. Mr. Rolf
Steffen has been
appointed Managing Director,
Operations & Value Innovation. In this
role, he will focus on regional principal
relationships, service value innovation,
IT, operations and the Specialty
Solutions Group. Mr. Roland Bruhin
has become Managing Director,
Business Operations, with line
responsibility for managing and
implementing the
company’s strategy
and operational plans in
all countries. Both report
to the Chief Executive
Officer, Zuellig Pharma Asia Pacific.
Regional
Ms. Jessie Tang and
Mr. Mike Becker have
taken up the two newly created posts
of Area Director. Jessie now oversees
operations in Thailand, Vietnam,
Singapore and MDI in the Philippines
in addition to her existing responsibili-
ty for Malaysia and Brunei. Jessie
joined Zuellig Pharma in
1993 and has been Chief
Executive of Zuellig
Pharma Malaysia since
2000. Mike looks after
operations in Taiwan and Hong Kong
as well as his current responsibility for
Zuellig Pharma Corporation in the
Philippines. They both report to Mr.
Roland Bruhin, Managing Director,
Business Operations. Country opera-
tions for China, Korea, Indonesia,
Bangladesh and India report directly to
the Managing Director, Business
Operations.
China
Zuellig Pharma China has made a
number of senior appointments in line
with its China development strategy.
Ms. Elsie Lim has been appointed
Chief Executive China. Elsie joined the
China operations in 2000
and was promoted to
Chief Operating Officer in
2004. She has been a
major force in the compa-
ny’s growth and success in China and
her experience and drive for results
position her well to lead the company.
She reports to Mr. Roland Bruhin,
Managing Director, Business
Operations.
To lead merger and acquisition
activities, Mr. Allen Lueth has become
Vice-President, Finance
and Strategy. He will also
continue to be responsi-
ble for general finance,
accounting, legal, financial
analysis and auditing. To build and
extend government relationships,
Mr. David Gao has been appointed
Vice-President, Government Affairs. He
will also be an area expert
in domestic rules and reg-
ulations. David will work
closely with principals
and develop formal com-
munications with government bodies.
Both vice-presidents report to Ms. Elsie
Lim, Chief Executive.
Mr. Edment Lam has been appointed
Senior Director, Operations. In this
role, he will manage logistics
and supply chain opera-
tions in China. Edment
received a Bachelor of
International Business
Management from the
University of Lincolnshire &
Humberside, UK, and a Master of
Business Administration from
the University of Hull, UK. He
speaks fluent English,
Mandarin, Teochew,
Shanghainese and Cantonese.
He joined Zuellig Pharma from
Cardinal Health, Singapore. He
has over 20 years’ experience in
supply chain management and has
also worked with DSM Nutritional
Products Asia Pacific, Bayer Material
Science Asia Pacific, and British
Petroleum Hong Kong. He reports to
Ms. Elsie Lim, Chief Executive.
Ms. Li Jun has become Senior
Director, Human Resources and
Administration. She will be responsible
for formulation of the company’s human
resources strategy. With over 30 years’
experience she will direct recruitment,
retention, training and development of
Zuellig Pharma China staff.
Li Jun joined Zuellig
Pharma China in 1997 as
Human Resources and
Administration Manager and
was promoted to Human Resources and
Administration Director in 1998. She
received an MBA degree from Preston
University, US, in 2003. She reports to
Ms. Elsie Lim, Chief Executive.
Mr. Teng Jian has become Financial
Director – Principal Services, a role
encompassing purchasing activities and
 principal financial services.
Teng Jian previously
worked for Grünenthal
China, most recently as
Director for Finance and Administration.
He has also worked for Beiersdorf AG in
Shanghai and in Germany. He has a
Bachelor degree in Tele-Communication
Engineering from Tong Ji University in
Shanghai and a Master in Business
Administration and Social and Economic
History from RWTH University in
Germany. He reports to Mr. Allen Lueth,
Vice-President, Finance and Strategy.
Mr. Terence Tsang has been appointed
Market Intelligence Director. Terence
has over 16 years’ experience
in the pharmaceutical
industry, having undertak-
en a number of roles in
sales, marketing and brand-
ing management. He has worked for
Edward Keller Ltd, Boehringer Mannheim
China, Knoll China/BASF Pharma, Sanofi-
Aventis China, and IMS Healthcare. He
will be responsible for in-market sales
data collection and production, and will
collaborate with principals and Zuellig
Pharma management to disseminate
business intelligence to relevant stake-
holders. He reports to Mr. Andi Umbricht,
Senior Director, Commercial Operations.
A new Specialty Services (ZPSS) divi-
sion has been created, combining the
company’s Logistics Services and Vaccine
Business Unit. The division will be
responsible for a portfolio encompassing
solution-based clinical reach (CTM), med-
ical devices, vaccines, cold
chain and other value-ori-
ented services. Mr. James
Lee has been appointed
General Manager, Specialty
Services. James has worked in the third-
party logistics industry for more than 10
years. He reports to Ms. Elsie Lim, Chief
Executive. Mr. Liu Shun Li becomes
Business Director, Specialty Services,
where he will drive vaccine services and
build synergies with principals, suppliers
and Center for Disease Control bodies.
Shun Li has worked at Zuellig
Pharma for 16 years. He
reports to Mr. James Lee,
General Manager, Specialty
Services.
Hong Kong
Ms. Stephanie Kwai has been appoint-
ed Human Resources & Administration
Manager at Zuellig Pharma
Hong Kong. Stephanie has
a Master of Science in
Training and Human
Resource Management
from the University of Leicester. Prior to
joining Zuellig Pharma, she worked as
Human Resources Generalist at
Thomson Corporation for Hong Kong,
Korea and Taiwan. She reports to Mr.
Frederick Tsang, Chief Executive,
Zuellig Pharma Hong Kong.
Mr. Hudson Chan has been promot-
ed to Associate Operations Manager,
Principal Service.
Hudson reports to
Mr. Andrew Wong,
Head of Operations.
Malaysia
Mr. Maikel Kuijpers has been appoint-
ed Chief Operating Officer at Zuellig
Pharma Malaysia. He will be responsi-
ble for operations, IT, con-
sumer healthcare and
collections. Maikel
moved to Zuellig Pharma
Malaysia as Operations
Director in 2004. Prior to this, he
worked at Zuellig Pharma Philippines
for 10 years. He has a degree in busi-
ness administration from the University
of Eindhoven in the Netherlands. He
reports to Ms. Jessie Tang, Chief
Executive, Zuellig Pharma Malaysia.
Mr. Daryl Ong has become
Operations Director. He will be
responsible for the entire
Operations division. In
his previous position he
was Associate Director,
Operations (Logistics) over-
seeing all warehousing and logistics.
Daryl will report to Mr. Maikel Kuijpers,
Chief Operating Officer. Mr. Pang Kim
Sun takes on an expanded role in the
post of Associate Director, Operations
(Principal & Customer
Services). This includes
the management of
Brunei operations. Pang
reports to Mr. Daryl Ong.
In addition, Ms. Lee Kim Har has been
appointed Financial Controller. Kim
was previously at DHL Express. In her
role at Zuellig Pharma Malaysia, she
will oversee principal accounting and
financial reporting/planning. She is a
fellow of the Association of Chartered
Certified Accountants and a member of
the Malaysian Institute of
Accountants. Kim reports
to Ms. Law Kar Siang,
Director, Finance &
Administration.
Taiwan
Zuellig Pharma Taiwan is pleased to
announce that Mr. Samson Hsu has
become Sales and
Marketing Division Key
Account Manager in
charge of the merchandis-
ing team. Samson joined
the company in 1991 and has experi-
ence in drugstore, clinic and key
account channels. He reports to Mr.
Joseph Lai, Vice-President, Sales and
Marketing.
Ms. Shelley Kao has been appointed
Hospital and Key Account (HP/KA)
Receivables Manager. Shelley joins
Zuellig Pharma Taiwan from UPS
where she was Customer
Solution Manager based
in Shanghai. Shelley
was a Business
Development Manager at
Imation Taiwan from 1996 to 2002 and
Sales & Marketing Manager of 3M
Taiwan from 1984 to 1996. She earned
a Bachelor of Science in Pharmacy from
Taipei Medical College, and has worked
for both consumer healthcare and
logistics industries for more than 24
years. She reports to Ms Julie Chou,
Vice-President, Finance Division.
Thailand
Mr. Yves Hermes has become Chief
Executive at Zuellig Pharma Thailand
following the departure of Mr. Patrik
Bruhlmann to another company. Yves
joined Zuellig Pharma in 2005 as Chief
Executive Taiwan. Prior to joining
Zuellig Pharma, Yves worked for SGS
Group for 11 years. He currently contin-
ues to be in charge of
Zuellig Pharma Taiwan in
addition to his new role.
He reports to Mr. Roland
Bruhin, Managing Director,
Business Operations.
Zuellig Pharma Thailand welcomes
Khun Kesaree Suriyawat who has
joined the company as Vice-President
Human Resources. In this
role, she will head the
Personnel and Human
Resources Department.
Khun Kesaree has previously
worked in the automotive, fast-moving
consumer goods, and in-store media
and services industries. She has a
the market partner
Bachelor majoring in microbiology from
Chulalongkorn University and a Master
degree majoring in translation from
Ramkamhaeng University.
Khun Somchai Phawanaphon has
joined Zuellig Pharma Thailand as
Vice-President Information Technology
Services. He previously spent 18 years
at DHL APAC Information Services
in Singapore and Malaysia
4 |5
and DHL International
Thailand where he was
initially Country IT
Manager and most recently
Project Director based in Malaysia.
He has a Bachelor of Business
Administration from Sukhothaitham-
mathiraj University and a Master of
Business Administration from
Chulalongkorn University.
Khun Pucknalin Bulakul has been
promoted to Vice-President Finance.
Khun Pucknalin joined the
company in 2006. She
had previously worked
for Ernst & Young and
Siemens Co., among others.
She has a Master degree in accounting
from Thammasart University and is a
Certified Public Accountant.
The three Vice-Presidents all report
to Mr. Yves Hermes, Chief Executive,
Zuellig Pharma Thailand.
In addition, Khun
Chutima Tokarnkul has
moved up from
Accounting Manager to
Finance Manager. She
reports to Khun Pucknalin Bulakul,
Vice-President Finance.
China distribution moves
Logistics services are advancing but efficiency problems remain
China’s distribution system has advanced enor-
mously over the past few years in tandem with
continuous improvements made to national road
and rail networks, waterways, ports and airports.
Logistics services showed marked progress in
2007-08, helped by China’s robust economic
growth. Project completions in Beijing and
other Olympic venues ahead of the Olympic
Games in August 2008 also gave a lift to the
transport business.
Despite impressive improvements in infrastruc-
ture, China’s logistics industry remains grossly
inefficient. While the ratio of logistics costs to
GDP slipped between 2003 and 2006 (18.9% to
18.3%), the ratio was still double that of devel-
oped economies. Costs ticked up to 18.4% in Ocean freight companies are
2007, probably reflecting the impact of higher
labor and fuel costs. In theory, the higher the ratio preparing for a slowdown in
to GDP, the less efficient the logistics system.
High spending on logistics can be partially business amid slacker growth
explained by China’s heavier reliance on manufac-
turing than most developed countries. The coun- in Chinese exports. Overland
try’s unevenly developed transport sector,
insufficient trucking capacity, lack of container delivery companies have also
facilities and local protectionism are other factors.
In a 2007 survey, the US-China Business felt the margin squeeze, having
Council found that 83% of respondents had
indicated there had been an improvement in to deal with higher costs and
distribution rights over the past year, up from
57% in 2006. This reflected the resolution of greater competition
some licensing issues. In previous surveys, dis-
tribution rights had led the list of concerns, but
the issue dropped to tenth in the 2007 survey
and was identified as a success story.
Nonetheless, freight distribution continues to
pose headaches. Goods may be moved around
the country, but the process is slow, dispropor-
tionately expensive and often difficult to man-
age. It typically involves many more operators
than in Europe or North America. The frag-
mented nature of the country’s distribution
system results in multiple transfers of goods,
giving rise to opportunities for theft and break-
age; lack of economies of scale among most
operators, making the introduction of new
technologies overly expensive; and limited
reach among operators, hampering the develop-
ment of cross-country services.
Market development
The logistics market has expanded dramatically.
In 2007, it was valued at RMB75.22 trillion
(US$11 trillion), an increase of 26.2% on 2006.
(The market value refers to the total value of
products using logistics services.) However, dis-
tributing goods in China remains a challenging
business. This is especially so for foreign service-
providers despite the lowering of entry barriers.
Although infrastructure facilities have improved
significantly, traffic bottlenecks remain. The
uneven quality and availability of transport modes
across the country, and poor co-ordination
between local authorities are major obstacles to
building a seamless supply chain.
New hurdles have now emerged. These
include:
■ Business slowdown. Corporate growth has
slowed dramatically in the wake of the global
recession. Several Chinese airlines, for example,
cut revenue targets for 2008 and 2009 after
years of growth. China Southern Airlines,
China’s largest airline, cut its freight volume
target by 8.5% for 2008 while chairman Liu
Shaoyong warned of long and difficult times
ahead driven by falling demand, volatile oil
prices and cut-throat competition.
Ocean freight companies are preparing for a
slowdown in business amid slacker growth in
Chinese exports. Overland delivery companies
