Case # xxxx

Arthur M. Blank Center

for Entrepreneurship
Babson Park, MA
Phone: 781-239-4420
02457-0310
Fax: 781-239-4178
URL: http://www.babson.edu/eship
October 2009

Eu Yan Sang International, Ltd.

www.euyansang.com
Singapore, 2009. Richard Eu was pleased with the progress of Eu Yan Sang (EYS), the
129 year-old company he served as Group CEO. Revenues had been growing by 10 to 20
percent annually since 2000, to S$208 million* for the fiscal year ending 30 June 2008,
and each of the three major markets in which the company operatedSingapore, Hong
Kong, and Malaysiahad contributed to that expansion.
As the leading retailer of traditional Chinese medicine (TCM) outside mainland China,
the company owned more than 144 attractive retail stores, 21 TCM health clinics, and
was experimenting with health spas in both Singapore and Kuala Lumpur, Malaysia.

Richard Luecke, research assistant, prepared this case under the supervision of Professors Abdul Ali and
Leslie Charm, Babson College as a basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.
Copyright 2009 by Ali Abdul and Leslie Charm and licensed for publication at Babson College to the
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At the time this case was written, one Singapore dollar (S$) equaled 0.70 U.S. dollars
(US$).
1

Equally important, EYS had established indisputable quality leadership in its field. At a
time when many herbal products and dietary supplements were found to be contaminated
or subject of dosage variations, EYSs customers could be certain of quality, consistency,
and safety. The power of its brand had been recognized in many ratings surveys, and, in
2008, the Guangzhou Daily included the company among its Top 10 Favorite Brands
for the fourth consecutive year.
Mr. Eu could not, however, rest on the companys current success. His board
wanted more growth. However, 10 to 20 percent annual growth would be difficult if not
impossible to deliver within the confines of the companys core markets. The total
populations of Hong Kong, Singapore, and Malaysia were approximately 38.6 million7
million, 4.6 million, and 27 million respectively. EYS had to break into larger markets to
achieve its growth goals. Though a foothold has been made in the Taiwan market
(population 26 million), China and the United States were seen as likely targets. The
company was already shipping products to both countries, and had a small retail presence
in China, but it had not yet developed strategic plans for exploiting either.
Expansion into China and the United States raised a number of questions. What
customer, distribution, and regulatory challenges would have to be overcome in each
country? Which of the companys product and marketing strengths, if any, would be
applicable to those new markets? Should one market have priority over the other, or
should they be attacked simultaneously? These were among the many questions that
Richard Eu and his colleagues pondered.

The Company
Company founder Eu Kong left his home in southern Chinas Guangdong region
in the 1870s to work in a small Malaysian tin mining town of Gopeng. Conditions there
for laborers were dangerous and unhealthy, and many depended on opium to make their
lives bearable. Eu Kong decided to use his knowledge of traditional Chinese remedies to
improve the health of these miners. To that end he opened his first Chinese medicine
shop in Gopeng in 1879, naming it Yan Sang. In the Cantonese dialect, Yan means
humane or kind, while Sang connotes birth, life, or livelihood. The companys current
mottoCaring for Mankind--derives from this name.1
In 1890, Eu Kong passed the business on to his eldest son, Eu Tong Sen, who was
active in both tin and rubber production. Eu Tong Sen expanded the TCM business in
Malaysia and the surrounding region. Today, Eu Yan Sang is the leading provider of
high-quality traditional Chinese medicine outside of China and was the first TCM
company listed on the Singapore Exchange. Group CEO Richard Eu, who joined the
business in 1989 after a successful career in merchant and investment banking, represents
the fourth generation of family leadership. Today the company markets over 1,000
Chinese herbs and, under the Eu Yan Sang brand, 280 proprietary Chinese medicines.
Beginning in 2007 it became the exclusive worldwide distributor for the Wisconsin
(USA) Ginseng Cooperative, producer of what many believe to be the worlds finest
ginseng.

