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Chapter 4

Healing the Great Leader’s Children

Poverty is not socialism. To be rich is glorious.

—Deng Xiaoping

Working in Pyongyang’s pharmaceutical industry was full of daunting obstacles and headaches. By the second half of 2007, when the sales of our first few pharmaceuticals began rising, I noticed a sinister oddity in our success. One of our products skyrocketed to a level of popularity far beyond that of all other pharmaceuticals.

The drug? Diazepam, a sedative used to treat anxiety and insomnia.

More familiarly, the tablet was known as Valium, launched by my former employer, Roche.

It is one of the most common drugs in the world and was put on the World Health Organization’s (WHO) “Essential Drugs List,” meaning it was a core pharmaceutical needed for basic health care. But it is also believed to be one the world’s most abused pharmaceuticals.

Valium today is notorious for its addictive properties, and is also frequently ingested, together with alcohol or other substances, by people trying to commit suicide through an overdose. There’s no proof, though, that North Koreans in particular were abusing this drug because they were more depressed than other people around the world. Rather, their usage followed a worldwide trend.

I told the sales team that only patients with a prescription from a doctor could buy the product and that we should regularly check that the pharmacies were following our directives. If they did not, we would not sell the product to them anymore. As a precaution, I later restricted the sales to our own pharmacies, where we could directly oversee how the drug was handled.

But even that move wasn’t enough to smother a potentially explosive situation. One day a Belgian pharmacist and I visited the gift shop of the Pothonggang Hotel, where I was shocked and embarrassed when I saw that our diazepam was on sale. The visitor must have known that diazepam was, according to the International Narcotics Control Board, a Schedule IV controlled drug that required vigilance when sold even with a prescription. But the tablets were sold here just like the snacks and the souvenirs!

I vividly imagined waking up to foreign newspapers with the headline: “In North Korea, Valium is sold over the counter like chewing gum!” The risk that a foreign journalist would have seen this blunder in a hotel shop was high, because a large delegation of foreign reporters was in town around the same time. What a fantastic opportunity for a Western journalist to do some North Korea bashing, I thought.

How would the government react? Would PyongSu be shut down, and would I be kicked out of the country? Anything was possible. Every day I Googled the keywords “North Korea” and “diazepam” to check up on whether somebody had written about it. Luckily, this never happened.

That was my first run-in with a potential disaster, and others haven’t been so lucky dealing with the North Korean market. Over several years a lineup of businesspeople tried and failed to set up a small medicinal tablet factory in Pyongyang, and even we had trouble keeping foreign talent in the country. A Filipino pharmacist gave up on this task, simply because he felt lonely in his hotel room. Then a German production pharmacist stayed a few years but left. Both were experienced at setting up and running large production sites, but PyongSu’s situation turned desperate when our German pharmacist left for personal reasons.

The situation got even worse when a WHO-sponsored international inspection team visited the site and compiled a list of seventy-eight objections. They rejected the factory from getting Good Manufacturing Practices (GMP) acknowledgement, the industry’s worldwide production quality standard defined by the WHO. The problem, then, was that foreign buyers (such as aid organizations) would not purchase pharmaceuticals from the factory without it meeting the baseline standard. The company was making no sales and only carried expenses.

Adding to that conundrum, PyongSu had to deal with the fallout of its low rating. PyongSu’s product portfolio consisted only of large quantities of aspirin and paracetamol manufactured during the first trial production run. But they were nearing their expiration dates and were stockpiled at the warehouse unused. Investors didn’t want to give the company any more support, and staff had little confidence left in the company’s future. But this was only one considerable hurdle we had to overcome; we ran into all sorts of follies in setting up a business in North Korea.

TAKING THE LEAD

In October 2005, I stepped up to lead PyongSu, but others probably thought that I had taken on a suicidal mission. Indeed, they saw a bad omen: after a few months of working, the recently appointed American CEO of a large family-owned business based in Hong Kong, which was then the main foreign investor in PyongSu, “lost” the employment agreement twice over several months and could not sign it. He was supposed to agree to the terms with me—he as the employer, me as the employee—since his group was the majority investor. This was an utter nuisance to him; he was against the group’s engagement in North Korea. By “losing” the contract, he was expecting the headache to be finished quickly if PyongSu collapsed. I later learned that the board of directors had not been informed by his predecessor, a family member, of the group’s North Korea investment. When they did learn of it, they wanted it shut down.

Although PyongSu had decent hardware with few shortcomings, the company immediately faced a shortage of skilled staff. Few qualified doctors wanted to work for us, because we had fostered a reputation for being an unstable company with an uncertain future. And when I did hire capable, English-speaking physicians and pharmacists, or a young and organized secretary, they usually resigned after a few weeks. I saw them later working at the WHO and U.N. agencies, where the jobs were safer, better-paid, and less stressful.

