S A LES & M A RKE TING INSIGHTS
ZS Roundtable: The
Opportunities—and Risks—
for Medical Device Companies
in Emerging Markets
Moderator: Tobi Laczkowski
Participants: Brian Chapman, Rohan Fernando,
Andrea Traverso, Kelly Wang
M
edical products and device companies have focused considerable attention in recent years on emerging markets. It’s easy to
see why: The tremendous opportunities inherent in these markets
—with large patient populations and unmet medical needs—make them
enormously attractive to medical device manufacturers.
However, the particular sales and marketing challenges in places like
BRIC (Brazil, Russia, India and China) nations may diminish companies’
chances of success. The potential of emerging markets makes them too
large for medical products and device manufacturers to ignore, but the
size of the markets alone does not guarantee success.
ZS Associates recently held a wide-ranging roundtable discussion with
several of its medical device sales and marketing experts to analyze
the opportunities in emerging markets, and the ways companies have
capitalized on those opportunities.
The attractiveness of emerging markets is obvious but, the sales and
marketing challenges are formidable. Medical device companies must
cope with different regulatory schemes, distribution models, infrastructure
challenges, strong regional competition and sales force quality issues that
are different than in the United States and Western Europe.
ZS Associates recently held a roundtable that included five senior practitioners with extensive emerging markets expertise in medical products
and devices. Participants included ZS Principals Brian Chapman and
Rohan Fernando, Associate Principals Tobi Laczkowski and Andrea
Traverso, and Manager Kelly Wang.
Tobi Laczkowski moderated the discussion, which is excerpted below.
Prioritizing Emerging Markets
TOBI LACZKOWSKI:
Emerging markets could not be more relevant for the
producers and marketers of medical devices. How should companies
think about prioritizing the markets?
ANDREA TRAVERSO:
Part of prioritization is recognizing differences
among the countries in a given region. You have companies that say,
“Emerging markets is our priority.” It would be better to study essential
differences between countries, cultural areas and specific areas. This is
one reason why it is important to understand in detail the characteristics
of the market and how those influence their potential.
TOBI:
Which emerging markets in medical devices are outliers?
ROHAN FERNANDO:
China is clearly an outlier. In the four years since
medical reform began in the country, the government has invested
nearly $150 billion in health care. New hospitals are going up all over
China—more than 2,000 have opened in the past three years.
BRIAN CHAPMAN:
And there’s a level of organization in China that
doesn’t necessarily exist in the other BRIC nations.
ANDREA:
We should emphasize the significant role that the government
plays in health-care markets in these countries. And the investment that
the government makes into health care drives a lot of the growth in the
market for medical devices.
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About the Participants
Tobi
Laczkowski,
Associate
Principal
ZS Associates,
Zurich
Tobi’s medical device clients
include those with an emerging markets focus in Europe,
the Middle East, Africa, Latin
America and Asia. He helps
companies improve sales strategy, organizational design and
operational efficiencies.
Brian
Chapman,
Principal
For example, in Brazil people have access to government-sponsored
health care. The dynamics in that government sector are very different
from a private channel. Some companies start out selling in the private
channel, and then take time learning the characteristics and dynamics
of the government markets. It’s not a single market—depending on the
product, the company could need to engage at the municipality or city
level. That complexity brings many, many challenges.
BRIAN:
Yes, and the role of government investment is why the Russian
market is hitting headwinds. Russia has actually made some moves that
have restricted access to devices and have limited reimbursement. There
have been other substantial government changes that are negatively
affecting the device lines.
Specific Products for Specific Markets
TOBI:
What about adapting products for specific emerging markets?
Another exciting trend is companies setting up local manufactur-
ZS Associates,
Zurich
ROHAN:
Brian has
worked with medical technology
companies on numerous sales
and marketing issues, including opportunity assessment,
organizational design, channel
optimization and new-product
launch strategy. He has spent
much of his career working with
global clients.
those markets at a completely different price point.
ing and R&D facilities and innovating with products that are customized to
Of course, that creates a challenge in commercializing these two different
kinds of products—how you do so simultaneously? An even more exciting
trend is that we are starting to see these products, which were developed
for emerging markets, being marketed in developed markets as price
pressure accelerates there.
TOBI:
So what are the key challenges for commercializing medical devices
in emerging markets?
KELLY WANG:
In China, market access definitely is a challenge—there are
many government organizations involved in the process, at the national
and provincial level. When a company launches a product in China, it
can either set up new categories or try to match an existing category. This
has become a big decision in product launch—will matching an existing
service category accelerate launch into the market?
TOBI:
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What pricing strategies have you seen to accelerate market access?
