Choosing the right market entry strategy for DePuy (a division of Johnson and Johnson) Abhishaik Kumar Reddy Student ID: 1453562 29 May, 2010 Word count 1520 University of Auckland Table of Contents 1. 0 Introduction1 2. 0 Choosing the right market entry strategy 2 2. 1 Background 2 2. 2 Schools of Thoughts and Key Ideas 3 2. 3 Implications for orthopedic medical device companies 4 2. 3. 1 Identifying a potential market to establish a subsidiary 5 2. 4 Conclusion6 3. 0 DePuy (a division of Johnson &Johnson)6 3. 1 Current Impact6 . 2 Potential Impact7 3. 3 Alternative strategic response:7 4. 0 Recommended strategic responses7 5. 0 Conclusion8 Bibliography 9 Appendix 10 1. 0 Introduction: This report gives an overview on the current global market scenario of orthopedic implants and the potential demand for artificial high flexion knee in the Indian market. It discusses approaches essential to identify a potential market and various strategies required in positioning a firm in targeted country. 2. 0 Choosing the right market entry strategy: 2. 1 Background:
Market entry strategy is one of the most important element included in the market plan, this often shapes the organizational structure and market positioning of the firm in the targeted country (Gurau, 2004). Generally, the strategy that is best for a specific competitive situation can be found by analyzing the firm’s resources and expertise. The specific circumstances of the foreign business environment and the strategic objectives of the firm and various factors influencing aspects like profitability, market share and degree of operational control are also analyzed (Gurau, 2004).
In general various classical market entry strategies followed by companies while entering foreign markets are exporting; licensing, franchising, wholly owned subsidiaries either developed or acquired strategic alliances and joint ventures (Gurau, 2004). 2. 2 Schools of Thoughts and Key Ideas: Subsidiaries are used to expand the activities of a firm in foreign markets by establishing a direct presence in the target market. Compared to the other forms of market entry strategies subsidiaries may require more investment and carries considerable risk but they allow a great degree of control and coordination (Gurau, 2004).
Subsidiaries can be either newly created which involves large investments in terms of money and effort. They can also be created by acquisition of local firms which requires restructuring at various levels to transform an acquired subsidiary into the corporate culture of the mother company. Merging helps two or more firms to unite into a single enterprise, this enables the united enterprise to position a product quickly in the market. Merging between firms increases the resources and upgrades the technology of the enterprise, but it could decrease the profits of individual firm as it being shared after merging (Lolyd, 2010).
In general firms are assumed to enter attractive markets through wholly owned subsidiaries as they are expected to provide the greatest potential for long-term profits (Taylor et al. , 1998; Brouthers,2002;Randoy and Dibrell, 2002). Greater potential to absorb additional capacity is observed in countries which are characterised by high market attractiveness; this provides an opportunity to improve firm efficiency (Morschett et al. , 2010). Vertical integration is used by firms in markets with high market attractiveness as it can gain economies of scale nd secure a long-term market presence (Agarwal and Ramaswami 1992; Brouthers, 2002). The benefit of internalization is enhanced in attractive markets as the potential risks associated with shrinking are high. Most of the authors believe that market size is positively related to internalization (Gomes-Casseres, 1990; Taylor et al. , 1998). It is essential to implement proper marketing strategies to capture potential markets by positioning their products which enables to gain back the amount spend on R&D and to establish their brand in the new market (Lama, 2010). 2. Implications for orthopaedic medical device companies: The artificial Knee replacement has been available for the past few decades. The design and manufacture of these devices involves various developments and advancements in terms of both designs employed and technology applied. The artificial knees designs currently available are suitable for the western life style. It is essential to implement technology to make alterations in the current model so that it would suit the eastern life style as well, this modification would increase in the post-surgical Quality of Life.
It is necessary to meet the current market demands (Sivarasu, 2010). Various factors such as market size (MS), market growth (MG), intensity of competition (IC), financial infrastructure (FI), compatibility of technical standards (TS) and geographical distance (GD) should be taken into consideration by a company before entering a foreign market (Gurau, 2004). Market segmentation is essential for a company after choosing the right foreign market to enter. Market segmentation basically involves targeting the market the company has picked and targeting specific segments of customers.
It also involves an in depth analysis and insight into the market, customers and competitors (Gurau, 2004). 2. 3. 1 Identifying a potential market to establish a subsidiary: However, the development of these technologies in developing markets remains an aspiration, especially in a potential market like India, where 95 % of the implants are imported from leading orthopaedic medical device companies in the west. This is increasing the cost of the implants by three times due to various factors like foreign exchange rates, taxes and tariffs (Sivarasu, 2010).
