Traditional medicines take on Western competitors

Challenging the west: herbally-sourced items on the production line of Yunnan Baiyao.

Yunnan Baiyao, a legendary Chinese herbal medicine famed for its seemingly magical ability to help wounds heal, is no longer a purely classic Chinese medicine. Now the iconic herbal brand, aspires to rival Johnson and Johnson or GlaxoSmithKline in global healthcare products manufacturing industry.

The Yunnan Baiyao Group Co, manufacturer of the wonder drug has recently embarked on an ambitious program, aimed at diversifying its product range. This has seen the company explore a number of new applications for its core product, including traditional Chinese medicines, flexible fabric bandages, toothpastes, shower gel and buccal tablets.

Explaining this new initiative, Wang Minghui, chairman of the Board of Yunnan Baiyao Group, said: "We aim to revitalize this 100-year-old Chinese traditional herbal medicine and develop it into a variety of related affiliated products and boost its market value."

Adding more products, such as adhesive bandages and toothpaste, to its range has proved to be a great success for the company, the country's largest over-the-counter injury treatment business.

Devised by Qu Huanzhang in 1902, Yunnan Baiyao, literally means "Yunnan white medicine", a reference to its origins in the southwestern Yunnan province, traditionally regarded as the kingdom of medicinal herbs. It was originally produced as a simple white powder used to cure injuries, including reducing bleeding, alleviating pain and the swelling of injuries, as well as being used to normalize blood flow and repair damaged blood vessels.

Over the last 10 years, the company's management has sought to capitalize on the popularity of baiyao in a bid to modernize its product mix, in response to changes in the Chinese pharmaceutical industry and increased competition at a global level.

The Kunming-based company's first expansion of its product portfolio proved a huge success. Its entry into the domestic bandage market, dominated by Johnson & Johnson since the American pharmaceutical giant launched in China in 1992, proved a huge success.

In 2001, Yunnan Baiyao group unveiled its own adhesive band-aid product in a joint venture with the German personal care products maker, Beiersdorf AG, owner of the Nivea brand.

Following its launch, the Yunnan Baiyao Bandage has won acceptance among younger middle-class consumers, many of whom have developed a penchant for domestic brands with a long history.

The Yunnan Baiyao bandage is now the second largest band-aid brand in China and has acquired 40 percent of Johnson & Johnson's market share.

Wang said: "It has been a very successful strategy. We have added Yunnan Baiyao to the fabric of the bandage, and combined its effects with the convenience of a bandage."

The company, listed on the Shenzhen Stock Exchange, said it generated more than 200 million yuan in revenue from selling its adhesive bandages in 2008. It estimated that sales of adhesive bandages nationwide are worth 500 million yuan in China each year

Following the success of its adhesive bandages, the Chinese firm added toothpaste to its product line-up. Despite a retail price of 28 yuan, a price higher than most of its competitors, Chinese customers embraced Yunnan Baiyao toothpaste, largely thanks to its effectiveness in preventing gum bleeding.

Instead of competing in price terms, Yunnan Baiyao has set its sights on the higher end market segment, currently dominated by a number of foreign brands. Its 28-yuan toothpaste, for instance, is right at the top end of the price spectrum compared to Colgate and Crest.

Sales revenue from Yunnan Baiyao toothpaste topped 500 million yuan last year, making it the fifth most popular toothpaste in China in terms of sales revenue.

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The company reported 465 million yuan in net profit in 2008, up 40.95 percent compared to the previous year, despite the global economic downturn having reduced its export revenue by 40.1 percent in 2008 to 19.6 million yuan.

Despite the difficulty the company faces from the troubled financial markets, especially the pressure from declining exports, Wang remains confident that the firm will record 10 billion yuan of revenue by 2011.

Based on its current resources, the Yunnan Baiyao Group will relocate and build a completely new natural pharmaceutical base, offering integrated medicine manufacturing, processing and distribution, covering a total area 1,027 mu. The total project investment involves some one billion yuan.

At present, the company has had six products with more than 100 million yuan annual sales volumes each, including Yunnan Baiyao woundplast, Yunnan Baiyao Aerosol, Yunnan Baiyao Toothpaste, Yunnan Baiyao Hemorrhoids Ointment and the Yunnan Baiyao first-aid kit.