Challenges and tips for expanding business in China by Matt Levy at www.bio2devicegroup.org, February 14, 2012


Matt Levy, President, http://www.fiftyfivestar.com, discussed challenges and shared some insights and strategies for expanding business in China. China represents a huge manufacturing market for US multi-national corporations. China represents $14 Billion of medical device market and is expected to expand to $50 Billion by 2020.  Levy shared his 5-step commercialization plan as outlined below.

Step one should focus on customer centric, as opposed to product-centric strategy.  The company should have a US presence in the market, have the resources to establish the necessary infrastructure in China, have filed patent and trademark in China, have an international brand recognition, and have knowledge and expertise to do business in china or know where to seek help, prior to expanding the business in China.

Step two should focus on market research from secondary and primary sources, including expert interviews with current customers, distributors, KOLs, competitive overview of international and local competitors, delineate sustainable competitive advantage, and plan a visit to China.  A visit to China will accelerate the learning process tremendously, said Levy.

Levy proposed that step three is focused on developing a plan which should includes two elements, operation plan and marketing plan.  Operational plan should begin with selecting a proper entity, whether it is a rep office, a joint venture, or a wholly owned foreign entity.  Each of these have pros and cons which should be carefully considered.  Next step would be to establish US logistics including accounting, shipping, order processing and legal elements.  That should follow with establishing China logistics including office location, administrative aspects, organizational structure, field service and technical support elements, and recruitment of staff.  Levy shared insights on each of these aspects.  The operational plan should also include defining financial investment based on advice from local market expert.   The marketing plan should include product elements like patent filings, supplier sources, software aspects and manuals.  Distribution elements of the marketing plan should include consideration regarding whether it is through direct sales, or national or regional and/or hybrid distributors.  “Don’t ever sign a long-term exclusivity agreement with a distributor”, cautioned, Levy.  Finally, the brand building aspect of the marketing plan should include aspects regarding market segmentation, translating collateral, event planning, and customer identification.  And finally, the pricing strategy should be considered carefully.

Step four would focus on market execution with focus on brand building.  Chinese product name and key marketing message should be carefully selected followed by sales training and collateral development.  Early adapters and KOLs should be identified and marketing communication plan should be developed.

Finally, step five is about renewing and refining which should be based upon communication from customers, distributors, complete review of China’s growth metrices, it’s evolving compliance policy, and due consideration for high growth environment that is constantly evolving in dynamic China.

Levy discussed further details including considering cultural differences, regulatory climate, and IP protection.  Culturally, there is a lot of corruption ingrained in China and he advised not be naïve about it.  There is also lot of corner cutting which could be an issue for clinical trails, regulatory approval etc. later on.  Also the negotiation style is different, where frequently signing of a contract often signals the beginning of negotiation, rather than an end.  Work ethic, social norms, management style etc. are all practiced differently inChina, compared to theUS.  Regulatory climate is constantly evolving.  IP protection is an issue that should be carefully considered because enforcement does not widely exist. On the other hand, companies can loose IP, even without entering China, said Levy.

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