have also felt the margin squeeze, having to
deal with higher costs and greater competition.
Some, such as US company FedEx, were willing
to take losses to win market share. Others, for
example, the IDS Group of Hong Kong, bene-
fited from a surge in dairy imports following
the discovery of melamine-tainted milk prod-
ucts made on the mainland.
■ More complex demands. Ongoing reloca-
tion of businesses inland has encouraged dis-
tribution companies to focus on second and
third-tier cities. International logistics
providers are expanding their networks to
match this move while domestic players con-
tinue to amalgamate. Supply chains are facing
more complex demands while having to deal
with bottlenecks and unpredictable costs.
Another troubling area is human resources.
Industry growth is hindered by a lack of
skilled and experienced staff. Wages continue
to rise but service levels do not necessarily
match them.
Progress and problems
Moving goods around the country remains
problematic and expensive. The principal
reason for the high costs used to be poor
infrastructure. This is no longer true. The
pace of expansion is slowing but construction
and upgrading continues. Many sub-regions,
such as the Yangtze River Delta, are
approaching a level of coverage similar
to the developed world.
A good national expressway system is only
one of the factors required for the develop-
ment of national transport companies. Other
transport systems also have to be efficient.
China’s railway network, which has not
improved as fast as roads, is getting more
attention from the government. Investment
commitments made in the 11th Five-Year Plan
the market partner
(FYP, 2006-10) give railway expansion much
higher priority than previous FYPs. Beijing
announced further investment in rail infra-
6 |7
structure after the 2008 Olympics as part of
an effort to boost sagging economic growth.
Despite the impressive hardware, the nation-
al distribution system remains backward. Many
highways are expensive to use, poorly main-
tained and unsafe. Transport management
systems involving tracking of trucks and loads
are still underdeveloped. Good warehousing is
expensive and in short supply, even in high-
priority areas.
Perhaps the most serious barrier to the
development of a national logistics industry is
local protectionism. Even in major Chinese
cities, non-local logistics firms are discriminat-
ed against while those looking to set up nation-
al networks have to meet rules and regulations
that often differ from province to province.
Businesses have to cobble together multi-
modal transport networks using small and inef-
ficient local distributors. Larger players such as
the Sinotrans Group and YRC Worldwide of
the US are quickly grabbing national market
share but still have to deal with local issues.
Another problem is a lack of uniform ship-
ping standards. The result is constant packing
and unpacking as shipments move across and
out of the country. Even the wooden pallets
used to stack goods come in different sizes.
The government-backed China Federation of
Logistics and Purchasing has developed stan-
dards based on International Organization for
Standardization (ISO) norms but these are dif-
ficult to enforce. The lack of uniformity across
the country in everything, from insurance and
driving licenses to provincial regulations,
remains a huge problem.
Corruption is also an issue. Bribery is not
unusual throughout the supply chain.
Distributors sometimes sell counterfeit versions
of goods they deliver. The use of a distributor
established by staff members of the company but
whose ownership is disguised to make it appear
independent is not uncommon.
One bright spot is an ongoing effort to
streamline fragmented oversight. In March
2008, the old Ministry of Communications,
responsible for road and water transport, the
Civil Aviation Administration of China and the
Ministry of Construction’s urban traffic section
were merged into a super Ministry of
Transport, which also supervises a new State
Bureau of Civil Aviation and the State Postal
Bureau. Nevertheless, there are still a number
Transport costs in China, 2007
Rmb bn Annual growth %
Road 1,562.3
Railway 252.1
Water 340.3
Air 27.0
Pipeline 24.8
Freight forwarding 264.3
and other means
Total 2,470.8
of bodies a company has to interact with mak-
ing it difficult to put together a national distri-
bution plan using third-party logistics firms.
Domestic industry consolidation
The mainland’s traditional distribution system,
comprising three tiers of distribution agencies –
national, provincial and local – has experienced
radical changes as companies realign their oper-
ations and foreign competitors penetrate deeper
into the market. Many state-run distributors
have adopted new management styles while
others have sought foreign partners.
Foreign-trade corporations, set up by various
state ministries after the launch of economic
reforms in 1978, have altered their organiza-
tional structure several times in line with
changes in government administration and
market demand. A typical example is the China
National Electronics Import and Export Corp
(CEIEC). In 1999, CEIEC, established in 1980
as an exclusive importer and exporter of elec-
tronic goods for the mainland, was absorbed by
Source: Li & Fung Research Centre
Share of total %
17.9 63.2
11.3 10.2
23.4 13.7
26.8 1.0
63.2 1.0
11.2 10.6
17.6 100.0
Regulatory progress
China’s World Trade Organization compli-
ance record over the past four years has
been good. Most geographical barriers for
foreign wholesalers have been removed
and, since December 2004, for foreign
retailers. By December 2005, the last
restrictions were removed on international
freight forwarders. Foreign-owned entities
are allowed to engage in infrastructure con-
struction. With the exception of the water
transport sector, which still carries some
restrictions, foreign companies have much
more access.
Local branch offices of the Ministry of
Commerce have the power to approve for-
eign-invested commercial enterprise (FICE)
applications to expand their business
scope. However, foreign companies have to
seek state-level approval if their business
involves:
■ Sales conducted via television, tele-
phone, mail order, the internet, vending
machines or similar means.
■ The sale or distribution of basic raw
materials for industrial use, such as iron
ore, steel, fuel, rubber or precious metals.
■ The sale or distribution of various spec-
ified products, among them publications,
refined oil, cars, sugar, cotton and pharma-
ceuticals.
The latest circular has resulted in speedi-
er processing of applications for establish-
ing FICEs. The regulatory environment has
relaxed to the point where companies may
distribute products they do not manufac-
ture, while consulting companies may be
able to expand their business scope. For the
distribution of products not manufactured
by a production foreign investment enter-
prise (FIE), lawyers at Pricewaterhouse
Coopers say the enterprise may expand its
business scope for trading and distribution
© The Economist Intelligence Unit Limited 2009
activities – meeting the relevant business
scope for FICE – to sell the products.
Under the current regulatory framework,
consulting FIEs in China may upgrade to
FICE status by expanding their business
scope to cover trading and distribution
activities such as wholesale and retail
trade. Foreign-invested trading companies
located in free trade zones may also
upgrade to FICE status, subject to approval
from local authorities.
China Electronics Corp, a large conglomerate
set up by the state in 1989 with an aim of
developing into a vertically integrated multina-
tional player in electronics. Some of its local
subsidiaries have formed partnerships with for-
eign firms, including US firms Microsoft and
American JAZZ Corp. China Electronics Corp
became the country’s largest conglomerate
when it bought electronics giant China Great
Wall Computer Group at the end of 2005.
Sinochem Corp is another example, with the
foreign-trade corporation changing into a
petrochemical conglomerate operating a verti-
cally integrated business, including oilfield
exploration and production, downstream pro-
cessing, logistics and financial services.
Sinosteel Corp, a reincarnation of the former
China Metallurgical Import and Export Corp,
Proportion of freight carried by major transport modes in China (%)
Railways Highways
2007 23.5 11.2
2006 24.7 11.0
2005 25.6 10.8
2004 27.8 11.3
2003 32.0 13.2
2002 30.9 13.4
2001 30.8 13.3
2000 31.1 13.8
has an expanded business scope that includes
equipment leasing, packaging storage and
transportation, port and wharf services, and
overseas engineering projects.
China’s WTO accession agreements incor-
porate a number of efforts to override local
protectionism. The rules have allowed foreign
logistics providers to gradually expand their
activities across China but complaints remain.
There are still reports of goods being detained
until “fees” are paid, particularly in poorer,
inland provinces.
To further promote reform and growth of
the domestic distribution and logistics industry,
the State Council published a number of pro-
posals in 2005 under “Opinions Concerning
Promoting the Development of the
Distribution Industry”. The proposals call for
the formation of larger-scale, more efficient
enterprises through debt reorganization and
staff reduction. The proposals underline the
direction the government wants the sector to
take to break down regional protectionism and
establish nationwide companies.
Foreign investment rules easing
Multinationals are increasingly engaged in
tackling the problems created by distribution.
Retailers, wholesalers and providers of ware-
house and storage facilities have been allowed
to set up wholly foreign-owned enterprises
since the end of 2004 and wholly foreign-
owned freight forwarders since December
2005.
The relaxation of regulations governing the
activities of foreign companies has con-
tributed significantly to the industry’s expan-
sion. The introduction of foreign-invested
commercial enterprise (FICE) rules in 2004
allowed foreign companies to establish whole-
sale and retail businesses without geographic
restriction. Further modification of the rules
has allowed local rather than central commer-
Source: China Statistical Yearbook
Waterways Civil Aviation
63.4 0.1
62.5 0.1
61.9 0.1
59.7 0.1
53.3 0.1
54.3 0.1
54.5 0.1
53.6 0.1
cial authorities to grant approval on most
FICE applications, resulting in speedier han-
dling of applications. Ongoing improvements
allow companies to move their products more
easily across the country.
Through the Closer Economic Partnership
Arrangement between Hong Kong and
Mainland China, distribution rights for regis-
tered companies have steadily improved. By
2008, foreign companies had full ownership
rights over retail chains of up to 30 stores while
Hong Kong registered companies could own
chains of up to 50 stores and 65% of larger ones.
In 2007, the Ministry of Commerce updated
some of its regulations, putting emphasis on
the development of the service industry and
more investment in areas such as logistics,
logistics services and infrastructure building.
All these industries fall within the list of
“encouraged foreign investment industries”.
The new rules follow a move in December
2005 giving local authorities the right to
approve FICEs and the April 2005 “Notice on
Relevant Issues Concerning Expanding the
Distribution Business Scope of Foreign-
invested Non-commercial Enterprises”.
However, officials still prefer that compa-
nies establish new distribution operations
rather than expand existing manufacturing
ones. There are restrictions on the distribu-
tion of specific products such as copyright-
intensive materials. These include books, and
audio and video products. Local protection-
ism also remains a major barrier to expan-
sion, for example, requirements that trucking
companies have offices in each province
where they do business in order to issue local
tax receipts.
The emergence of major home-grown
logistics firms and the entry of experienced
foreign players are boosting outsourced
the market partner
logistics services. However, third-party logis-
tics (3PL) remains a relatively new industry
in China, with only 15% of domestic compa-
nies outsourcing their logistics functions,
according to various estimates. The China
International Freight Forwarders Association
estimates that around 10,000 enterprises,
including foreign firms, are engaged in
freight forwarding, most of them small.
8 |9
The market share of 3PL companies in
China is believed to be around 20%, much
lower than the 57% in the US or the 80% in
Japan. According to the China Federation of
Logistics and Purchasing, the market share of
China’s top 10 logistics providers is a com-
bined 13%. In general, Chinese companies
still prefer to do their distribution in-house
or use small domestic operators.
Multinational companies have been quicker
than domestic companies to outsource, with
nine out of 10 outsourcing part of their logis-
tics needs to 3PL firms. In the automotive sec-
tor, for example, TNT of the Netherlands and
APL Logistics, a US-based unit of Singapore’s
Neptune Orient Lines, have set up logistics
joint ventures with local car makers. mp .
This article was excerpted from the Economist
Intelligence Unit publication China Hand. Queries may
be sent to David Line, senior editor at the Economist
Intelligence Unit, at davidline@eiu.com. The Economist
Intelligence Unit is the world leader in global business
intelligence. It is the business-to-business arm of The
Economist Group, which publishes The Economist newspa-
per. The Economist Intelligence Unit provides geopoliti-
cal, economic and business analysis on more than 200
countries, as well as strategic intelligence on key indus-
tries and management practices. With over 300 full-time
professionals in 40 offices around the world, supported
by a global network of more than 650 contributors, the
Economist Intelligence Unit is widely known for its
unparalleled coverage of major and emerging markets.
 OTC trends | COUNTRY INSIGHT

