GENICON: A Surgical Strike into Emerging Markets Case Solution

2. Analysis

Given the information in the case pertaining to products of Genicon, various factors are analyzed for the choice of the country for international expansion. The structure of the healthcare system, the size of the total market, distribution structure of health care products in target countries and purchasing power parity are the key determining factors for the choice of the country for international expansion. The analysis below carries out an evaluation of the attractiveness of the particular region for Genicon’s international growth.

Brazil: Brazil is the largest country in Latin America with a population of 200 million. The Brazilian population is growing and their average age is increasing rapidly due to improvements in health standards and access to health services. The portion of the population aged 65 years or more has increased significantly in recent years. Genicon’s products pertain to endoscopy procedures, and demand for these procedures is positively correlated with an ageing population. Also, it is expected that the proportion of an ageing population will grow 40% over the next 10 years. Population growth coupled with its aging should result in demand for health services substantial and growing.

Currently Brazil is the largest market for products and services for health in Latin America, with annual expenditures of approximately U.S. $ 107 billion. This figure is comparatively higher than other countries to which Genicon can expand its operations. In addition, the health expenditure showed an average annual growth of 15.6%, while GDP growth has averaged 2.4% per year for Brazil which implies a sustained growth in demand for endoscopy instruments. The figures for the healthcare market in Brazil, shows that the profile of the healthcare market of the country is comparable to the healthcare market in the United States around 1965, in terms of growth rate and a proportion of total spending. Thus, Genicon can reasonably expect to grow with the rising wave of the healthcare market.

Another discerning factor of the healthcare industry found in the case analysis is that per capita expenditure on health is increasing, but still the cost of healthcare is much lower compared to other countries. Genicon will need to enter the market this market with a pricing strategy of market penetration. The structure of the healthcare industry comprises of both public and private sector, which entails that the investments of Genicon will be much safer since it will have access to two alternative markets. One possible drawback of entering Brazilian market is the high degree of regulation of the market by government. Regulators have imposed limitations on price increases of products and to maintain profitability, manufacturers of healthcare products have strengthened their control of costs. The Brazilian health system is composed of a large public system, managed by the government which serves the majority of the population, and the private sector, funds managed by private health insurance. Gaining a foothold in the government sector will be highly challenging for Genicon. The challenge will be significantly high for Genicon because the company will have to deal not with one centralized government department, rather with several small regional departments. The policies are being planned and supervised directly by through the neighborhood, city, state and municipal health bodies. Competition in Brazil would be comparatively high for Genicon since Brazilian manufacturers of disposable products for healthcare equipment include both large multinationals and smaller domestic companies. Both multinational and national companies generally do not have logistics and sell their products through distributors and representatives. This is a positive factor, since Genicon will not need to create its own distribution network from the beginning, rather it can utilize the same distribution network which is in place.

Russia: Russia is also a likely option for Genicon for international growth. The Russian market is characterized by a high proportion of imported products around 65% of production is imported which is a positive sign for Genicon. Market for Russian manufacturers of surgical products is limited to Russia as the range and quality of the product does not allow them to take a worthy position in foreign markets. This shows that the healthcare industry in the region is not well developed. A serious problem of the Russian healthcare industry is the spread of counterfeit products and violation of copyrights.  Thus Genicon will not be assured of gaining sizeable market share even making financial commitments in the region. Also, Russian healthcare market has a high proportion of traditional medicines and generic drugs and equipments. This also limits potential growth for Genicon.

Even though, it is generally presumed that the healthcare sector of Russia would be government controlled because Russia is a centrally planned economy, in actuality 50% of the population uses paid care. The share of users of commercial services is increasing annually. Infrastructure development causes an increase in health services and the commercialization of public medicine. This is yet another positive trend from Genicon’s perspective, since it will not have to deal with government bureaucracy.  Industry statistics shows that in 2010 the health care industry in Russia was occupied by 4.4% of the total working-age population which conveys about the considerable size of the healthcare sector. Logistics infrastructure is poor in Russia for healthcare products, which presents yet another risk for Genicon to invest in the market. The year-on-year growth of medical device market in Russia is lower than that of Brazil.

India: India represents a growth opportunity for Genicon in terms of head-count rather than the purchasing power parity. The per capita income in India is the lowest among all four countries, and a huge proportion of the population lives below poverty lines. Endoscopy procedures are expensive, and it cannot be anticipated that a vast majority of the population will resort to this procedure even in the distant future. Also, government’s provision of healthcare facilities is low and there is a high level of corruption within the public healthcare system, which will make it challenging for Genicon to gain market share.

The income patterns of the country are geared towards an increasing trend, however, it cannot be readily be anticipated that the demand for healthcare procedure will rise dramatically in three to five years time. Investment for expansion into this region will require a very long-term perspective. Genicon, at present, is looking for a payback period of three years for its investment. The pace of growth of medical device market is slower as compared to China, according to the figures given in the case. The above mentioned factors entails a mismatch with the investment horizon of Genicon and the Indian market. 

China: China appears to be a high potential market for Genicon because of having the distinction of being the highest growth economy in the world and masses of its population are coming out of poverty. China's healthcare industry is undergoing a fundamental reform, the results of change mean that the medical instrument industry will undergo significant growth in the future. The demand for healthcare is also accelerating due to rapid urbanization.  With the raising level of China's economic development, more and more attention to their own health, the consumption of medical services has already been very high. The number of primary health care institutions has risen by 20,000 during the previous year. The private sector is playing an increasingly important role, especially in the medical and health services provision. There has been an encouragement for nongovernmental sectors to run medical care, develop the private medical institutions, is to increase the health care fund-raising channels, and effective way to expand health care funding sources.