Originally Published MX March/April 2002
BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT
Globalization 101
For medtech manufacturers, the challenges of selling in multiple markets are complex—but essential.
Andres Heuberger
As
the U.S. market for medical devices matures and grows more competitive each
year, many device manufacturers are looking overseas for customer and revenue
growth. Fueled by booming overseas economies and relaxed export regulations,
exports have been growing by about 10% per year throughout the 1990s. As a result,
today you'll find all types of medical device companies —large and small,
across all categories—participating in the export boom.
That means all is well on the export front, right? Well, not quite. While the
"global economy" may have arrived, there are many bumps in the road,
and horror stories are commonplace. International regulatory submissions are
time consuming and compliance officers are struggling to keep up with ever-changing
international standards. Cost overruns are rampant, and international profit
margins often fall short of projections. Some markets are smaller than initially
projected (sometimes small enough to fit all products sold there onto one conference
room table). Internal organizational strife has created an "us versus them"
environment.
For executives who must manage this process, the pressure is only getting worse.
For every additional market, there are additional language, regulatory, and
logistical issues that must be negotiated. Budgets and schedules are tight,
and upper-level management often doesn't understand or appreciate the complexity
of the issues involved.
U.S. medical device manufacturers simply cannot afford to ignore global markets
if they wish to maintain their industry leadership. Despite the problems encountered,
international sales contribute substantial earnings to the industry's bottom
line. Nonetheless, both established device manufacturers and small start-up
companies face fundamental marketing, regulatory, and packaging challenges as
they expand abroad.
Opportunities Abound
These days, a successful
product launch requires expensive marketing campaigns, far-reaching distribution
channels, and massive R&D efforts to develop product extensions. With so
much invested in each product, manufacturers must achieve maximum return—something
only a world market can offer.
Particularly for smaller companies, in which any given product can make or break
a fiscal year, international expansion presents a number of important advantages.
First, there are faster growth opportunities abroad due to increasing demand
for U.S. medical products and because many overseas markets are less mature
than the U.S. market and offer low barriers to entry. Second, device manufacturers
are often able to partner with ambitious, well-established local distributors.
These distributors look for new technologies to build their business—and
the device manufacturer's as well. And lastly, overseas markets can serve as
valuable testing grounds for new devices before such products are exposed to
the demands and scrutiny of U.S. customers. Compared with the United States,
some markets also display higher rates of specific diseases (e.g., diabetes),
offering sales and clinical-trial opportunities.
Before diving in, however, it's important to answer the following questions:
Why is our company going global? What are we looking to achieve? How does "international"
fit into the company's strategy? Too many companies enter the international
marketplace without definite answers to these questions. The first move in avoiding
missteps is to perform a thorough situation analysis. Senior management should
typically consider the following areas:
Market Analysis. How many markets are under consideration? What products
are currently selling in the markets under consideration as well as domestically?
What are competitors doing? Do the selected markets support price points that
allow for profit? What is the size of the market now and in the future?
Organizational Capabilities. Many companies lose sight of the demands
that an international sales push will place on the organization. Does the required
breadth and depth of skills exist? What functions or departments need to be
shored up with additional staff? Will internal politics and turf wars sabotage
the venture? A company may simply be too small (or underfunded) to sustain this
effort.
Return on Investment. Some companies are getting swept up in the mad
dash to enter overseas markets without looking at the underlying financials.
What capital expenditures are required? What will the impact be on company overhead?
What is the projected return on investment? What risk factors exist? What other
investment needs and opportunities does the company have?
Timing. The cost of rushing into a market too early (i.e., no market
exists yet) must be balanced with the risk of entering too late (i.e., competitors
are already established).
Business Objectives. Ultimately, management needs to evaluate how this
effort matches up with the company's overall strategy and mission.
There are no right answers to these questions. The key is in thoroughly analyzing
these issues and their implications before enacting a global markets strategy.
This analysis should result in clearly defined milestones, goals, and objectives.
The clearer the mission, the easier the implementation—and the greater
the odds of success.
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Figure
1. Departmental responsibilities for medtech companies pursuing a global
marketing strategy. (click to enlarge)
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The situation analysis should result in the appointment of one person to spearhead the international effort. While different operations inside the company will need to cooperate, one person must have the responsibility and authority to carry out the mission. Going global affects nearly all departments. While the international team leader may quickly come up with a solution and implementation strategy, that person's most important contribution must be to solicit the involvement of the affected parties (see Figure 1).
Human Resources
When entering international
markets, companies must support this effort with sufficient human resources.
Exporting will make new demands on many different departments, including regulatory
affairs, technical publications, packaging, distribution, marketing, sales,
finance, customer support, and so on. The department managers need to be involved
in the planning stages and need to have input into the allocation of their resources.
Many of the functions affected by going international can be outsourced to third
parties or suppliers. However, those relationships must still be managed and
thus require internal resources as well.
When considering various options for resource allocation, in-country affiliates
are an attractive option. However, companies often neglect to take into consideration
the capabilities of affiliate offices. Questions to consider include:
Nature of Office. What function does the affiliate play? Is it a sales force
or an inventory warehouse? Can there be sufficient staffing to take on additional
responsibilities?
Processes. Are local staff trained and up-to-date on company policies
and procedures? Are the relevant quality systems in place? Does the team include
a quality or regulatory affairs manager?
Translation Management. While many medical device companies prefer to
control translation efforts centrally, it is possible to have affiliates assume
responsibility for this function and to have them coordinate translation through
in-country vendors. Alternatively, many affiliates act as reviewers of the translation
vendor's work.
