A comprehensive guide to evaluating potential markets for expansion and finding great distributors who are eager and capable of maximizing sales of your devices.
While some medical device and IVD manufacturers never end up selling products outside their home market, most eventually cast their net farther abroad. Unfortunately, many companies looking to expand abroad hastily select a market and start doing distributor searches right away. This is the wrong approach. After working with hundreds of medical device and IVD companies – many of whom came to us after fruitless attempts on their own – we recommend the following process which we will cover in more detail in this guide.
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How to evaluate and narrow your list of potential first/next international medical device markets
While manufacturers elect to subcontract sales to a local sales representative, for various reasons most small to mid-sized device companies hire a local distributor to sell their products. This is still the primary sales channel in developing and emerging countries. There can be several reasons why you want to expand to foreign markets:
Sales are slowing down in your home market (risk management)
Innovative competing devices that threaten sales in home market
Diversification of your customer base
Capitalize on opportunities brought to you
Stimulate innovation
Play the long game
Entering a new geographic market is a long-term play and you should give it the same level of rigorous research you would when launching a new product. First and foremost, don’t make a decision to enter a new market unilaterally. Get buy in from all internal stakeholders that will be involved. This means going beyond the sales department and consulting with your colleagues in marketing, regulatory, manufacturing, legal and shipping. You may be surprised at the issues your colleagues raise that you had not considered.
We suggest getting key teams members together early on to explain why you are expanding internationally and get some initial feedback on things to consider. You want to get them invested early on and they will appreciate that you are soliciting their feedback early in the process instead of springing it on them later. At this point, you may have a short list of countries that interest you, but perhaps not. That’s ok – the point is to learn about the high-level issues you may not have thought to consider.
If you are a senior executive, we recommend that you appoint a senior project manager to oversee the internationalization project. Don’t leave this to someone on your sales team. There are a lot of moving pieces to entering a new market and you want someone with outstanding organizational skills to coordinate the efforts of different departments that will be involved beyond Sales. If you have already done your homework and know exactly which market you want to enter, you can skip to the next section. If you have not yet decided, you’ll want to go through a methodical process of selecting the country/market that’s best for your company/device.
Is there a market for your device?
It seems obvious but the first step in selecting a market is to determine if there is a market for your device there. Here’s an example. Let’s say you are a US manufacturer of devices used to treat diabetes and you are interested in entering the market in France. Sure, France is a large market but the prevalence of diabetes there is less than half what it is in the US. By contrast, diabetes is 50% more common in Mexico than the US.
You can do some research online to determine market potential and there are also several independent research firms that publish exhaustive reports on specific device categories, one of them being Grand View Research. These reports generally cost thousands of dollars and may not provide deep information specific to each country, but you could check them out.
Luctor helps medical device and IVD companies find qualified distributors in markets throughout North and South America, Asia Pacific, Europe, Middle East and African markets.
Obviously, you should also visit competitor websites and determine the markets in which they sell their devices. Companies sometimes even list their distributors in specific markets. Huge device tradeshows such as Medica (Germany), Arab Health (UAE), Hospitalar (Brazil), CMEF (China) and FIME (US) can be excellent sources of information on where companies are selling.
Some other things to consider:
Is your solution actually being used in the target market? Sometimes a certain procedure is not recommended (or not reimbursed) and therefore a specific product is not being used.
Which competitors are active in the market and what is their product offering? Are you going up against a dominant domestic player? That might be tough but there are always niches to enter successfully
What are the current price levels in the market for your product and can you meet these price levels?
Is your product being reimbursed in the market? Who pays?
Of course, another way to answer these questions and narrow your list of countries is to hire someone on the ground to do an assessment. A knowledgeable local distribution consultant will have a good sense of the market for specific devices and can get on the phone with local contacts to further assess the market and competition. This is something that would be challenging for you to do yourself.
Determine the focus channel
The focus channel is where your customers are active and can differ per country for the same product. For instance, in the UK the National Health Service (NHS) purchases medical devices whereas in the US local distributors often do business directly with hospital representatives. In markets where the government does not purchase devices, your channels may be hospitals, clinics, nursing homes or the home healthcare market.
In summary, make sure you:
Assess the true need for your product in a focus market
Determine the competition level and their product offering
Determine the price levels applicable in the focus market(s)
Understand who is buying the devices (government, GPO, hospitals, other)
Assess regulatory and reimbursement timelines/requirements
How strong is your competition in Country X? Here’s what you need to know
It’s easy to get lost in doing an in-depth evaluation of market potential yet underestimate the strength of the competition in the market. This can be difficult to evaluate from afar since this is highly dependent on the power of the brand, and that is often best assessed by someone with local knowledge. For instance, if you are entering the Japanese market with a new technology that is clearly superior to your primary competitors there, you might think you have a clear path to rapid adoption. But what if the primary local competitor is a respected Japanese company with a local sales team and deep personal contacts with decision makers. In that case, your technological advantage may be offset by the strength of their personal connections, making it a struggle to make inroads.
Need an experienced local contact who can do competitor research in your target market? Our team can help. Learn how.
Understanding the competition in your focus markets is vital because it allows you to make substantiated decisions on which business model and go-to-market strategy to choose. The best thing to do here is to conduct a SWOT analysis of competitors, taking all factors into account:
What products do they offer and at what price levels?
Where do they sell? Are they concentrated in a certain (part of a) channel or region?
Are specific channels and/or customers inaccessible because the competition has already blocked them?
How do they sell to their customers?
What is their local sales infrastructure? Do they make use of local distributors or do they have their own sales organization?
What are their strengths in the market (e.g. broad portfolio, after sales service) and what are their weaknesses?
Do they conduct local training?
Do they engage with Key Opinion Leaders?
How does your device compare to those of your competitors in terms of quality and cost?
Is your brand known in the market or are you starting from scratch?
As mentioned before, tradeshows can be an excellent way to collect first hand data, along with paid market reports and some degree of online research. However, paying someone with local market knowledge may end up being a wise investment and will get you the latest information from the field.
Understanding regulatory approval and reimbursement for your medical device in your chosen international market
You have evaluated the market potential for your product and looked at the competition you’ll face. But have you considered what it will take to get regulatory approval for your medical device or IVD in a specific market? This can vary widely, both in time and cost.
For instance, if you are a US medical device manufacturer, and hold 510(k) clearance for your device, you may think entering the European market would be straightforward. Not so. Ever since the new European Medical Device Regulation (EU MDR) went into effect in May 2021, manufacturers entering the EU market face daunting technical documentation requirements and a need to get audited by a Notified Body. Getting your documentation compliant with EU MDR requirements can easily take 6+ months, plus another 12+ months for Notified Body review.
Our regional medical distribution consultants can tap their local networks and perform a detailed market and regulatory assessment of your short list markets. Learn how.
Some markets take even longer. If you are looking to enter Japan or Brazil with a medium or high-risk device, plan on the process taking years, not months. Reimbursement of your product can also be an issue and it’s important to understand if there is local reimbursement or not. If not, potential customers might not be interested in using your products since they do not get paid!
Understanding local regulatory and reimbursement requirements - and the timelines and costs associated with meeting them – is something you should tackle early on. You do not want to build up internal excitement about entering a new market only to find out it will be 2+ years and $50,000+ until you are even ready to launch. However, paying someone with local market knowledge may end up being a wise investment and will get you the latest information to build your market entry strategy on.
Defining your ideal medical device and IVD distributor profile
You have consulted with your Regulatory, Sales, Marketing, Manufacturing, Legal and Shipping departments. Everyone is on board and fired up! You might think this would be the right time to jump in and starting hunting for distributors. Not yet. Before you begin the hunt you need to understand exactly what you are hunting for and this starts by defining your ideal distributor profile. You need to clearly define what’s important to your company. For starters…
Does your device require servicing?
Does your device require hands on training with surgeons?
Is your medical device used by consumers?
Do you prefer to work with large distributors or focused regional/specialist distributors?
In addition, you’ll want to clearly define:
The extent of knowledge required about your product category and where/how they are being used
Your expectations about the distributors’ investment in growing your brand
Whether you need the distributor to have access to Key Opinion Leaders to endorse the usage of your product
Composition of sales team. What does it look like?
Your main competitive brands that need to be excluded
Size of network in your medical segment
Size and focus on your brand, product. How big is the company?
Financial stability
Resources available to conduct local marketing activities and support in QA/RA queries
Whether you need the distributor to hold stock for a certain period
Keep in mind, you can’t have it all. You may find a seemingly excellent specialist distributor that offers servicing but doesn’t offer access to Key Opinion Leaders and does not want to exclusively represent your device category. For this reason, if you develop a list of criteria that are important to you, we recommend you weight them:
Nice to have but not essential
Important – strongly prefer having this
Absolutely non-negotiable – a must have
Once you have scored each factor, you simply tally the score. This will help you objectively evaluate each potential distributor. We will talk more about vetting and selecting distributors later.