As described in company literature, EYSs vision is To be a global consumer

healthcare company with a focus in Traditional Chinese Medicine and Integrative
Healthcare. Its stated mission is To care for mankind by helping our consumers
realized good life-long health.
Products
Traditional Chinese remedies have for centuries been sold in herb, root, leaf, and
powdered form. Many of these take hours to prepare properly for use. Currently, the
company offers over 280 product types, from raw herbs to manufactured remedies. In
catering to the modern, convenience-oriented market, EYS had developed manufacturing
methods for producing and packaging these remedies (and new ones) in ready-toconsume tablets, jellies, tea drinks, and elixirs. Exhibit 1 lists the companys best selling
products and their revenues.
In FY2008, these five leading products accounted for 33 percent of all company
revenues. Eu Yan Sangs strategy is to diversity its product and revenue mix by
launching nine to 12 new products each year. Typically, only two or three of these new
products can be described as radically new. The rest are product line extensions: for
example, Essence of Chicken enhanced with ginseng.
Revenue goals for these newly launched products are not specified in advance,
and each is given a long time to prove itself in the market. Launches are not accompanied
by major promotions, in part because of governmental restrictions on the advertising of
health-related products. Instead, newly launched products are integrated into the product
mix on store shelves. Store personnel highlight these new items by means of special
displays and explain their health benefits to visiting customers. These efforts aim to
generate word-of-mouth product awareness.
Products are packaged in a variety of quantities, depending on their intended uses.
For example, Bottled Birds Nest represents 25 different SKUs. It is sold in individual 150
ml bottles, six-packs, and so forth. Prices range between S$40 and S$200 for these
different quantities. Package quantities are also determined by whether the ingredients are
in liquid or capsule form.
Traditional Chinese Medicine
The philosophy underlying traditional Chinese medicine (TCM) derives from the
same bases that contributed to Taoism. That philosophy reflects the belief that the human
body is composed of interlinking systems. Health is seen as dependent on balance within
those systems. As described the University of Minnesota: Traditional Chinese medicine
focuses on achieving health and well-being through the cultivation of harmony within our
lives. Harmony brings health, well-being, and sustainability. Disharmony leads to
illness, disease, and collapse. 2

TCM includes a number of practices originating in China, including diagnosis and

treatments such as herbal medicine, dietary therapy, acupuncture, cupping, massage
therapy, relaxation and meditation therapy, and physical exercises such as T'ai Chi
Ch'uan.
Next to dietary therapy, herbal medicine of the type supplied by Eu Yan Sang is
the most widely used mode of TCM treatment. Herbal medicine, usually formulated from
two or more substances, is used both for the treatment and prevention of illness. There
are thousands of traditional herbal formulas; TCM practitioners modify them to suit the
subtle nuances of a patients condition or state of health. Many are made in tea or soup
form, or added to other foods.
Manufacturing
The companys products are processed and packaged in two Good Manufacturing
Practice (GMP) certified plants: one located in Hong Kong, and the other in Malaysia.
The newly-built, 130,000 square foot, state-of-the-art plant in Yuen Long, Hong Kong
was a S$21 million investment. That plant also houses facilities used for academic
research and herbalist training.

Source: Eu Yan Sang International, Ltd., with permission.

Quality Assurance from Farm Fields to Consumers
Responding to worldwide concern over the quality and safety of food products
originating in Asia, the company has taken major steps toward developing the highest
product quality standards. In 2007, it began testing its herbsan industry first. Using
advanced analytical techniques, it obtained chromatographic fingerprints of over 500
essential TCM herbs. These fingerprints make it possible to eliminate the mistaken use of
visually but bio-chemically different ingredients, a problem in the industry.
In March 2008, it announced the worlds first program for certification of TCM
herbs produced through the companys good agronomic practices (GAP) (Exhibit 2).
The program extends through every step of the product cycle, from growing, to
formulation and packaging, to shipping, to retailing. The aim is to ensure that high