While getting them to India these expenses are added to the original cost of the knee implants which ultimately boosts up the price when selling them in India (Sivarasu, 2010) . According to Frost and Sullivan’s report India is one of the countries with a large number of patients with arthritis. India has an annual demand of 50 000 artificial knees (Frost, 2009). However, as off 2008 the average number of Total Knee Arthroplasty (TKA) in India was only around 15000-20000 where 50 per cent of the demand was unmet (Sivarasu, 2010)(Fig 3: Appendix).
The Indian TKA market is $200 million and 95 % of the market is dominated by imported knee implants and only 10 % of the demand is met by the Indian manufacturers (Sivarasu, 2010) (Fig 4: Appendix). Apart from the medical tourist who prefers to go for an orthopaedic surgery in India, especially in the Total Knee Replacement (TKR) surgeries, the demand for knee surgery by the Indians is quite high. However, the market has not been well capitalized due to non-availability of indigenous cost effective technologies. The indigenous manufacturing of the implants can drastically bring down the cost of the implant. . 4 Conclusion: The market need for orthopaedic knee implants is high in India but the demand is not met due to high price of the imported implants, which is increasing the total cost of knee surgery. In addition, the data obtained from Frost and Sullivan states that the demand is expected to grow rapidly in the foreseeable future due to the increase in ageing population, per capita income of common man and medical tourism. The potential market can be captured by adopting various marketing strategies developing a subsidiary in India. 3. 0 DePuy (a division of Johnson &Johnson):
Johnson & Johnson’s DePuy Orthopaedics manufactures more than 200 products. These are offered in a wide range of sizes, shapes and materials so that surgeons can select the knee replacement that is suitable for the patient’s lifestyle. 3. 1 Current Impact: In India very few companies produce orthopaedic joint implants none of these products are FDA-approved and more over India does not have stringent medical devices regulatory policies in practice like the FDA (Sivarasu, 2010). There is a heavy consolidation in the global market for artificial knees, with various companies like Zimmer Holdings Inc with a market share f 29%, DePuy (a division of Johnson &Johnson) with 23% market share, Stryker Corporation has 20% market share, Biomet with 11% market share, and other companies like Wright Medical Group, Smith & Nephew and so on which have a market share of 11% (Sivarasu, 2010) (Fig 3:Appindex). The global orthopaedic implants market was worth US $ 7. 58 billion in 2008 and similar growth is expected until 2010 with a Compounded Average Growth Rate (CAGR) of 6. 6%. On the other hand, the global artificial knee implant market was worth US $ 3. 5 billion in 2008 with similar growth expected until 2010 with a CAGR if 7. % (Sivarasu, 2010) (Fig 4:Appendix). 3. 2 Potential Impact: In 2007, the global population aged 65 and over is estimated to be 500 million with 800 000 people being added each month to the pool of the world’s elderly population (Sivarasu, 2010). The growing population aged 65 and over opens the door to growth opportunities for orthopaedic surgery. The impact of technological advancements and demographics are not only confined to developed nations but also developing countries (Sivarasu, 2010). The increase in health care spending in developing countries is expected to increase the growth of orthopaedic implant market.
The growing target population and increasing average selling implant prices together are expected to result in high market growth in orthopaedic implant market in coming years. 3. 3 Alternative strategic response: DePuy Orthopaedics manufactures can also merge with the indigenous firm. But looking at long term prospects this would decrease the profits of DePuy. The indigenous manufacturing of the implants can drastically bring down the cost of the implant and increase the sales. The production cost could be decreased due to cheap labour and material.
Upgrading the product which suits the patient requirements and increasing the quality of the product. 4. 0 Recommended strategic responses: * Acquisition of local firms acquisition of which requires restructuring at various levels to transform an acquired subsidiary. * Newly created subsidiary which involves large investments in terms of money and effort. * Developing implants which suits eastern life style which increases the customers post-surgical Quality of living and comfort. * Increasing the awareness about the quality and advantages of the developed implant product. To spread company owned distribution agencies at different parts of India. 5. 0 Conclusion: Establishing a wholly owned subsidiary would increase the brand image of Johnson and Johnson in India and could be helpful in increasing the sales of its upcoming product life scan which is used in testing the glucose levels of diabetic patients. India would be a potential market to target because of the indigenous diabetic population. And would help the pipeline products of Johnson & Johnson in coming days. References: AGARWAL, S. , RAMASWAMI,S. , 1992.
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