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GENICON A Surgical Strike into Emerging Markets Case Solution

Solution Id Length Case Author Case Publisher
726 1760 Words (8 Pages) Allen H. Kupetz, Adam P. Tindall, Gary Haberland Ivey Publishing : 910M41
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The paper discusses the problems and the future prospects of the GENICON, a US-based medical device company, which started its career in 1998 with the limited amount of resources available. Though, starting from US that comprised of the 60% of the global market for medical devices in laparoscopic surgery, it found it difficult to sustain by focusing just on the local market. The distribution and handling of the devices was mainly controlled by group purchasing organizations (GPO’s) that always preferred the large and established organization already present in the industry for business contracts. Hence, the scope for smaller potential entrants like GENICON is very slim. Despite high risks and costs involved, the company realized that the only way for the survival was to focus on international markets which, though, comprising of comparatively little share offered much high expected growth rates than US market. The company managed to enter into European market successfully in late 90s when transition to more consolidated market left lots of previous distributors short of products and they needed other companies to meet their demands. Though, this market had its own challenges, there were immense number of contracts available, and the company managed to show positive trends. The company realizes the importance of international market for its survival and is pondering to invest in other developing economics especially the countries in BRIC. The prospects are huge, but the decision is not without risks due to comparatively unpredictable nature of developing economies, and inability for a struggling company like GENICON to absorb any major shock to its profitability.

Following questions are answered in this case study solution

  1. Executive summary       

  2. Problem statement        

  3. Analysis               

  4. Recommendation and implementation 

  5. Conclusion         

Case Analysis for GENICON A Surgical Strike into Emerging Markets

Problem statement

Though showing optimistic trends, the company GENICON still cannot afford to absorb any greater shock in the international market. The costs for investment in new countries are high, and it takes a period of about three years after the initial investment to realize its first profits. However, on the other hand, the local US market has no scope for the smaller companies like GENICON and the only way to progress is to target international market. Though, it has already consolidated its roots in the European market, the company is pondering to invest in other developing countries especially the BRIC block. The growth prospects for the medical market devices are immense in these countries. However, there are risks associated in the form of corruption, bureaucratic delays and inconsistent government policies. What should the company do now? Should it invest in new countries or only keep it focus in the European zone? Or should it tr to make efforts to target the local US market? These are the some of the questions expected to be the centre of concern for Haberland, the founder of GENICON.

Analysis

Gary Haberland, founder and president of GENICION, started his firm in late 1990’s. Initially, the company had suffered lots of problems from the local market that comprised of big incumbent medical devices firms. However, the company realized its scope in the international market and got success in entering European market through acquiring regulatory authority to sell its products in EU. The firm started its sale from local sale of $20,000 and came a long way to attain a revenue collection of $5 million in 2009 with the marketing/business development budget of $225,000. The statistics for the company has been optimistic and it has able to expand its business to 30 countries across the globe by February 2010. On the other hand, the firm size is smaller comprising of just 21 employees: six involved in operations, five in sales, five in administration, three in research and development and the last one is Haberland, himself. The company is incurring a cost of $ 20,000 per market to obtain a proper regulatory approval. Moreover, the company also needs to bear $55,000 annually for US federal and state regulatory issues associated with exportation, certifications and inspections.

The appendix lists the company performance in its top 10 international markets. The total sales for top 10 markets were estimated to be $3.26 million, whereas gross margin realized was about $1.22 million. As shown, UK tops the list with sales of $654,733 whereas Ireland lies at the bottom of the list with the sales worth $57,714. On the other hand, the highest costs were incurred in Italy i.e. $449,140. The country giving highest gross margin was UK with the amount $249,290. The average gross margin ratio for 10 countries was 37.60% whereas Greece tops the list with the ratio of 69.07%, and Italy lies at the bottom with the ratio of about 16 %. (Table 1)

