Foreign baby formula firms adopt strategies to enter Chinese hospitals; The top five foreign formula makers in China are Mead Johnson, which takes 12.3% of the market share, Dumex with 11.7%, Wyeth with 11%, Abbott with 7.7%, and Nestle with 3.7%

Foreign baby formula firms adopt strategies to enter Chinese hospitals

Staff Reporter

2013-09-29

Foreign dairy firms have made significant efforts to promote their infant formula in hospitals across China because the formula provided by hospitals has a significant impact on the purchasing choices of new mothers. According to a report by state broadcaster China Central Television on Sept. 16, foreign formula companies such as Dumex have bribed hospital personnel to use their formula to feed newborns.The report, however, is only the tip of the iceberg. To increase their penetration rate in hospitals, foreign companies have adopted several methods of benefiting from medical staff and hospitals, reports the Guangzhou-based 21st Century Business Herald, citing Xu Jian, an executive at a foreign milk supplier’s Chinese branch.

Xu said that overseas dairy firms are purchasing the personal information of expectant mothers from hospitals for up to 30 yuan (US$4.90) per individual. Each milk supplier also provide dozens of boxes of infant formula to large hospitals free of charge to encourage hospital personnel to the use their formula, and ensure that newborns get used to it and prefer it over breast milk.

The formula is sold to doctors and nurses at half price, and the doctors sell the milk powder to mothers as retailers, while the companies provide gift boxes for expectant mothers, allowing doctors to earn up to 50 yuan (US$8.20) for each gift box distributed to their patients.

Xu added that many of the firms launch classes for new mothers, where they promote their products. Meanwhile, some also sponsor hospitals to print baby health handbooks, advertising their infant formula on the pages within.

Xu explained that since the foreign dairy companies allow obstetrics departments to earn up to 1 million yuan (US$163,400) a year, hospitals are willing to take the risks involved even though government regulations prohibit them from doing so.

China’s infant formula market is divided into two groups: foreign brands, including Dumex, Wyeth, Abbott, and Mead Johnson, and companies with strong ties to hospitals and domestic milk suppliers, such as Yashili and Yili. However, hospitals are reluctant to promote domestic formula brands following a series of safety scandals — most notably the melamine milk powder scandal in 2008 that caused hundreds of thousands of infants to develop kidney stones, resulting in six deaths.

The top five foreign formula makers in China are Mead Johnson, which takes 12.3% of the market share, Dumex with 11.7%, Wyeth with 11%, Abbott with 7.7%, and Nestle with 3.7%. These companies have spent 3%-5% of their operational income to penetrate the Chinese healthcare sector, which is equivalent to 500-900 million yuan (US$81.7 million- US$147 million).