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Growing Abroad

“It’s a small world…but I wouldn’t want to have to paint it – Steven Wright

There has been a lot of discussion in recent years about a profound socioeconomic shift that is occurring, commonly referred to as The Rise of the Global Middle Class.  The world’s middle class population was estimated by the Brookings Institution to include 400 million people in 2005.

In the next 20 years the global middle class is projected to grow to include 1.2 billion people.  Fully two-thirds of that unprecedented expansion in prosperity will occur in China and India.      

The World Bank defines the global middle class as earners making US$10-$20 a day.  While that may seem on the low end to our North American perspective, when Purchasing Power Parity (a measure of how much money is required to make a purchase in different countries) is factored in,  this represents enough new disposable income to precipitate considerable global improvements in diet, education, housing, and consumerism.

And, importantly, in the demand for healthcare. 

Studies consistently show that two of the first things that a newly emerging middle-class spends its purchasing power on are more protein in their diets and more healthcare for their families.  A rise in the global middle-class demographic results in a rise in global demand for healthcare products.

This has already happened.

Today 57% of the demand for healthcare products is found outside of North America.  While demand growth in the industrialized advanced economies is averaging a 2%-3% annual increase demand growth in 18 emerging markets is exceeding 15% and it’s accelerating.

There is a now an unprecedented international market opportunity for medicines and medical devices.  And this is clearly reflected in market studies, such as Pain in the (Supply) Chain, where 78% of surveyed healthcare logistics executives identify ‘Tapping New Markets to Expand Customer Base’ as a top strategic initiative for their corporations over the next 5 years.

But a U.S. Commercial Service analysis has shown that less than 1% of U.S. companies export.  And of the tiny percentage that does the majority only export to a single foreign market.

Why is this the case?  The international markets represent a disproportionately large growth opportunity.  Fifteen foreign countries comprise a $28 billion market for U.S. made medical devices, for example.  But the majority of U.S. countries have not yet gone global.

Is it because of company size?  Do you have to be one of the ‘big boys’ to play in this market?  The answer is no.  Analysis shows that the vast majority of Shipper’s Export Declarations are filed by small and mid sized companies.

For many healthcare companies’ reluctance to compete in the international marketplace appears to be based on two main concerns:

  • Perceived difficulty in securing certification and licensing to sell in foreign markets
  • Apprehension about the challenges of managing a global supply chain

Interestingly, many U.S. healthcare companies are far better suited for securing product approval from foreign regulatory authorities than they initially believe.  Because of the nature of their businesses, most of these companies are very adept at navigating diverse and complex certification processes, and in working cooperatively with regulatory oversight.  Many find that foreign markets can actually be more straightforward than the U.S. approvals they have already achieved.

But the challenge of effectively managing global transportation and distribution can justify their trepidation. 

Global supply chain management is typically not a core competency for many healthcare manufacturers. The pace of globalization, a key trend in most consumer and industrial sectors over the past two decades, is a more recent development in healthcare. Even the largest multinational pharmaceutical and medical device manufacturers find aspects of supply chain management trying.

But like the regulatory approval challenge, supply chain management fears can be addressed with effective systems, processes, and expertise.  And just as there has been a rise in the global middle class there has also been a rise in global supply chain integrators. 

Third-party logistics solutions that are optimized specifically for healthcare products are effective in helping new exporters:

  • Prepare product effectively
  • Route shipments strategically
  • Optimize modal mix
  • Maximize economies of scale
  • Actively manage trade information
  • Streamline cross-border compliance    

Is global growth part of your healthcare strategy?  I’d love to talk with you about your perspective on this accelerating area of business opportunity!

Category: Healthcare

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