It’s finally time to start researching distributors
While manufacturers elect to subcontract sales to a local sales representative, for various reasons most small to mid-sized device companies hire a local distributor to sell their products. This is still the primary sales channel in both developing and emerging countries.
While it’s tempting to jump in and begin the process of looking for distributors first, it is pointless to do so before you have clearly defined your ideal distributor profile and have done your market research. With those things done, you can now begin the hunt.
So, where to begin?
Let’s start by talking about the pros and cons of doing research online, using India as an example. Yes, you can easily do a Google search for “medical device distributors in India” and come up with numerous options. You will likely find:
Large distributors with extensive websites
Some distributors who show up on Google Maps
Directories with lists of distributors in India
Defining your ideal profile is crucial and fairly straightforward. Finding distributors that meet those criteria? Not so much. Let our regional distribution specialists help. Learn how.
While the initial results may seem robust, the reality is that Google is not the best place to hunt down distributors in India. First, many distributors don’t have great websites that rank well on Google so they are not easily found on the first several pages of search results. General trade sites such as IndiaMART and TradeIndia may give you additional options but provide very basic information let alone good quality distributors. Some drawbacks:
Often not enough information available to base any decisions on
Difficult to assess actual capabilities, access to network, resources available, financial strengths, etc.
Information available does not give any insight in how the distributor is positioned or valued in the market
Very limited information available in English for many markets
While it’s perfectly ok to use the internet to create your initial “long list” of distributors, you are strongly advised to find someone who can take the next step and work with you to supplement your initial list. A well-connected distribution consultant is far more likely to get you access to the best distributors.
Finding distributors at tradeshows
As mentioned earlier, exhibiting at huge device tradeshows such as Medica (Germany), Arab Health (UAE), Hospitalar (Brazil), CMEF (China) and FIME (US) can be good ways to meet distributors. You can meet several potential distributors face to face, determine if there is mutual rapport, and gather important information in a relatively short amount of time. This is a golden opportunity to assess their knowledge of the local market, assess their capabilities and potential resources and discuss future business opportunities.
However, there are drawbacks. A distributor you happen to meet at a tradeshow may be eager to add your device to their portfolio and may talk a good game, but it can be hard to conduct an unbiased assessment of their true capabilities and performance. You are well advised not to make any commitments during a show, and to do a more thorough vetting thereafter (of course we can assist you with assesssing their capabilities). Also, tradeshows are expensive! If your primary goal in exhibiting at a show is to meet new potential distributors, your money may be better spent hiring an experienced medical device distribution consultant to perform an in-depth analysis and search.
One last thing, remember that distributors are always on the hunt for new products! Don’t limit your opportunities to meeting distributors at tradeshows. Add a page to your website dedicated exclusively to distributor recruiting!
Currency risks
Keep in mind that currencies can fluctuate quite a bit. A drop in the local currency might result in a (temporary) decrease in sales since your product is simply too expensive for the local market. This needs to be part of your SWOT analysis since local manufacturers do have an advantage over imported products. An even bigger risk is that your local distributor is unable to pay your invoice when the local currency is falling sharply. In some cases, the currency of your invoice is simply not available in the market.
Making initial contact with prospective distributors
If you are doing research on your own, you may end up with a list of 5-10 distributors in a specific country that are worth checking out in more detail. At this point it’s tempting to start firing off emails to distributor contacts directly (if you can find the email address for the right contact person) or submitting inquiries using their website contact form. There’s a right way and a wrong way to do this.
Be brief and direct
Your only goal at this point is to get the distributor to pay attention to you. With that in mind your initial inquiry should cover the following:
Why you are making contact
A link to your device page online
Brief statement that device is being sold successfully in X and Y markets
Note that it has (or soon will) regulatory approval in Z market
Request for introductory video call (better than phone for making personal connection)
Here’s a pro tip on that last bullet point. Instead of wasting time going back and forth to determine availability for a call, sign up for a scheduling tool such as Calendly and let the distributor choose a time based on your calendar availability. Potential distributors will be very impressed!
Also, never use Google Translate to make contact with local distributors in a market where you don’t speak the language. You may think you are being courteous but instead you will immediately label yourself as an amateur. Unless you (or someone on your sales team) is fluent in the local language, it is likely you will communicate with the distributor in English (or another commonly spoken language) so no point leading them on that you speak their language.
