Contact us if you’re interested in inviting Mr. Corpart as a speaker for your next event covering Latin American healthcare, particularly when it comes to the LatAm hospital market, the LatAm medical devices/equipment market and related topics.

Since taking office in December 2018, AMLO has made it clear that improving the efficiency of government spending is a top priority, and this means reshaping how the government is managing purchases in all industry sectors, including healthcare. The rules of the game are changing. The risks are high for all stakeholders, particularly established players and patients. Let’s review some key numbers for Mexico’s healthcare system:

• Healthcare expenditure: 5.5% of GDP
• Public healthcare expenditure: 10.4% of government spending
• Total hospital beds: 167,000
• % of hospitals belonging to the public sector: 82%

The public sector represents over 80% of hospital beds in Mexico and approximately 60% of the revenue of established players, whether these be medical equipment, medical device, pharmaceutical or consumables manufacturers. The public sector is big business, where winning tenders is a critical component of maintaining the topline. Manufacturers often partner with distributors to leverage local contacts and broaden reach. And in a country where kickbacks are a common business facilitator, it is not surprising to see AMLO’s anti-corruption policies seek to reshape purchase processes.

Main Structural Changes to Public Tenders

1. Tenders are consolidated further. Government tenders are a common practice that are generally organized by type of institution, state, or region. These are being consolidated and centrally managed, thus reducing the number of overall tenders and increasing the stakes for the participants. The theory is that with greater volume and higher stakes, participants will be enticed to offer more competitive pricing, thus squeezing profit margins. In doing so, the opportunities for corrupt practices will also be more limited.
   
2. Efficiencies are sought to reduce volumes. Authorities are speculating that greater consolidation of tenders will lead to better management of purchased goods. As such, consolidated tenders are of lesser volume then the sum of their previous parts.
   
3. Distributors are being squeezed out. Manufacturers are called in to participate directly in tenders, while distributors are sidelined. The objective is to reduce costs by eliminating distributors and their margins. Additionally, international manufacturers generally have stricter anti-corruption policies. The Mexican government plans to manage the logistics directly, ranging from warehousing to distribution.
   
4. International products are called in to lower costs. Participating in government tenders was typically reserved to companies whose home country had a free trade agreement with Mexico. As such, many international companies, notably those from Asia, were excluded from potential government sales. Opening tenders to companies from all countries is expected to place further downward pressure on pricing.

Affected Stakeholders

These include products with proven and established quality standards, the patients who rely on them, the doctors who use them, the companies who manufacture them and the providers who distribute them. More specifically, these changes will affect:

• Patients dependent on innovative products and/or with time-sensitive cases
• Patients of lesser financial means who are dependent on public healthcare
• Physicians, who are used to products with proven outcomes
• Manufacturers of products with high IP content
• Providers of value-added solutions
• Distributors focused on the public sector

Additionally, the overall healthcare system will become less efficient as the Mexican government tries to become the sole distributor of products to public hospitals. This will further cripple the system’s ability to move to value-based care.

From the product side, the burden on the healthcare ecosystem will increase as lesser quality products—which are typically less efficient and have higher failure rates—are used by patients and the physicians who treat them.

Said risks also threaten the production and value chain: specifically, established manufacturers and distributors. The combined effect of such policies is expected to reduce the potential market for medical equipment, medical devices, pharmaceuticals and consumables by over 50%.

The consolidated tender of medicines (for the second half of the 2019 fiscal year) is already showing signs of inefficiency. The primary points of concern include:

1. Some maximum acceptable prices are lower than those of previous tenders
2. Open international bidding
3. Delivery dates are unreasonably tight
4. Commercial procedures (payments, terms and conditions of sale) are unclear

Such variances can discourage companies from participating in the tender, thus creating a shortage of products in the market.

How Companies Can Adjust to AMLO-Care

In the process of adjusting to these policy shifts, manufacturers must change the way they look at the market. The topline value will be affected so dramatically that historic viewpoints will no longer be relevant. Instead, metrics such as gross profit and market share will become more appropriate and reflect performance more accurately.

