From Massachusetts to Singapore: What Markets will Lead the Medical Device Industry to High-performance?

Dec. 28, 2011
As they build market-specific capabilities and grow, high performance medical technology companies will balance the needs of traditional developed markets and new emerging markets.

After years of strong and steady growth, the medical technology industry is facing a wave of regulatory and economic pressures that are forcing companies to reexamine the fundamentals of how they compete. While medical technology companies have ridden out the global downturn far better than many other industries, the industry is facing down an entirely new scenario-one in which regulation is tightening, markets are shifting, customer landscapes are changing and customer demands are generating entirely new product pressures.

As a result, a strategic focus on emerging markets such as Brazil, Russia, India, China and those with advanced emerging markets such as: South Africa, Turkey, The Czech Republic, Malaysia and Mexico among others, will be increasing important as medical device companies look to build growth and sustain profits.

Across many industries, investment in emerging markets is seen as a key factor of future growth. However, the medical technology industry lagged compared to most other sectors. Until very recently, this industry focused its efforts on products for the United States, Western Europe and Japan, because the rewards have come from these geographies. Now, the source of reward is shifting into emerging markets and so too is the innovation focus.

High performing companies in the medical technology industry lead their peers thanks to a new emphasis. They are building strategic plans that prioritize emerging market opportunities according to their fit with their focused portfolios. According to recent Accenture research based on quantitative and qualitative analysis of the largest pure play medical technology companies, it shows that industry analysts' future growth predictions and sentiment correlate strongly with a company's current strategy in emerging markets.

For example, in June of 2011, Deutsche Bank's analysis of Becton Dickinson (BD) included the comment, "With 21% of its sales in emerging markets, BD has one of the largest exposures to EMs [emerging markets] within the MedTech [medical technology] space, which should bode well for future sales growth."

But what makes high performers successful in their emerging market strategies when contrasted with their peers? They are not indiscriminately picking markets and simply transplanting existing products to these markets. High performers adopt rigorous questioning, addressing factors such as the market size and competitive landscape, government influence and differences in clinical practices, health insurance policies, addressable market size and local infrastructure affect how products must be modified.

Companies must ensure their products fit in with their portfolio, and understand that each market has unique operating dynamics that require individual attention to the most minute detail. The traditional system of one-size fits all is not applicable in the new global economy.

In comparison to the pharmaceutical industry -- who already have a strong presence in emerging markets- our research demonstrates that medical technology companies must expand their local presence. Smart companies are moving their major operations into strategic markets such as Singapore, for example. With their margins and growth in developed markets under pressure thanks to health care reforms and the middling economic outlook, emerging market countries look exceedingly attractive, offering prospects of double digit growth as their per capita income rises and they invest in building a better health infrastructure.

Recent examples of the migration into strategic emerging markets include, Smith & Nephew's (dated from late 2009) focusing on five priority market groups. Among these, China has been targeted as most attractive, with a projected ongoing boom in the medical technology market fueled by a large and aging population with growing wealth. Accordingly, in results from its third quarter of 2010, Smith & Nephew discussed plans to triple its workforce in China and add two new manufacturing facilities. The company moreover stresses "local teams run by local talent" in its emerging market strategy.

Medtronic recently moved its international headquarters from Switzerland to Singapore primarily to be close to and align with future demand and growth in Asia. However, the company was also attracted by the country's rich pool of young and well-educated talent, and how the available workforce fits with a number of planned Asia-specific innovation projects.

As they build market-specific capabilities and grow, high performance medical technology companies will balance the needs of traditional developed markets and new emerging markets. Smith & Nephew's emerging market strategy, for example, also includes mechanisms for deploying "reverse innovation" back to mature Western markets to widen the impact of its investments. In this way, the work they do within emerging markets benefits their key developed markets as well.

Mature countries are still attractive markets for the industry, yet high performing companies are realizing the potential of the untapped emerging markets. The medical device company of the future will be the integrated company with clinical and regulatory excellence, who is able to think differently and integrate across the enterprise. Those with market focus will set themselves on a new path to high performance-in an industry undergoing considerable and lasting change.

For additional discussion on reinventing medical technology for a dramatically different future clickhere.

Doug Mowen is the global and North American Lead for Accenture's Medical Technology practice.

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