Issue: 2018: Vol. 17, No. 1

How United Hospitals Continues to Lead in China: Reflections from the Founding Executives

Article Author(s)

Michael C. Wenderoth

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Michael C. Wenderoth is an Executive Coach and a professor at IE Business School in Madrid, Spain. He serves as senior advisor with InterChina Consulting and adviser to the IE-China Center. Had the Chang-Lans existed when he was a student, he would have applied to explore how China is training its next generation of professional tennis players. 
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Earlier this year I interviewed Roberta Lipson, CEO and Chair of United Family Hospitals (UFH). To learn more about the premium healthcare network, I visited its headquarters in Beijing and spoke to the core team of executives, Western and Chinese, who established UFH. They reflected on their challenges and success, how China has changed, and what westerners don’t fully appreciate about doing business in China.

These executives included:

  • Robert C. Goodwin, Jr. – EVP and General Counsel, Chindex* (1984- 2005); currently Professor and Vice Dean, University of Maryland
  • Ming Xie – VP of Business Development, Chindex/UFH (1993- present)
  • Zhongying Pan (Sylvia Pan) – Project Assistant, Chindex who joined in 1995 and later became VP and General Manager of Beijing United Hospital (2008- present)
  • Xuming Bian – Obstetrician and Consultant to Chindex/UFH (1994- present)
  • David Hofmann – Administrative Director, Chindex (1993- 2005); currently China consultant, Hofmann Advising
  • Judy Zakreski – VP U.S. Operations, Chindex (1994- 2015); currently Executive Vice President, EkPac China Inc.

Note that I served as Project Manager at Chindex from 1994-98

*Chindex was previously parent company of UFH

Have Vision, Perseverance and Adaptability

In the early 1990s, most observers dismissed Chindex International’s efforts to establish UFH as a radical, impossible dream. A private, foreign-invested western hospital in China had no precedent, and lacked a clear path to approval.

The core team of UFH executives I spoke to unanimously agreed that in these early years, Roberta Lipson’s vision – and the “can-do” spirit she infused in those around her – carried the organization.

“[Setting up Beijing United Hospital] was truly unique and is directly related to Roberta’s perseverance,” said Robert Goodwin, EVP and General Counsel.

“We simply refused to take no for an answer every time we hit a stumbling block,” added Judy Zakreski, who managed relationships with western suppliers and advisors. “Our [goal] was to make sure that [the hospital got] established and operating in full compliance with all of the laws and regulations, no matter how long it took.”

Ming Xie, VP of Business Development, praised Lipson for her boldness. “There was a lot of ‘feeling the stones while crossing the river,’ because we needed to convince and change the minds of a lot of authorities in the Ministry of Health and other regulatory bodies,” he said. “Maybe because some on the team were foreigners, they failed to appreciate the size of the task, enabling us to dare to go forward.”

In fact, the team originally received approval for a birthing center, focused on serving expatriates – a deliberate strategy to start small and build trust in China, before expanding the scope. As UFH established a track record and market demands evolved, the center became a women and children’s hospital, and subsequently grew to a network providing a full range of healthcare services.

Admit when you are wrong

No one on the core team imagined UFH would be as big or successful as it has become today. While China’s growth did not surprise them, the velocity and scale of the country’s economic transformation caught them all off guard.

For example, more than half the patients today are Chinese, said Sylvia Pan, the GM of Beijing United Hospital, the UFH network’s flagship center. “I don’t think any of us could have ever anticipated that! It has pushed us to respond quickly to our rapidly changing patient base.”

The willingness to show humility and admit they didn’t see what was coming, the executives all stressed, should be a requisite for any westerner who plans to work in China.

“It’s important to accept up front that market access in China is difficult, that nothing is really simple, and that regulations are always changing. In this way, nothing can truly surprise you,” said Zakreski. She brings that philosophy to many of the western clients she works with. “[You need to] deflate the ego, be constantly willing to learn, and [have] an open mind to consider – not necessarily accept – different approaches to addressing a challenge.”

All credit those early years, and doing business in China, for making them nimble, resolute and creative in conducting business – key skills to surviving and thriving in their careers since.