Buying into healthcare

China’s consumers are turning to self-medication as income levels and health awareness rise
By Nicola Jay ■ nicola.jay@nicholashall.com

Changing attitudes
The next decade will see the emergence of
the middle class in China and by 2025 the
country is predicted to be the world’s third-
largest consumer market. China is a classic
emerging market, with rising income levels
and increasing awareness of health issues
(such as lifestyle-related diseases) driving
consumer healthcare.
Some sectors are feeling the benefit of
changing Chinese attitudes more than others.
Treatments to prevent lifestyle or age-related
problems, for example, cardiovasculars, are
on the rise while digestive remedies are being
spurred by the increasing uptake of Western
diets. Consumers are also more willing to
medicate for once-taboo ailments, driving
segments such as vaginal yeast infections and
hemorrhoid preparations. Emergency contra-
ception has been boosted by high-profile
government campaigns.
Smoking control is set to be the next driver
of OTC growth following the State Food
and Drug Administration’s (SFDA)
December 2008 approval of OTC nicotine
patches in 5mg, 10mg and 15mg doses and
nicotine gum in 2mg and 4mg doses for sale

China’s universal healthcare

reform plan is attracting strong
reactions. The aim is to cover
90% of the population within
two years and to achieve
universal healthcare for China’s
1.3 billion population by 2020,
with all revenue raised by public
hospitals returning to the state
In the past, consumers would
go to a hospital when suffering
from minor ailments. This is
now changing as more and
more educated Chinese people
turn to self-medication and buy
OTCs from drugstores
One academic described the plan as ambigu-
ous and said that by attempting to address
every aspect of the healthcare system it had
no focus. The normally reticent state media
also joined in, with a famous television pre-
senter saying the plan was full of “empty”
words. Even state news agency Xinhua com-
mented that the 13,000-word document was
hard to understand.
Consumer behavior
At the World Self-Medication Industry meet-
ing in Beijing in November 2008, Dr. Gordon
(urban and rural) were willing to self-medicate.
■ Opportunity cost matters: 76% of urban
residents and 69% of rural residents selected
convenience over cost as their main reason for
self-medication.
Dr. Zhenyu Guo, chairman of Kunming
Dihon Pharmaceutical Co Ltd, was another
speaker to address the changing behavior of
Chinese consumers in his presentation on the
self-medication market. In the past, con-
sumers lacked sufficient self-medication
knowledge and would go to a hospital when

in pharmacies only. The switch was driven

by TSKF/ GlaxoSmithKline, Johnson &

the market partner

Johnson and Novartis, which have been
actively promoting OTC nicotine replace-
ment therapy (NRT) in China through
various activities, including sponsoring an
SFDA conference on switch in 2008.
Industry sources predict that all three multi-
national players will launch consumer NRTs
in 2009. A number of small local companies
also have licenses for NRT products and they
may compete on price if not on profile. 10 | 11
These factors suggest that consumers are
open to self-medication and it is up to the
government to respond to demand and work
with the changing consumer. As part of a
nationwide healthcare shake-up, the SFDA
is to come back under direct control of the
Ministry of Health for the first time since
1998. This move is part of reforms that are
creating so-called “super ministries”. The
premise is such ministries will be able to
govern more efficiently and help to ensure
harmonization in the implementation of Liu, professor and executive director of the suffering from minor ailments, he reported.
laws and practices across China’s provinces. Health Economics and Management Institute, This is now changing as more and more edu-
Since subsidies for medical costs were Peking University Guanghua School of cated Chinese people turn to self-medication
scrapped in 1992, no proper insurance Management, discussed the results of the and buy OTCs from drugstores rather than
system has replaced them, leaving many in Chinese Residents’ Health Status Survey he go to hospital.
healthcare poverty. The government is now conducted earlier in the year. The study cov- Changes are also occurring within the med-
working to reform the system and implement ered 12,691 people in Beijing, Xian, Chengdu ical system, with government moves to reduce
a broad network of basic universal services. and Kunming, with 5,161 classed as urban national public healthcare spending. This means
However, China’s universal healthcare and 7,530 as rural. It investigated the self- hospitals will have to move away from their
reform plan is attracting strong reactions. medication status of Chinese residents in three reliance on medicine sales income. However,
Drafted in consultation with organizations particular areas – knowledge, attitude and little change in China’s healthcare market has
including the World Health Organization, behavior. Dr Liu’s conclusions included: yet occurred in rural areas, which remain much
World Bank, and consultants McKinsey & less developed than urban. Rural areas account
Co, the aim is to cover 90% of the popula-
tion within two years and to achieve univer-
sal healthcare for China’s 1.3 billion
■ The health status gap between urban and
rural residents in China is narrowing.
However, urban consumers still have a much
for over 60% of the country’s population but
only 10% of drug consumption. mp .
population by 2020. All revenue raised by higher awareness of non-prescription drugs.
Nicola Jay is Editor, Insight Asia, at Nicholas Hall &
public hospitals would return to the state and Company. Contact: nicola.jay@nicholashall.com
pricing standards set for medical services. ■ For minor ailments, 75% of those surveyed and +44 1703 220216 (tel); +44 1703 430787 (fax).
 F E A T U R E
ALL CLEARThe China healthcare market is on the move, with Zuellig Pharma China
pioneering direct distribution solutions to streamline the pharmaceutical supply chain
By Elsie Lim, Chief Executive, Zuellig Pharma China
s the economic meltdown continues and the world shivers at
A the prospect of icy business conditions in the year ahead,
China stands as a ray of warm hope in many eyes. Growth
forecasts for the country hover in the range of 6%-8% in 2009.
Although such predictions are lower than recent years, they appear rel-
atively robust amid a global recession. In the country’s pharmaceutical
sector, the outlook is one of change, reform and opportunity for man-
ufacturers to improve their top and bottom line.
Market landscape
China is already among the 10 largest pharma-
ceutical drug sales markets worldwide, and pre-
dicted to grow to the largest by 2025, driven in
part by large-scale urbanization. An aging pop-
ulation and rising incomes are other important
growth factors. However, China’s pharmaceuti-
cal market offers tough challenges. The current
landscape is characterized by:
■ widespread presence of generics
■ low affordability
■ government price controls and cuts
■ a complex regulatory environment
■ little medical insurance coverage in rural
areas where the majority of the
population lives
■ a horizon poised for great change.
Multinationals have a strong presence but profits have been limited due
to competition from thousands of generic producers and non-opti-
mized distribution costs. Thus hospital pharmacy sales have dominated
the market to date, with multinationals looking to major hospitals in
first-tier cities as their main targets. Smaller players providing advanced
and niche products have also found room in the market.
In January 2009, the State Council passed the country’s long-expect-
ed medical reform plan. The policy calls for US$123 billion to be
spent by 2011 to set up a universal healthcare system. The new system
includes the establishment of a national essential drug system and
reform of public hospitals, including funding mechanisms.
The evolving social and healthcare landscape is putting pressure on
traditional business models. Pharmaceutical companies’ drive for cost-
efficiency amid a challenging global market environment is adding to
S T O R Y
■ elim@zuelligpharma.com
the need for change. These factors are opening up fresh opportunities
for distribution partnerships that deliver in terms of business results as
the market partner
well as products.
Multi-tiered distribution
Previously in China, suppliers built brands and used direct sales teams
to interest major hospitals and pharmacies. Distributors and whole-
salers moved products to customers and collected payments. Analysis
now suggests this approach needs re-thinking . Economic conditions
demand that suppliers receive greater return on sales and marketing
costs. At the same time, major hospitals and
pharmacies have acquired purchasing power,
12 | 13
requiring top service to ensure customer sat-
isfaction. A growing business among smaller
customers is adding to the mix. Such changes
can make outsourcing to distributors who
provide such services a more efficient option
than running an in-house team.
Historically, distribution in China has oper-
ated along different lines compared with the
international wholesale industry. A trading
mindset, high margins, lack of IT and hard-
ware, and no customer service provision are
common. Multi-tier distribution structures
and a lack of standardization in working prac-
tices in different parts of the country further
complicate the picture.
In 2000, the country had more than 16,000
wholesalers. Since then consolidation, falling margins and the introduc-
tion of a Good Supply Practice (GSP) certification requirement have
seen figures drop to an estimated 7,000-8,000. Yet the three top whole-
salers account for just 15% of distributor channel sales. In the US, the
largest wholesalers account for more than 95% of distributor volum.
Model in need of a revamp
The predominant distribution model for multinational companies is
shown in Figure 1. Such a cumbersome, opaque structure impacts on
efficiency and effectiveness. Key issues include credit and liquidity
problems which can slow supply to the second level, margin squeeze
resulting in the return of basic supply issues to the second level and
poor operations at the first level providing little capability to react fast
to developing situations. Keeping track of stock and sales data are

