This is the fourth article in a series of TforG Gateway articles on the subject of taking your operation international and building an asset abroad. The information is based on well over 20 years of experience and numerous companies that asked TforG for assistance, in a substantial number of cases, after the first wrong decisions were made.
Growing a successful company is challenging enough without making “rookie mistakes” that can slow you down, stop you dead in your tracks or cost you an arm and a leg, for no good reason. The Medical Device market used to have sufficient margins in the Domestic as well as in the International (EMEA) market. That time, unfortunately is over and small companies that enter the international market have “no- or limited margin for error”.
We have assumed that the product has been sufficiently adapted to European (EMEA) circumstances or even country requirements. Also the company has CE-marking and has identified any (additional) country requirements (no matter how limited they may be).
- Sailing on a course set a number of years ago – The European (International) markets have changed and continue changing substantially. Staff experience based on another product, in another company, in a different time – a couple of years ago may lead to the wrong decisions on how to launch and market the product in this day and age. Issues like health economics, DRG influence, Evidence Based medicine and changes in the “composition” of Decision Making units, all affect the way that the decision making process develops.
- Europe does not exist when it comes to setting distribution strategies – Maybe on the surface, for the untrained and inexperienced company, the European (EMEA) countries are sharing commonalities (incomprehensible languages, unclear decision making structure) but the history of the way that health care is organized, how it is embedded in social en legal structures, how financials have changed in the last couple of years make “Europe” a collection of differences no matter how hard the EU is trying to harmonize the systems. That does not mean that there are synergies between the countries, but the differences are bigger than those synergies.
- Not understanding the customer and the environment he (she) works in – It is difficult to put the ins and outs of European healthcare in perspective, in comparison to the US (or other parts of the world), but even between the countries involved. It takes time and effort to understand, especially now, this day and age, under rapidly changing circumstances in the EMEA healthcare markets. Who, how and where is shifting faster than even the experts can follow without substantial monitoring efforts.
- Not validating (sufficiently) Market demand, Market potential – With the changing markets, healthcare economics playing a much bigger role and “evidence based” taking a decisive role, the adoption of new technologies and products is less obvious than before. Like in the pharma market, it looks like the number of different products in the cluster is decreasing and there is less of an opportunity for sub-optimal products to create a decent revenue position.
- Overestimating the speed of change, the ability to replace existing products and technologies, the effect of long decision processes and budgeting cycles – In order to optimize the operation with a healthy orientation for the bottom line, it makes sense to understand the issues and not try to speed things up that cannot be speeded up. A good example? Budget-cycles in public hospitals. Try to beat those and you will pay a price. Alternative solutions? Try private hospitals that have (take) more flexibility. Don’t (!!) hire a sales force if the launch file is not completed yet. You don’t want to have a lot of people idling, waiting for it to be completed at a substantial expense.We have used the term before: Hull speed! As explained earlier, Hull speed is the speed with which the hull of a boat finds its optimum speed and power (or sail surface). More power gives –relatively- more waves and, when powered, higher fuel consumption, not necessary (a lot of) additional speed.
- Relying (too much) on second hand customer information, collected and passed on (selected and biased) by distributors – You want to hear important stuff in the early phase from the horse’s mouth and not statements of which the essence may be lost in translations or filtered on other grounds.
- Translation instead of adaptation of marketing materials – Translation of the marketing materials that you are using “at home” is definitely NOT the thing to do. It is questionable to use the same materials in all countries of Europe (well actually we know it is NOT wise). Different countries with different circumstances, different decision makers and different benefits should not be stuck with a document that fails to answer the questions or bring the benefits in a proper order.
- Not setting the right price – The country variables may require (and allow) to set different prices or rather, to “discount” differently on the basis of the same list-price in all European countries. Under or overpricing the product may inhibit adoption.
- Not understanding the essence of the (relevant) DRG’s (or Reimbursement) – Not only that it is essential for setting prices but it may be necessary to adapt the positioning of the product. DRG’s have a tendency to slide down, and seldom go up as the result of a new technology or product that becomes available. There are also different DRG’s for in-patient or ambulatory interventions. Having a technology that allows ambulatory treatment or intervention may be a potential winner but will no doubt lead to a reduced DRG. It may make more sense to shorten the hospital stay of the patient than to go to ambulatory care.
- Underestimating the effort needed to build an asset in Europe (EMEA) – In another life I have worked in the wonder-full world of venture capital. One of the rules of thumb that is applied there is that no matter what the business plan says: it takes at least twice as long and costs twice the investment. I am not claiming that building an asset in Europe will move along the same lines but unfortunately I have seen operations that were able to meet or beat that result.
The fact of the matter is that setting up an operation and building an asset is much more predictable and controllable than starting a venture…..provided that you take control and understand the issues before starting to fork out budget.
It makes sense to go through a thorough process of orientation, gather market intelligence and gain understanding before making a move. It is less essential to research the market potential than to try to understand the essence of the market, drivers, barriers and other elements of success or failure.
About Helgert Van Raamt
Helgert van Raamt has 35 years of experience in running and setting up companies, big and small, in EMEA (and beyond). After his senior marketing positions with Organon Teknika and Abbott Labs and four years in Venture Capital as an investment manager for US, UK and NL based funds, he joined Nellcor Europe in 1989 and has lead this company through two consecutive M&A’s (Puritan Bennett and Mallinckrodt). The acquisition by Mallinckrodt for 2.7 Billion made Nellcor the most successful Medic venture after the Second World War. He left to set up the International Operation of Aspect Medical Systems and brought that to success. In three years it reached a revenue level of $10 million and was profitable two months after the start of the operation. Since then (2003) he has successfully advised numerous companies about setting up internationally or cleaning up an existing international operation, both independently and as a partner for TforG Group.