Emerging markets are a tempting prospect for med-tech companies hoping to compensate for slowing growth in the U.S. and Europe, but it’s no game for small players, according to a panel of large-cap CEOs.
"Of course it’s attractive, especially if you think about a place like China – their interest in technology is tremendous," Edwards Lifesciences (NYSE:EW) chief Michael Mussallem told an audience in San Francisco last week. "But we know from our own experience, you don’t go walking in with 2 Americans and go and capture all the business in China. It just doesn’t work that way. To try and build loyalty and build real value, this is a ground game."
Although smaller companies may be tempted to jump into the fray, Mussallem suggested that they "stay a little closer to home" and leave emerging markets to companies with the resources to play the long game.
Device makers spread their tendrils all over the world in 2011 and newly minted Medtronic (NYSE:MDT) CEO Omar Ishrak put his stamp on the med-tech titan by announcing a big push toward global markets. Targeting the growing middle class in China, India and other emerging countries may even be "potentially less risky than creating new products for the flat U.S market," Ishrak said in his first shareholders meeting in August.
The panel generally agreed that emerging markets are vital for device makers, with Covidien plc (NYSE:COV) CEO Joe Almeida comparing them to 401(k) retirement programs in the U.S.
"You can’t afford not to play," Almeida said, but warned that, even for industry giants, the game is more complicated than it seems.
"We all talk about emerging markets – and emerging markets are a great attraction – but you’ve got to know where you’re going to play," Almeida said. "Being global doesn’t mean you’re going to be all over the place."
Mussallem revealed earlier in the panel discussion that nearly ⅔ of Edwards’ sales now come from outside the U.S., where the company’s products are slowly becoming more mainstream.
Vincent Forlenza, CEO of Becton Dickinson & Co. (NYSE:BDX), made a point of including a global outlook in the company’s mission statement.
"Our purpose is to help all people live healthier lives, and that ‘all’ is really important to us. So we’re really thinking globally when we talk about how we’re going to impact health care," Forlenza said.
Like Edwards, more than half of Becton Dickinson’s sales come from outside the U.S., Forlenza said.
But the fields overseas are rife with land mines for smaller companies that don’t know what they’re getting into, the CEOs said during a panel at the OneMed forum in San Francisco. Mediated by David Lucchino, co-founder of Cambridge, Mass.-based startup Semprus Biosciences, it was part of an ongoing series of "CEO Unplugged" events planned for the upcoming AdvaMed 2012 conference in Boston.
"The distribution in these markets is so fragmented," Forlenza told the conference audience. "Then you have compliance issues on top of that. You’re taking a lot of risk that you’re not intending to take when you go into these marketplaces."
Almeida joined Forlenza and Mussallem in cautioning against an unprepared foray into emerging markets, adding that such risky moves may put off potential buyers like Covidien.
"If you have a great product and your primary strategy is in emerging markets and you are in China, we find that little odd to begin with," Almeida said.