To Be Successful in Emerging Markets, Device Companies Must Embrace 'Bottom-Up Innovation'

The U.S. medtech industry is now following a path similar to the domestic automotive industry went through decades ago. In 1950, roughly 80% of all cars in the world were made in the United States. Japan dethroned the U.S. as automotive leader in the 1980s and, now, China produces twice as many cars as the United States It seems like the United States’ leadership in medtech is slipping as well. A report in Financial Times’ FTIntelligence recently proclaimed Europe as the new leader in medical technology—in no small part to the continents’ regulatory climate, which is often praised for its predictability. While the United States’ medtech industry is still undeniably strong, there is a growing push for companies here to look abroad to drum up new business—to Europe and to emerging markets like the BRIC nations.

Meeting the needs of global customers is no small task, as their demands often vary dramatically. The automotive industry uses a platform approach to product development to meet the needs of a varied customer base, explained Daniel Matlis, president of Axendia, which surveyed the medical device industry earlier this year.

Many medical device companies have experimented with a different approach: taking a product line for a developed market and repurposing it for use in emerging markets, says Sanjay Salunkhe, head of Global Business Development for Product & Engineering Solutions at iGATE, which co-sponsored the aforementioned Axendia survey. Many companies have seen this approach fail in the medical space and are thus developing products specifically for the needs of emerging markets, he said.

In an interview with MD+DI, Salunkhe touched on the present meaning of globalization for the medical device industry and shared some case studies that illustrate what can go wrong when dealing in emerging markets. 

MD+DI: Let’s kick things off with a broad question: How globalization is affecting the device industry? What do medical device professionals need to know about it?

Salunkhe: The medical device market can be broken into three primary categories:

Traditionally, globalization was looked at by most of the device industry as a sourcing destination rather than a market destination. Globalization has taken a slightly different turn, especially after the economic downturn in 2009 and 2009. Medical device companies have very quickly become interested in the value markets as markets unto themselves: looking at the populations in those countries, gaining higher buying power in places like China and India and trying to learn how to effectively do business in those markets.

This has been very noticeable with some of the big name device companies. Medtronic’s CEO, Omar Ishrak, has indicated in several recent press releases that China, Brazil and India are becoming the next markets and the company is creating products very specifically for them.

This is called “bottom-up innovation:” creating products for emerging markets rather than taking a product for the developed market and repurposing it for the emerging markets. That was very clear in the survey that Axendia did: most of the CEOs answered that emerging markets are an exciting place to be and want to get into those markets.

We have also noticed that most of these companies have not jumped into emerging markets. Most of them are still wary. Some of them still feel that the developed markets are still the place to do business. There are a few like Covidien and Medtronic that have made the jump. Some of them, some of the European companies especially, already have a history of business in places like India and China whereas some of the U.S.-based device companies are still skeptical about the kinds of returns they will get out of these markets.

MD+DI: What kinds of strategies are medical device companies employing to serve the three tiers of markets that you mention?

Salunkhe: Of course, they are going through the conflicts of having two separate lifecycles operating within the same organization if you are trying to repurpose a product that was created for a developed nation and now modifying for use in emerging geographies. The products don’t necessarily work the same way because of the constraints and the scenarios in which those products are often completely different.

I’ll give you an example: there is a company that used to make laparoscopic surgical staples that typically are used in gynecology when working on the abdominal cavity. There is a company that had a product like this that was very popular in the U.S. market and repurposed it for use in the Indian market. Sales for the product in India, however, never picked up. They brought the prices of it down to match those of the local manufacturers. The quality of the product was better than that what the local manufacturers offered but, still, the sales didn’t pick up. It was very intriguing to find out what was going wrong. It is a very price-, value-, and quality-sensitive market and still the sales were low. We did some research and it became obvious that sales weren’t picking up because of the product’s design wasn’t made for that market. The company was selling products for staplers that were meant for men’s hands but most of the gynecologists in India are women. They couldn’t handle the stapler.

Simple things like that can be addressed by doing bottom-up engineering. For instance, if you are working on a MRI machine or a CT machine for an emerging market and you don’t take into account power outages and build in batteries into the equipment to last through the entire procedure, you are making equipment that will just be a showcase; it will never be used.

There are several companies out there that have embraced this concept of bottom-up engineering and frugal engineering within these markets and, in fact, try to leapfrog from those into the developed markets. 

Brian is the editor-at-large at UBM Canon's medical group. Follow him on Twitter at @brian_buntz.

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