In a market with limited performance indicators, measuring and tracking market share can be very tricky. Thankfully, GHI developed ShareScope, which is a unique market tracking solution with over 90% accuracy when measuring market size and market share of medical equipment in Latin America, market size and market share of medical devices Latin America, as well as market size and market share of pharmaceuticals and consumables for Latin America. ShareScope may be the measurement standard your company needs to evaluate performance, track the competitive landscape, assess the threats of Asian products and set your goals for the upcoming years.

Contact one of our Solutions Advisors to see if ShareScope is right for you.

Regardless, while medical device/equipment companies may be looking to take advantage of this growth, Latin America presents its own set of challenges when it comes to market entry.

Recently we spoke with Dorothy Erlanger—a consultant, trainer and speaker with more than 30 years of global healthcare experience—to obtain her insights into LatAm market entry, which she has utilized in completing major medical devices projects for both established companies and new-to-market firms.

Here’s a look at her advice for companies wanting to take advantage of the growing LatAm medical equipment/devices market.

What are some of the common pitfalls that medical devices companies should look out for when executing market entry with Latin American markets?

There are three major pitfalls to look out for:

1. Poor selection of a partner. Do your homework on fit, structure and capabilities.
2. Entering via distributorship with a plan to build out your own sales force later … and then discovering you’re in a legal quagmire trying to extract your product from the distributor.
3. Not planning and budgeting for the long run; success takes time, investment and continued focus.

LOCAL SETUP

If a medical device company opts for building their own local team in a Latin American market, what are some of the key factors they should consider?

These fall into three categories:

• Market potential: Do your product range and value justify? Is your sector or category growing?
• Investment: What is your entry strategy and growth projection? What is your break-even point? What are milestone metrics for progress and red flags to watch for?
• Personnel: Can you hire team members with the right expertise—good experience, proven track record? What are market expectations on compensation? How much will you be constrained by labor laws? And, at the home office level, do you have dedicated support?

 What kind of consultants are best suited to help a medical devices company navigate the regulatory environments of specific countries in the region?

Before going after a regulatory specialist, establish one lead consultant as responsible for the entry project overall. You need a person with LatAm-specific device expertise who can bring in the right support at the right time.

From there, work with a regulatory specialist with regional expertise. An experienced specialist can efficiently narrow down to what specific in-country supplemental assistance is needed and likely recommend an experienced resource.

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And if you are evaluating potential distributors, you may find some who have regulatory/registration experience. If this is a consideration, ask for details, examples and a contact reference.

A regulatory specialist and distributor with regional reach may be particularly advantageous, especially when first entering the Latin American market and looking to gain traction. This will enable your company to focus on the more strategic elements of the new venture, leaving the local detail to the regional experts.

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Can reimbursement policies be a pitfall when entering a new LatAm medical devices market? If so, what are some of the key challenges to consider?

Reimbursement will be an important factor in any market decision, but it depends on the type of device you’re marketing.

If you’re marketing equipment for hospital use that’s high-value (for example, MRI equipment), you have to determine whether the sector is growing and how does your equipment tie back to their reimbursement, e.g. per procedure. A service like HospiScope can be of value for this.

If you’re selling equipment for patient use (like pacemakers), then it’s critical to understand reimbursement policies in both public and private insurance sectors. You have to be sure that the levels involved are sufficient enough to support your targeted revenue.

 How does culturalization come into play when entering a new medical device market in Latin America?

There are two things to keep in mind when first entering Latin America. First, don’t just translate: adapt to the market, its buyer preferences, the decision-making process and the players. Second, use an in-country expert or agency with solid device experience to assist with marketing materials and promotion

When expanding regionally, make sure to customize materials to the market characteristics. Hospital admins and buyers will pick up in an instant if you’re not attuned to their needs and preferences. The differences may be subtle or may be big issues — either way it creates friction within the market.

Moreover, if materials are already in Spanish, do not assume that they can be used ‘as is’. Wording and industry usage may be distinct. Have translation verification or adaptation done via local resources.

LOCAL PARTNERS

What should companies consider when looking for the right partner to handle sales and distribution for them?

In this instance, you may want to start off by asking three key questions:

• How important are you to them?
• Are they already calling on the right customers, departments and purchasing groups?
• What is their track record in representing other companies—can this be documented?

