What's in the tea leaves for Asian medical device sales? - Industry Overview

It was Napoleon who first dubbed China a "sleeping giant." While his military skill may arguably have been a bit uneven at times, his powers of prognostication, at least in this regard, were right on the money. Not only China, but all of Asia presents a wealth of opportunity for the adventurous medical device vendor, with growth rates projected as high as 20%. Increasingly, American manufacturers have responded by setting up shop overseas: More than 100 U.S. medical device firms have established joint ventures in China alone. The benefits to being "on the ground" are substantial and range from lower shipping costs - not an insignificant factor in this far-flung region - to more responsive customer relations. But like all new frontiers, the topography of the Asian market has its own twists and turns.

First, it is important to remember that Asian health care is in a state of tremendous flux. Unlike Europe, where the European Community provides a framework for harmonization of product regulation and trade issues, Asia is, quite literally, all over the map. China's regulatory system and health care administration are undergoing reorganization, making it difficult to know where to turn and for what. Taiwan has instituted a national insurance program, but its reimbursement rates are resulting in hefty price cuts for U.S.-based firms. Korea is in the midst of reform that will hopefully provide it with an up-to-date device classification system and ease its onerous testing and registration requirements.

Maze of reimbursements precludes an "Asia strategy"

Throughout Asia, registration difficulties will instill in the device vendor an unpleasant sense of deja vu. With typical fees ranging from $20 to $30,000 per product and with a waiting period of six to 12 months, registration stands as a significant hurdle to be cleared. Many U.S. firms choose to rely on local consultants to guide them though the process. Reimbursement policy is another key element that can vary widely from country to country. Korea offers 100% reimbursement, as does Hong Kong with its U.K.-style health care system. Coverage in South Asian countries like Malaysia and the Philippines, on the other hand, is far from universal. Singapore and China fall somewhere in the middle, with only certain sectors of the population enjoying full benefits. So it is that the sales and marketing executive cannot rely on any single "Asia strategy."

Indeed, many U.S. companies are finding that entering Asia requires a multipronged approach from the beginning, with a hub in Hong Kong, for example, and a number of satellites throughout the region. The desire to be in proximity to your customer base is driven as much by logistical necessity as good business sense: Flying from Singapore to Seoul is an all-day affair, equivalent to jetting from London to Kuwait. Even the most travel-jaded American executives find that this frequent necessity of Asian business - constantly alternating full days of travel and office time - takes some getting used to.

It is common knowledge in overseas assignments that an acclimation period is necessary before an "expat" exec can really get up to speed. What is often forgotten is that the same thing is true for "repats" - executives who are returning to their native land after spending a long chunk of time, perhaps even most of their lives, studying and working in the United States or elsewhere. As economic growth in Asia accelerates, many firms are seeking to gain an edge by sending Asian-born, U.S.-trained managers back to their homelands. It is an appealing strategy - but one that can easily backfire if not handled properly. Stateside headquarters may see repats as a cultural cure-all, the locals can view them with suspicion and resentment and the repats themselves end up feeling caught between the proverbial rock and a hard place. The remedy, of course, is to keep expectations in line and realize that a six- to 12-month acclimation period will be necessary even for someone who speaks the language and was born to the culture.

Three issues newcomers should keep in mind

What factors should the American vendor keep in mind when preparing for an extended Asian tour? Recently, I spoke with Andrew Lau, vice president of renal therapy at Baxter Healthcare's Hong Kong operation. Lau identified three areas a newcomer should keep in mind:

* Development. When an overseas operation is being established, it is accepted that leadership will originate stateside. Eventually, however, the original American management team will return home - or move to another far-flung locale. Local executive talent needs to be groomed from the beginning, or else years of momentum may be lost.

* Distribution. Asia's uneven infrastructure makes physical distribution a challenging task. Unless your company has significant resources and expertise in local markets, team up with a top regional distributor. After a year or two, you can absorb distribution as an internal function, or set up a joint venture with the distributor as junior partner.

* Diligence. More than in America's legalistic society, Asian business relationships are based on trust and "comfort level." Face-to-face exchange, rather than contract wording, is often the benchmark. But nurturing this level of trust takes time and patience.

Investing in Asia is a long-term commitment - budget three to five years from start-up to break-even. For those who persevere, however, the returns can be substantial. Indeed, the potential of the area is hardly as untapped as it once was. Both Japanese and European firms - in many cases backed by government subsidies and low-interest loans U.S. device makers do not enjoy - have been moving into the area with a vengeance. As a result, the leadership position historically enjoyed by U.S. firms has slipped - all the more reason for U.S. vendors to look to the East.

Michael T. Kelly, a former vice president at St. Jude Medical, St. Paul, Minn., now heads the worldwide medical device practice at Russell Reynolds Assoc., an executive recruiting firm.

COPYRIGHT 1996 J.B. Lippincott Company
COPYRIGHT 2004 Gale Group