The first written account of a European in Korea came from the Journal of Hendrik Hamel, a Dutch sailor who along with 32 of his shipmates found themselves wrecked on an island they called "Quelpaert" in 1653. Their ship, the Sperwer (Sparrow Hawk), had left Formosa headed for Nagasaki and had run aground in a fierce storm on Korea's southernmost island, known locally as Cheju.
Hamel lived for thirteen years in Korea before escaping with seven of his compatriots to Japan in 1666. Korea was truly a "hermit kingdom" at that point in time, but soon after their ordeal began, Hamel was surprised to find that the royal court had a translator known to the Koreans as Pak Yon who spoke their language. This man turned out to be Jan Janse Weltevree, another sailor from the Netherlands who was captured 26 years earlier when winds blew the Ouwerkerck too near the Korean coast. In need of drinking water anyway, several men had gone ashore, all of whom managed to flee when the locals attempted to seize them-except for Weltevree.
Those Dutch explorers recorded an environment ranging from friendly to downright hostile, but there is no doubt that they would be surprised to see the success of the new breed of Dutch explorers nearly three and a half centuries later-explorers with names like Philips, Unilever, Shell, KLM, Makro, and others.
Obviously the Netherlands has long been known for its global outlook and the small nation's companies have been quick to recognize opportunity in a country that is now the polar opposite of its former incarnation as the hermit kingdom. Dutch-Korean trade has grown from $437 million in 1980 to over $2.88 billion today. And, although the numbers may be inflated because of hard-to-trace money flows and other factors, cumulative Dutch investment in Korea since 1962 has been recorded at over $1.4 billion in 115 cases. One of the companies that exemplifies the Dutch global vision is Akzo-Nobel, and specifically the company's pharmaceutical business unit, Organon.
Akzo-Nobel is a Netherlands-based global chemical, coatings, pharmaceutical and fibers company which maintains an office in Seoul for sales of products such as chemicals for tire manufacturers and impact-proof paint for the new high-speed rail system, but the company's real action is with the subsidiary of its pharmaceutical group here, Organon Korea, which is manufacturing a wide range of gynecological drugs and anti-depressants in a factory near Seoul.
Akzo-Nobel, usually with its Organon unit leading the way, tends to enter developing markets quite early, even when the health care infrastructure is severely underdeveloped, because of the company's specialization in contraceptives-and the need for population control in those markets. They actively work with governments and family planning associations to formulate plans for market access and to play a role in social development.
However, Korea's pharmaceutical industry was basically closed to foreign investment until 1980, so Akzo-Nobel made it's debut here in 1982 in the form of a joint venture with a Korean partner. The venture, Hanhwa Pharmaceuticals started business without a Dutch expatriate, but, according to Organon Korea's president, Frank Roijmans, a significant amount of support from the Netherlands was initially necessary both to bring the manufacturing facilities up to world class standards and for the Dutch headquarters to understand the complicated local environment they had gotten themselves involved in.
"Over the first five years, there was tremendous cooperation between the head office in Holland and the local organization here," Roijmans says. "A lot of our expertise was required in order to upgrade the existing manufacturing facilities and infrastructure to a level where pharmaceuticals could be made. Another area where a lot of attention was concentrated was in medical services. Our Medical Services Department trained the local people in basic medical knowledge and product knowledge. And a third area of support was finance and control, because at that time Korea was a very closed market in terms of finance."
"Our finance and control people had to make several trips over here to look at the unique financial structure of the company and to develop the structure in line with the business developments. We give quite long credit terms to our clients, about 200 days of outstanding credit, which I think is very exceptional compared to other industries in Korea. So the growth of the company generated substantial financial requirements."
Akzo-Nobel entered Korea with a product range that Roijmans describes as "quality of life" products including contraceptives, infertility drugs, HRT (related to meno-pausal and post-menopausal complaints), and antidepressants. He admits that the market wasn't quite ready for those kinds of products, though. "Health care was much more focused on basic needs, so we were not very well tuned to the health care requirements of Korea at that time," he says.
But getting an early start was important and Akzo quickly found out that the Korean market for pharmaceuticals was not an easy one to deal with. Since beginning their venture here, the company has had to cope with a price freeze on ethical pharmaceuticals and over-the-counter medicines. So for fifteen years, while inflation and especially wages increased remarkably, the government has maintained control over drug prices, putting profitability in the industry under severe pressure.
The other obstacle that stood in the way of success was the crowded market. "There was a lot of generic competition, especially before 1987 because there was no patent protection for active substances," says Roijmans. "In 1987 a 15-year patent protection plan was initiated, which was reinforced to 20 years in 1996, so in that respect, the environment has been changing and it is easier for innovative pharmaceutical companies to operate and make products available."