Figure 1 Main distribution models used by MNCs
other major difficulties given the number of distribution layers that
products need to pass through before reaching the end customer.
As market conditions change, this complex wholesaler model is coming
under further pressure. Additional challenges include the capacity to deal
with expanding markets and channels; the need to extend coverage to
third and fourth tier cities calling for wider geographical operations; the
ability to respond to higher regulatory hurdles and a constantly changing
environment; how to secure accurate, timely and complete market infor-
mation; and increasing logistics costs, among others.
Simplifying the chain
Zuellig Pharma China, established in 1993 and a pioneer from its ear-
liest days as the first licensed foreign distributor in the country, is now
leading the way forward with a strategic approach that leverages its
extensive capabilities in logistics, including national and local direct
distribution, to simplify the distribution channel. The company is the
largest pharmaceutical importer in China, with full import and distri-
bution rights. It was the first foreign distributor to join the top 10 dis-
tributors and wholesalers in the country.
With more than 15 years’ experience in China, Zuellig Pharma has
developed extensive coverage across 400 cities though all channels.
Figure 2 Designing an efficient distribution network example
Through direct distribution and other relationships, the company
reaches over 30,000 hospitals, including community hospitals, and
85,000 pharmacies. Zuellig Pharma China has a national hub in
Shanghai, with local direct distribution in Beijing, Shenyang, Wuhan,
Chongqing, and extension to other provinces planned.
Services cover prescription over numerous categories and therapies
(Figure 3), OTC, import logistics, and specialty distribution, with spe-
cially built, state-of-the-art cold chain facilities and management
located in Guangzhou. National exclusive, regional cluster and local
direct distribution are available to address principals’ different needs
and product categories, with dedicated account management teams
developing customized solutions for both the wide-ranging portfolios
and volume requirements of multinationals and niche product suppli-
ers. Clinical trial and drug study logistics are also provided.
Mr. Eric Zwisler, Chief Executive Officer, Zuellig Pharma Asia
Pacific and former Chief Executive, Zuellig Pharma China, said:
“With healthcare reform set to open up new opportunities and extend
the market beyond major cities, we are seeking to delayer distribution
in China. This will enable principals to get closer to end customers,
speed the time to market and optimize distribution costs.”
Figure 3 Distributing products over numerous categories and therapies
Medical
devices & Cardiovascular
diagnostics
Equipment BPH
Vaccines Respiratory
Dermo-
Anti-infective
cosmetic
Gastro-
Anti-histaminic
intestinal
Oncology CNS
Anti-fungal Immunology
Development platform
A distributor plays a different role in the supply chain from a wholesaler,
acting as an extended arm of the principal in the market. A distributor’s
success is therefore tied in to a principal’s success, with interests aligned
to a principal’s sales and marketing plan and motivation to drive channel
and price control in line with the principal’s strategy.
“China is a push not a pull market,” Mr. Quoc Phong Chau,
Business Development Director, Zuellig Pharma China, said. “While
the principal creates demand, it is the distributor who actively drives
supply so that goods flow down to the end customer. As a market part-
ner, the distributor invests time in getting to know and understand a
principal’s products and positioning to assist this drive.” Advantages
include greater inventory control, shorter time to collect accounts
receivable and a diminished risk of returns.
In line with this, the Zuellig Pharma China platform takes into
account the challenges of moving into low-tier cities, rural markets
 Regulatory players

State Food & Drug Administration

■ Product registration & control

■ Licensing from industry point

of view

Ministry of Public Health

■ Primary hospital administration

National Development and

Reform Commission
■ Price control for retail and
“authorized margin” in the
distribution channel, mainly for
Rx but also for OTC

the market partner

Societal Insurance Administration

Ministry of Commerce
■ Commercial regulation &
industry policy

State Administration of Industry

& Commerce
■ Business registration &
investigation
14 | 15
Tax Authority

As hospitals and their services to the general population evolve, so are Zuellig Pharma China’s
distribution models. With this evolution, many healthcare products, particularly medical devices,
need a unique distribution model
and the community hospital channel in the new healthcare reform era, A regional quality management system operating across all Zuellig
as well as major city growth. Remote distribution centers offer logistic Pharma sites provides pan-Asia operation consistency, including rigorous
services and direct access to community hospitals; and the company is quality control, product integrity and business continuity planning.
continuing to invest, improving economies of scale through mergers Redressing is in compliance with GMP.
and acquisitions. While seeking to maximize the percentage of prod- In addition, Zuellig Pharma China’s delayered distribution strategy
ucts going directly to hospitals and pharmacies, Zuellig Pharma China combined with sophisticated IT systems brings greater transparency to
also works with a group of carefully selected wholesalers, depending the supply chain. In line with Zuellig Pharma Asia Pacific’s regional
on the therapeutic class with which products will be sold and which approach, Zuellig Pharma China has information systems specifically
defined targeted customers will be reached. focused on serving the distribution needs of the pharmaceutical and
healthcare product industry. As a result, principals can keep track of
Customized solutions which products are going where down to the final customer level.
This flexibility allows the company to build customized distribution Meanwhile, the availability of timely information on sales, marketing
solutions for principals that boost efficiency by identifying and strategy and inventory creates the opportunity for a pro-active response
implementing the shortest channel route. “The platform we have to market conditions.
developed is highly adaptable, allowing us to serve the different needs
of principals and rapidly respond to any changes in the China health- Empowering hospitals
care business environment,” Mr. Chau said. “Our comprehensive As hospitals and their services to the general population evolve, so are
portfolio ranging from pharmaceutical distribution to vaccines and Zuellig Pharma China’s distribution models. With this evolution, many
clinical trial logistics means we can match the extensive portfolios of healthcare products, particularly medical devices, need a unique distribu-
leading multinationals and also provide the services required by tion model. Hospital surgeries are frequently complex and need special-
smaller, specialized suppliers.” ized tools for a specific sequence in an operation. As operations are not

Supplying solutions
Zuellig Pharma China’s dedicated focus on
pharmaceutical and healthcare product dis-
tribution offers added value know-how,
logistics and infrastructure support to sup-
pliers seeking to build their presence in the
China market. The company operates at
national, regional and local level to provide a
full range of distribution solutions to stream-
line supply chain management. Business
models are tailored to the demands of each
of the sectors below, with further customiza-
tion available depending on individual prin-
cipal requirements.
Pharmaceutical
Zuellig Pharma China’s flexible operating
platform offers both local direct distribution
and delayered wholesaler distribution mod-
els to provide greater efficiency, cost reduc-
tions, and higher transparency and
traceability of sales and inventory. Six local
direct distribution companies cover hospi-
tals. Parts of foreign and private clinics are
also covered to meet principals’ require-
ments. The company has the capability to
handle a comprehensive range of product
categories and therapies (see Figure 3).
Vaccines
Among the challenges of vaccine distribu-
tion in China are the lack of infrastructure
outside the largest cities and lack of trans-
parency of the whole Center for Disease
Control (CDC) distribution network. Zuellig
Pharma addresses both these concerns
through a distribution model that is flexible
and expanding the number of direct suppli-
ers. Zuellig Pharma is enforcing step-by-
step the delayering model used over the
years for pharmaceuticals to vaccines.
Import procedures can be handled and
warehousing facilities with cold-chain
expertise are available in different locations.
A dedicated vaccine team operates in the
field handling distribution to CDC, including
orders and returns management; data col-
lection; accounts receivable collection; and
non-standard promotion services.
Cold-chain management
Zuellig Pharma China provides reliable, cut-
ting-edge cold chain and storage manage-
ment capabilities, including a custom-built
facility in Guangzhou. All warehouses oper-
ate under the same standardized proce-
dures, with back-up alarm systems and
specially trained personnel. Quarterly tem-
perature mapping is carried out to identify
cold and hot spots while 24-hour tempera-
ture tracking provides monitoring on a con-
tinuous basis. Manual tracking is carried out
six times a day. Inbound quality assurance
includes temperature measurement and
data collection, depending on a principal’s
requirements, while outbound checks
involve packaging protection and cold chain
labeling checks. Trucks are equipped with
GPS systems for long-haul trips for constant
surveillance and timely delivery.
OTC
One of the beneficiaries of urban growth and
rising incomes in China is likely to be OTCs,
with retail pharmacies already establishing
themselves as a key source of future expan-
sion in some parts of the country. At Zuellig
Pharma China, a specific team has been set
up to handle OTC business with 60 retail spe-
cialists and coverage of 85,000 retail pharma-
cy outlets. Direct distribution to retail is
available, with value-added support includ-
ing product launch planning, retail targeting
support, and management of key account
support.
Diagnostics and medical devices
Logistical services are available for all prod-
ucts including import, local direct distribu-
tion (hospital and OTC) and regional
distribution. A specific medical device team
is provided in the field to handle distribution
to dealers, hospitals and retail pharmacies,
data and accounts receivable collection.
Clinical trial logistics
Zuellig Pharma China’s “Clinical Reach
Solution” offers a range of services, including
but not limited to: consultation on importa-
tion and customs clearance, registration and
the regulatory process; storage and inventory
management in a protected and temperature-
controlled warehouse; order management
and dispatch; specialized cold-chain manage-
ment based on -20°C, 2-8°C and 15-25°C; and
clinical supplies returns, supplies destruction
with supervision and report.
always executed exactly to plan, the need for tools or
devices only becomes apparent in surgery. Zuellig
Pharma China provides flexibility to hospitals by
having everything needed for a particular operation
at the time. The company works closely with hospi-
tals to prepare for their needs and provide what
Zuellig Pharma China calls “last mile logistics” to
hospitals. This helps hospitals manage their invento-
ry with fewer overheads and allows them to concen-
trate on saving lives and patient care.
Zuellig Pharma China has been engaging local
hospitals to increase transparency in their forecast-
ing and internal product flows by helping to source,
customize and maintain an internal reporting, ana-
lytic and business intelligence system. This system
has enabled hospitals to look at their raw data in a
new way. By drilling by ward, doctor, and even prod-
uct level, hospitals are able to see their sales on a
daily basis with up-to-date information. With
enhanced analytics, hospitals have been able to drive
efficiency and superior service for their patients
while remaining cost friendly. In helping hospitals
with consolidating their data, Zuellig Pharma China
has been able to understand the customer better and
in turn serve their needs.
Other initiatives for hospitals are also underway,
such as implementing internal ordering systems and
looking at consulting with their operational teams.
Strategic outlook
China is on its way to implementing healthcare
reform throughout the entire system. While details
are not entirely clear for many of its amendments,
Zuellig Pharma is positioned for this change, seek-
ing closer relationships with its customers (hospi-
tals, retail pharmacies and clinics) and working as a
market partner with manufacturers and suppliers.
As the fundamental shift in healthcare management
begins in China, Zuellig Pharma China’s direct
relationship with both parties will help to move the
industry forward.
“Supply chain management in China needs to be
viewed as strategic”, Mr. Zwisler said. “Given the
importance of the China market to the global health-
care market, principals must be able to effectively
address a changing business environment to capital-
ize on the opportunities that are unfolding.
“A distribution partner who can provide flexible,
comprehensive solutions that are tailored to the
needs of individual principals and cut through sup-
.
ply chain complexity is the kind of solution
provider to meet these needs, today and in the
future,” he said. mp

