Rafael Mazuz, Diligence Wound Care Global

How to Assess and Select Biomedical Distributors in Emerging and Frontier Markets

By Rafael Mazuz
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Rafael Mazuz, Diligence Wound Care Global

An overview of the process, actionable strategies and tactics, key considerations, and mistakes to avoid, whether executing in-house or together with an outside expert.

The attractive opportunities for biomedical product firms to drive growth in the emerging and frontier markets are well-known: Rising disposable incomes and an expanding middle class, aging populations, and chronic disease prevalence (diabetes, cancer, obesity, hypertension, etc.), combined with increased access to healthcare diagnostics and services, all feed demand for advanced medical technologies in those regions.

However, despite the strong desire of firms to capitalize on these trends, the precise strategies and tactics to achieve their goals are elusive to most executives seeking to do so. In recent quarters, corporations seem just as likely to fall short of earnings goals due to missed targets in the emerging markets as they are due to slowdowns in the developed markets. Therefore, a key question that clients ask is: How might we quickly yet sustainably capture and grow our market share in the developing markets?

While setting up local subsidiaries to provide all activities along the value chain in every target market is an option for some firms, it is neither realistic nor cost effective for most—and the ROI can take many years to recover (if at all). Therefore, partnering with one or more local distributors and/or consultants for some or all of those activities can be a diligent path forward. When properly planned and executed, this can be an effective and profitable strategy for firms of all sizes.

As such, emerging market distributor identification, assessment, selection, and management has seen tremendous demand. While this nuanced undertaking cannot be fully formulated in a single article, there are key approaches, considerations and potential pitfalls in selecting and partnering with distributors in the emerging and frontier markets.

Distributor Search as a Market Assessment Activity

Clearly, performing a proper market and competitive assessment is critical for determining which market(s) to enter regardless of whether via distributor partnership or establishing a local subsidiary. On the one hand, a firm should never make the decision to enter a new market without a proper market assessment. On the other hand, confirming the availability of a suitable distributor should not be seen as the first step in the market entry process, but rather as the final step in the assessment process.

Even if all macro and microeconomic indicators, growth projections, competitive analyses and end-user research indicate the target market would be attractive for your firm’s products, if you are unable to find a strong and willing local distributor, then no commitment to entering the market should be made until you are able to do so. Unless you plan on taking on the investment and commitment to enter the market directly through an in-country subsidiary (not the topic of this article), identification of a strong and motivated local distribution partner is a key step in the business case for market entry (not just the first step afterwards).

Likewise, the goal during this stage should not be only to identify the one (or more) partners who will ultimately distribute your products, but it should also be to confirm the other pre-launch assessment information you gained, and to identify potential blind spots. For example, I recently performed an in-depth market and distributor assessment in a fast-growing Southeast Asian market. After assessing several dozen candidates and submitting a thorough market and candidate assessment report, the client flew to the market and we met with the top few candidates together. There was one candidate who I did not think would be a great partner for my client, but I suggested we meet with them together anyway to learn more about the local market. Sure enough, they were not ultimately selected for distribution, but the insights they provided us related to new local regulatory changes, the reimbursement considerations for local hospitals, and price points of products complementary to ours were priceless. The client emerged from that meeting with some new ideas on how to approach the market. In another instance, several impressive distributor candidates were very eager to take on my client’s business when the opportunity was initially presented to them. Following their own market assessments, they became much more hesitant. This alerted us to some significant new competitive developments that we had not anticipated prior to them, which we were able to address in part.

I recommend not considering your emerging market assessment and entry plan “complete” until you have identified and assessed distributors. This is a critical consideration and will shine light on potential blind spots that you can then address.

Determining the Right Partnership Model

Medical distributors and consultants in emerging markets can contribute to various dimensions of the value chain, including: Regulatory and registration, logistics, sales and marketing, collections, and post-sales service and support.

Figure 1 illustrates the distributor value chain activities. When planning an emerging market entry or reset, be sure to determine precisely for which activities you need a partner(s), and match candidates with strengths in the areas identified in Figure 1.

