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Home » Ishrak: Medtronic needs to get smart about emerging markets

Ishrak: Medtronic needs to get smart about emerging markets

June 5, 2014 By Arezu Sarvestani

Ishrak: Medtronc needs to get smart about emerging markets

Medtronic has a bit of a growth problem in emerging markets, and throwing money at it isn’t making it go away.

Although CEO Omar Ishrak has devoted serious cash to developing Medtronic’s presence in countries such as India and China, returns haven’t hit the mark promised just 2 years ago. The company has been putting ever more skin into emerging markets in hopes of tapping what could be an estimated $5 billion opportunity for existing therapies alone, but pouring money into developing markets isn’t doing the trick.

"In the last couple of years we’ve really enhanced our degree of investment in emerging markets, but that’s not enough," Ishrak said during today’s analyst meeting in New York. "We’ve tried that and, frankly, we haven’t reached the growth levels that we aspired to."

"We aspired in this meeting 2 years ago to a 20% growth level; we’ve got in the mid-teens. Yet we’ve put money into this," he added.

Instead of making its wallet work harder, Ishrak explained, Medtronic needs to be smarter in developing its overseas footprint. In order to tap those markets, the Fridley, Minn.-based medtech giant needs to better understand and align itself with customers and partners, develop key relationships with governments and hospitals and establish customized sales forces that can cater to the varied needs of different regions, he said.

Emerging markets are one of the 3 core pillars of Medtronic’s future growth strategy (alongside new therapies and new services and solutions), and the company has said that it’s still on track to reach its long-term goals. But Medtronic has, in recent quarters, come up short of that mark. That may bode ill for the 2016 goalpost of 20% growth in emerging markets that Ishrak has been promising.

In its 2014 earnings report, Medtronic posted a 14% decline in India revenues and only 15% growth in China. Geopolitical turmoil in Russia squashed growth there and weighed down Central and Eastern Europe as well. In total, Medtronic’s emerging markets segment grew by just 10% in its 2014 fiscal year.

Last year’s figures weren’t all that much better. At the end of 2013, Ishrak unveiled 14% total growth in emerging markets, driven by strong performances in the Middle East, Africa and Central and Eastern Europe. India was still in decline as Medtronic faced government-imposed pricing restrictions on certain therapies as well as "temporary disruption from the termination of a coronary distributor."

"Looking ahead, we remain focused on high-teens growth in emerging markets in the near term, while striving for 20% or better over the long term," Ishrak said at the time. "We believe these markets will continue to provide an independent growth vector for us, becoming an increasingly significant source of consistent and reliable revenue over time."

Medtronic is still hoping to reach that 20% benchmark, saying that emerging market revenues may accelerate in 2015. To be "prudent," however, Ishrak isn’t getting his hopes up about the coming year.

"We’re doing everything we can to drive something above 15%, but given our history and given what we’re learning, I think it’s prudent to expect something in the mid-teens," he said during last month’s earnings call.

Filed Under: Emerging Markets, News Well Tagged With: Minnesota

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