Think long, but focus short

In the early 1990s when Chindex raised financing, the company declared its goal was to create a multi-hospital network. While that was known by the core team, they admitted to a maniacal short-term focus on getting the first hospital in Beijing up and running.

“I always assumed BJ United would be successful. Not only was that the Chindex mindset but I couldn’t imagine not meeting our publicly announced plans,” said Goodwin.

Fostering a strong partnership and agreement with their joint venture partner, Chinese Academy of Medical Sciences, took close to a year. Ensuring Chinese approval authorities understood how the hospital would fit into China’s healthcare system – and getting approval – took close to two years. And making sure the right steps were taken to design and build a world-class healthcare facility spanned close to three.

Several observed that this “short-term” focus helped Chindex and UFH avoid the trap many multinationals fell into at the time and still fall into today: Perpetually labeling China a long-term market becomes a handy rationale for letting losses pile up or clinging to a business model or strategy that isn’t working.

Lacking deep financial resources, they reflected, forced the team to be incredibly resourceful. For example, they did not use an army of highly paid consultants or intermediaries. Conducting much of the fieldwork themselves gave them direct exposure to market realities, enabling them to make decisions more rapidly.

Understand how you fit into China’s “system”

Goodwin, Xie and Zakreski firmly believed that the hospital’s strong foundation was due to establishing a strong joint venture partnership and securing the early licenses and government approvals.

“There were a continuing series of challenges to be solved on a regular basis but, to my mind, none of them was unusual in a project of this nature,” said Goodwin. What helped the most, he reflected, was Lipson’s and Chindex’s reputation within the Chinese medical community.

At the time of UFH’s founding, Chindex had been operating almost 15 years in China, providing medical equipment to China’s top hospitals and having established a formidable track record of honesty and genuine concern for improving healthcare in China.

“Chindex was always unique in approaching the market from the perspective of how can we help China do what they currently do better,” said David Hofmann, Administrative Director at the time. The early work was making sure the Chinese authorities understood how UFH would fit into the Chinese healthcare system, and what role it would serve.

“In terms of making things work, it is essential that you have a story as to why your proposal or project is of benefit to China,” advised Goodwin. “Approval authorities are not impressed that your venture will help make money for your organization. They may be impressed if you can show how many employees you will train, or how the local population will benefit from [your] services.”

Of course, not every western company enters China with 15 years of relationships under its belt. Xie, the VP of Business Development, is highly skeptical of how westerners approach China, which he feels is based solely on reading the relevant rules and regulations. He advises newcomers to take more time to determine what national or regional authorities want out of a relationship. He himself spends significant time cross-referencing information with people in the know.

“If one’s partner is a public hospital, [that partner’s] interests will diverge dramatically from a small, private one,” Xie said. “Too many western companies fail to appreciate the Chinese history, politics and ecosystem.”

“My basic advice would be to take it slow and forget the approaches that you took in the U.S. or other countries,” commented Goodwin. “You need to listen to the interests and concerns of your Chinese counterpart and see what you can do to create a win-win situation.”

Zakreski, who now advises companies that face complex regulatory needs, concurred. She recommends having someone on the ground in China engaging key stakeholders, which is hard do from one’s home country. She added that having some level of guanxi (relationships) is important, because it allows a constant flow of nonmarket information.

Manage Those Relationships

Hofmann emphasized that the goal setting up Beijing United Hospital was not to stand out; it was to build lasting relationships, something that Pan, the current GM, and Xie agreed with.

Goodwin, the lawyer, said it best: “Savvy investors learn that relationships with party officials are equally as important as legal arguments, and they develop an approach that covers all the levels of the decision-making apparatus. My belief is that the future will not change much so long as the judiciary is not independent.”

They all emphasized the need to have continuous efforts placed on managing key relationships, citing how many western organizations make the mistake of focusing solely on the setup phase. After Beijing United opened in 1997, Pan’s work, for example, began in earnest: She kept in constant contact with local authorities to understand their points of view, their concerns and to seek advice.

Forming industry groups and staying in touch with the American Chamber of Commerce enabled the team to influence policy direction on a larger scale between the U.S. and Chinese governments. It’s no coincidence that Lipson, Goodwin, Hofmann and Zakreski have held a variety of roles over the past 30 years with the U.S.-China Business Council, the American Chamber of Commerce, or interest groups based in Washington, D.C.