With some experience under their belts and in the midst of a fast changing pharmaceutical environment, the company was reorganized in 1995. The joint venture was, in effect, dissolved and Hanhwa Pharmaceuticals was spun off into a company fully owned by Akzo's original Korean partner, taking the sales organi-zation and supporting departments with it. Organon Korea was simultaneously created as a 100-percent-owned foreign investment.
"We were able to rationalize our organization through a synergy effect," says Roijmans. "While Hanhwa is concentrating on sales and distribution, we, as Organon Korea, are able to focus on manufacturing, which is really our expertise. And we are also concentrating on providing health care services and products to the medical profession."
So the partnership with Hanhwa is alive and well today, albeit in a different form than the original joint venture. By shedding the sales and distribution responsibilities, Organon has been able to get back to basics and put their energy into manufacturing and creating awareness for their products with the goal of improving the quality of health care in their key areas of gynecology and depression along the way.
Roijmans explains that the company aims to realize the goal in two ways. "First, we want to create a partnership with health care professionals-not only with doctors, hospitals, and clinics, but also with health care specialists in government or associations in order to create awareness for problems which in this society are still lurking under the surface. Many people have complaints but are not aware that there are medical solutions for them. Secondly, we intend to continue our partnership with Hanhwa, because we consider it a very constructive and effective way to develop our position in the Korean marketplace. Hanhwa gained a lot of expertise in the joint venture structure that is valuable both to them and to us under the new structure."
Although the Korean social system seems to be changing almost as fast as the economy, the nation is in a kind of transitional tug-of-war with the West pulling hard one way and Confucianism the other. Those traditional values still yield a strong influence over the way people think and behave in Korea, and the fields in which Organon is active are very much affected. "Certainly topics like contraception, menopausal complaints and depression are not really discussed openly because of the Confucian background and philosophy," says Roijmans.
Korea has, in fact, long been reputed as the most Confucian of all countries in the Confucian sphere of Asia. In fact, the philosophy has been so integrated into the culture for so many centuries that Koreans are Confucianists without even being conscious of it. In this Confucian context, Korea has often been described as a "shame culture," and in earlier times,
when Korean society was totally dominated by men, females were taught to always be shy, humble and obedient, particularly in expressing their sexuality, which leads to an impression today of "shyness" as one of the most important facets of the traditional Korean character.
Things are changing, however. Traditional values that interfere with individuality and freedom of choice are now often criticized and ignored to some extent by younger Koreans, but the effects of more than a thousand years of conditioning can certainly not be completely exorcised from the culture in just one or two generations.
Whether because of Confucianism and its shyness by-product, or a trust in traditional medicine to prevent all ailments, there is no doubt that the "shame barrier" is one that Organon must work to overcome. And they plan to do that through education and awareness programs.
The company's key markets in Korea are still small compared to those in Europe and America. Roijmans explains, "In contraception, for instance, only 2 percent of Korean women are using 'the Pill' sat this moment, whereas some of the markets in Europe show percentages as high as 30-35 percent. The use of an IUD is slightly higher, at about 10 percent, but looking at overall contraception, the numbers are still relatively low."
"Regarding menopause, there are also big differences between East and West. We conducted a study that showed that, worldwide, 50 percent of women over 60 have urogenital complaints due to the fact that the estrogenic levels are decreasing in the blood. Their complaints can be very serious, but are often not discussed openly, even still in Europe. In Sweden, we have been developing a campaign to increase awareness of solutions for such problems and we are having success there," Roijmans continues.
"Considering infertility, 10-15 percent of couples have problems in conceiving a child. Over the last five years, the infertility market has been growing substantially in Korea, but many couples still don't receive treatment."
"Depression is often not even recognized-not by the patient, and very often not by the doctor unless it it a severe case. The Korean antidepressant market is also very small compared to other countries in the West."
So it is Organon's mission to disperse information to the public and to hospitals in cooperation with doctors and psychiatrists to make their solutions to such problems known and ultimately improve the overall quality of life.
In addition to that, Roijmans, like most other investors in Korea today, views the country as an important market to be involved in. "It's an extremely fast developing country," he says. "In 1980, Korea was the 27th ranked economy in the world. Now it's something like twelfth. So it's a market which cannot be ignored, and that's the case for all industries. Korea...you just have to be here."
Organon's plant is near Yongin, on the southern outskirts of Seoul, and currently, the company manufactures about 65 different product presentations there. The factory has been expanded a few times since Akzo's original foray into the Korean market in order to satisfy the manufacturing requirements of the company's slow but steady growth approach to the market. "We are evaluating at the moment whether to expand our factory once more. It would mean a new investment of about 2 billion won," says Roijmans.