Technology. Is the necessary infrastructure in place? Often, companies
find that affiliate offices use hardware and software and systems that are different
from headquarters and other affiliates.
Also, while international compliance can be handled without the assistance of
in-country affiliates, this approach is not recommended. Brett White, senior
packaging engineer with Sulzer Carbomedics (Austin, TX) recommends that manufacturers
take advantage of this resource. "In-country affiliates can offer great
assistance in interpreting existing packaging and labeling guidelines,"
he says. "More importantly, they can keep medical device manufacturers
informed of new laws that may impact the distribution of their product in foreign
countries."
As these questions arise and are answered, the original solution will become
more complex. By involving affected sites and departments in the planning, companies
will be able to reduce internal politics and keep in-fighting to a minimum.
Financial Resources
Because dollars
must be invested before marks or yen can be earned, a detailed budget must be
established early on. Some costs are easy to anticipate. For instance, Daphne
Walmer, manager of technical communications at Medtronic Inc. (Minneapolis),
points out that "the cost of translation can equal the cost of developing
the English for each target language."
However, not all costs are obvious. According to Walmer, some of the potentially
unforeseen costs include the following:
- Additional travel, not just for executives and salespeople but also for people in other organizations who need to make things work.
- Costs of gaining regulatory approvals through multiple organizations which may have slightly different and occasionally contradictory requirements from those of FDA.
- The need to localize marketing communications as well as translating them (even though one might be able to get away with nearly identical content for technical documentation, this is unlikely for promotional materials, because what sells differs across the world).
- The need or desirability to translate and localize at least some employee communications, depending upon the workforce.
- Translation and localization of the company's Internet site.
- The need to rethink the way the company develops products and materials to be more international, especially software and multimedia applications (i.e., designing them to make translation and localization easier, or, in some cases, possible at all).
- The need to
educate people how to work with others from different cultures. If companies
don't do it up front, they may pay in terms of missed schedules, misunderstandings,
frustration, and seemingly unexplainable failures.
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Figure
2. Fluctuations of four major currencies versus the U.S. dollar from January
1994 to August 2001. Source: Federal
Reserve Bank of Chicago. (click to enlarge)
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Regulatory Affairs Management
Increasingly, product
development is being conceptualized on a worldwide scale to maximize return
on investment. Country-by-country approvals stretching out over many years are
giving way to parallel submissions with the goal of near-simultaneous approvals.
To accomplish this, regulatory professionals must be familiar with individual
country requirements and must be able to respond to them quickly and accurately.
Easier said than done. Even though large medical device companies can rely on
a full staff of experienced international regulatory affairs professionals,
small and midsize manufacturers often lack these resources. They also typically
lack in-country subsidiaries to help them keep informed of changes in local
regulations.
As countries become more vigilant, regulations multiply. Although the basic
goal of global regulatory affairs has remained the same, the frequency and number
of changes has forced regulatory affairs professionals to specialize in specific
market requirements and, often, to duplicate their efforts across multiple international
markets.
While this duplication of efforts with international filings is a constant source
of frustration, there are signs of relief on the horizon. Representatives of
industry and government are working toward establishing international regulatory
standards. These standards would set global criteria for safety and would improve
time-to-market while protecting all countries, no matter how scarce their regulatory
resources.
Of course, establishing standards that everyone agrees upon is no easy task.
The Global Harmonization Task Force is currently developing consensus standards
and is working toward this goal. But don't expect immediate relief; the conclusion
of these efforts is still several years away. In the meantime, device companies
wishing to expand their global presence will enter new markets, relying on their
regulatory affairs staff to solve the riddle of managing multilingual compliance.
Coordination Is Key
Without a well-executed strategy, global expansion can be a very frustrating experience. It is critical that international marketing and sales activities be coordinated with the actions of other departments. For instance, a marketing department's desire to move into a new country needs to be coordinated with product development, finance, and regulatory affairs. Following are a few issues of which manufacturers should be aware.
- Manufacturers must be very careful about what they write in labeling their products, because many countries consider labeling to be advertising. Therefore, manufacturers must carefully study the advertising rules in force in each country as well as the Advertising, Labeling, and Distribution of Medicinal Product Directives of the European Union before they design the labeling of their products.
- Privacy rules often differ from country to country. Many European countries, in particular, have stringent rules regarding the collection and dissemination of customer and patient data. The information systems group will need to modify patient and customer databases for each country.
- Many countries do not allow comparative advertising. Although permissible in the United States for the last 30 years, in Germany, for instance, an advertisement cannot say "brand x is better than brand y."
- When selling to multiple markets, packaging and labeling should be localized for each market: colors, paper format, and overall designs should be custom tailored to each market so as to avoid the "insensitive U.S. bully" image. However, the desire for market-specific packaging must be balanced with company-wide branding and image concerns. Should the German package really look and feel different from the Japanese or the U.S. package?
- Companies may decide to centralize manufacturing in the United States and ship worldwide from there. Alternatively, the company may build regional manufacturing or distribution centers. Supplying global markets with medical devices requires a global manufacturing and distribution strategy that involves upper management and a thorough financial analysis.
There are many hazards on the road to marketing medical devices overseas. However, with the proper planning and dedication of resources, it is possible to circumvent these challenges and to steer a path to profitable growth in international markets. U.S. medical device manufacturers cannot afford to ignore international markets if they wish to maintain—let alone grow—their market position.
Andres Heuberger is the president of ForeignExchange Translations Inc. (Providence, RI).
Illustration by Rob Colvin/Artville
Copyright ©2002 MX