ZS Associates
Rohan
Fernando,
Principal
ZS Associates,
New Delhi
Rohan is ZS’s
Regional Managing Principal
for Asia. He has supported the
commercialization strategies of
more than 50 medical device,
pharmaceutical and biotech
companies across numerous
markets.
KELLY:
Pricing, with an eye to reimbursement, is another secret for market
access. A company may not get the same level of reimbursement, nor see
it in the same time frame, for a high-priced product as with a lower-priced
product. The best practice is to figure out reimbursement before launch or
risk waiting four to five years for reimbursement.
ROHAN:
It’s important to understand that there are many different
“markets” within the same country: Rural areas are different from cities;
and Tier 1 cities operate quite differently from Tier 2 and Tier 3 cities.
This is very challenging, as the go-to-market strategy in a major city
can—and should be—different than the one for rural areas. A thoughtful
strategy around which parts of a country to cover and a clever use of
channels is a prerequisite for success.
Andrea
Traverso,
Associate
Principal
ZS Associates,
Evanston, Ill.
Andrea leads ZS engagements in
Latin America. She has extensive
experience helping medical device
and pharmaceutical companies
on their go-to-market strategy,
commercial organization optimization and a variety of other
sales and marketing issues.
ANDREA:
This shows that you need different ways to access customers,
depending on the market and region. Of course, it also depends on the
type of product, because “medical products” includes a wide variety of
products. For those with less commercial potential, it may not be worth
investing directly in sales and marketing resources in remote areas.
Manufacturers should make sure they have good partnerships with distributors to access remote geographies.
For example, in Brazil the government bidding process can be done in
a centralized or a decentralized way for some products, and a company
may need reliable partnerships to take advantage of all these opportunities. Companies miss opportunities because they don’t have enough re-
Kelly Wang,
Manager
ZS Associates,
Shanghai
Kelly leads
ZS’s medical
device practice area in China.
She has worked with many medical
device and pharma companies
on more than 40 engagements
in several sales and marketing
issues, including channel strategy,
sales force effectiveness and
opportunity assessment.
sources or even visibility to the bidding processes taking place at a given
time—this can happen even to companies that have been established in
Brazil a long time. So these partnerships are crucial for customer access.
Finding the Right Distribution Model
TOBI:
Some companies eventually try to move to direct sales and distribu-
tion. What hybrid models are emerging?
ANDREA:
I have seen companies enter Brazil with distributors and channel
partners; as their market share grew, they wanted a more direct approach
to optimize their opportunity. Frequently a distributor works with many
products and cannot give one company or product extra attention. For
example, the company started working with a direct sales force in São
Paulo and some selected cities. The client valued the relationship with the
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distributor, so it focused on only a specific customer segment, and the
distributor worked with the other ones. That worked out fine.
TOBI: What’s
the tone in China, Kelly? Some say it is commercial suicide to
get rid of your channel partners there.
KELLY:
Some companies are trying direct sales, but they are concerned
about all the compliance issues they can’t control. For this reason, some
companies that have tried to go direct in China have failed.
Channels are the root cause of many challenges for medical device companies in China. When first entering China, most of them promoted their
products in hospitals through distributors. So they’re struggling to define
the roles of sales reps versus distributors. Going forward, salespeople will
sell and distributors will handle logistics. But I don’t think many companies are there yet.
Compared to pharma, medical device distribution channels are more
fragmented and distributor performance gaps are wider. Medical device
distributor capabilities need to be strengthened in order to improve efficiency and quality of their services.
ROHAN:
The key is that companies need to have a distribution strategy
rather than craft each new distribution agreement from scratch. It sounds
obvious, but far too many companies don’t have a clear channel strategy.
For example, I worked with a company that had set up more than 60
distributor agreements in the last 20 years. We found that many of these
relationships were unproductive—just four of the 60 were driving the vast
majority of the business. Many contracts had been set up with terms that
had not changed in years. So as sales increased, the distributor’s commission percentage remained the same. Suddenly these distributors were
getting a massive windfall without providing any additional value. The
people who set up the agreements hadn’t thought about putting sunset
clauses in their agreements or about how to manage the “exit” if the
distributors were not adapting to new strategies.
ANDREA:
This is also an opportunity to have more of a key account man-
agement approach, to making sure you treat distributors as strategic partners and have clear metrics. You have to be clear and objective in what
are you expecting from them.
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ROHAN:
The compliance aspect of this is important. A company can be
held responsible for FCPA [Foreign Corrupt Practices Act] violations in the
United States for what a distributor does in a foreign market.
“A Long-Term Game”
TOBI:
What are long-term approaches for emerging markets?
ROHAN:
Investing in emerging markets has to be a long-term game.