standards for safety and quality are maintained at all stages of the cycle. A proprietary
software platformiGateswas built to track all ingredients and all products through
every step of the cycle (Exhibit 3). Agrifood Technologies of Singapore acts as a thirdpart observer in verifying quality compliance. This is a giant step towards the future of
TCM, according to a company press release:
We believe that the EYSGAP-Herbs Certification will help to promote the global
acceptance and trust of TCM products. . . . As an industry leader, we are creating
one recognizable quality standard specifically for TCM herbs. It adopts a
scientific approach and uses advanced scientific methods of measurement and
accuracy to ensure safety and traceability throughout the whole process. This is a
world first and sets the path for how the TCM industry will operate in the future.3
Lingzhi was the first herb to obtain official certification under this quality regimen. The
companys popular Wisconsin American Ginseng was the second.
Distribution and Pricing
Eu Yan Sang products are available throughout the world in drugstores, hospitals,
convenience stores, health food stores, health clubs, and on the companys e-commerce
site. In addition, EYS owns and operates 154 branded retail stores and clinics in Asia,
the latter offer products and consultation with licensed TCM doctors (Exhibit 4). Of these
several distribution channels, retail stores produce the majority of company revenues
(Exhibit 5). Most individual customer purchases in these stores fall in a range of S$50 to
S$100. And since TCM products are for health maintenance, many customers return
monthly to renew their supplies. EYS is conducting customer research on the issue of
customer loyalty and purchase frequency.
Essentially all of the companys revenues come from three key geographic areas:
Hong Kong, Singapore, and Malaysia (Exhibit 6).
Owning to the higher quality of its ingredients and processing, EYS herbs and
manufactured products have brand power and command a price premium over those
offered by competitors. This price premium gives the company a gross margin of about
60 percent. Ironically, Chinese companies offer little competition for traditional Chinese
medicine outside the borders of mainland China, with the result that EYSs competitors
in its core markets are other Asian producers. Each of these competitors, however,
confines its activities to a single country. Thus, for example, Hockhua is a retailing
competitor in Singapore, but has no presence outside that country. It is simply a retailer
and has no branded products of its own.
Marketing
EYSs marketing functions are handled by a lean corporate staff and small teams
operating within each of three core geographically-focused groups: Singapore, Hong
Kong, and Malaysia. The corporate staff consists of a handful of people: Joanna Wong,

Vice President of Brand Management and Corporate Communications, and her direct
reports; a media relations specialist; and a brand manager. They routinely collaborate
with the companys small product development team, particularly on matters relating to
package design. At EYS, all packaging must conform with the brand image. The
geographically-focused marketing teams are also small, with two to three people (though
the Malaysia team has four to six); each team handles advertising and promotion within
its region and is accountable for sales results.
Marketing budgets vary year-to-year but are roughly 6 percent of annual sales
(about S$12 million), and are allocated in roughly equal measures to corporate marketing
and to each of the three core region teams. Corporates focus tends to be on brand issues
whereas the regional teams tend to concentrate on product promotion. The name Eu
Yan Sang is the corporate name, the retail name, and the name that goes onto each
product.
According to VP Joanna Wong, who joined the company in 2000 after a career as
an independent advertising and promotion (A&P) consultant, EYSs A&P spending is
opportunistically determined: Marketing allocations to advertising and promotion are
not determined by a strict formula, but by whatever is judged best for each product. She
attributes the success of EYSs marketing campaigns to this flexible approach, which
makes use of television, print media, buy one, get one free product promotions, and so
forth. Television, however, tends to receive the larger share. Within that medium, the
company makes frequent use of 30-minute health programs that highlight the benefits of
particular EYS products.
Perhaps because of Joanna Wongs background in public relations, and the
companys emphasis on marketing efficiency, television and print media promotion is
supplemented with extensive publicity, which it generates internally and through an
outside consultant. Publicity gives the company and its products low-cost exposure.

China
From its Singapore headquarters, Eu Yan Sangs leadership cannot ignore the
revenue potential of its giant neighbor to the north. With that countrys rising economic
prosperity and population of 1.3 billion, vendors in almost every industry have been
looking for ways to do business in China. For EYS, whose existence is based on
traditional Chinese medicine, a Chinese presence seems natural. TCM is so much a part
of mainland Chinas food and health culture that marketing efforts there, it believes,
should encounter a receptive audience. But breaking into China will not be easy. As
Richard Eu puts it, In China, everything is difficult. Prominent among these difficulties
is a paucity of market data on which to make business decisions. According to EYS
management, the size of the Chinese TCM market as measured by purchasers, total sales,
and every other important parameter is unknown. Even the numbers offered by trade
associations are deemed unreliable.