Wider vision
Growth opportunities in the China market remain optimistic
China offers exciting prospects for the pharma-
ceutical industry in terms of both size and
growth. The country has witnessed the highest
growth rate among all large pharmaceutical
markets in the past five years. It more than
doubled in value from US$11 billion in 2004 to
US$23 billion in 2008 (ex-manufacturer value),
with the sector expected to continue its upward
trend to US$56 billion by 2013, according to
Chart source: IMS China Hospital Audit, data as of MAT 2008 Q2.
IMS China hospital audit data (see chart). The
compound annual growth rate from 2004-08
was 20% and is forecast to remain strong at
19% from 2008-13.
Such a stellar outlook is projected to see
China among the leading countries in the
world’s top 10 pharmaceutical markets in 2013
for ethical and OTC drugs at ex-factory level
(excluding traditional Chinese medicine). It
would place China behind the US in first posi-
tion, with an estimated market size of US$372
billion, and Japan in second at US$80 billion.
The country is expected to just edge ahead
of France.
Key forces behind such growth in China
include a sustained GDP growth rate, even in
H E A LT H C A R E O U T L O O K
| market watch
nificant effect on many aspects of market devel-
opment and operation.
The key challenge is predicting the degree
and consistency of execution of these reforms.
IMS has been developing scenario models with
quantifiable key trigger points and milestones to
help clients understand how radical the new
market may become and hence how business
the market partner
operations should adapt.
What can be seen today is that to maintain
high growth, multinationals are looking to drive
forward in two dimensions: to expand westward;
and to achieve deeper penetration in existing
cities, with an increasing contribution to sales
being made by smaller hospitals and community
health centers.
A handful of major cities currently represent a
significant proportion of sales in China. Beijing, 16 | 17
Shanghai, Guangzhou, Hangzhou and Nanjing
comprise 26% of the total China market and
40% of total multinational sales in the country.
IMS research in 2008 found the top 24 cities
represented about 55% of the total China
the current economic turmoil, a rise in dispos- market and 70% of sales contribution for
able income linked to urbanization, an ageing multinationals.
population and the increasing prevalence of The current concentration is in the east of
chronic and lifestyle-related diseases. the country. However, this picture is likely to
The far-reaching government healthcare change as pharmaceutical companies drive west-
reforms are a complicating but nonetheless ward and distribution evolves. In the wake of
highly important factor in market growth. When such moves, percentage of sales contribution
fully implemented, these reforms will have a sig- from the five major cities is set to decline.
Retail’s contribution to sales rose from 13%
China pharmaceutical market size (US$ bn) and growth to 18% in 2007 and 2008 respectively, while
growth in smaller hospitals’ (less than 100 beds)
60
sales ratio for western drugs increased from 6%
55 56
CAGR: 19% to 8% in 2007 and 2008 respectively. While
50
US$ bn (Ex-manufacturer value)
(08-13) change in the concentration on city contribution
45
is currently limited, such trends are expected to
40
35
30
25
CAGR: 20%
(04-08)
37
continue. The healthcare reforms are highly
likely to accelerate change on the supply side. mp .
20 In line with such evolution, IMS is expanding its detailed
23
15 sub-city (“brick”) data to 22 cities. It is launching retail Rx
15 data for 22 cities and developing a smaller hospital audit (100
10
11 or less beds). For further information on IMS services or the
5 China healthcare reforms, please contact: David Twinberrow,
0 General Manager, Business Lines, Shanghai, tel: 86 6362 011;
or Wang Danhui, Product and Portfolio Strategy Principal,
2004 2006 2008 2010 2013
Beijing, tel: 86 010 65886988 439.
views from the region
A round-up of reports from our offices around the region outlining the news and
events that are shaping their businesses and redefining the healthcare industry
Hong Kong
Government makes
employment a priority
Hong Kong has not escaped the world-
wide turmoil resulting from the worst
global economic crisis since the Great
Depression, with the city already sliding
into recession. Financial Secretary Mr.
John Tsang delivered his budget speech
at the end of February, predicting that
Hong Kong could face at least two
tough years before the economy begins
to show signs of recovery. Mr. Tsang
forecast a 2.5% increase in GDP in
2008, lower than the trend growth rate
over the past 10 years; a 2% to 3% de-
crease in GDP for 2009; and an annual
average growth rate of 3% to 5% for
2010-13. The inflation rate for 2008 was
4.3% and is expected to be 1.6% in
2009. Unemployment may increase
from 4.6% in 2008 to 8% in 2009.
The government will be giving top
priority to creating and preserving jobs.
Revenue concessions, such as a waiver
of salaries tax and rates, and a freeze
on government fees and charges, will
be introduced to stimulate the econo-
my. As a result, the government will
have a budget deficit of HK$96.9 billion
(US$12.4 billion) over the next five
financial years, but hopes to balance
the books by 2013-14.
The measure that will have the most
impact on the pharmaceutical industry
is an increase in the recurrent subven-
tion for the Hospital Authority. The sub-
vention will rise over the next three
years by about HK$870 million (US$110
million) a year. In 2011-12, it will be
approximately HK$2.6 billion (US$0.33
billion) higher than at present. An extra
HK$840 million (US$108 million) has
been set aside for the next three years
to strengthen primary care services and
support to chronic patients, to promote
public-private partnership and to devel-
op a territory-wide electronic health
record system.
It is expected that support for chron-
ic patients at public hospitals, such as
services for kidney, cancer, mental and
heart patients will be enhanced. The
public-private partnership will be fos-
tered in areas such as renal dialysis.
The Hospital Authority will create more
than 1,000 permanent jobs in 2009 and
nursing schools are being reopened to
offer 550 training places. In addition,
the Hospital Authority will look into the
possibility of providing patients with
more expensive drugs free of charge.
The funding increase will definitely
be welcomed by the pharmaceutical
industry. In 2008, sales growth for
pharmaceutical products in the govern-
ment hospital sector was a mere 3.6%
versus growth of 11.2% for the total
pharmaceutical market. A rise in the
use of generics and the restricted use
of new products helped to account for
this. With the funding boost, it is
hoped that more innovative pharma-
ceutical products will be included in
the Hospital Authority’s drug formulary.
The Food and Health Bureau is cur-
rently preparing for the second stage
of healthcare reform consultation. A
Working Group on Primary Care has
been set up to put forward specific
proposals on primary care. Healthcare
expenditure will be increased to 17%
of recurrent expenditures by 2012.
When the supplementary financing
arrangements are finalized, HK$50
billion (US$6.4 billion) will be drawn
from the fiscal reserves to implement
the reform.
Frederick Tsang
ftsang@zuelligpharma.com
✱ Fast Fact
The Hospital Authority’s recurrent
subvention will be increased over the
next three years.
China
Export, property
slowdown impacts
growth
Challenges continue as GDP decreased
from 13% in 2007 to 9% in 2008. This
is due mainly to the export and proper-
ty slowdown. Q4 2008 saw growth of
6.8%, the weakest since 2001. On a
brighter note, inflation cooled to its
lowest level in three years, with con-
sumer prices increasing just 1% in
January. However, producer prices fell
3.3%, the largest decline in seven
years. Trade shipments in January
decreased by 14% from the previous
year, with the hardest hit areas in the
south, more specifically Shenzhen.
December shipments fell 2.8%, accord-
ing to a February report by Bloomberg.
With over 20 million unemployed,
focused spending by the government
to provide a stimulus to the financial
sector has become more urgent.
Lending has surged with the US$585
billion stimulus package coming to
fruition in state-owned banks. The
China Securities Journal reported in
January an estimated US$175.5 billion
in new loans. Analysts hope the down-
turn has bottomed out and recovery is
beginning. Slowing inflation has
enabled the central bank to cut inter-
est rates further, with the one-year
lending rate at 5.31% after a total of
2.16 percentage point reductions in
2008.
On January 21, the State Council
passed the highly anticipated medical
reform plan. The plan calls for spend-
ing up to US$123 billion by 2011 to
provide universal healthcare. The
reform plan, in development since
2006, intends to address issues in
increasing medical fees, lack of acces-
sibility, and low medical insurance
coverage. The plan has five major
components to cater to these needs.
It is due to:
■ Provide increased coverage for both
rural and urban populations through
either the basic medical insurance sys-
tem or the new rural cooperative med-
ical system. Each person under either
system will receive a subsidy of
RMB120.