On the China side, Pan serves as the only Chinese representative on the JCO, the top international hospital accreditation commission, which helps set international healthcare and hospital management standards. And she, Lipson and other UFH hospital leaders are increasingly sought after by Chinese healthcare officials for their advice on improving China’s healthcare system.

Shatter the cross-cultural divide

The executives I spoke to average 25 years of doing business in China, but they surprisingly shied away from making any blanket statements on how Chinese culture operates.

“When you look at case studies of Chinese companies you see that, like western companies, they are all over the lot in terms of management style,” said Goodwin. “But there is a consistency in that all of them function within a Chinese cultural framework.”

To understand that Chinese cultural framework, the executives were critical of many “cross-cultural” training, finding it shallow, or downright dangerous in the stereotypes people came away with.

“Learning how to use chopsticks and exchange business cards properly is fine but the real issue is whether you can figure out how someone from another culture thinks, what is important to them and why,” he added. “You’ll never get everything right but at least you’ll be asking the right questions if you approach it that way.”

They stressed that relationships between and among people play a larger role in China than in the U.S. and Europe, which tend to be more “legalistic” societies where rules assume more importance.

To break down cultural barriers, Goodwin puts many of his executives and students through simulations and negotiations, to help them see what their Chinese counterparts may be facing. Xie encourages executives to talk to people on the ground to get multiple reference points.

Hofmann highlighted the need to recruit people with a more global mindset, and to foster more cross-border exchanges. Early on, UFH’s Chinese partner, the Chinese Academy of Medical Sciences, sent its representative, Dr. Zeng Su, to visit the U.S. to better understand the UFH vision and model. Dr. Bian, having spent time in the U.S., also helped bridge the two healthcare systems. Hofmann and the team also brought western doctors to China.

To accelerate “acculturation,” Pan, the Beijing United Hospital GM, gets new UFH employees out of the classroom and into Chinese hospitals. She wants her western employees to see more of China’s healthcare system, so sends them to VIP wards, Tier II and Tier III hospitals, so they can experience firsthand the top and bottom of the Chinese healthcare system.

“They realize China is complex and there are many Chinas,” she said, noting that they come away better understanding the attitudes of Chinese patients. “For instance, Chinese place more emphasis on family ties in decision-making than westerners do, and Chinese patients question their doctors much more than their western counterparts do.”

As the patient base at UFH has become increasingly Chinese, she added, it has become increasingly imperative to train UFH staff in this way. For example, elderly Chinese are much more inclined to want their daughters to schedule C-sections, which often runs counter to the desires of their western-influenced children.

“As the healthcare provider, we need to understand and be prepared to manage this dynamic.”

Localize by teaching the “why”

Across industries, western executives struggle with how to best segment the Chinese consumer market, maintain their brands and meet local needs. Americans, reflected Goodwin, do not appreciate the speed of change that has occurred in a generation in China, and therefore find this challenge to understand Chinese attitudes incredibly difficult.

“All our patients are well-off and regional differences not so stark,” said Pan. “But in general, we see the biggest divide among generations, and between those who have a more international outlook versus those who have never left China.” Training their doctors to manage these differing expectations has been critical to ensuring patient satisfaction.

Differences in their Chinese patient base can be seen, for instance, in attitudes toward antibiotics. “Many Chinese patients who are accustomed to Chinese hospitals, feel if they don’t get a prescription, then why are they paying high fees to visit the doctors?” Pan said, emphasizing that UFH does not prescribe antibiotics at the same rate as Chinese hospitals. “One local patient, after seeing our price list (among the highest in Asia), half-jokingly asked if the staff kneeled when serving them!”

“To be able to explain why to customers, you need to first explain why to your own employees,” she said. “Teaching them the WHY is actually more important than the HOW.”

To fully prepare staff, UFH created an academy, a prestigious yearlong program for registered nurses, to instill and practice the network’s ICARE values. During my visit, I attended the graduation of more than 20 nurses, their largest group to date. The curriculum was designed by a blend of western and Chinese nursing professionals. Without this academy, UFH could not find the right talent and skill in the marketplace, Pan commented.