Emerging markets, medtech
Figure 1. When assessing an emerging market to enter, determine which of the above activities you wish to perform, and which you will need partners to perform. This consideration should be a key driver of your planning and execution activities.

Identifying (Sourcing) Local Distributor Candidates

Now that we have laid out the importance of distributor identification as a market assessment activity and have explored potential options for modeling the partnership, we turn our focus to a key issue: How to identify (source) candidates.

There is no “silver bullet” approach, but there are some approaches that can make this phase go more smoothly, reducing the risk of missing high potential candidates.

Firstly, the most obvious: Conduct Google, LinkedIn and related web searches. This is always a good start, but your search should definitely not stop here. For one, not all appropriate emerging market distributors maintain an active or updated web presence—or their websites may exist only in the local language. One may enlist native speakers to assist with initial searches. But keep in mind that many, if not most, candidates will not reply to a cold email or call.

As a French national distributing medical devices in a Southeast Asian market recently told me, many foreign investment analysts have been posing as medical device firms seeking distributors. They call or email with the goal of gaining market growth data, which they then turn into industry research reports with no intention of actually doing business in-country. As a result, many local distributors have apparently begun to simply ignore inquiries not made via a connection or face-to-face meeting.

This trend was echoed in a discussion I had with a Beijing-based regenerative medicine marketing manager. When he asked me about my distributor identification activities in a particular market, I remarked that the end results were great, but I was frustrated that the email reply rate was only about 10%. He was shocked and impressed—his reply rate for that market is only 1%!

Another tactic for identifying candidates is reaching out to colleagues in your professional network for good leads and warm introductions. This approach works best if you have a strong network within your industry. So if working with a consultant for candidate identification, try to aim for one with a background specific to your products.

Attending industry conferences, especially in the market you’re targeting, can be a great strategy in terms of the time vs. reward. During a single conference, you can meet distributors (including assessing their English and motivation level), as well as gain insights about your target market. Just avoid becoming complacent and treat a single meeting as the entirety of your assessment. Give or send them information about your products, and come back in a day or two to see if they have discussed or given any thought to it. And of course, inquire if they want to perform a market assessment, and if so, how long do they need for it? Whether they do it, and whether it’s done in the timeframe in which they committed, can tell you a lot about how the partnership might play out in the long term.

One of the best methods I can suggest that will be helpful in identifying and sourcing high-quality distributor candidates is to work backwards (reverse engineering). Stated differently, instead of finding candidates through traditional channels, one approaches potential customers first, following the sales cycle back to the distributor who sold them similar or complementary products. This method is powerful because by the time initial contact with the distributor is made, one will have already confirmed that they are successful at selling, that they get along with their customers and other stakeholders (and that they provide adequate support), and that they have expertise in complementary or similar products. Moreover, if the distributor was selling a competing or substitute product and can be convinced to drop it for the new firm’s products (this approach often works well if the new products are both better on quality and pricing), there is an opportunity to potentially disrupt and capture competitors’ market share immediately upon entering the market.

Let’s walk through a hypothetical example: Your firm sells bone-grafting material, and you are looking for a strong distributor with whom to partner to enter the local orthopedic market. So you (or the consultant assisting you with the distributor identification and assessment) go to some of the leading hospitals in the market and ask them which brand of orthopedic drill (or locking plates, joint replacements or other related product) they use. You then investigate who sold them the product, their satisfaction level and the level of customer support, etc. Eventually you’ll arrive at the distributor, armed with a much stronger understanding of the sales and decision-making process (or you may decide along the way you no longer want to meet with them).

There are some downsides to this approach, however: 1) It is time consuming and may require creative tactics to get a busy hospital administrator or clinician to provide the information you seek, and 2) when one finally gets to the distributor, they may either not be interested, or they already sell a directly competing product that they do not wish to give up (in which case you may risk exposing your firm’s planned market entry too soon). On the other hand, beyond just finding the distributor, this approach will yield you additional valuable market and competitor information. So if you have the time and resources, and can do so diligently yet cautiously, I highly recommend it as an effective method. Enlisting an external specialist during this phase may also help protect information about your market entry goals from being discovered by competitors prior to your entry.

About The Author

Rafael Mazuz, Diligence Wound Care Global