■ Establish a national essential drug
system. All essential drugs will be
included in the national drug reim-
bursement list for basic medical insur-
ance programs.
■ Improve the primary medical service
system, concentrating on county level
hospitals, township clinics and commu-
nity health centers.
■ Promote fair access to basic public
health services by developing and
implementing national basic public
health service programs.
■ Implement a pilot program this year
to reform public hospitals by increas-
ing operational efficiency and service
standards. Funding mechanisms for
hospitals will be included in the pilot.
Beijing has already initiated a
mandatory policy for residents covered
under the basic medical insurance,
who must first seek a referral diagno-
sis from community medical institu-
tions to be eligible for reimbursement.
Shanghai has also implemented a zero
markup policy for prices of basic drugs
dispensed through 232 Community
Health Service Centers (CHCs). This
came into force in some CHCs at the
end of December and is scheduled to
be rolled out to the entire city by the
end of 2009.
Elsie Lim
elim@zuelligpharma.com
✱ Fast Fact
The State Council has passed the
long-awaited medical reform plan.
Taiwan
Stimulus package
seeks to ease
economic contraction
The alleged money laundering, bribe
and embezzlement case involving
former president Chen Shui-bian and his
family is perceived as a test for
Taiwanese democracy and its judicial
system, as fears of political interference
in due process for the trial are mounting.
It is expected to last several months.
President Ma Ying-jeou and his
administration’s tax cuts, shopping
vouchers and extra spending on infra-
structure, totaling close to NT$500
billion (4.1% of 2009 GDP), are gener-
ally perceived as a strong stimulus
package which will partially soften the
contraction of the economy. Exports
plunged a record 42% in December as
demand for IT products has been
severely affected by the global finan-
cial crisis. The final figure for GDP
growth in 2008 is expected to be
below 2%, a significant drop compared
with previous forecasts, reflecting a
Taiwanese economy in worse shape
than anticipated. Many analysts
believe GDP will contract in 2009 at
around -2% and that growth will only
resume from 2010. Taiwan’s unemploy-
ment rate climbed sharply in the last
four months of 2008 and reached 4.6%
in February, with expectations for 2009
averaging 6%, much above govern-
ment’s latest forecasts of 4.5%.
Inflation dropped significantly to 1.2%
in December and may well turn to
deflation in 2009.
Taiwan has become the 17th econo-
my to ban smoking indoors in public
facilities. The Department of Health is
also lobbying the Legislative Yuan to
pass a bill to increase the health tax
on tobacco products from the current
NT$10 to NT$20 per pack. It is estimat-
ed this could raise NT$11 billion for
National Health Insurance and partially
cover its current deficit.
The National Health Conference,
organized by the Department of Health
on December 31, produced some con-
troversial conclusions, especially on
generic product pricing. The recom-
mendation was to give the same price
to drugs with the same ingredients
and same quality, effectively leveling
prices of original off-patent drugs with
generics.
The sixth Price Volume Survey initi-
ated by the Bureau of National Health
Insurance and its corresponding price
cuts on drugs are expected to be com-
pleted and implemented by September
1, 2009 at the latest, in line with the
Legislative Yuan Health Committee’s
binding resolution passed in
December.
Yves Hermes
yhermes@zuelligpharma.com
✱ Fast Fact
The sixth Price Volume Survey is due
to be implemented by September
2009 at the latest.
views from the region
Singapore
Downturn expected
to continue in 2009
In the midst of deepening crises in the
world’s major financial markets,
Singapore’s economy continued to
deteriorate in Q4 2008. Preliminary
indicators point toward a contraction
of real GDP by 3.7%, following a
decline of 0.2% in the preceding quar-
ter. For 2008 as a whole, the economy
is estimated to have grown by only
1.2% compared with a recent forecast
of 3% for the year and 7.7% in 2007.
Projecting forward, the Ministry of
Trade and Industry (MTI) expects the
economic downturn to continue in
2009. The weaker outlook for the
Singapore economy compared with
earlier forecasts reflects two factors:
global economic activity has declined
faster and deeper; and the spillover
effects on key sectors of the economy
will be stronger. Taking these factors
into account, MTI has revised
Singapore’s economic growth forecast
to between -5.0% and -2.0%.
Singapore’s medical tourism indus-
try has not escaped the global finan-
cial turmoil, with a drop in foreign
patients seeking medical services.
One of the largest private healthcare
providers reported a reduction of 5%
to 7% in foreign patients in Q4 2008,
especially those from neighboring
countries. The medical tourism indus-
try attracted over 571,000 medical
tourists last year and was worth more
than $1.7 billion in 2007. Despite the
gloom, long-term confidence in the
industry remains. ParkwayHealth, the
largest private healthcare provider, is
proceeding with plans to build a 350-
bed hospital due to be completed by
2011. The government has also
pledged to invest $4 billion in health-
care infrastructure over the next five
years. This will include the redevelop-
ment of older hospitals, medical cen-
ters and a new hospital in the west, as
well as expediting the construction of
a new public hospital.
As part of the government’s effort to
buffer the full impact of the recession,
the Health Ministry has announced
plans to speed up recruitment for
jobs for those who may be
retrenched. The ministry is now look-
ing to fill 4,500 positions in the public
health sector over the next two years
and another 1,700 later. These range
from jobs for healthcare professionals
such as nurses and pharmacists, to
administrative positions for counter
staff and telephone operators. To aid
those interested in a mid-career
switch to the healthcare sector, the
ministry and Workforce Development
Agency have announced plans to sub-
sidize training to enable 250 people
with no prior experience to become
the market partner
nurses or allied health professionals.
The number of scholarships for allied
health programs has doubled to 250
this year. The Health Ministry has
taken further steps to assist patients
during the recession, with the budget
for Medifund extended to $74 million,
almost 50% more than last year.
Medifund is a national health pro-
gram that provides subsidies to
18 | 19
needy Singaporeans aged 65 and up
for treatment of minor ailments at pri-
vate general practitioner clinics. The
program will expand to cover more
chronic diseases this year.
Ng Yong Tjoon
ytng@zuelligpharma.com
✱ Fast Fact
The government is boosting health-
care recruitment and training to
counter effects of the recession.
Malaysia
& Brunei
Malaysia GDP growth
revised down
With financial markets under stress
and global output and trade plummet-
ing, Malaysia will not be spared the
fallout. About 80% of its exports go to
10 countries which are currently suf-
fering an economic slowdown. Despite
the assurance of the central bank,
Bank Negara Malaysia (BNM), that the
local financial system will remain
strong, the government has revised
GDP growth for 2009 downward from
5.4% to 3.5% and unveiled a RM7
views from the region
billion (US$1.94 billion) stimulus pack-
age to drive growth, spur domestic
spending and generate more activity in
segments of the economy.
With a slew of negative data, includ-
ing contraction in exports, industrial
production and concerns over job
stability, BNM slashed its benchmark
overnight policy rate in January by a
record 75 basis point from 3.25% to
2.5% in an aggressive move to further
lower borrowing costs. Many took this
as a sign that the economy may be
getting to a delicate stage.
The bleak global outlook will have
an impact on the pharmaceutical
industry. However, international con-
sultants Frost & Sullivan reported sev-
eral factors which will serve the
Malaysian pharmaceutical industry
well. These include the increase in var-
ious death-related illness, for example
heart disease and cancer, that will
drive demand for specialist drugs and
treatments; the rising young middle-
class who have increased healthcare
expectations; an ageing population;
and medical tourism.
The pharmaceutical market in
Malaysia was valued at RM3.5 billion
(US$972 million) in 2008, and is
estimated to grow to RM3.8 billion
(US$1.05 billion) in 2009. According
to the Pharmaceutical Association of
Malaysia (PhAMA) Turnover Survey,
the overall pharmaceutical sector grew
9.77% in 2008 compared with the
previous corresponding period.
Participating multinational corpora-
tions reported total sales of RM2.40
billion (US$667 million). For Zuellig
Pharma Malaysia’s principals, total
sales reported were RM2.43 billion
(US$675 million) in 2008 while overall
annual market growth was 9.33%. In
terms of ethical growth, PhAMA post-
ed good growth of 9.2% for 2008
while Zuellig Pharma’s principals saw
ethical sales increase by 8.8%.
At Zuellig Pharma Malaysia, we are
proud to welcome Abbott Laboratories.
The company came on board in
February.
In Brunei, 2008 brought several pos-
itive developments, with the Sultanate
buffered against the current economic
turmoil due to strong global crude oil
prices. Oil and gas make up 90% of
Brunei’s export revenues. More press-
ing issues for the government are to
reduce reliance on oil, the increasing
burden of subsidy provision and food
insecurity. Brunei has a self-sufficiency
rate of 3% for rice. The remainder is
mostly imported from Thailand.
Brunei also faces the challenge of
increasing healthcare costs and needs
doctors to play a greater role in bring-
ing down costs through prevention,
wellness, early detection and treat-
ment. The Ministry of Health approved
the establishment of the Brunei
Medical Association as a representa-
tive body to take on these tasks. In
working to ensure services are readily
available and accessible, the ministry
is also evaluating the building of a
new hospital, establishing a cancer
center, and a renal transplant service.
Jessie Tang
jtang@zuelligpharma.com
✱ Fast Fact
The newly established Brunei Medical
Association will help doctors to reduce
Brunei’s healthcare costs.
Indonesia
President maintains
popularity in run-up to
elections
President Susilo Bambang Yudhoyono
enjoyed a good start to 2009, with his
best poll results in two years and a
growing lead over main rival Megawati
Soekarnoputri. Timely fuel price cuts
and plans for a major stimulus have
boosted his popularity as voters focus
on the parliamentary elections in April
and the first round of the presidential
elections in July. President Yudhoyono’s
Partai Demokrat (PD), bolstered by his
popularity as well as an effective cam-
paign, has also moved ahead of its
two main competitors, Ms. Megawati’s
PDIP and Golkar.
Bank Indonesia lowered its bench-
mark interest rate by 25bp to 9.25% in
December and further reduced the
rate to 8.75% in January. The 50bp
rate cut and the launch of a US$3.5 to
US$5 billion government stimulus
package underscores the increased
focus on supporting the economy. This
includes boosting domestic demand
amid prospects of major layoffs and
projections of a slowdown in GDP
growth to 4% to 5% maximum in 2009,
down from around 6.2% in 2008.
Easing inflation concerns and a rela-
tively stable rupiah are likely to allow
the central bank to implement further
monetary easing to encourage con-
sumption. The currency has strength-
ened over 10% against the US dollar
since last year’s low in mid-November
while other financial proxies, such as
the stock and bond markets, have also
risen substantially during this period
with noticeable foreign capital inflows.
In the third week of January, govern-
ment banks decided to reduce credit
interest rates. This was a response to
the reduction of Bank Indonesia’s
benchmark interest rate at the begin-
ning of the month. The decision to
reduce credit interest rates is a com-
mitment from banks to continually
align their credit interest rates with
the bank capability and the condition
in the market.
Bank Indonesia also noted that the
fall in oil and other commodity prices
that is helping to ease inflationary
pressures was likely to follow through
into 2009, and indicated that annual
inflation next year could fall to the
lower-end of its 6.5% to 7.5% inflation
projection. With slower growth and
large-scale layoffs on the horizon,
most analysts now expect Bank
Indonesia to join central banks
around the world and move more
aggressively, with monetary easing
over the coming months in an effort
to reduce borrowing costs and boost
domestic consumption.
Indonesia currently has over 200
pharmaceutical manufacturers.
Leading foreign players are estimated
to account for around half of the mar-
ket share in value terms, although
many are critical of the numerous bar-
riers to entry and government bias
toward generic products. Some con-
solidation is likely in the face of
increased competition, pricing pres-
sures and regional harmonization ini-
tiatives, with the government outlining
plans to merge a number of state-
owned producers. Indigenous R&D
efforts are hampered by the lack of
finance and widespread counterfeit-
ing. However, in recent months some
foreign companies have started
investing, with Singapore-based
Novartis Institute for Tropical
Diseases creating a research partner-
ship with two of Indonesia’s hospi-
tals. Despite some regulatory and
intellectual property rights shortcom-
ings, Indonesia has potential for clini-
cal research given its low cost and
epidemiological profile.
While Indonesia has overhauled its
regulatory system, the pharmaceuti-
cal sector is still in a difficult position.
Inadequate patent laws, uncertain
government pricing policy and strong
domestic capacity are largely to
blame. As a result, foreign presence is
low, though regional harmonization
and an improvement in business con-
ditions will stimulate growth. Some
multinationals have local plants,
while others import through distribu-
tors. A new decree banning registra-
tion of pharmaceuticals by principals
without manufacturing facilities has
been issued. Thirteen multinational
companies have been affected and
must take necessary action within the
given transition period.
Industry Minister Fahmi Idris said in
October 2008 that he was considering
removing pharmaceuticals from the
negative investment list. Inclusion
means that foreign entities can only
provide up to three-quarters of the
funds invested in a pharmaceutical
concern. It must be noted that the
politician gave no timeframe for the
transition. Unsurprisingly, the plan
has the support of the International
Pharmaceutical Manufacturers Group
and the Pharmaceutical Companies
Association.
In February, increasingly higher pre-
cipitation became visible in the capi-
tal Jakarta. Some easily inundated
areas started to experience mild to
high-level flooding. APL took precau-
tionary action, with its water rescue
team carrying out all necessary
preparations.
Santiago Garcia
santiago.garcia@aplcare.com
✱ Fast Fact
Novartis Institute for Tropical
Diseases has established a research
partnership with two Indonesian
hospitals.