The Regulation Hurdle

For health products manufactured outside China, the regulatory hurdle is
challenging. Herbal and other TCM products sourced outside China must deal with the
same registration process faced by pharmaceutical manufacturers. Applicants must also
demonstrate that their products are better than equivalent domestically produced
products. The registration process itself can take up to two and one-half years and cost
millions. Once registered, these foreign-made products are subject to re-registration
every few years; re-registration, however, takes only six months and is far less costly. In
order to enter the country, EYSs products must go through this slow and expensive
registration process.
As of mid-2009, two EYS products had been approved by the regulatory
authority: Bo Yung Compound and Bak Foong Pills. Owing to their higher quality, these
products sell at prices four to six times higher than those of equivalent Chinese products.
Our Bak Foong pills, says CEO Eu, include 24 ingredients processed in a unique way.
We use none of the short-cuts taken by state-run Chinese competitors. A bottle of EYSs
Bak Foong pills, enough for three to four doses, generally retails for S$8 versus S$2.25
for a competing product.
Competition
EYS faces many domestic competitors within mainland China. Most are small,
have no brand power, and offer products of unverified quality. However, larger vendors
exist; chief among them are:

Beijings Tong Ren Tang Group, Chinas oldest (1669) and largest TCM
producer. Its brand is well-known in China. Tong Ren Tang operates a chain
of drug stores in China and has a system of worldwide distribution. According
to the Economist Intelligence Unit, the company accounted in 2004 for an
estimated 30 percent of Chinese herbal product sold in the UK (total 2004 UK
market equals S$405 million. In October of 2007, Tong Ren Tang and Greater
China Corporation, a U.S. company, announced a partnership under the name
Tong Ren Tang Wellness Corporation. According to a company press release,
its goal is to "develop spa-like wellness centers that will provide treatments
and products based upon China's famous Tong Ren Tang herbal medicines.
In addition to a full line of herbal health products, these centers will offer
customers acupuncture, massage, acupressure, Tuina, Tai-Chi, and other
treatments.

Sanjiu Medical and Pharmaceutical Company. One of Chinas largest

pharmaceutical manufacturers, Sanjiu has many plantations around China
where it raises herbs in conformance with government approved Good
Agricultural Practices (GAP). The company has experienced several setbacks
in investor confidence, beginning in 2001, when the China Securities
Regulatory Commission found evidence of widespread misappropriation of

assets. In 2005 it announced the sale of its chain of drug stores, and in 2007
the company was restructured through an investment by a major Chinese
conglomerate.
Because of a current lack of transparencies in the Chinese business culture, the revenues
and profitability of these and other competitors are undetermined. And, as noted earlier,
the size of the Chinese TCM market is not specified with reliable statistics. Even data
provided by TCM trade associations is suspect.
Options for Entering the Chinese Market
In 2009 two of EYSs flagship products were being sold through Chinese
hospitals, some drug stores, one shopping mall store, and two retail counters. Other
products, mostly fine herbs, were being imported as health foods, thus bypassing the
regulatory process. Together, however, sales through these channels accounted for less
than four percent of company revenues. To achieve meaningful market penetration, the
company has concluded that it must pursue the retail channel.
How best to enter the retail channel is an unanswered question. The companys
brand enjoys limited awareness in China, and the high price of EYS products means that
it must target a relatively small but affluent segment of Chinese society. By its estimates,
only 20 million (2 percent) of the 1,300 million Chinese fit EYSs target demographic
profile: affluent individuals 35 years of age or older. The company has considered several
market entry strategies:

Direct, door-to-door selling. EYS had some discussions with Mary Kay
China, which sells door-to-door in that country, but regulation has made doorto-store selling risky. The company also worries that its quality brand might
be tarnished by door-to-door sales.

Corporate gift sales. The gift-giving tradition is strong in China, both among
individuals and corporations. Selling gift baskets of assorted EYS products
through prestigious corporations would enhance the quality image of the
brand and result in multi-product sales. This channel would require the hiring
and training of corporate sales personnel in cities or regions populated by
corporate headquarters.

Stand-alone stores. EYS has extensive experience operating its own retail
stores in Singapore, Hong Kong, and Malaysia. This option, however, would
require high capital expenditures and an infrastructure of EYS personnel. The
company worries that it lacks the brand visibility in China to support EYS
branded stores. To test the feasiblity, one store was opened in a Guangzhou
shopping mall in 2009.

Stores within stores. Following the model of cosmetic sales in the U.S. and
elsewhere, the company envisions arrangements whereby it will have EYS

sales counters, staffed by its own employees, located in upscale department

stores in major Chinese cities. It estimates that 1,000 such counters would be
capable of annually generating a total of S$21 million in five years. Two such
counters were opened in 2009.

Stocking in leading retail stores. Placement in leading retail stores seems an

easy way to get a foot in the door, and as of spring 2008 EYS products were
being carried by several leading retailers in China, including Watsons and
Parkson.

