Medical device and IVD manufacturers can have several reasons to expand to foreign markets. There are different motives to start selling abroad and they could be revenue, cost or risk related.
Capitalize on opportunities
Make use of your competitive advantage if there is potential in other markets. This will increase overall sales and profitability. Besides that, increasing market share in the domestic market could well be more costly than build up market share abroad. Sometimes opportunities come unexpected. Think of the COVID pandemic and sales opportunities offered to companies selling respiratory products, PPE and diagnostics solutions. In most cases it does require a long term international go-to-market strategy taking different elements into account.
Sales are slowing down in your home market
In most cases your home market is the market you know best, where you often have a good network and where it is relatively easy to sell from a sales, regulatory and supply chain perspective. If however sales are slowing down domestically, it might be a good reason to diversify into different markets where sales opportunities are still good. There are many examples where strong competitors have become active taking an ever growing piece of your home market. It can also be that new innovative competing devices, changed reimbursement policies, healthcare system budget constraints or even procedural changes have resulted in a sales decline. If adapting to this new situation is difficult or impossible, expanding into other markets where your product is still in demand might be a good option.
Diversification of your customer base
From a risk management point of view, diversification of your customer base is a logic step. In case your products are sold in different markets and geographical regions, unfavourable economic developments in one market or political unrest in another will have less consequences for the company as a whole. If your customers or sales channels are buying less of your products in a specific country because your relationship with your local distributor has come to an end or local currency has dropped significantly, it’s good to know from a risk management point of view that other markets and distributors might be able to compensate.
Increase the value of your company
The same absolute amount of growth generated in your home market or, for the first time, outside of your home market, has a different value. Your company will be worth more if you can show that you have an international footprint. It shows you have the organization and resources in place that are able to generate international sales having eventually a much higher growth potential.
Stimulate innovation
Selling abroad often stimulates innovation at home. The reason is that you learn from being active in new markets and from competing against new competitors. You build relationships with foreign distributors and potentially have intensive contacts with foreign users. New insights learned will lead to innovation and innovation is mandatory to succeed in the (inter-) national marketplace.
Other reasons to internationalize
Several other reasons exist to start selling abroad. Internationalization will have a positive impact on your human resources policy. It becomes easier to attract quality staff at home and abroad. Foreign staff might well have a positive impact on product and process innovation.
Follow your customers. In some cases your main customers require you to be present in other markets as well. Not doing so could result in losing a major client.
Another reason could be a competitive consideration. When you become active in your competitors’ home market, it will most probably result in a shift of focus and resources at their side.
… and how to start?
Starting to sell products internationally is a long-term project and requires thorough preparation and good planning to be successful. Commitment to the plan is crucial with clear targets set for different stages. Good preparation is needed, getting the involvement from relevant stakeholders, decide on what products or services you plan to sell and create the right mindset.
Get the buy-in from stakeholders involved
First and foremost it is advised not to make a decision to enter a new market unilaterally. Make sure all internal stakeholders become part of this project. This means that besides sales also marketing, regulatory, manufacturing, HR, finance, legal and logistics get involved. This is important since going international will have an impact on the whole organization and it is absolutely necessary that your company works as a team to establish a successful relationship with your foreign partner (or partners). It’s of vital importance that your international partners are well trained on your product but if marketing doesn’t support them with supporting material, finance hasn’t allocated a budget for internationalization, logistics can’t ship the products required or legal won’t focus on finalizing the distribution agreement, the project gets delayed and a potentially good distributor might lose interest quickly (which means you have to start again from scratch). Make sure your organization is both ready and supportive to the internationalization of your sales activities.
Make necessary product decisions
Consider which products you are planning to sell abroad. Is it the whole portfolio or do you want to focus on a subset which has an above average opportunity? Under what name are you planning to sell your products? Is it a name that resonates well in foreign markets? Can your production capacity support increased demand? Do the instructions for use support international sales? And do you need to adapt your product or it’s pricing in order to compete internationally? Of course the selection of products can change over time but it’s good to consider these questions before investigating which specific markets to focus on.
Create the right mindset
Selling your products in the international marketplace is far more complex than in your home market (but can also be very rewarding). The reason is that it involves many additional elements like regulatory requirements, financing of currency deviations and international shipping processes. It takes up resources and might be expensive to finance from the start. Besides that, access to foreign market information is often limited. Especially when working with local distributors that basically control the relation with the end customers. This will affect the decision making process.
Another important aspect to consider are cultural differences between countries and regions globally. This requires to build a relationship with the foreign partner, nurture and maintain it in order to become successful. Our advice is that setting realistic goals and establishing the right mindset towards the internationalization project is mandatory for long-term success.
Different stages of internationalization
There are different entry strategies companies normally follow dependent on their knowledge of the market, the level of control required, the market risk assessment, the internal organization and financial resources. Please bear in mind that this is a pathway often followed by companies that start selling internationally but not the only pathway to follow.
Companies usually start with a strategy of exporting. Either direct (through an export department or local branch) or indirect (through a distributor or agent). Indirect export brings less risks but one gains less intelligence about the market and customers.
The next phase could be licensing or franchising whereby royalty’s generate an income and risks are relatively limited.
A strategic alliance or joint venture might provide a good entrance in some markets and it gives more control on local activities. The next phase could be a merger or takeover. Control increases as well as knowledge of the local market and risks. Foreign direct investments involve companies that invest directly in facilities in a foreign market through establishing a new venture or acquire an existing company. Greenfield investments are an example of this. A wholly owned subsidiary in a foreign market will increase control, increase market knowledge and credibility and potentially also the return on investment.
In a future blog we will go into more detail on the evaluation of potential international markets and how to enter them successfully.