An important part of any expansion plan is the company's prediction about the state of the market and its future direction. Pharmaceutical makers are still saddled with the same price freeze that has been in effect for fifteen years, although other factors are now working in their favor-like better patent protection, which has weeded out some of the generic competition.
The Korea Pharmaceutical Traders Association (KPTA) reports that in the 1990s, Korea's pharmaceutical market size has emerged as the tenth largest in the world, with about $7.5 billion in total production in 1995, a 15.05 percent rise over the previous year. Finished drugs made up 93 percent of that production but raw material production showed the most active growth, 22 percent over the previous year. Pharmaceutical exports from Korea reached $501 million in 1996, while imports topped $1.16 billion (60% raw materials).
KPTA predicts that by the end of the decade, the pharmaceutical industry will become one of the primary high value added industries in Korea. And experts agree that the key to growth is in research and development, a point on which the domestic industry certainly must focus much of its energy if it is to compete in the global arena.
Roijmans sees too low an R&D investment as a primary reason why the domestic industry is slow to make up ground on companies in the West. "At Organon we invest 60 percent of our worldwide sales into R&D. In Korean companies, it is very low, perhaps around 4 percent," he says. "The price freeze may indeed keep health care expenditures under control, but it hinders local companies from putting more money into R&D."
Organon Korea currently exports only to Vietnam, but Roijmans sees potential expansion in the future. "Korea is very well placed in the Asian market to export pharmaceuticals," he says. "First of all, we have very good people-professional managerial staff and good people to manufacture products. In other words, the quality of labor is very good in Korea. A second important advantage is that Korea is located in a region that is booming. In that respect, I think Organon Korea is very well placed to play a role in our group's international production and allocation. Salaries are perhaps higher compared to other Asian countries, but there is quality in return."
Roijmans also forecasts some changes ahead for the Korean pharmaceutical industry, including trends toward specialization in production and more efficient distribution. "Organon Korea will go toward selectivity, toward excelling in the areas that we are good at and I think there will be a general tendency in the local pharmaceutical industry toward that kind of change as well. It's already happening in the rest of the world and I think the Korean government will eventually support that development and make it easier for manufacturers."
Roijmans says that ideally, Organon would like to concentrate its production on a few of the core items it knows best and license out the rest of their local manufacturing to local companies. Currently, though, because Organon prefers to assure quality and keep health registrations in their own name, such licensing or outsourcing is not really feasible.
Since Organon Korea has delegated responsibility for sales and distribution to Hanhwa, those issues are not a primary concern of the company. "Although," Roijmans says, "our partner's problems are also our problems."
Almost all of Organon's products are prescription products that are sold directly to hospitals, so they avoid the complicated pharmacy distribution system. "There are in Korea something like 26,000 pharmacies, so that requires a lot of logistics in order to get products on the shelves. But I see consolidation happening there too and a trend toward the simpler," says Roijmans.
Organon is making a real commitment to Korea through market research and making the effort to gain an understanding of how people view issues like contraception, which Roijmans says has been a stable market, and infertility and menopause, which he sees as having significant growth potential.
Unlike Henrik Hamel and other Dutch forebearers who escaped Korea 331 years ago, Organon is happy to be here for the long haul. "We have a contribution to make to Korea," summarizes Roijmans. "We have solutions to offer in order to improve health care delivery and we are very eager to really look in depth in the areas to which we are committed, and to be supportive to the Korean market."
| By Don Hackney |
Both Shamanism and herbal medicine have survived into modern times, the latter competing with Western medicine and, in fact, growing in popularity among some because its effect on the body is presumed to be more natural. One historical anecdote about medical care in Korea starkly reveals the nature of the sex segregation policy enforced by the government during the Choson dynasty (1392-1910): During this long period, when men and women lived in separate worlds, and it was literally taboo for a man to touch a woman not his wife or lover, and for a woman to touch a man not her husband, the medical practice took on some facets that were beyond all common sense. Because a male doctor could not physically touch a female patient-a taboo that was especially strong in the royal family and elite ruling class-physicians could take the pulse of upper class female patients only by touching the end of a silk thread that had been wrapped around the wrist of the patient by a female servant or assistant. In some cases involving members of the royal family, doctors had to conduct their entire examination of patients from behind a screen or outside the room, with the silk thread extended through a crack in the door. (From "Business & Cultural Code Words," by B.L. DeMente) |
Like all ancient peoples, Koreans have a long history of treating physical and mental ailments with herbal medicines. The shamans of ancient Korea were doctors of both the body and the mind, and made use of a wide variety of herbs in their rituals and treatments. Until the 6th century A.D., the practice of herbal medicine in Korea had changed very little for uncounted generations.