1. Company Background and Business Overview
Depuy has a rich and long history of innovation. In 1895, a 35-year-old chemist named Revra DePuy started a business to manufacture fiber splints customizable to fit patients. He started his operation in Warsaw, Indiana (DePuySynthes, 2016). Depuy is the first orthopedic manufacturing company in the world. Because of the success of DePuy, Warsaw has become the orthopedic capital of the world. DePuy was the first company to introduce mobile bearing knee system (LCS Knee System). DePuy was also the first company to introduce Porocoat, a biological fixation to bone without the use of bone cement. DePuy was also the first in the world to come up with cementless and porous coated hip implant system (DePuySynthes, 2016). In 1998, Johnson and Johnson, the largest healthcare company in the world, acquired DePuy Inc. In 2012, Johnson and Johnson also acquired Synthes, a medical device company, and combined the two companies under the DePuy franchise and renamed the company DePuySynthes (DePuySynthes, 2016). DePuySynthes is currently the largest orthopedic and neurological equipment company in the whole world. DePuySynthes employs approximately 18,000 employees across 60 countries in the world. The USA is the largest market for DePuySynthes followed by the UK. DePuySynthes has an estimated sales of $10 billion a year (Young, 2011). The company with its product portfolio supports over 1 million orthopedic and neurosurgical procedures annually.
In 2008, DePuySynthes has expanded its manufacturing operation in China by establishing a state of the art production facility. In 2013, DePuySynthes introduced its Attune Knee system, which is considered to be one of the most flexible and natural knee replacement systems till date. DePuySynthes has also got clearance for more than 60 regulatory bodies to sell its products across various geographies (DePuySynthes, 2016). Synthes, on the other hand, is the market leader in the areas of screws, plates, bone grafts and equipment to treat skeletal injuries. Synthes is the number one player in the world in the treatment of trauma victims. DePuySynthes in spite of its long history of success has faced serious roadblocks in recent years. DePuy’s AML XL hip replacement system encountered high rates of failure and the company is facing over 11,000 lawsuits for the same, which may result in settlements amounting to a few billion dollars (Young, 2011). Synthes, on the other hand, has used adulterated and misbranded products for clinical trials without proper consent, which has led the company to face lawsuits in at least five countries across the world (Young, 2011).
2. Target Market and Entrance Strategy
2.1 Target Market
Unlike other markets, orthopedic and neurosurgery market is highly consolidated. Across the world, the orthopedic market is estimated to be worth $300 billion. Top 30 players in this market account for more than 83% of the market share. In the USA, the top seven players account for 90% of all orthopedic and neurological equipment shipments (Young, 2011). Almost all the major markets are highly competitive and dominated by a few major players, including Medtronic, DePuySynthes, Stryker, Zimmer, Smith &Nephew, Biomet, Nuvasive, Siemens, Boston Scientific, Covidien, Terumo and Orthofix. All of these companies have global manufacturing and supply chain presence (Dyrda, 2015).
DePuySynthes already has presence in over 60 countries. However, it has major presence only in Europe and North America. DePuySynthes’s presence is limited in most of the developing markets. India is a market where DePuySynthes has presence but the overall sales in India for DePuySynthes are low. Indian market is currently dominated by companies such as Siemens, Medtronics, Biomet, Stryker and Boston Scientific. Spending on medical equipment market in India is growing at a rate of more than 15% year on year (Kumar and Kumar, 2014). This is one of the highest in the world.
In the Indian market, threat of new entrants is low as this industry requires high technical expertise which only a few manufacturers possess. The bargaining power of buyers is low presently. However, in the future, it is expected that patients and doctors will have more say in the buying process as there is no cost for switching. This is because most of the products available are similar in functionality and there is no perceived difference. The bargaining power of suppliers is low. The threat of substitute product is currently low but there is always a chance that great innovations in the future years can completely replace the existing products. As discussed previously, the market is highly competitive. The number of players operating in the industry is low, but all of them have a wide range of high quality products.