Starting the conversation
This is important because you need to enter initial discussions with the mindset that YOU are selling your device and company to the distributor, not the reverse. To bring that home, we recommend that you have a short PowerPoint prepared for your first video call at least covering the following topics:
Overview of your company: where based, international offices, employee count
Product technology overview (embed short product video if needed)
Technological advantages (if any) over your competition
Marketing support materials (website, brochures, videos, etc)
Where you sell those devices now and relevant certifications (CE, ISO 13485 etc)
Enough about you - now it’s time to listen. The distributor will naturally tell you about their business operations in much the same way, covering the breadth of their reach within hospitals and clinics, their product focus, service capabilities and so on. They will sound as amazing as you have made yourself out to be so this is where you need to be sharp and ask questions that reveal the true extent of their capabilities:
What are your main strengths as opposed to your key competitors?
How is your sales team organized?
How do you ensure my product gets the attention it deserves?
Can you share an example of how successful you have been with one of your other brands and/or products?
What are the technical capabilities your organization has in order to offer the required after sales services?
Is it possible later on to travel with one of your sales reps?
Can we speak to one of the other principals you represent?
Are you ok with us doing a financial due diligence?
You do not want to probe too deeply on the first call but you do need to gather enough information to know whether a second call will be warranted.
Narrowing your options and negotiating with distributors
You’ve spoken to many potential distributors and a few stand out from the crowd. They too have followed up to express their interest in representing you and your device. What’s next?
Now it is time to have a more serious business conversation to evaluate the distributor’s true capabilities and how they would promote your device.
Need help vetting distributors and getting the best possible contract terms? Let us help.
Some distributors may present themselves as having a large sales team and a wide distribution network throughout the country. This may or may not be true. Big distributors may seem appealing, but dots on a map should not be confused with market penetration. Smaller regional and specialist distributors may work harder for you and produce better results. In some markets it really makes sense to have “boots” on the ground to perform due diligence for you, including credit checks of your shortlist candidates. Initial enthusiasm for your products is encouraging but the last thing you want is to ink a contract only to find out a year later that it was all smoke and mirrors and your devices collect dust on shelves in a warehouse.
Trust but verify
One way of vetting the distributor, is to talk to other principals/manufacturers that are making use of the services of the distributor. This can be extremely informative for determining whether the distributor fulfilled obligations and is a solid ongoing partner. Another option is to talk to end-customers to better understand their perception on how the distributor performs. This can be very difficult to do from afar so enlisting the support of someone embedded in that market is essential. You should also vet the financial health of a distributor with the support of an external agency.
Understand and respect the local business culture
In “western” markets, we are now accustomed to doing all business remotely. Companies do deals for millions of dollars without ever setting foot in the same room. However, doing business via Zoom is not accepted everywhere and to truly build a successful long term relationship you will need to meet in person early on and occasionally thereafter.
A meeting in person is essential critical when there is a third party involved that plays a crucial role. This might be when you and a distributor need to meet a Key Opinion Leader who plays an important role in the future acceptance and endorsement of your product. Another example is where a face to face meeting is required to assure continuation of the relationship with a certain customer (e.g. in a situation where you had to change your local distribution partner).
Setting performance targets
The distributors play a very important role as they are your gateway to paying customers. They are key in developing brand awareness, growing market share and making sure that final customers are satisfied with your product or solution. This means the distributor has to focus on its product portfolio and actively promote your devices through marketing activities, market education, product management and service offering. This requires building a deep relationship with the distributor to grow the mutual business.
While having a good personal rapport with your distributor is important, the relationship will ultimately be shaped by results. It’s important that you set specific SMART goals (Specific, Measurable, Achievable, Relevant, Time-Bound). Too often targets are not clear enough which gives ample room for discussion and takes away focus on the task ahead. Beyond setting targets, it’s important to clarify what happens if targets are not met.
Contract terms – who leads?
At some point you will come to a verbal agreement to work together and now things get serious. When there is a mutual intention to engage in a contract, you should probably go meet in person. A distributor may offer their standard distribution contract but we recommend that the manufacturer takes the lead when it comes to defining the contract terms. This is especially true if you have been active in other markets working through local distributors and that the existing contract has proven its efficacy. The main reason to take the lead is that you are sure that what is important to you will be part of the contract in the right wording and on your terms. Another important aspect is that any legal disagreements can be handled in a court in your own jurisdiction, using laws you are familiar with.
Finally, make sure that you and your distribution partner are able to communicate with each other in a clear and effective way, not hindered by language barriers.
Should you offer exclusivity to a distributor?