Integrated health centers. The company has experienced success in owning

and operating integrated health centers in Malaysia and Singapore, and a new
facility opened in Hong Kong in 2009. These centers are staffed by certified
TCM doctors, who consult with patients, and by retail sales personnel who fill
prescriptions and conduct transactions for other EYS products. The company
acknowledges the difficulty of translating this business model to China, where
it would have to compete with free Chinese medical service offered by the
state. Also, recruiting certified doctors would be difficult since most TCM
doctors pursue life-long careers with the national health service.

In July 2008 the company hired an individual to assess the challenge of entering
China; it continued through the year to ponder the potential of each entry option.

Products
Because of the time and cost of product registrations in China, EYS anticipates
that only a small number of products would be registered and introduced in the initial
stage of any expansion strategy into China. One of these products would likely be Bottled
Birds Nest, one of the companys highest revenue-producers. Bottled Birds Nest is a
much appreciated delicacy in China, says Joanna Wong, but it is tedious to prepare in
the traditional way. Our pre-prepared bottled version would give us a convenience
advantage over local competitors.
Manufactured health supplements would also be considered for registration and
introduction in China. Though competition is substantial within this product area, EYSs
experience is that customers within China do not trust the safety and quality of
domestically manufactured versions.
Pricing
EYS branded products are generally sold at premium prices in all markets where
the company does business. That price premium is supported by empirical and customerperceived measures of product quality. Further, EYS maintains price equity across

markets. The company anticipates following the same pricing strategy in the China
market.
Promotion
Will EYS promote its brand or its individual products? The company believes
that it will have to do both upon entry into China, with decisions based on market
conditions at the time. Because market entry would be limited initially to a small number
of locations, local television, billboards, and public relations would be the favored
avenues of promotion, with costs anticipated to be 10-11 percent of sales revenues during
the early years (in contrast to the companys current 6 percent of revenues for
promotion/advertising spending).

The United States

For us, S$30 million to S$70 million within five years would
represent a successful market entry. Anything less than S$7
million would be a failure. CEO Richard Eu
To EYS, the U.S. market also appears to hold great revenue potential. TCM is a
practice that very few U.S. consumers embrace, and awareness of the EYS brand is nonexistent at the broad consumer level. Nevertheless, the number of individuals who fit the
companys demographic profile35 or older, affluent, health consciousis much larger
in the U.S. than in China. Also, there are fewer regulatory barriers to overcome.
EYS products are already selling in small volumes the United States, mostly through
retail stores located in the countrys many Chinatowns. Those products are handled
through two independent distributors: one on the east coast and one on the west coast.
Current revenues from these U.S. distribution arrangements are described as negligible
by the company.
The U.S. Market
Within the United States, TCM is a small category within the dietary
supplement industry, which in 2007 was estimated to have annual sales of S$33,230
million (US$23,260 million) and projected growth of 6 percent each year through 2014,
according to the Nutrition Business Journals annual report.4 Of that amount,
approximately S$5,900 million was spent on herbals and botanicals. Chinese medical
professionals are quick to point out that their treatments are completely different from
dietary supplement herbs. As the American Chinese Medicine Association puts
it,ACMA treatments are professional medicine rather than dietary supplement herbs.5
However, for regulatory purpose in the United States, they fall into the same category.
As defined by the Dietary Supplement Health and Education Act of 1994
(DSHEA), a dietary supplement is a product (other than tobacco) that

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is intended to supplement the diet; contains one or more dietary ingredients (including
vitamins; minerals; herbs or other botanicals; amino acids; and other substances) or their
constituents; is intended to be taken by mouth as a pill, capsule, tablet, or liquid; and is
labeled on the front panel as being a dietary supplement.
The Food and Drug Administration (FDA), the U.S. governmental agency
charged with regulating dietary supplements, indicates that there are more than 30,000
dietary supplement products on the market. These include (by the FDAs definition):
vitamins, minerals, botanicals (i.e., herbals), sports nutrition supplements, weight
management products, and specialty supplements. The most rapid growth is in botanicals
such as echinacea (for colds and to improve immune system response), gingko biloba (for
memory), ginseng (for male sexual performance) 6, garlic (for colds), and St. John's Wort
(for depression), with sales of more than S$29 million each.
Estimates vary as to the number of Americans using dietary supplements. The
Office of Dietary Supplements (part of the National Institute for Health) put the figure at
52 percent of the population in 2004 (with men at 47 percent and women at 56 percent)
The Natural Products Association (NAP), a trade group, estimated in 2006 that 70
percent of the population used supplements. The NAP describes these consumers as
being typically well-educated, both in general and about the products theyre buying. The
reasons for which they take supplements vary. A scientific study involving 2,500
Americans conducted in 2002 gave the reasons cited in Exhibit 7.
Dietary supplements, per the Nutrition Business Journal, are distributed within
the United States through many channels: retail health food stores such as GNC and New
Chapter, mass-market stores such as CostCo and Trader Joes (many of which have their
own brands), mail order, multi-level marketing, and the Internet. One small California
drug store chain, Pharmaca, uses a business model that integrates Western prescription
medicines, health foods, and dietary supplements. Each of its stores has as small section
dedicated to TCM products.
Expectations for future growth in the U.S. health food/dietary supplements
industry are based on several demographic, healthcare, and lifestyle trends:

An increased focus on healthy living. A study reported by Nutrition

Business Journal found that 85 percent of Americans were engaged to
some degree in health and wellness, up from 70 percent just a few years
earlier.

Population aging. According to the U.S. Census Bureau, the number of

Americans 65 and older will increase by 56 percent between 2000 and
2020.

An increasing focus on fitness. Spending by Americans on health clubs

and exercise equipment continues to grow. Actual fitness in America, as
measured by body mass (obesity), is bi-modal, with the educated and

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affluent (EYSs target) being more fit and fitness conscious, and the less
educated and less affluent being less fit and tending toward obesity.
Product Regulation
Generally, dietary supplement manufacturers do not need to register their
products with regulators nor obtain approval before producing or selling their products in
the United States. In the United States, the federal government regulates dietary
supplements through the Food and Drug Administration (FDA). The enabling legislation
is the Dietary Supplement Health and Education Act of 1994 (DSHEA). The FDA
regulates supplements as foods rather than as drugs. It does not require purveyors of
dietary supplement to prove the safety of their products in people, as it does with
pharmaceuticals. Nor must a manufacturer prove the effectiveness of its product.
While a manufacturer may not make unverified claims of effectiveness, it can say
that its product addresses a nutrient deficiency, or supports health in some way: e.g.,
Supports prostate health, or Omega-3 for heart health. If the manufacturer makes a
claim, that claim must be followed by the statement "This statement has not been
evaluated by the Food and Drug Administration. This product is not intended to diagnose,
treat, cure, or prevent any disease."
Competition in the U.S Market
The U.S. TCM market, such as it is, has no dominant competitors. There are no
established brands (including EYS), nor is there a regime of quality assurance. Dietary
supplements in the United States have, in fact, often been found to be of poor quality, and
TCM are equally suspect. For example, an NCCAM-funded study of ginseng products
found that most contained less than half the amount of ginseng listed on their labels, and
some contained contaminants. A similar study by the California Department of Health
Services reported that 32 percent of the Asian patent medicines it tested contained
pharmaceuticals or heavy metals not listed on the label.
Contamination and variability in the potency and quantities of active ingredients
in dietary supplements has led the FDA to establish rules that require manufacturing,
packaging, and labeling practices to ensure that a dietary supplement contains what it is
labeled to contain and is not contaminated with harmful or undesirable substances.
TCM and American Consumers
Within urban China and neighboring regions such as Hong Kong and Singapore,
TCM and Western medicine enjoy a collaborative relationship. Consumers see value in
both. They use TCM to maintain health, but when health is imperiledby a broken leg,
for examplethey are not reluctant to seek out Western medical procedures. The
situation is much different in the West, where many if not most medical practitioners
view TCM with skepticismas unscientific, untested folk medicine. That skepticism in
the medical community is slowly waning, and many medical schools now include classes