India is a great market for global expansion for DePuySynthes for multiple reasons. Firstly, the country is witnessing a huge growth in gross domestic product (GDP) for the past ten years and is expected to grow at a high rate for the next few years. Because of this high GDP growth, India’s middle class has higher levels of disposable income (Kumar and Kumar, 2014). Hip replacement or knee replacement was beyond the capability of many Indians in the past, but that scenario is changing fast. This is creating a huge potential market for business expansion for DePuySynthes and the company without getting into any price war with the existing players can make its place there. Also, if DePuySynthes is able to create a substantial presence in India, it can think of establishing a manufacturing plant in the country to supply equipment in the domestic market and the south-east Asian market.
2.2 Entrance Strategy
For DePuySynthes, entering the Indian market should not be a big problem. There are several ways a company can penetrate an international market. DePuySynthes can create a joint venture with a local company to enter the Indian market. In that case, it may gain the local market knowledge from the partner, but may not have the required control over the business in India. DePuySynthes can also enter the market through a licensing agreement under which a local partner will be able to sell the products of DePuySynthes in the Indian Market. DePuySynthes will be responsible for providing the products in exchange for a licensing fee and the product cost. In this case, DePuySynthes will have no control over the sales and marketing process of its products, which is most important in this industry.
Johnson & Johnson already has its medical division in India (Kumar and Kumar, 2014). DePuySynthes can also create its Indian subsidiary for business expansion in India. In India, when it comes to the selection of orthopedic and neurosurgical equipment, almost all the decisions are made by doctors. Therefore, creating and operating a strong sales team is extremely important for achieving success in the Indian market. Although health insurance companies are getting increasingly powerful, till now they have limited voice in the equipment selection process or the payment process. Therefore, to have a good start in the Indian market, it is important to have great sales team. Additionally, DePuySynthes brand building exercise should be done. Brand plays a big role when selecting products by the doctors or hospitals. Therefore, a superior brand image will give DePuySynthes advantage over its competitors in the Indian market.
3. Local Responsiveness Strategy
In India, labor force is available at cheaper rate. Additionally, huge pools of highly educated resources are also available at a reasonable salary. Therefore, creating a huge and knowledgeable pool of sales team should not be a problem for the company. As one of the primary growth drivers in India will be the sales and marketing of DePuySynthes products, the company should take full advantage of the availability of highly skilled resource pool.
Hospital purchasing process in India is a little different from that of the developed countries. In developed countries, in the selection of an equipment for a particular procedure, the opinions of doctors, hospital administration and insurance companies receive equal weightage. In fact, patients also provide inputs regarding which product to use. In India, doctors are viewed as the ultimate authority and their decisions are not questioned. Doctors’ opinion matters the most in the purchasing process. Even the payers fully rely on doctors’ decision. Therefore, in India, apart from the general brand building exercise, DePuySynthes should give the whole marketing focus on doctors.
4. Staffing Policy
India has less stringent labor laws than some of the other countries in the world. DePuySynthes will still manufacture and export its products in India. Majority of the DePuySynthes staff in India will be sales representatives. Apart from sales representatives, DePuySynthes will need a team of technicians who are expert in servicing DePuySynthes equipment. Both of these groups should be recruited from the local market and then should be trained.
DePuySynthes will additionally require a strong team of managers and technical experts who will be targeting the larger hospital chains to give demonstration about new products and try to grab large multiyear deals. These group should be a mixture of international and local recruits. In the initial years of its operation DePuySynthes should bring some of its experts from the markets where its presence is already established to create a streamlined demonstration and sales process for institutional customers.
Johnson & Johnson, the parent company of DePuySynthes, is already operating in the Indian market and has a significant market presence. Therefore, DePuySynthes can just use the local expertise of Johnson & Johnson while recruiting and staffing.
5. Communication Barrier and Strategy
One of the problems for DePuySynthes in the Indian market will be its lack of brand recognition. Brands like Siemens, Medtronic and Boston Scientific are highly recognized within the Indian medical community. However, even after huge success at global level, DePuySynthes has low brand penetration in India. Therefore, a communication strategy is important to increase brand visibility. This can be done by conducting a brand campaign through the major modes of media like television and internet. However, this step alone may not be effective. To increase the effectiveness of the brand communication, doctors need to be targeted. The main problem with that is the fragmented structure of the Indian medical community. Therefore, brand marketing and communication should be done through product demonstration seminars and sales brochures. However, to increase effectiveness of the brand communication further, DePuySynthes should conduct workshops for doctors to showcase its capability.
6. Cultural Concerns for the new global market
Unlike most of the developed markets where the culture is mostly individualistic, In India there is prevalent group culture. In India, a person in senior position is almost never questioned. Family values are highly appreciated and regarded. DePuySynthes has some experience in working in other Asian cultures that has similar culture but most of the markets in which DePuySynthes operates have a individualistic culture. Even the work culture within DePuySynthes is highly open and collaborative which fosters innovation which is essential for the success of the company. If not managed properly DePuySynthes India can become a strictly hierarchical organization with only one way communication (top to bottom). However, that means that customer feedback will not reach at the top and DePuySynthes will not be able to change its strategy accordingly. Therefore, it is important that DePuySynthes emphasizes the importance of two way communication and an open culture when expanding in India. However, it should also try to strike a balance between family oriented cultures where seniors are respected with that of its open culture.
7. Final Strategy Recommendation for global expansion
DePuySynthes is already present in India. Although it has no offices in India but it exports its products in India through its parent company J&J. However, Indian medical equipment market, especially orthopedic and neurosurgery market is growing at a phenomenal rate. Therefore, it makes sense that DePuySynthes directly enters into Indian market. The global market expansion strategy is given in detail below
1) DePuySynthes should enter the Indian market using a direct entry strategy. It should create an Indian subsidiary so that it has full control over the sales and marketing process. Entry through licensing or partnership is not recommended.
2) DePuySynthes should not establish any manufacturing base in India initially as the market size is still small and there are many established players. DePuySynthes should import its equipment form nearby manufacturing locations such as china.
3) As Doctors are main decision maker in the equipment purchase and use process, marketing and communication process should target the doctors. Doctors not only should be contacted by the sales representatives but the company should also organize seminars and workshops to show its capability.
4) DePuySynthes is relatively less known brand in India compared to other established global brands. Therefore, it is important that DePuySynthes starts a media marketing campaign to establish its high quality brand image. It should not be a big problem given its global success, brand image and high quality portfolio.
5) Finally, DePuySynthes should target the institutional customers such as government state hospitals, well known hospital chains separately to gain quick visibility and market share. These process will also ensure long term stable revenue generation if DePuySynthes is able to provide continuous high quality product and service.
8. Global Environmental Issues
Environmental concerns are becoming more relevant in India. There are many environmental groups in India who are working on creating awareness about a sustainable business practice. It is important for DePuySynthes to create a supply chain which not only stores, supplies and services its products efficiently but also manages the product as per local environmental norms after the end of the life.
In fact, there is an increasing trend in India to use refurbished equipment. DePuySynthes can become one of the first medical equipment company to fully support refurbishment of its products. It may reduce the revenue for the company in short term as new product sales will decrease but in the long run it will establish the company image as a green company. Additionally, refurbishment also will reduce cost for hospitals as well as manufacturing cost for DePuySynthes. The overall volume sales will more than overcompensate for the lost new product sales.
References
DePuySynthes. (2016). Our History. Retrieved on 13th April, 2016 from <https://www.depuysynthes.com/about/corporate-information/our-history>
Young, Robin. (2011). Orthopedics Consolidation- Really? Orthopedics This Week. Retrieved on 13th April, 2016 from <https://ryortho.com/2011/01/orthopedic-industry-consolidation-really/>
Dyrda, L. (2015). Inside DePuy Synthes: The strategy behind innovating outside the lines. The Evolution of Fusion. Retrieved on 13th April, 2016 from <http://www.beckersspine.com/orthopedic-a-spine-device-a-implant-news/item/24981-story-inside-depuy-synthes-the-strategy-behind-innovating-outside-the-lines.html>
Kumar, R., & Kumar, M. (2014). Healthcare industry in India. New Delhi: Regal Publications.
