Market Entry - Challenges for Foreign Companies

The Japan and Asia markets present evolving challenges for foreign companies charting their worldwide marketing strategies.

Impact on Company Valuation
Many foreign companies with valuable new healthcare technologies are venture funded startups.  Their goal is often to build value and exit by selling to a healthcare major, or by going public. Getting commercialization activities underway in Japan and Asia is still the no. 3 priority after the US and European markets, but it is an increasingly important factor in realizing the venture's potential value.

Japan has typically represented 7 - 15% of the world market potential for medical device companies.  Usually it is too big to ignore, but often it is too expensive to address immediately and in the conventional way that realizes most value.

Companies will often face a choice:
  • Make a large investment in establishing a direct presence
  • Sign up an exclusive distributor for the Japan market
  • Pursue hybrid or alternative options
The advantages of a direct presence are full control, and capture of all the value to be created from the market.  The advantage of using a sole distributor for the market is capital preservation. (See Choices for Japan Presence for further discussion.)  Sometimes, hybrid or alternative options can be useful in trying to secure the benefits of a direct presence while making more efficient use of capital.

China and the Asian Region
The rapid growth of China and the Asian region is finally beginning to influence the balance of choices for addressing the Asia-Pacific market. In the past the picture was straight-forward.  Work out what to do with Japan based on market potential and financial resources, and then appoint distributors for most of the other countries in the region.  Sometimes the size of the markets would warrant a direct affiliate in Australia and perhaps Korea, or a small regional headquarters in Singapore or Hong Kong to manage distributors in the region. That landscape is rapidly changing.  Now China is big enough in some healthcare product areas to consider a direct presence.  High growth India, medium-high growth Korea and natural resource-fueled Australia are also candidates for direct investment that require assessment. Regulatory hurdles and costs are rising in all the important markets making the picture more interesting and more complex at the same time.  Industrial policy and intellectual property risks in China and India turn this complex picture into a truly bewildering set of issues and choices.  The typical US or European venture company may have an "enthusiastic" Asia-Pacific component in its 5 year revenue projection and its valuation scenarios, but it usually has nowhere near the funding allocation needed to establish direct affiliates in Japan, China, India, Korea, Australia and fund the clinical trials and regulatory submissions needed to reach market in those and other Asian markets.

The tradeoffs implicit are important for your business.  Do you spend limited funds setting up a direct subsidiary in Japan and embarking on a 5 year clinical and regulatory program to access the biggest single market?  Or do you give Japan to a distributor and use the funds you have to go direct in China where it will take you two years and a couple of million dollars to do a trial and get to market, a market which is say half the size of Japan but growing at 20% per year?  If you spend the money in China, will you really get your share of that growing pie, or will you simply be developing the market for local Chinese companies who will copy your product in a jiffy and then use home-turf advantages to muscle you out?  If you are planning to exit once a path to FDA approval comes into view, how does that influence your relevant time-frame?

Full Circle to Valuation
Understanding this set of issues is important to your business, it's valuation, your investors, and other stakeholders.  The issues are often complex, multi-dimensional, and inter-related between the geographies.  It is advisable to spend the management time and resources to characterize them and develop a meaningful strategy.

As successful business luminaries frequently remind us, strategy is the stuff of scholars, journals, business schools, and management consultants.  Without effective implementation, it counts for little.  As such, in addition to spending the resources on developing a well-thought out strategy, it is equally important to commit effort and resources to purposeful execution.