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

By Rafael Mazuz
April 3, 2017


• Categories: Business Analysis, Market Access

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.

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.

Assessment and Selection

Note the significant effort in planning and attention to detail required up to this point—all of which is still prior to the actual assessment and selection of candidates! This approach is intentional. It is crucial to perform a distributor assessment methodically and correctly (as one of my keenest clients eloquently put it, this process should be treated “like a marriage,” as the relationship can be easy to get into but painful to get out of). This is why many astute executives have come to understand that enlisting the guidance of an external expert can be an investment that really pays off in the long run.

The above point is especially relevant for those executives focused on multiple markets and/or roles (operations, finance, marketing, sales, etc.). It can be extremely difficult for them to find the time and focus to perform the proper assessment. While the ultimate decision of which distributors to partner with lies with the principal, working with an expert on the matter can particularly: 1) mitigate the risk of rushing through and missing important considerations or details, and 2) help get buy-in from other internal stakeholders about the decision to enter the market and with whom to partner.

Another consideration that comes up frequently regarding candidate assessment is that of the business plan: Can (or do) your distributor candidates make a business plan for your planned product launch, and if so, how important is it in your decision of whether or not to entrust them with your business?

If you were to ask 10 biomedical business development executives this question, you would likely get twelve answers. But the answers that matter the most are the ones from those who have a track record of working with distributors in the emerging and frontier markets. Personally, I believe that for most emerging and frontier market distributors, the importance of their ability to submit a comprehensive business plan is overrated. I place much more value in their history of past growth, response/follow-up time, complementary call points/products, engagement of the company leadership, and level of English (or the primary language of communication).

Also, if you look closely at “good” market assessments or business plans submitted by distributors, they often have signs of being largely copied from past submissions. You may see the name or logo of an unrelated firm or category that was accidentally left in, or perhaps the file name or slides template were not updated. Likewise, the strategy might simply be “one-size-fits-all” in nature, lacking in approach specific to your products. If you read through the business plan and can mentally substitute another product from another segment for any mention of your product, then this is likely the case.

Similarly, I become concerned when a distributor candidate submits a market assessment or business plan without taking the time to learn from either me or the principal what worked well in other markets, and to find out what resources we can provide to support them (for example, if the principal is able to send clinical trainers and medical KOLs to trainings and conferences in the local market).

Finally, if the business plan is lacking in content or quality, it may just be a reflection of the distributor’s leadership’s lack of formal business training or comfort in business English. Often, such personalities make up for it by being heavily involved in sales training and customer relationships, spending much or most of their time in the field, actually selling, which can be great in terms of driving new product adoption and usage. Do I appreciate a solid, professional, tailored business plan? Absolutely. But is it a deal breaker if it’s lacking? Not necessarily. I still request one from all candidates, but what I’m looking for is:

• Do they commit to a timeframe to submit it, and then either submit on time or contact me beforehand to ask for an extension? Accountability for follow-up is crucial, especially when managing distributors remotely.
• Did their business plan incorporate field visits and discussions with potential KOLs within the industry?
• What did they learn about the competitors (or lack thereof), and how do these insights compare with what I learned when performing my own on-the-ground market assessment?

A year ago, I met a U.S.-based executive for a European wound care and regenerative medicine firm at an industry conference. This executive was responsible for a large part of the firm’s U.S. operations, in addition to finding and managing distributors in certain emerging markets (Note: Giving these two vastly different roles to a single executive is almost guaranteed to result in the poor outcomes of one or both business objectives).

Genuinely curious, I asked him about his process for identifying emerging market distributors. “They usually just hear about our products and contact us directly,” he remarked. “And how do you assess them when making your selection?” I asked. Mustering a confident grin, he replied, “I make them do a business plan!”

I am not sure what this firm’s targets are for the emerging and frontier markets. But since that conversation, I always keep an eye out for them during my travels, as their products should be well positioned for success in some of the regions in which I operate. Unfortunately, I never saw them represented at a single industry event across any of the markets in which I am active. I also have never spoken with a KOL, provider, distributor or other stakeholder in the emerging market wound care space who ever heard of them (including in markets in which they supposedly operate). That firm should have been realizing significant revenues from the emerging markets, but it seems that for now it’s just a missed opportunity. This shows that a business plan can be a valuable assessment tool, but it should not be the cornerstone of your distributor assessment.

Some additional key considerations and questions to ask during the assessment and selection phase:

• Should we segment by geography? By product? By public vs. private hospital? Or a single distributor for the whole market and portfolio?
• Will they have a dedicated sales team for your product or portfolio? If not, which team(s) will sell it, and are their calling points complementary? Do they have competing or conflicting interests?
• Is their strength in the distribution/tender process? Or in product education and clinical support? The CEO of an innovative German wound care firm I recently began working with shared information about their product launch in Mexico: They initially picked a distributor with a strong logistical competency, but eventually realized that they needed a partner with a more hands-on, clinical education background. They eventually switched, and sales in that market are now picking up significant momentum.
• Does the distributor plan to use sub-distributors (sub-contractors)?
• Do they have storage and logistics capabilities (will time and temperature/humidity-sensitive products be compromised?)
• Are they motivated to grow your business? Or are they an established, complacent firm?
• Is their size a good fit? Do they have the manpower and geographic reach for your target regions? Conversely, are they so large that they may not give your portfolio the focus required (especially important for products requiring heavy end-user support and education)?
• Are you able to get in touch with the principal(s) of the other products they distribute? Can they corroborate the candidate’s claims? Note: You’re more likely to get cooperation from the principal if they see your product positioned as complementary or totally unrelated to theirs. If they think it might take away from the focus on their products, they may not see any incentive to be helpful.
• Are they willing to demonstrate commitment by significantly investing up-front in your business (in the developing markets, this is far more important than the contract itself)?

Selecting and Enlisting Market and Distributor Assessment Consultants

As has been pointed out throughout this article, there are many good reasons to work with an external market and distributor assessment consultant for this important initiative. But we would be remiss if we didn’t take a moment to consider what qualities the consultant should have to increase the likelihood of their success.

Ideally, the consultant should have:

1. Deep familiarity working with the types of biomedical products your firm seeks to distribute in the target market, and the call-points where they are sold and used
2. Extensive experience and relationships in the target region (perhaps even speaking the local language)
3. A strong track record of similar distribution selection and results for like-firms

Clearly, finding all three qualities in the same consultant is desirable but not always realistic. Still, I have seen cases of distributor assessments performed by consultants who have a deep knowledge of the region, but it is spread across multiple industries. Conversely, there are many firms that specialize in a niche medical/surgical specialty, but have never worked outside of the developed markets.

When choosing between consultants that do not meet all three criteria above, I recommend prioritizing criteria #1: Ensure they know your products and how they are typically sold. While they will need to consult you for specific product details, you want them to be able to independently articulate your product usage and sales process to distributor candidates. This means that if you wish to sell a cardiothoracic surgery product in Latin America, be careful about selecting a consultancy that has only sourced distributors for pharmaceuticals or over-the-counter products. The next most important factor is familiarity with the local market (or at least developing markets in general), where the payer and related systems are very different and unique, and may require an adjustment to your business model or pricing.

Conclusion

The emerging and frontier markets represent a tremendous opportunity for biomedical firms. Partnering with distributors and consultants to enter and grow your business in these markets is an important approach, but if not planned and executed properly, the long-term outcomes can be disappointing and costly.