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on alternative medicine (including TCM) in their curricula. Empirical tests are also
being conducted to assess the therapeutic efficacy of various herbs, acupuncture, and so
forth. Western medicine is beginning to accept some of these practices as complementary
or as alternative approaches to health and healing. Eu Yan Sang in encouraging these
tests through participation with the Mayo Clinic.
As reported by the Harvard Medical School, the popularity of complementary and
integrative medicine in the United States has increased dramatically in recent years.
Other studies have documented that 42 percent of adults in the U.S. (82 million) routinely
use complementary medical therapies to treat their most common medical conditions. In
1997, Americans made an estimated 629 million office visits to complementary therapy
providers and spent an estimated S$38,300 million (US$27 billion) out-of-pocket on
complementary care.7
Even through this segment of the population may be attracted to traditional
Chinese medicine and its health benefits, EYS managers face two nagging question:
1. Are U.S. consumers willing to pay for TCM products?
2. Given recent revelations about contaminated Chinese product imports, will
American consumers be able to differentiate between those and EYSs highquality products?
Chinese- and Asian-Americans: A Natural Constituency?
The company recognizes that it cannot expect broad market success in the United
States without a substantial investment in consumer education about the benefits of TCM
and how to practice it. However, the diverse U.S. population contains a large and
growing segment of citizens and immigrants who are already familiar with and
potentially friendly to TCM.
Roughly 3.6 million American are Chinese immigrants or of Chinese descent1.2
percent of the total population. Their numbers are highly concentrated in some states and
communities, making access to them through the retail channel practical. For example,
the following large cities have Chinese-American populations greater than 3 percent:

San Francisco, California - 19.6% (152,620)

Honolulu, Hawaii - 10.7% (39,600)
Oakland, California 8.0% (31,834)
San Jose, California - 5.7% (51,109)
Sacramento, California - 4.8% (19,425)
New York, New York - 4.5% (361,531)
Plano, Texas - 4.3% (10,750)
Seattle, Washington - 3.4% (19,415)
Boston, Massachusetts - 3.3% (19,638)

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Many smaller communities within metro areas have Chinese-American populations well
over 20 percent. In California alone, these include:

Monterey Park, California - 41.2% (24,758)

San Marino, California - 40.6% (5,260)
Arcadia, California - 34.0% (18,041)
San Gabriel, California - 33.6% (13,376)
East San Gabriel, California - 28.2% (4,096)
Alhambra, California - 33.1% (28,437)
Rosemead, California - 29.3% (15,678)
Rowland Heights, California - 29.0% (14,057)
Hacienda Heights, California - 22.4% (11,921)

Similar concentrations are found in other metro areas. Many of these same towns and
cities are home to other Asia-Americans. For instance, the city of Honolulu is about 11
percent Chinese-American but 55 percent Asian-American. Those concentrations are
useful indicators of where the companys products would most likely enjoy initial
success.
An undetermined percentage of the U.S. Chinese- and Asian American population
practices TCM to some degree. These people are described by the American Chinese
Medicine Association as well-educated, open-minded, knowledgeable, aware of the side
effects of pharmaceuticals, and believers in natural medicine.8
Options for U.S. Market Entry
The company is considering a number of entry points to the U.S. market, though none
have been researched or planned in detail. These entry options include:

A chain of company-owned stores. These stores would be patterned on the

successful model used by EYS in Hong Kong, Singapore, and Malaysia,
but modified for the U.S. market. CEO Richard Eu describes this model
as the closest to his ideal. I envision a GNC-style chain, perhaps
integrated with Western health foods and supplements.

General Nutrition Centers, Inc. (GNC): An Industry Leader

GNC operates the worlds largest nutrition retail store network. In 2009 it had:

2,614 company-owned stores in the U.S. and Puerto Rico

161 company-owned stores in Canada
954 domestic franchised stores
1,190 international franchised stores in 449 markets
1,712 GNC store-within-a-store under its strategic alliance with Rite Aid, a
major U.S. drugstore chain

14

GNCs U.S. revenues from retail operations in FY2008 were US$1,219 million,
or S$1,731 million. Slightly over forty percent of those revenues came from the
sale of vitamins, minerals, and health supplements, which include herbals.
Source: GNC 10K filing, 14 March 2009

Stores within stores. Operate a special TCM section stocked with EYS
products within high quality Western-style health food stores such as GNC
or Pharmaca.

Distribute through upper-tier food stores. The company cites the

successful model provided by New Chapter, a Vermont producer of
premium health supplements. That companys products are distributed.
through quality-oriented retailers such as Whole Foods and Trader Joes.

Expand current strategy of selling through Chinatown stores. The

company is current selling to stores that cater to Asian-Americans through
two distributorsone on each coast of the United States. It supports those
sales with some TV and print advertising. Promotion decisions, however
are controlled by the distributors.

Clinical services. Company-owned clinics would offer acupuncture, or an

integrated model of Western medicine and TCM. The company has
substantial experience in managing and marketing this integrated model of
TCM-based health service in Asia and Australia.
Products, Pricing, and Promotion

Since each the market entry options is still in the thinking stage, issues such as
pricing, positioning, distribution arrangements, promotion, brand-building, etc., remain
largely unexplored. However, the company is inclined to follow the same premium
pricing regime used in Asian markets. And because of the high cost anticipated in
educating mainstream U.S. consumers on the benefits of TCM and EYS products, lowcost public relations would most likely be preferred over traditional advertising media.

