Wednesday, October 31, 2012

Medtronic’s Global Strategy for Profitable Growth

Medtronic’s Global Strategy for Profitable Growth

Medronic is the global leader in the medical device market. The U.S. based company has been facing weak demand and pricing in its second largest segment-Orthopedics and Spine. This has partly been because of the misuse of products and the consequent complications caused by them, in the U.S. To increase the returns on research spending, the CEO, Omar Ishrak, announced last year that he would “revive growth by expanding internationally”.  With 46% of the revenue coming in from overseas, Ishrak said, he believed that there was a great growth potential in emerging markets like India, China and Latin America.  To realize this growth potential, he believes that Medronic needs to penetrate these markets by catering to their respective value segments. This means that Medtronic would have to develop different pricing tiers for its products and lower the cost of manufacturing its products in these overseas markets.
This evidence of this strategy being played out can be seen in the company’s recent decisions. Ishrak recently gave heads of the various business units, additional global responsibilities. He also appointed Geoffrey Martha as the senior vice president of strategy and business development to develop Medronic’s global strategy. And, the biggest tactical evidence has been the Medtronic’s Chinese acquisition- China Kanghui Holdings Inc., an orthopedic implant company that specializes in spine and trauma products.
China Kanghui Holdings has seen a 20% annual growth, with 80% of its revenues coming from china and the rest from other international emerging markets. Medtronic’s $816 million investment is consistent with its strategy of penetrating the high growth emerging markets and catering to the value segment of the orthopedic space in the developing world. Kanghui not only brings with itself a strong product portfolio and pipeline that can be added to Medronic’s spine and trauma products, it also brings to the table, efficient R&D and operational capabilities for reducing costs, and wide and established distribution network and local sales force that is crucial for effective market penetration. This acquisition is seen as a gigantic step in Medtronic’s global expansion strategy to establish a stronger local presence in the emerging markets.
In class and in the readings we studied about profitable growth, without undermining your uniqueness as a company. This is exactly what Medtronic is doing to gain a competitive advantage.  Medtronic’s strategic investment has opened up larger markets for a focused product line. It is trying to further penetrate the needs of its customers to whom it is already distinctive as a market leader. Medtronic has been a leader in the spine and orthopedic space but, with slackening demand in the U.S, it has become necessary for Medtronic to aggressively tap into the global markets. This move is likely to reinforce Medtronic’s unique identity as a leader in the orthopedic and spine space. This was somewhat tarnished in the U.S with the serious complications associated with its bone graft product that lead to a decreased demand. However, now it will have a greater variety of related products that meet the focused needs of its customers.  Medtronic is trying to serve few and focused needs for a broad customer base. The acquisition of Kanghui is an effort to build on Medtronic’s core competencies, which makes Kanghui a strategic fit to the organization. Kanghui will enable Medtronic to reduce its costs and price competitively in order to serve the growing middle class, who make up the value segment, of the emerging markets.
What remains to be seen is how well the international company integrates itself with Medtronic in terms of its core values and mission. What problems do you think this relationship will face while building a global business together?

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