The decision to grant exclusivity to a distribution partner is always one that needs careful thought. The advantages are that an exclusive distributor will have more focus on your product, will invest more to make your market entry a success (since they will benefit the most from the mutual marketing spend). This may make sense in:
Niche medical segments
Smaller markets
The product is a new innovative technology
There is a single dominant sales channel
The total marketplace is split between a limited number of distributors that together cover the whole market
Considerable investment will be required to establish and grow the market
For instance, if you want to have a distributor that sells your brand or device exclusively you’ll have more control when it comes to price, marketing activities and the customer base. On the flip side, there will no longer be any competition between different distributors and, as a result, focus might be more on optimizing the distributor margin versus the total sales revenue. Another option is to cast a wider net and maximize distribution coverage. This often makes sense when the customer has less preference for a certain brand. Some options to consider:
Work with several distributors from the start without having any limitations on channels and geographies. This strategy might be preferred if the brand is established both from a pricing as well as a distribution coverage standpoint. The main disadvantages are the lack of control on market development (e.g. price setting) and the potential limited interest of the individual distributors to focus resources on building your brand.
Work with a single distributor in a specific channel or region without granting exclusivity. Working with a single distributor will potentially give you the focus required (investments, resources) to build your brand while you have the freedom to change your strategy by appointing a new or several other distributors when the results are not as expected.
Work with a single exclusive distributor in a specific channel or region. From a distributor perspective, this gives the assurance that money spend to build the brand can yield the expected ROI. From the manufacturers perspective it gives less flexibility to change the set-up and it’s therefore advised to set clear and SMART metrics (like hospitals covered, units sold) that are assessed on a yearly basis resulting in the decision to continue the exclusivity or not.
There are also clear reasons NOT to give exclusivity. It gives all the power for a certain (regional) market to that single distributor and as a manufacturer you would be totally dependent on the performance of the distributor in terms of market volumes and market penetration. Also, an unintended side effect is that an exclusive distributor could increase set prices too high to boost their margin. This will, of course, have a negative impact on your sales volumes.
Exclusivity needs to be linked to very specific goals
Our experience tells us that exclusivity could be a good option, and often a mandatory request as well, when entering a market. It should go together with clear target setting supported by measurable and attainable KPI’s, based on which it is always possible to change the current situation and appoint more than one distributor. In this situation, the individual distributors might well become more competitive and focused. Another reason to add more distributors over time is when new segments need to be addressed not covered by the current distributor.
Red flags
While you may be open to exclusivity, you should avoid long term exclusivity contracts. Without very specific performance targets, and with a long-term agreement locked up, distributors can become complacent and not invest as much in marketing and sales as they might have done with key performance targets hanging over their head. Exclusivity agreements should be reviewed on a yearly basis before a decision to extent has been made.
Creating a win-win relationship
All successful long-term endeavors are win-win for both sides. If the partnership is only beneficial for one party, sales volumes will remain limited and the margin for the manufacturer and/or the distributor is too high to gain market share. As a manufacturer, you expect the distributor to invest in building your brand and the distributor needs to invest resources to achieve a certain market potential.
Training/marketing support
Offering training and continuous marketing support is important to assure your distribution partner can offer the same quality of service to customers that you would offer yourself. It’s also important for the distributor to see that you are engaged to make the partnership work, giving the motivation to make the extra effort and investment.
In some cases, the market justifies going the extra mile. This can, for instance, warrant the development of a product or solution targeted for that specific market. It can also result in adding a new language to the IFU and creating literature/videos in the local language.
Joining the local distribution partner at an exhibition is also a smart way to enhance the partnership.
Finally, investing in conducting your own market intelligence research shows that you have an interest in the local situation, and helps to challenge the partner to perform even better.
Make a personal investment
When you decide to expand internationally, cultural differences might play an important role. In some parts of the world it’s absolutely necessary to build a personal relationship before engaging in a business relationship. This may take time but the result is a long-term partnership based on mutual respect and trust. In other parts of the world, the focus is from the start much more on the output, the business itself. Changing a foreign business culture might be an impossible task; adapting to it or at least understanding the differences is more effective. We advise to do your homework and spend time to really understand the business culture of your partner. This will be recognized and valued.
Make it easy to track progress
Since you have established specific, measurable goals, we recommend creating a dashboard showing the most important aspects of your relation with the distributor. This can help to effectively manage the partnership. Following elements could be part of it:
Actual sales versus targets set
Marketing campaigns executed and planned
Marketing materials (and IFUs) developed
New product launches
Months of stock on-hand
Distribution coverage
Customer claims
Distributor payment behavior
Be respectful of each other’s business
Now that you have taken the first step to selling your products in a new market, it’s important to keep in mind that your distributor is not a vendor to you – they are your partner. Treat them as such and your sales will show it.
Luctor Medical helps medical device and IVD companies evaluate international markets, gather intel on local competition and find qualified distributors. We do that through our global network of experienced medtech consultants.