Korea
Gloomy outlook as
exports plunge
The ongoing credit crisis has hit Korea
severely, with the economy shrinking
by 5.6% in Q4, its worst performance
in a decade. Korean exports in Q4 fell
by close to 12% from the previous
three-month period, the largest
decline in almost 30 years. In January,
the situation worsened with exports
plunging 32.8%. More recent data
shows the economic slowdown has
accelerated. This gloomy picture puts
more pressure on the government to
expand its stimulus plans, and for the
central bank to take additional mone-
tary-easing steps. The Bank of Korea
has lowered the benchmark interest
rate to 2% and the government is
scrambling to provide stimulus pack-
ages, including tax cuts and expanded
fiscal spending.
The credit crunch has taken its toll
on the pharmaceutical market.
Wholesalers in Korea are highly
dependent on short-term uncollateral-
ized loans for cash flow and several
have been forced to declare bankrupt-
cy when loans were not renewed.
Limited access to capital has also
forced wholesalers to reduce invento-
ry levels.
The Ministry of Health, Welfare and
Family Affairs continues to enforce
policies to control expenditure. It has
announced that the drug price reduc-
tion planned for this year is being
reexamined to take into account the
current economic downturn. Minister
Jeon Jae Hee has also expressed
strong interest in a transparent drug
distribution system, and the ministry
has implemented the revised
Pharmaceutical Act enforcement regu-
lation. This focuses on punishing both
provider (wholesaler/manufacturer)
and receiver (pharmacists/doctors) for
illegal rebates or incentives of any
kind. The punishment may take the
form of fines or license suspension.
Previously, the provider was punished.
At Zuellig Pharma Korea we are
pleased to welcome Allergan as a
distribution principal. We have also
added further clinical trial principals.
Tom Vanmolkot
tvanmolkot@zuelligpharma.com
✱ Fast Fact
The credit crunch is taking its toll on
the pharmaceutical market.
Philippines
Economy loses steam
amid global recession
The Philippine economy (GDP) grew
4.6% in 2008, down from the 7.2%
growth in the prior year. Export volume
flattened, reflecting depressed
demand as the major world economies
experienced a recession. Investment in
plant and equipment slowed sharply
as most companies put expansion
plans on hold due to short-term
business uncertainties.
The few bright spots in the economy
were private construction, which
remained on an upswing, growing by
11.4%, and business process outsourc-
ing (BPO) and information technology-
enabled services (for example, call
centers), which sustained growth of
35%. BPOs provided a boost to the
office space segment of property
development. Government pump-
priming also commenced in the
second half of 2008.
As the global challenges become
more formidable, domestic growth
sources will likely be less effective in
counterbalancing the external shocks
and in propping up the economy.
Hence, Philippine GDP is forecast to
grow between 2% and 3% in 2009. The
only major difference in policy thrust
from 2008 is the relaxation of monetary
policy in an effort to lower the cost of
borrowing to stimulate corporate and
consumer spending.
After a brief strengthening in the
early part of 2009, the peso-dollar
exchange rate is likely to resume its
depreciation until the end of the year,
reflecting adverse market reaction to
the deepening recession in the world’s
major economies. The exchange rate
should average P48-48.5:$1 in 2009.
Inflation should fall below 7%, as world
oil prices stabilize and commodity
prices, especially food and raw materi-
als, remain soft.
In 2008, the Philippine pharmaceuti-
cal market grew 10% in value, and now
totals US$2.27 billion. Ethical products
grew 11.6% driven by the double-digit
growth of the antihypertensive, dia-
betes and respiratory therapeutic
areas. The OTC market expanded 5.4%,
driven by cough and cold preparations
(13.9%) and analgesics (9.3%) but off-
set by a weak vitamins market (3.7%).
Branded products, which account for
95% of the market, grew 9.8% and
unbranded products grew 14.6%.
Drugstores, which account for the
lion’s share of channel sales in this pre-
scription market, increased 11%, and
hospitals grew 5%.
During 2008, local companies grew
14% and multinational companies
(MNCs) by 8%. MNCs began to exe-
cute more innovative market expansion
programs, clever pricing strategies,
effective patient compliance and usage
programs, and better channel manage-
ment programs, in order to protect
their brands.
Mike Becker
mbecker@zuelligpharma.com
✱ Fast Fact
Multinationals look to innovative
market expansion programs to safe-
guard brands.
Vietnam
Inflation eases as gas
prices fall
After ever-increasing inflation rates for
most of 2008, the year ended with a
strong reduction of month-on-month
rates, bringing the annual average to
just below 20%. In January 2009,
rates dropped further to 17.5% com-
pared with January 2008, with only a
small increase compared with
December 2008. This is notable since
Tet (Vietnamese New Year) fell in
January this year. Tet is usually accom-
panied by large price increases. The
drop in inflation rates has been driven
by lower gasoline prices, which
dropped from a peak of 19,000 dong
(US$1.09) to 11,500 dong (US$0.66)
per liter, as well as lower food and
foodstuff prices.
Several analysts have reduced their
forecasts substantially for both infla-
tion and GDP growth. Vietnam’s econo-
my relies heavily on exports (“Exports
of goods and services are equivalent
to over 80% of GDP [in nominal
terms].” Source: EIU country report,
December 2008.) Hence, the slowdown
in Europe and the US will have a
strong effect on GDP growth in 2009.
This is of major concern since a large
number of Vietnamese are employed
by export-driven industries, including
furniture, garment, seafood, and
the market partner
handicrafts, among others.
The government has adopted vari-
ous measures to support local com-
panies, including a stimulus package
and lower interest rates. The State
Bank of Vietnam dropped its rate from
a peak of 14% in June 2008 to half
that in January 2009. The implemen-
tation of the personal income tax law
has been postponed to help ailing 20 | 21
companies as well as employees,
although it remains to be seen
whether it will be implemented in
coming months.
The dong was devalued by 3% in
December, with a further devaluation
possible in 2009. Companies in
Vietnam are also concerned about the
availability of US dollars via commer-
cial banks to settle import bills, main-
ly due to the slowdown of exports.
Stefan Heitmann
sheitmann@zuelligpharma.com
✱ Fast Fact
Slowdown in Europe and US expect-
ed to have strong effect on GDP
growth in 2009.
Thailand
Government passes
by-election test
The end of 2008 saw the election of
a new Prime Minister, Mr. Abhisit
Vejjajiva, an Oxford-educated opposi-
tion leader, ending a seven-year
dominance of electoral politics by
parties loyal to former Prime Minister
views from the region
Mr. Thaksin Shinawatra. By-elections
in January saw the government suc-
cessfully pass its first stability test.
The results lifted the government’s
majority to 48 seats in the 480-seat
parliament. The cabinet quickly
approved a supplementary budget of
US$3.2 billion (equal to 1.2% of 2008
GDP), bringing the overall economic
stimulus package to US$8.2 billion.
Q4 2008 saw GDP growth slow
down dramatically and almost stop.
This was partly due to the occupation
of Thailand’s main airports which con-
tributed to a sharp fall in the tourism
sector, a major contributor to
Thailand’s GDP. GDP is expected to
contract in Q1 2009, putting Thailand
in a technical recession. The govern-
ment and Bank of Thailand projec-
tions for 2009 GDP growth are now
close to 2%. Most local analysts pre-
dict little growth until late 2009.
Exports plunged 17.7% in November
2008, the biggest drop since the Asian
crisis 11 years ago and unemployment
is expected to rise to between 4% to
5%. The Central Bank announced a
rate cut in January, taking the bank
policy rate to 2% as inflation pres-
sures ease.
On the healthcare front, Mr. Wittaya
Kaewparadai has been appointed
Minister of Public Health. The introduc-
tion of the product liability law on
February 20 generated much concern
among manufacturers. Unlike many
countries around the world, the onus is
on the manufacturer or supplier to
prove that their product is not defective.
Yves Hermes
yhermes@zuelligpharma.com
✱ Fast Fact
The introduction of product liability
legislation has caused concern
among manufacturers.
India
Tension with Pakistan
likely to remain high
Mumbai, and India, were thrown into
turmoil in November by terrorist
attacks on various sites in South
Mumbai, including the historic Taj
Mahal Hotel and the prestigious
Oberoi/Trident Hotels complex. With
evidence indicating the attacks origi-
nated in Pakistan, tension has
increased between India and Pakistan.
Tension is likely to remain high for
most of 2009 while Pakistan address-
es India’s demand to arrest and pun-
ish the suspected instigators of the
Mumbai attack. There has also been a
backlash against politicians for their
perceived inability to protect people.
Senior politicians at national and
state levels have been held account-
able and forced to resign.
Despite the attacks and increased
tension with Pakistan, India is still on
track for stable general elections in
May. Of the four major states holding
elections recently, Delhi, Madhya
Pradesh and Chhattisgarh were
retained by the party in power. The
incumbent Congress-led national
coalition also seems likely to be
returned although a change to a
Bharatiya Janata Party-led coalition
government is not expected to have
significant impact on the economy
and business environment.
While still reeling from the global
financial crisis, India has been shaken
by the Satyam Computer Services
scandal. The founder and former
chairman of Satyam, the fourth
largest Indian computer services
company, B. Ramalinga Raju Satyam
admitted he inflated the company’s
cash balances and profits to cover up
the diversion of funds to two real
estate firms owned by his family
members.
The issue of data exclusivity
remains a hot topic between the gov-
ernment, local generic manufacturers
and multinational manufacturers. In
India, the drug regulator approves
cheaper local drugs if the second
applicant can show it is chemically
equivalent to an already approved
drug. Marketing approval relies on the
fact that the same chemical was
approved earlier by itself or another
regulator with no clinical trials
required. Multinationals take the view
that India should provide an effective
period of exclusivity for clinical
dossiers that are independent of
patent protection and have been pres-
surizing the government not to
approve me-too versions of their
medicines by Indian companies.
While the Health Ministry has yet to
make a call, a parliamentary standing
committee on commerce has told the
government not to change the cur-
rent practice of approving cheaper
Indian versions of multinational
company drugs.
Mike Hampton
mhampton@zuelligpharma.com
✱ Fast Fact
Data exclusivity continues to be a
hot subject between government,
multinational companies and local
generic manufacturers.
Bangladesh
Country continues to
ride out economic
storm
A national election was held on
December 29 resulting in a landslide
win for the Awami League-led Grand
Alliance and bringing a return to a
democratic form of government. The
election was held in a peaceful
atmosphere, achieving a voter
turnout of more than 80%, with 25%
voting for the first time. Both local
and international observers pro-
nounced the election free and fair,
countering the allegations of the los-
ing Bangladesh Nationalist Party
(BNP) that the results were rigged.
The BNP previously held power and
appears to have been punished by
voters for the perceived economic
mismanagement and rampant corrup-
tion which characterized their time in
power. Sheikh Hasina commenced
her second term as Prime Minister
with a clear mandate to enact elec-
toral promises to reduce the price of
essentials, wind back oil and gas
price increases, continue anti-corrup-
tion measures, and implement much-
needed infrastructure projects to
support the economic development
of the country.
Bangladesh continues to weather
the global economic storm. However,
concerns are beginning to be raised.
While exports of US$7.76 billion
showed growth of 19.4% for the first
half of financial year 2008-09,
December saw a 10% decline in the
country’s total export earnings over
the same time the previous year –
although much of this drop is seen
as reflecting fewer working days in
the month due to the Eid festival and
national election. The ready-made
garment sector is nervous, and
frozen foods, particularly shrimp, are
facing downward price pressure.
Leather exports were 28% below
the export target for the six months
ending December. Concerns over
overseas foreign worker (OFW)
remittances have yet to be realized.
The January inflow was a record
US$865 million, contributing to the
July 2008-January 2009 growth rate
of 29.4% over the same time the
previous year.
The pharmaceutical industry in
Bangladesh had another strong year,
recording double-digit growth in
2008. IMS reported that sales
exceeded US$580 million, although
local estimates suggest sales over
US$700 million for the year, with
growth driven predominantly by local
manufacturers. The base of manufac-
ture for export was further diversi-
fied with a number of local
manufacturers receiving internation-
al accreditation which will see them
exporting to developed markets in
the future in addition to the predomi-
nantly least developed countries
(LDC) markets they serve today.
Zuellig Pharma Bangladesh
Limited celebrated its second year
of operations in February. The year
saw the expansion of the Tejgaon
Distribution Center, the implementa-
tion of an outsourced disaster
recovery plan site together with
Thakral Information Systems Limited,
the preparation of a business contin-
gency plan with particular focus on
avian influenza, and a number of
operational and quality infrastruc-
ture upgrades to branches.
Brett Marshall
bmarshall@zuelligpharma.com
✱ Fast Fact
The pharmaceutical industry
enjoyed strong double-digit growth
in 2008.
Corporate Country offices
Zuellig Pharma Zuellig Pharma
Asia Pacific Bangladesh Singapore For information about Zuellig Pharma
1303, Shui On Centre Mr. Brett Marshall Mr. YT Ng Asia Pacific or any of its business entities,
No. 6-8 Harbour Road General Manager General Manager please contact the Corporate Office:
Wanchai, Hong Kong Zuellig Pharma Bangladesh Ltd. Zuellig Pharma Pte. Ltd.
Tel: +852 2845 2677 Tel: +880 (2) 988 4454 Tel: +65 6546 8188 Zuellig Pharma Asia Pacific
Fax: +852 2877 5647 bmarshall@zuelligpharma.com ytng@zuelligpharma.com 1303 Shui On Centre
No. 6-8 Harbour Road
China Wanchai, Hong Kong
Contacts Taiwan
Tel: +852 2845 2677
Mr. Eric Zwisler Ms. Elsie Lim Mr. Yves Hermes
Fax: +852 2877 5647
Chief Executive Officer Chief Executive General Manager
Email: help@zuelligpharma.com
Zuellig Pharma Asia Pacific Zuellig Pharma China Zuellig Pharma, Inc.
ezwisler@zuelligpharma.com Tel: +86 (21) 5306 0001 Tel: +886 (2) 2570 0064
elim@zuelligpharma.com yhermes@zuelligpharma.com
Mr. Rolf Steffen
Managing Director, Operations & Hong Kong & Macau Thailand
Value Innovation Mr. Yves Hermes
Mr. Frederick Tsang
Zuellig Pharma Chief Executive
Chief Executive
rsteffen@zuelligpharma.com Zuellig Pharma Ltd.
Zuellig Pharma Ltd.
Tel: +852 2856 3632 Tel: +66 (2) 656 9800
Mr. Roland Bruhin yhermes@zuelligpharma.com
ftsang@zuelligpharma.com
Managing Director, Business Operations
Zuellig Pharma
India Vietnam & Cambodia
rbruhin@zuelligpharma.com
Mr. Mike Hampton Mr. Stefan Heitmann
General Manager General Manager
Ms. Elaine J. Cheung
Zuellig Pharma (India) Private Ltd. Zuellig Pharma Vietnam Ltd.
Chief Financial Officer
Tel: +91 22 6707 8826 Tel: +84 (8) 910 2650
Zuellig Pharma Asia Pacific
mhampton@zuelligpharma.com sheitmann@zuelligpharma.com
echeung@zuelligpharma.com