Hofmann, now based in Washington, D.C., remains surprised how many westerners continue to believe China is the land of cheap labor and is backward in terms of technology, when in fact the opposite is truer, particularly in Tier I and Tier II cities. Pan said wage differentials between her top western and Chinese staff no longer exist. In fact, some of her top Chinese get paid more.

Pan also attacked the myth that Chinese millennials are selfish and lack drive.

“Nothing could be further from the truth,” she said. “You can’t generalize. The employees we have are driven, want to learn, need a sense of achievement, and – perhaps more than any generation – want a sense of purpose. Volunteering is much higher than in the past.”

To stay in touch with that generation born after 1990, she conducts lunches with many employees, and is highly active on Weibo, the Chinese social media equivalent to Twitter.

Hold firm on non-negotiables

At the same time, they all agreed, one can be too culturally sensitive. They all attacked a common sentiment that you cannot be direct in China, and that certain topics are taboo. Goodwin, the lawyer, warned: “You just need to do [be direct] in the right context.” Zakreski urges all clients to determine “non-negotiables” and stick to them.

“When I was handling a particularly tricky legal case in China back in the mid-1980s the common wisdom of ‘China experts’ was that you had to be careful not to address certain subjects or disagree with those officials you were interfacing with,” Goodwin said. “While there were indeed some subjects that were best avoided, that list was fairly short and the notion that you had to agree with a particular approach in a negotiation for fear of offending your hosts was just nonsense.  The real issue is that you need to display genuine respect for the people with whom you are interfacing , and if you do that you can be quite frank in your expression of disagreement.”

Reconsider your competition

On the subject of competition, all noted that while the number of competitors has heated up, the market has also grown considerably and the level of sophistication varies. Well-heeled western firms are the most direct competitors, but UFH recently went private and raised additional investment from the private equity group TPG. They believe UFH can remain the market leader if it continues to deliver quality care and attract the right talent.

They believe the threat of domestic private competitors is overblown, and that UFH competes in very select, high-end healthcare, a space where local firms have not shown they can go – yet.

Xie, VP of Business Development, said: “Domestically invested medical bodies are very different than UFH, many of them hope to make ‘quick money,’ raise capital and they ‘advertise’ to bring in patients. This is not the greatest in terms of word-of-mouth reputation.”

The more serious threat, said Pan, is the rise of China’s state-owned public hospitals, and Xie added the Chinese government has gotten very serious about addressing the country’s healthcare needs.

“It’s not that [state-owned public hospitals] have a lot of money (although they do). It’s more that they can make big changes quickly, if they want. They have the advantage of a top-down hierarchy – we western firms can actually be very slow,” said Pan. “Many westerners consider the public hospital system here outdated, but that belief itself is becoming outdated. Many of the new hospital leaders there are quite brilliant and ambitious. For UFH, we see these as opportunities, or imperatives, to cooperate or partner.”

Look forward: The next 20 years

Everyone agreed that doing business in China remains complex. Managing this requires talent. On the bright side, they observed that there has been an increase in western executives who have a better understanding of China, as well as firms that have almost entirely localized their China offices.

But a rapidly evolving China, Pan said, has really forced westerns to rethink their place in the new world order. “Honestly, I think some westerns are lost. There used to be a feeling of superiority, and when they come here, they are no longer the top, and they no longer have the top salaries.”

No one wanted to predict China’s future. The irony, said Zakreski, is that the reduction of tariffs and “openness” that came with China’s entry into world bodies has largely felt like it has been accompanied by an increase in regulatory hurdles.

“This doesn’t mean that there isn’t opportunity for western companies in China. It just means that there is no longer a default approach of finding a distributor and exporting your product to China,” she said, citing licensing technology as one alternative.

Overall, the executives voiced concern with the increased nationalism and growing restrictions, but also said that every period of China’s past 30 years has been filled with concerns! They believed staying to a core mission, being persistent and adaptable, and fostering talent – the same things that got them to where they are now – are the best ways to manage future change and deepen UFH’s premium service and established brand.

“There is a lot of money in China right now,” they all said. “People think healthcare is easy. It is not.”