Recommendation and implementation

The recent central business concern for GENICON is to decide whether it should expand its business in developing countries or not. The current business conditions don’t allow it to enter multiple locations simultaneously. However, four developing countries including China, Russia, Brazil and India have been shortlisted to choose one as a next potential business location for GENICON. All of these countries have been showing very optimistic growth rates for the last decade. Better economic conditions have resulted in rapid emergence of middle class which has increased the demand for both imported and local goods and services. So, is this motivation enough to invest in those countries? The simple answer is no. The detailed analysis of local market conditions and environment is mandatory to reach any final conclusion. It should be kept into account that the cost of entrance per market is expected to be around $50,000 with additional $20,000 for distribution assessment, market sampling and channel contracting. The costs may turn out to be higher for developing countries due to their administrative and structural inefficiencies and hence, the entry should only be made if benefits are expected to exceed cost.

If we look at the emerging economy of china that is experiencing immense growth in recent decades, we are prompted to ponder seriously to invest in the country. Though, according to the forecasted figures, the medical devices market in China is expected to reach $20.6 billion by 2012, comprising of 8.2% of overall medical device market, pros and cons should be analyzed properly before reaching any final conclusion. The heavy dependence of Chinese economy on its exports, highly centralized government, weak IP right regulation and unsatisfactory regulatory process including bureaucratic inefficiency may hinder smooth operations. However, immense governmental attention to healthcare industry by improving the operational and structural problems and increasing its focus on quality has made it a lucrative investment option for international organizations.

On the other hand, though, the health care medical devices markets of Russia, India and Brazil are not as big as China, high growth rates and other promising macroeconomic statistics make them a profitable investment options too. For example, India is also an extremely important for investment purposes as it is expected to be the largest populous country by 2050. The appreciating growth rate figures and consistent policy regulations also make it a good option. In recent times, public health care service has been unsatisfactory and consequently, much advanced and better private health care service sector has emerged, that is a positive sign for international firms. Moreover, the health care market for India is expected to be $2.35 billion by 2013 which is higher than the both pharmaceutical and overall health care industries. However, like china, bureaucratic inefficiency and poor IP rights are a problem here too. Though, not as promising as china or India in terms of macroeconomic trends, the growing population of Brazil with encouraging governmental commitment to health care raises the potential for its medical devices market. Despite facing lots of structural changes in the recent past, the health care industry has been improving and the budget allocation has been increased from previous 7% to 10% of GDP, signaling the huge scope in future. The regulatory system is comparatively formal with the presence of the National Health Surveillance Agency (ANVISA), which handles all the issues concerned with the health care companies. Its record for accepting international firms has been appreciating in the past. However, despite being the largest market of $3 billion in Latin America, the market is highly fragmented posing the big challenge for international firms. Similarly, Russia also has an impressive future in medical device market, but there are still lots of structural and procedural shortcomings which demand serious concern from the side of government.

It is advised to Haberland, the president and founder of GENICON, to set up a marketing research team to help him arrive the final decision. The team should perform a consolidated absolute and comparative analysis of major social, economical and political indicators for THE past decade for all four countries. The benefits and costs for each of the country should be closely evaluated. The trends for indicators relating to market risks including exchange rate fluctuation etc, bureaucratic performance and trade barriers should also be considered. Moreover, the team should also check for the future market scope for GENICON in the countries where the company already exists. Then, it should be finalized whether it is preferable to explore additional international markets or for the time being, the focus should be limited to the existing markets. Similarly, though, it is difficult for Genicon to excel in the local industry, it should always look for a probable chance to make a place for itself there, as US is still the biggest world market for medical devices.

Conclusion

Since it came into existence, the allover performance showed by GENICON is really appreciating. Starting from the first sale of $20,000 in the local market in late 90’s, company has able to attain revenue of above $5 million in 2009. The world population is growing, and the extra attention from government’s side for health care sector signals a huge scope for medical devices market at both local and international levels for a small company like GENICON. The decision whether to limit it scope to existing market or expand to the other developing countries need to be taken after thorough analysis and research.

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