Five Strategies to Gain New Business During Global Trade Tensions

This has been an exciting year for OEM medtech suppliers, though at times, it’s been a little too exciting. Companies have had to carefully navigate a slow-boiling, transatlantic trade war, careful to avoid crashing their profits and losses in the crosshairs of governmental disputes and related issues they cannot control.

On a positive note, suppliers successfully sailing through the year’s choppy waters have benefited from various tailwinds, the most obvious of which is U.S. corporate tax cuts that have led to increased cash reserves at many OEMs. Since large Chinese and European medical technology manufacturers (i.e., Mindray Medical International Co. Ltd., Siemens, and Philips, respectively) have large U.S. operations, the tax cuts have had a positive impact for most of the industry’s top OEMs, as they can use the extra cash for various purposes, including acquisitions for inorganic growth; research and development for new innovation; employee wages/benefits to retain key staff; and increased profitability to boost stakeholder value.

Another valuable tailwind that has blown rather steadily this year is increased manufacturing optimism. U.S. manufacturing optimism hit all-time highs in the second quarter, according to the National Association of Manufacturers, leading to projections of “historic” growth in investments (4.1 percent), hiring (3.1 percent), and wages (2.7 percent). The United Kingdom’s PMI (purchasing manufacturing index), meanwhile, remains at high levels with over 54 percent of manufacturers expecting output to expand in the next 12 months, according to The Financial Times. Experts attribute the U.K.’s current manufacturing strength and positive outlook to robust industrial growth in Europe.

In Germany (the leader in European Union manufacturing), production increased 3.2 percent year-over-year in June 2018, the online platform Trading Economics reports. Industrial strength has also been prevalent in Asia, with Japan’s Nikkei stock market index sustaining a positive growth rate in the second quarter of 2018 and China posting a 6 percent rise in industrial production in June 2018 compared to the previous year, Trading Economics notes. However, there are signs that growth is slowing in the world’s second-largest economy.

Many of 2018’s major headwinds involve global trade tensions, with tariff disputes between the United States and countries like Canada, China, and Mexico particularly problematic. These disputes only add to the litany of manufacturing challenges facing medtech executives today, such as IP protection in China and closed markets in Japan (the latter of which can discourage companies from entering that market). Moreover, medtech companies are getting squeezed by expanding government-controlled health systems and pricing pressures spawned by decreasing budgets and shrinking reimbursements.

Such uncontrollable market forces can hamper medtech companies’ efforts to obtain new OEM customers. To successfully traverse these potentially disruptive international headwinds and foster new business opportunities, companies should undertake the following five strategies.

1. Help customers “win.”
2. Recruit and retain top-notch sales/business development talent.
3. Acquire the inorganic assets (IP, customers, employees, etc.) necessary for growth.
4. Develop “risk sharing” agreements with the best customers/prospects.
5. C-Level support of internal growth initiatives.

Let’s now explore each of these strategies to determine how they can help companies garner new business.

Aiming to Win
Medtech companies can help their OEM customers “win” through innovation and ingenuity. Innovation, however, must address an unmet clinical need; an inventive technology is virtually useless in today’s healthcare landscape unless it solves a specific problem in a manner acceptable to all stakeholders (payers, practitioners, and patients). Avoid being the OEM supplier that develops a technology for the sake of creating something trendy and sophisticated, as that approach is no longer a viable (or profitable) option.

Core competencies is another winning strategy, as it helps suppliers’ customers gain new business via either competitive differentiation or cost/margin advantages (or both). Suppliers that help customers attain new clients are actually helping themselves, as they will become a more valuable partner in the long run. This also will help boost their bottom lines, leading to continued success.

Recruiting/Retaining Talent
Companies are only as good as the people who work for them. Today’s sales folk must excel at both business and sales. To be effective, they should possess a thorough knowledge of basic sales disciplines and a solid understanding of their customer’s business, including the client’s financial health, core competencies, and both short- and longer-term objectives. Sales representatives also need the soft skills to build relationships and the acumen to negotiate successful (win-win) agreements. Too many sales representatives go for the short-term win by providing low and unsustainable pricing (a definite win-lose situation). Having the right talent can help companies ensure organic growth for today and tomorrow.

Growth Through Acquisitions
M&A has traditionally been vital to the long-term health of most medtech OEMs. Identifying, executing, and integrating the appropriate acquisition targets should be a core strength of a supplier’s executive team. Those without such top-level talent should consider an outsourced business development and licensing resource. Properly executed, acquisitions help companies sustain lasting growth as they implement their business plans.

The key reasons to make an acquisition include: purchasing a competitor to increase scale and improve margins and profitability; gaining competencies that allow the purchasing organization to help its customers win in the marketplace; intellectual property that enables the buyer to develop core competencies that in turn give customers a competitive advantage; talent to help the combined organization execute its business plan; new customers; and new geographies to make the two companies a true global player in the marketplace. Inclusion in an OEM’s approved vendor list is often worth millions of dollars and has repeatedly been an M&A catalyst for large organizations looking  to obtain new customers. As many industry executives would agree, the easier path to growth in the OEM medtech supplier business is through existing customers (whether obtained organically or inorganically), as the sales cycle is shorter and the relationships provide a competitive advantage. It’s also easier than finding new customers through traditional routes.

Innovative Sales Strategies
Make sure these approaches allow for “risk sharing” with OEM customers. Since many OEMs must now offer “risk sharing” pricing to their hospital clients, suppliers can set themselves apart by willingly sharing the risk with the larger organizations. Suppliers, however, may only be a portion of the OEM’s total customer offering (to hospitals), so creativity and innovation must be part of their proposals. It could be something as simple as a cost sharing arrangement where the customer invests in the non-recurring engineering and/or tooling to lower production costs and the savings is shared with both parties. Or maybe it’s a commodity-based risk-sharing plan that helps the two partners gain from commodity cost reductions and share the pain of commodity cost increases. In some cases, the supplier might even have enough confidence to participate in its customer’s hospital risk-sharing agreement—when the client wins, so does its partner. The bottom line is that it’s worth taking the internal time to discuss and develop these types of innovative sales strategies. Those that do so will more often than not be more attractive to customers, as those potential patrons will appreciate the discussion and the possibilities of moving the relationship closer to a partnership.

C-Level Support of Growth Initiatives
This is another crucial component of attracting new clients. Companies must know their business better than anyone else and what needs to be done to be successful. Every business is proprietary in its own way, but a company’s internal priorities and activities are dynamic and unique to its situation (as assessed by the executive team). Regardless of the key internal initiatives, it is critical to success that these initiatives are supported by an executive stakeholder. It has been proven that the most effective organizations execute their business plans better if there is C-Level engagement (and accountability) to support a team’s efforts. There can be delegation for action items but there should not be delegation for true leadership. It’s a “make or break” item for many key initiatives and has significant impacts on many organizations.

Medtech companies looking for new foundations for growth in these exciting but uncertain times will find short- and long-term success through the execution of these five innovative strategies. Safe sailing. 

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Florence Joffroy-Black, CM&AA, is a long-time marketing and M&A expert with significant experience in the medical technology industry, including working for multi-national corporations based in the United States, Germany, and Israel. She can be reached at [email protected].

Dave Sheppard, CM&AA, is a former medical technology Fortune 500 executive and is now a principal at MedWorld Advisors. He can be reached at [email protected].