Mr. Douglas Stanton Indonesia

Chief Human Resources Officer Mr. Santiago Garcia
Zuellig Pharma Asia Pacific President Director
dstanton@zuelligpharma.com P.T. Anugerah Pharmindo Lestari
Tel: +62(21) 345 6008
Mr. Michael Becker santiago.garcia@aplcare.com
Area Director
Zuellig Pharma Korea
mbecker@zuelligpharma.com Mr. Tom Vanmolkot
President
Ms. Jessie Tang Zuellig Pharma Korea Ltd.
Area Director Tel: +82 (2) 2006 0600
Zuellig Pharma tvanmolkot@zuelligpharma.com
jtang@zuelligpharma.com
Malaysia & Brunei
Mr. Joe Davies Ms. Jessie Tang
Regional Logistics Manager Chief Executive
Zuellig Pharma Zuellig Pharma Sdn. Bhd.
Tel: +63 (2) 752 6458 Tel: +60 (3) 7985 6688
jdavies@zuelligpharma.com jtang@zuelligpharma.com

Mr. Giuseppe Leo

Chief Executive,
Specialty Solutions Group,
Zuellig Pharma
gleo@zuelligpharma.com
Mr. Joshua Leung
Editor, The Market Partner
Zuellig Pharma Asia Pacific
jleung@zuelligpharma.com
Philippines
Mr. Michael Becker
President & Chief Executive
Zuellig Pharma Corporation
Tel: +63 (2) 845 7252
mbecker@zuelligpharma.com
Mr. Chris Eberle
General Manager
Metro Drug Inc.
Tel: +63 (2) 837 8661
ceberle@metrodrug.com
The Market Partner: company background

Zuellig Pharma Asia Pacific Affiliated Companies

With a history of more than 60 years in Asia, Zuellig zip-online® is our regional
Pharma has forged a reputation as the leading provider of principal information
distribution solutions for the pharmaceutical industry in the platform offering timely
region. Our cutting-edge services cover end-to-end supply sales and inventory Pharma Industries has a PharmaLink is a leading
chain management, including inventory management, ware- information, best practices long-established history in pharmaceutical and health-
housing, distribution and customer order management, in analysis and reporting, providing contract manu- care marketing specialist in
among others. Taking advantage of our extensive expertise, and diverse forms of facturing services to the the Asia Pacific region. The
pioneering technological innovations and state-of-the-art benchmarking. Asian pharmaceutical company is a wholly owned
facilities allows manufacturers to focus on their own core healthcare industry through subsidiary of Asia Pacific
expertise. A scalable infrastructure supports the marketing its operations in Thailand Pharmaceutical Holdings,
drives of our principals and our collection services reduce and the Philippines. With a joint venture between
country risks for individual principals. AsiaRx® is our exclusive a client base of over 50 Interpharma Investments
We provide the largest direct account coverage in all regional Internet-based multinational companies, Ltd, Quintiles Transnational
healthcare channels in Asia Pacific, employing over 1,000 pharmaceutical marketplace and over 1,200 formula- Corp and Temasek
sales representatives to support the activities of our princi- that connects customers tions currently in produc- Holdings (Private) Limited.
pals in the trade channel. Advanced information technology and principals in innovative tion, the Philippines plant
tools, such as zip-online, an innovative sales and inventory ways. For principals, it is a of Pharma Industries is
tool, give principals full transparency for all transactions. new connection to cus- the largest, most advanced
Our world-class facilities operate in strict accordance with tomer behavior, integrated contract manufacturing
rigorous quality management standards, setting industry with other channels and facility in Asia. The group’s
benchmarks of excellence. We continuously refine and offering complete supply Thai operations are certi-
implement the latest technological advances in our on-going chain information. For cus- fied to the same top GMP
drive to offer the best services to our principals and clients. tomers, it saves them time standards, providing manu-
and money, and gives them facturing services to over 30
the control necessary to run research-based companies
their businesses better. from around the globe.

The Specialty Solutions Group (SSG) is a pioneering

regional consultancy and bio-logistic services division of
Zuellig Pharma. Strategically based in Singapore, SSG
leverages Zuellig Pharma’s cutting-edge Regional
Distribution Center and pan-Asia coverage
to provide customized, added-value bio-logistics for
pharmaceutical, clinical trial, medical device, diagnostic
and other healthcare-related companies.

For more information about Zuellig Pharma,

please contact: jleung@zuelligpharma.com