Which Way Forward?

As a high quality producer with a solid distribution base and brand recognition in its
home territories, Eu Yan Sang is in a position that many product companies must surely
envy. But it cannot rest on its past accomplishments. Management finds itself facing
many strategic questions:
Can it successfully leverage its current strengths to the untested markets of
China and the United States?
Given its limited resources, how should EYS prioritize its growth
initiatives?
What product, branding, pricing, and promotional strategies will make it
successful in these very different markets?

15

Exhibit 1
Key Eu Yan Sang Products
2008 Sales
(S$millions)
Bo Ying Compound
Bottled Birds Nest
Bak Foong Pills
Lingzhi Cracked Spores
Capsules
Essence of Chicken

Infant health
General health maintenance
Womens health
Immunity improvement

19.6
19.5
14.1
8.8

General health maintenance

6.1

Total

68.1

Exhibit 2
EYSGAP Herb Certification

Customers

Farm/
Farm Group

Premium Quality Herbal

Products from EYS Retail
Outlets

Implementation
4. EYSGAPHerbs
Certification
Award

ATP* Auditor

2. Farm Audit
3. Evaluation
EYSGAP-Herbs
Evaluation
Committee

16

Processing
Plant
Consistent High
Quality
Raw Materials
Supply

Exhibit 3
The iGATES integrated GAP-TCM System
Ensuring good quality raw
materials with full traceability
and food safety for herbs at and
from source

1. Good Herbal Production

Ensuring Accurate
Laboratory Testing Results
with Chemical & Genomic
Profiling

iGATES
[EYS-GAP
Certification
Scheme]

4. Good Distribution
Practice
Enabling traceability
(GDP)
of transported

2. Good Laboratory
Practice
(GLP)

finished goods

(GMP)
3. Good Manufacturing Practice
Assuring quality during
the manufacturing
process

Exhibit 4
Retail Outlets and Clinics (as of late 2009)
Country
Singapore
Malaysia
Hong Kong
Macau
China (Guangzhou)
Taiwan

Retail

Clinics

38
64
46
2
2
2

17
3
1
0
0
0

Source: Eu Yan Sang International, Ltd.

17

Exhibit 5
Revenue by distribution channel, FY2008, in S$ millions
Revenues
Retail
Wholesale
Clinics

161.0
33.0
13.7

Change, 2007-2008
+16%
+17%
+ 9%

Exhibit 6
Revenues by Key Geographic Region, FY2008, in S$ millions
Hong Kong
Singapore
Malaysia
All others

93.4
60.2
49.2
5.7

Source: Eu Yan Sang International, Ltd.

18

Exhibit 7
Why Americans Take Dietary Supplements
Herbals/Supplements
Health/good for you

% of
Responses
16

Arthritis

Memory improvement

Energy

Immune booster

Joint

Supplement diet

Sleep aid

Prostate

Don't know/no reason

specified

All others

45

Source: Kaufman DW, Kelly JP, Rosenberg L, et al. Recent patterns of medication use
in the ambulatory adult population of the United States: the Slone survey. Journal of the
American Medical Association. 2002; 287(3):337-344.
1

Company web site.

What is Traditional Chinese Medicine? University of Minnesota, Center for
Spirituality and Healing, http://takingcharge.csh.umn.edu/therapies/tcm/what <accessed
5-19-2008>.
3
Company press release, 31 March 2008. Eu Yan Sang and Agrifood Technologies
Launch of Eu Yan Sang Good Agronomic Practices for Herbs (EYSGAP-Herbs)
Certification Scheme.
4
As described in General Nutrition Corporations 10K filing, 19 March 2009, 2.
5
http://www.americanchinesemedicineassociation.org/Frequently_asked_questions.htm
6
See http://thomasjmoore.com/pages/dietary_part2.html.
7
News Release, Harvard Medical School Office of Public Affairs, Boston,
Massachusetts, USA, July 11, 2000.
8
Frequently Asked Questions, American Chinese Medicine Association,
http://www.americanchinesemedicineassociation.org/Frequently_asked_questions.htm
(accessed 23 May 2007).
2

19