Healthcare in Europe – Selecting the distribution network

This is the fifth article in a series of five on the subject of taking your operation international and building an asset abroad.
Helgert van Raamt continues his series of articles explaining how to select the distribution network of your company when entering an international market. 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.


In the previous 4 articles of this series, we have led you through a lot of the issues related to setting up an international (EMEA) operation. We have advised you to start the orientation on international expansion early, take names and numbers in the course of your first years of (domestic) operation. We have explained that going international too early may have serious implications for your bottom line. Going too late may jeopardize the top line.

In article 3 of this series we provided an overview of the options you have in setting up an international (EMEA) distribution. It is obvious that the closer we come to describing the selection criteria and the way to go about it, the more the product or the technology involved starts playing a role.

Low priced consumables require a (very) different type of distribution (distributor) than highly technical equipment (or a “concept sell” for that matter). Not only will it require a different distribution, it will change the order of actions, the priority of getting organized, the way that you, as a manufacturer will need to influence product marketing and support the operation in

For the purposes of this article we have assumed the following:

  • The product is a hospital product (secondary care), medical device.
  • The product is a composite/kit, nonsurgical/ interventional (class 2, 3)
  • The product requires (would profit from -) substantial instructions or hands on training.

That leaves a wide range to consider and should cover more than 50% of the Medical Devices that come available in the market.

Until now:

– You have assured yourself that the market is sufficiently accessible and of a size that warrants setting up a distribution network.
– Reimbursement/DRG is at a level that makes your product economically viable.
– You have obtained all necessary regulatory approvals (e.g. CE mark), to market the product in Europe (EMEA).
– You have arranged for fiscal representation, necessary to deal with Tax/VAT issues in Europe (EU).
– You have started to build a clinical reference file, sufficiently solid to expand on, in terms of clinical performance and marketing wise.
– You have decided how you will handle orders, warehousing and logistics. Direct shipments from the US are a hassle for (smaller) distributors, and a showstopper for direct customer deliveries.
– You have sufficient insight in the competitive situation and to what extent your product fits with current (or future) medical practice.
– You are sufficiently confident that you are not kidding yourself…(see article 4 of this series: “10 Common Mistakes”).

Call to action/Decision Time.

You now have three choices:

  1. Identify a distributor in a country (couple of countries), preferably a country/countries that offer the best opportunity (according to your information) and “get started”. Manage the distributor(s) from HQ and wait with hiring local support until you are generating initial revenue.
  2. Hire a representative in Europe that is able to identify (a) distributor(s), (b) set up (more) reference sites, (c) generates initial revenue (direct), support and trains distributors etc.
  3. Use a third party, consultant/advisor to prepare the strategic and/or marketing plan, identify and select (potentially approach) distributors.


Ad 1 and 2

In earlier articles we have indicated a couple of the do’s and don’ts in signing up a distributor. It is very difficult to provide guidance in individual cases, but experience teaches us that:

– Whether the distributor is large or small, it requires substantial involvement of the manufacturer for launching products in Europe. Distributors are not fond of large investments in that respect, especially if adoption of the product (technology) is still unclear, the product is a concept sell, the clinical reference file are weak etc.
– Having “local” (EMEA) field-staff that can train and support distributor personnel and (key) customers is in general is advisable. It improves the quality of the launch (especially in the eyes of customers that appreciate direct contact with the manufacturer) and speeds up getting traction. Local field staff is preferably clinical/technical with a feel for “the commercial side”, not the other way around.
– Language skills are an essential point. The assumption that most medical personnel (physicians, nursing, technicians) speak English is not correct (except in the UK, Nordic countries and the BeNeLux).
– The selection of distributors depends on the selection of the countries in which to launch. The selection should be based on opportunity, not on size of the country.
– Opportunity is based on economical AND clinical factors, but also organizational (healthcare) elements. Healthcare provision is changing in the traditional (key) markets in Europe. That offers an opportunity for some products and barriers to other products. Be assured that some arguments are not as valid in Europe as they are in other parts of the world (like the US).
– Every product launch takes longer than expected. People who have similar experiences as I have in Venture Capital, know that assuming that commercial exercises take twice as long and twice the amount of expenses (investment) is a safe bet. In general, more investment means higher expense levels and increase in speed, but medical markets have an intrinsic speed of change and that speed has not gone up over the last couple of years. In earlier articles I have explained the concept of “Hull speed” and made the statement that more money and more horsepower may not
necessary improve outcomes. Twice the expenses may not always double the speed, but it definitely reduces bottom line (increase the initial losses).
– The selection of distributors is often a challenge. Bigger is not always better, having a relevant clinical file that substantiates potential helps in interesting the better distributors. The better distributors like to be convinced to take up your product, the representation of your product. Smaller distributors are often very interested in representing you, no matter what the product is like or which specialty is involved.
Distribution margins in EMEA may differ from 35-55%, depending on type of product and the distributor services required. Smaller distributors, specialized, with a quality reputation are not necessary ALWAYS worse than the bigger distributors.
– It goes without saying that product range and capacity (across the board, primary and secondary) of the distributor are important. It is difficult to make generally applicable statements on good or bad product ranges with the distributor. The distributor should preferably represent other products that takes him into the right segment or medical specialty. He should preferably have a reputation that your product can “lean on”. On the other hand every product in the same specialty has to deal with the same available budget. A distributor will not make life more difficult
and will is inclined to take the path of least resistance.
– You may need distributor facilities (technical service/repair, training, logistical) and capacity that you need to take into consideration.
– In some countries it may be difficult to find good representation in the entire country and you may need to deal with 3-5 distributors. In some segments you may find distributors that are able to cover the entire country (e.g. Germany) and also other Germanic/German speaking countries (Switzerland, Austria). A lot of Scandinavian (Nordic) distributors are represented in all 3
(4) countries. It makes sense to select such a distributor.
– References are essential, and in addition to checking with other manufacturers that the distributor represents, it makes sense to check with some selected customers.
– Capacity of the distributor has a tendency to be double (multiple) counted. Being able to negotiate a dedicated (product-) manager, dedicated field personnel, is very positive.
– As said before, there are more elements that are important, very much related to the kind of product that is involved.

Ad 3

I admit to not being objective when it comes to hiring a third party as a consultant setting up a European operation, including painting the commercial landscape, identifying the market essentials and, if required, selecting distributors and logistical/fiscal partners.

Our experience ranges from a single day “commercial plan audit” at a marginal expense to a full exercise that includes, DRG and Market research, competitive overview, clinical file initiation, strategic plan and distributor identification, selection and negotiation and anything in between.
It sometimes looks bizarre to see manufacturers making mistakes that could have been avoided by checking with somebody who has been there……..and I may add has been there recently!!

Nothing is more devastating than to sail on a course that makes use of a map that is outdated (and that is the case more rapidly than you think- Europe has changed course quite a bit in the last
couple of years.

In the next articles we will touch upon the other options of EMEA distribution as indicated earlier:

  1. Direct operation
  2. Mixed Direct operation and distributor network in (smaller, other) countries.
  3. Mixed as per #2, with additional (field) personnel (clinical support)
  4. Strategic Alliance (and distribution) with a larger US based manufacturer with a fully functional distribution organization (direct).
  5. Strategic alliance with a European manufacturer with a fully functional distribution organization.

… and the potential development from one to the other, from distributor network to direct.

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.