Working with local engineers, technology experts to meet local customers’ needs is key to penetrating developing economies.
A rising middle class with disposable income and a rapidly developing private insurance industry distinguish developing economies such as Brazil, China, and India as the new growth territories in the global medical devices industry. However, Multinational Corporations (MNCs) need to boost cooperation with local companies and maintain affordable prices to be effective, says a senior analyst with research and consulting firm GlobalData.
“MNCs need to employ a strategy that allows them to have closer strategic ties and create partnerships with the locals much earlier in the process in order to have an ideal win-win situation,” states Priya Radhakrishnan, GlobalData’s senior analyst covering medical devices. “Local players employ a much larger sales force and expand much more rapidly due to lower labor costs. They are also able to work better with local government agencies to bring about policy changes in the regulatory environment.”
During the last decade, multinational medical device manufacturers have been busy making inroads into economically developing regions, primarily through the acquisition of local players and other forms of capital expenditure. Firms including Medtronic, Johnson & Johnson, GE Healthcare, and Covidien have purchased local companies and established R&D centers and innovation parks in China and India.
The issue of price, however, is one that has yet to be tackled convincingly by MNCs looking to take hold of these promising markets, believes Radhakrishnan:
“The only way to approach the emerging market is to introduce products at a much lower cost, one that is affordable enough for consumers to pay out of pocket.”
“To compete in the long run and maintain market share, the MNCs must learn to keep costs low from the start. Local firms have learned to utilize the much lower labor costs in these markets and to reduce development cycles, as well as better navigate the local distribution networks.”
New medical devices are typically targeted at the growing middle class, but there remains a huge, currently neglected segment – those who live on under $5 a day. Radhakrishnan thinks the burgeoning healthcare industry can change the way it approaches the emerging markets by looking to other industries for lessons learned, and tap into this vast but relatively untouched demographic.
“Even the poor in India have cell phones. The market penetration for cell phones in India alone is more than 900 million subscribers, up from about 80 million in 2005. The market has exploded, due to low costs and low barriers to entry,” Radhakrishnan states. “Working with local engineers and technology experts to meet local customers’ needs will be the key to successfully penetrating this market."
Learn more about this topic in GlobalData’s new market report, “The Mobile Devices Industry and Medical Devices: What Can We Learn About the Emerging Markets?”