Companies that have invested early have reaped rewards as these markets have grown. You’re playing a game for 20 years from now, and that
perspective should drive your decision making.
KELLY:
It’s definitely a long-term market play in China. But I also think it’s
important to mention that companies need to be careful replicating what
they’re doing in the United States in China. One medical device company
imported its U.S. structure into China, but the distribution of roles doesn’t
reflect the market structure in China. So the company has no idea who
should be doing what, or where it needs reps or account managers. The
roles are all mixed up. The company should be tailoring the go-to-market
as the ultimate sales model to everything in the country, instead of just
importing it.
TOBI:
How important is building a talent base in an emerging market?
BRIAN:
It’s extremely important to build senior leadership capabilities and
then fill the HR talent management, if you will, to source, attract, keep and
then develop the sales reps and sales managers and so on of the future.
Having said that, it’s also about making sure that you have the proper
training and a well-defined selling process. It’s one thing to train people on
the clinical procedure, device or the equipment that they need to sell, but
it’s useless if they don’t have the selling skills or correct sales approach.
It’s not only finding educated, smart people, but also making sure that
you give them the tools and coach them and provide training specific to
becoming a salesperson, to make sure that they have not only the medical and equipment knowledge, but also the selling approach.
ROHAN:
I agree that this is a huge need. For a while there was this notion,
especially in a place like India, that you could always throw more people
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at the problem. We need more sales? Let’s hire a few more people. But
now more companies are seeking to professionalize the people they have,
and this actually has a much higher yield.
Truth in Numbers?
TOBI:
What are some of the data and analytics challenges?
BRIAN:
I think data’s a challenge, simply knowing what’s going on, know-
ing who your customer is, and knowing where the opportunity is. There
are some companies that have set things up quite nicely from the start.
One multidivisional company in China arranged some time ago for all
of its reporting across franchises to come from the Ministry of Health, important when results are all reported by third-party distributors. It created
highly professionalized distribution management from the start. And that
has allowed it to much better understand its position.
It also required all channel partners to report what they’re selling at the
institution level, which was a key choice—it has the ability to actually understand what’s going on in the market, to ultimately change strategy if
it wants to maintain a premier strategy and compete against some other
locally made product. The ability to do that is substantially better than if it
hadn’t made these choices from the start.
KELLY:
In China, a lot of the requests we get from the medical device
companies about data are to help them assess procedure potential. We
have third-party vendors providing hospital-level procedure data, and it’s
already much better than it has been historically. For some procedures,
we have physician count, patient count or nurses. But I think, still, a lot of
things need to be done to continue to improve.
ANDREA:
In Brazil and other countries in Latin America, access to data
is improving significantly. Companies can easily obtain basic account
information for hospitals and some metrics to assess potential. There are
local companies dedicated to compiling different sources of government
information, which can help assess your go-to-market strategy. Of course,
there are always gaps—that is when understanding the industry and
market and business sense makes the difference.
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BRIAN:
There is a definite movement throughout emerging markets toward
setting up SFA [sales force automation] capabilities. These systems used to
be very costly, but it’s now possible to implement them much more economically, and in a much shorter time frame.
Building a Tech Infrastructure in Emerging Markets
TOBI:
How do companies decide how much to build and where to invest
their emerging markets technology infrastructure?
ROHAN:
What’s exciting is that the cost of technology has come down so
much. Technological advances mean that SFA systems, which used to take
a long time to implement, can now be done in a matter of weeks or months.
In emerging markets, we are seeing companies deploy mobile solutions like
the iPad and other tablets in a cost-effective way. Companies today can
have state-of-the-art systems at a fraction of the previous cost and time.
KELLY:
I think sometimes some companies overlook that—they rely too
much on salespeople, and the sales team is inefficient due to lack of technology. And then the companies don’t have a sense of how much effort a
person is dedicating to a given account; there should be visibility for the
amount of effort given to different accounts.
TOBI:
What final advice do you have on emerging markets?
ROHAN:
Do the research and take a rigorous approach to understand-
ing the market’s potential and your ability to win. There’s a lot of value
to doing market research with customers, understanding how they will
view your product, how they will view whatever price point you’re thinking
about and making sure that you approach it in that scientific, researchbased kind of way rather than relying on judgment and gut-feel.
BRIAN:
To build on what Kelly said earlier, medical device companies
should not just blindly replicate what might be successful elsewhere—they
need to be deliberate in allocating resources. It seems obvious, but companies can become overeager when entering or expanding in emerging
markets, and make needless mistakes that inhibit growth and profitability.
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About ZS Associates
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address market challenges and optimize performance. From 20 offices
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