In addition, you want to have a thorough in-country background, due diligence work done. The Department of Commerce can be a good place to start. Also, Global Health Intelligence’s In-Scope services can be used to gather additional insights such as reputational analysis, coverage, background checks and due diligence.

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How important is product fit when considering a local distributor or sales team?

Product fit is the starting point for any evaluation. While there is likely no such thing as a perfect partner, here are some factors to assess:

• Are they handling complementary products?
• Does bringing in your product add value for them (e.g. make their sales force more productive)?
• Are they selling to the sector and buyers of greatest importance for you?
• Do they currently cover the geography that you need to reach (e.g. major cities across a country in larger markets)

And a tip: Create your own checklist for the ‘ideal partner’ in as much detail as possible before starting to look at partner candidates. Include both concrete and less tangible factors. An example of concrete measures: make sure they do not handle/promote directly competitive products. Less tangible but important: Do you feel that you can work well with the lead people within the organization, particularly sales management?

Developing a list of potential distributors can be complicated, particularly when operating in fragmented markets. Global Health Intelligence has the tools and experience necessary to cast a wide net of potential distributors and also drill down onto each one in order to make sure you get the right fit.

Are there objective ways to evaluate a local company’s sales abilities to get a sense of how well they would do with a product?

Hmm, let’s define “objective”. Joking aside, here are some considerations:

• What’s the ‘word on the street’? Via industry or local chamber contacts, learn all you can about what they’ve done with other products/companies. To the extent possible, verify numbers and growth figures.
• If you have a good set of criteria for an existing sales force, start with that. Ask the candidate company for a job description and how their reps are evaluated (and compensated). Match this against your own standards, but understand that there may be legitimate differences in measures/expectations.

What should companies ask for in legal agreements with local partners? What should they avoid when it comes to these agreements?

• Include Key Performance Indicators with both incentives and triggers for change.
• Work with local counsel to make sure that your agreement is comprehensive and is enforceable in that country’s legal system.
• Be sure your agreement does not tie you so closely with the distributor that you cannot make future changes.

MARKET POTENTIAL

Obviously there are large, well-established medical device markets in Latin America that people in the industry know very well, such as Brazil, Argentina and Mexico. Based on your experience, do you think that there are other markets in the region with strong potential that haven’t really been leveraged as they should be? If so, which are they and why do you think they have strong potential?

There are three markets that come to mind, each of which is interesting for different reasons.

First, Chile has a large middle class, well-established healthcare systems and also has seen rapid market growth in medical equipment. Colombia is now in a period of accelerating growth as it comes out of the long FARC conflict era. This has opened up significant market potential with both immediate and longer term opportunities. In addition, quality healthcare is becoming a hallmark in Colombia.

Costa Rica (and more broadly Central America) is another interesting market. Costa Rica is a generally smaller market but quite accessible and posting strong growth. It also features a good level of education, less corruption than some neighboring countries and significant U.S. influence in the system.

Overall, the smaller markets have been somewhat neglected as companies focus on the big three). In many sectors there will be less competition and a higher ASP (average selling price). If you’re new to the LatAm space, these smaller markets may be a place to get your feet wet without running as much risk. Make a mistake here and it’s not earthshaking. However, making a mistake in a big market could seriously impact regional potential.

ABOUT THIS PIECE

Global Health Intelligence collaborates with regional experts and industry leaders to bring you a broad range of services and insights. This is one of several “Talking to the Experts” interviews we conducted and will be delivering to you. We hope the ideas are insightful and can be used as a conversation starter when looking into your specific needs.

Contact us to find out more.

MORE ON DOROTHY ERLANGER

No matter what stage of market entry a client is tackling, Dorothy’s signature “The Next Hundred Yards” approach helps clients achieve major goals. That approach was born out of her experience as an Ironman® triathlete, during which she learned that success in this 140-mile competition is only possible by staying focused on the next hundred yards. This approach combined with in-depth healthcare experience and understanding of both the marketing and regulatory environment provide unique value to clients, providing the capability to efficiently tailor and complete projects. To learn more, contact Dorothy at 804.749.4100 or visit her website.