It would have been difficult to get out of this hole, and if I revealed the extent of PyongSu’s needs to the investors, they would have certainly axed the entire operation. And yet the correction of the seventy-eight major and minor shortcomings alone would require substantial additional financing and more than a year’s worth of time until they were fixed. The two main shortcomings, namely a large water purification system as well as a microbiological test laboratory, would not only be expensive but also difficult and at worst impossible to install given the many parts from Western suppliers that most likely would refuse to sell them to a North Korean factory.

Additionally, we had, with the exception of the two painkillers previously mentioned, no products to sell, neither self-made ones nor products made by other producers, although we now urgently needed to generate income and cash. Also, we had no marketing and sales unit, which in a way made sense as we had little or nothing to sell.

Moreover, we lacked a strategy as it was not clear what the company stood for, what were its medium- to long-term goals, and how it should reach them. I knew that the last thing I should do then was to send the investors a report on the state of the business and on what needed to be done—including footing the bill—as that could have meant the immediate death knell for the joint venture.

The most difficult question, given this overwhelming fiasco, was where I should begin. In a heavily regulated industry, even the production of older, well-known generic drugs takes many months before the drugs hit the market. I started tapping into my industry network, looking for somebody willing to give me some formulations, or drug “recipes,” free of charge. That would allow us to start preparing production right away, saving on enormous costs.

I wasn’t sure how long, though, it would take for these medicines to reach store shelves, so I diversified by contacting traders in Asia and Europe. I received pharmaceuticals from them on a consignment basis, meaning we paid them after they were sold. At the same time, we did a terse market study and put together a strategy and a marketing plan. One of its core elements was what we called the “quality pharmacy” concept. This idea included not only quality pharmaceuticals for the treatment of more than 90 percent of all diseases, but also the provision of quality customer service and health care advice based on professionalism, expertise, and ethical integrity. It sounds simple, but reaching this pinnacle was easier said than done.

PyongSu could not compete with the lower prices set by other North Korean companies. Our competitors had the market stacked in their favor because they were politically connected and state-owned. They paid lower salaries, lower electricity and water bills, and had zero land fees. They were also privileged enough to receive raw materials that were, at times, free of charge from both the North Korean government and international donors.

As a result, our aspirin was dozens of times more expensive than that of our local competitors. For example, 20 tablets of our version of aspirin, or 250 mg in international standard packaging, were about $0.40, compared to $0.015 for the equivalent local product wrapped in a simple manner.

We had to find a way to distinguish our image as a company that churned out the highest quality of the bunch, and that meant we had to rely on “brand marketing” as much as the quality itself. Before I became managing director, I suggested as a member of the board of directors that we develop a line of branded generic pharmaceuticals. The aspirin was to become PyongSu Spirin and the paracetamol to become PyongSu Cetamol. That plan, it seemed, would give us a distinctive buzz among customers looking for an alternative to the state-produced drugs.

Dr. T.M., a Seoul-based British economic historian who was a member of the board of directors, tried to mob me out. I was a threat to his consulting firm, which he used to try to bring foreign companies to North Korea, some of which were instead contacting me. He sent alarming mails to the investors telling them, to name one instance, that “problems with Felix Abt seem to increase. The North Koreans tell me that Felix is ‘poking his nose into everything’ and has delayed packaging and signage.”

Dr. T.M. soon resigned as a director and shareholder, which allowed me to step into the leadership role. My first task was to replace our logo with a newer one, a medicine capsule that became part of a new corporate identity. Later we regularly won contracts from the International Federation of Red Cross and Red Crescent Societies (IFRC), but they demanded that we change the logo from a red to green color. The motif was reserved for them under the 1949 Geneva Conventions and could not be used for commercial purposes. We did so with pleasure, honored to work with such a prestigious body.

We couldn’t rely too much on our brand image, though. This pharmaceutical business had to be run in a polished, modern way unfamiliar to the North Korean board members. The Chinese industry became our benchmark, because it has been transforming from an outdated socialist public health system to a more market-oriented one. I took my Korean colleagues on study trips to Shijiazhuang, Shenyang, and Shanghai.

In a visit we hoped would foreshadow our future success, we visited the pharmaceutical joint venture formed between foreign and Chinese investors. To my surprise, the foreign majority shareholder of that company today remains Bristol-Myers Squibb, an American multinational. I also convinced its Chinese octogenarian architect, Henry Jin, to join our company’s board of directors, because he could bring his relevant background to the table.

In the past in China, multiple government agencies used to give orders and instructions to the management of enterprises for running their daily business. While China had radically streamlined bureaucratic control and delegated power to managers, North Korean enterprises were still micromanaged by the government.

Smiling and not surprised at the query, the CEO of a large, state-owned pharmaceutical company in Shanghai responded to a question about “government management” from the North Korean members of our board: “The state owns this enterprise. The government does not give us instructions on how to run it. It expects that we are doing it in a competent and profitable way. And if we don’t, they’ll replace us.” The lesson was that this Chinese enterprise was flourishing despite the freedom its management enjoyed. It was a challenge to the hermit state’s management practices.