Pulse of the industry

Investing in China for the long term

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Michael Mussallem
Chairman and CEO
Edwards Lifesciences

In the late 2000s, as emerging economies such as China, Brazil and India grew wealthier, analysts and medtech management teams saw expansion into these geographies as critical to future growth. More recently, as the challenges of doing business in these markets have become better understood, the perceived return on investment may seem less certain — especially compared to the known opportunity in currently larger, more established regions such as the US, Europe or Japan.

Within the emerging markets, we are focused on China, which is projected to be the second-largest market for medical devices by 2020. We believe being successful in China requires a deliberate approach that combines up-front investment with a long-term commitment.

Companies need to build high-quality teams that have a deep understanding of the patients and providers they serve. Thus, success isn’t only about the launch and uptake of specific brands. It’s also about establishing an authentic and organic corporate culture that is committed to quality and meeting the needs of Chinese patients.

A long-term strategy

At Edwards, we believe our product portfolio, which is focused on heart valves and critical care monitoring, lends itself to an organic, bottom-up approach. Thus, our approach, with a long-term view in mind, has been to create an Edwards culture in China by hiring local talent to introduce technologies that are already market leaders in other geographies.

Edwards has a long history of developing medical technologies that are highly specialized and not easily commoditized. We have focused less on establishing low-cost manufacturing centers, and instead placed an emphasis on educating Chinese physicians about the quality of our devices and the outcomes they can provide patients.

To nurture our China-based talent pool and accelerate growth, we have also moved experienced personnel to China from other parts of the world, both to help integrate Edwards’ patients-first culture and deep technology knowledge, as well as to provide guidance on best practices from other regions. Longer term, however, our strategy in China won’t rely heavily on a large expatriate presence.

We need teams who have an intimate understanding of our customers and their needs, and we are investing in our team’s education and training so that they may best serve their stakeholders in the future. This approach also allows us to tailor our commercial practices so that our sales training and device distribution systems meet local needs. As a result, we are better able to take full advantage of different opportunities unique to China, such as the differences between large, urban centers and more rural centers, and how they approach specific patient needs and treatments.

Value through differentiation

Chinese physicians and consumers are knowledgeable about new medical technologies being utilized elsewhere around the world, and also place an emphasis on quality and value. As in other markets where there are scarce health dollars to be spent, China is very focused on cost. For companies developing medical technologies that are less differentiated, one strategy for China might be to develop high-quality but streamlined versions that still fulfill the medical need, but at lower costs.

We understand the Chinese government’s initiative, “Made in China, 2025,” seems to be pointed at the cost of medtech as a priority. We also observe that the government sometimes deploys blunt instruments like price controls and regulatory constraints. We are hopeful that the government will recognize that a vibrant, diverse medtech market will encourage competition from both local and global companies. This, in turn, will improve value and the quality of health care for Chinese patients in a faster and better manner, as it has elsewhere around the world. We are working to build bridges with the government to inform them of the value of highly innovative devices.

Developing streamlined or commodity devices hasn’t been a focus for Edwards because our products are primarily used in specialized situations where patients are grievously ill. We also recognize that Chinese patients want access to advanced medical technologies. Our focus is on developing high-quality, sophisticated and differentiated products backed by compelling evidence and outstanding clinical outcomes as well as providing comprehensive physician training.

That product differentiation means we also haven’t prioritized building a large manufacturing presence in China. Because our devices are easy to transport and high-value, it’s not as critical to create supply chain efficiencies and economies of scale as it might be for other kinds of medical technologies.

For now, because of cost, most of the Chinese citizens who have access to our devices pay for them out of pocket. As China and other emerging markets grow wealthier, however, access to technologies such as ours will continue to grow. While we need to customize our commercial model in geographies such as China, the same evidence-driven approach we have taken to promote adoption in the US and Europe applies. It’s about building leading-class technologies that are supported by data.

Our journey in China is early, and we are still learning. But, as a result of our long-term outlook, we have already seen significant sales growth. We are confident that focusing on the right opportunities in China will provide an immense benefit to the Chinese patients who need and deserve innovative, high-quality therapies.

This article is excerpted from our annual report, Pulse of the industry: Medical technology report 2017. Download the pdf for more from our report, including these featured guest articles: