CLOSING CASE Advanced Biomedical Devices: Assessing Readiness to Export Dr. Richard Bentley, a well-known British surgeon who developed a success. Following a series of meetings, the team reached consensus medical device that helps the wound-healing process, was so com- on the following key elements of ABD's initial strategic direction mitted to the groundbreaking technology that he left his surgical practice to found Advanced Biomedical Devices, Inc. (ABD). ABD is Senior management will strongly commit to internationaliza- headquartered in the eastern United States. ABD plans to initiate tion, and ABD will pursue foreign markets aggressively. The exporting activities and just completed the process of assessing its firm will hire a vice president for international sales in the readiness, using CORE (COmpany Readiness to Export). coming year. ABD's product line indudes several innovative devices called ABD will invest up to 20 percent of company earnings in Speedheal that promote healing and reduce postsurgical pain by export opportunities. keeping the wound area from swelling. Speedheal oxygenates the ABD will begin building distributor relationships in a number of countries wound area by pulsing electrons through the bandage covering the wound. The devices are very small and portable Versions exist ABD will establish a marketing subsidiary in at least one foreign for different types of surgeries, hand surgery, face lifts, abdominal location within three to five years and hire salespeople who procedures, and so on. select and manage the distributors in their market area. Dr. Bentley launched ABD with a skillful management team Management will seek to ensure that all international ventures whose members have worked extensively in the European market, reach profitability within two years of their launch. the Pacific Rim, and Latin America. ABD's manufacturing director is Management will develop international marketing plans for from Germany, and another manager lived in France and Malaysia each target market, each with its own budget. for several years. Plans call for international sales to reach 35 percent of total Thanks to high demand, Speedheal sales increased rapidly, Sales within four years primarily through medical product distributors that sold to hospitals ABD will establish an annual budget of $220,000 to finance and clinics throughout the United States. Growth approached 20 international activities for each of the first three years. Of percent in some years, and the staff grew to 85 people. The firm's that, about $60,000 will be devoted to market research success stimulated the entry of competitors offering similar prod- to determine the best target markets and understand ucts, but rivals never achieved the degree of miniaturization in ABD'S competitors. products. Miniaturization thus remains one of Speedheal's competi- tive advantages. Management's projections for ABD's future growth Product Readiness for Export management team addressed questions about the challenges of Dreams of International Expansion internationalization. The first dealt with training sales representatives ABD had received unsolicited orders from abroad and learned a in foreign markets to sell medical devices to hospitals and clinics, the great deal about handling international transactions, including for primary end markets for ABD products. Sales reps require training eign exchange, letters of credit, and logistics. Though ABD's plan because they deal with doctors, nurses, and other professionals who to internationalize was in its early stages, management intended are deeply involved in decision making about purchases of hospital to expand beyond occasional export sales to target key world supplies. Because training costs can be high in foreign markets, markets. Its managers preferred dealing with psychically close Dr. Bentley wanted to ensure that ABD was prepared to make this markets--those with familiar culture, business customs, and legal investment. and banking systems. They were willing to consider others, espe Dr. Bentley also raised the issue of after-sales service, which can cially large and fast-growing markets and those promising superior be challenging in foreign markets. Because ABD's products were profitability seldom defective, the solution for a defective product was to replace One expected benefit was the opportunity for ABD to learn from it rather than trying to make a repair . U.S. customers counted on a global competitors and markets. Many trends that start in foreign ready backup stock in the event of product defects. ABD planned to markets eventually reach the home country, and often the best way employ the same solution for its foreign operations, and manage to track them is to do business internationally. Management also ment assumed there would be no need for a separate staff to deal believed it could reduce ABD's overall risks by diversifying sales to with after-sales service. Because Speedheal devices are small and various foreign markets. Finally, internationalization would help pre- lightweight (though valuable), per-unit transportation costs are very empt competitors in particular foreign markets. low. In fact, in urgent situations abroad, ABD already made it a prac- tice to ship a replacement device by air. International Strategic Intent Although management well understood pricing in the United Dr. Bentley and his management team formulated some questions States, there was much it did not know about foreign pricing to clarify ABDs internationalization goals. They knew that answer- Dr. Bentley and several managers had attended trade fairs in Europe ing the questions would help clarify ABD's strategic intent for going and concluded that ABD's prices were not too high, particularly international Management also wanted to develop a comprehen- since no other firms offered similar products. In fact, ABD had filled sive strategic plan that would lay the foundation for international unsolicited orders from Europe and found that customers never 369 CHAPTER 12. GLOBAL MARKET OPPORTUNITY ASSESSMENT challenged its pricing. In the end, however, management decided Dr. Bentley also considered the appropriate growth rate for the research was needed to refine ABD's pricing approach. firm. A company's business could increase rapidly, demanding more Next, the team discussed foreign inventory management product than the firm could reasonably supply. Or domestic sales Because the devices were cheap to transport by air freight, distribu-could drop sharply, requiring management to divert all efforts to tors could replenish inventories quickly and economically, a signifi- rescuing domestic operations, thus disrupting the export program. cant benefit because they would not have to maintain much inven Competitive intelligence was another concern. A key incentive tory to support sales. On the other hand, Speedheal devices were for venturing abroad was to learn more about foreign competitors, Sensitive to changes in temperature and humidity and functioned Some major medical device manufacturers marketed their products best when warehoused in climate-controlled facilities. Such ware in the United States, whereas others were based strictly abroad. ABD housing was increasingly common, so ABD should have no problem would have to research and understand the strategies and market- locating the right warehousing in Europe and elsewhere. ing practices of the important competitors. Dr Bentley recognized ABD's management realized the firm's flexible packaging put the importance of getting patent coverage on his inventions around them in a good position to enter foreign markets, and they were the world and of protecting the intellectual property rights of his also prepared to modify the product in various ways to meet world- firm. He planned to retain legal counsel, at home and abroad, to wide standards and regulations. Two in particular were the CE mark, protect ABD's critical assets from patent infringements, to develop a mandatory safety mark required on toys, machinery, and low-volt- suitable distribution and agent agreements, sales agreements, and age equipment, and ISO standards, which aim to make development licensing, and to ensure compliance with local employment laws. and manufacturing of products efficient, safe, and clean. Management believed ABD's initial foreign markets would be Australia, Canada, Western Europe, and Japan because of their large Knowledge, Skills, and Resources proportion of affluent consumers with the ability to pay for sophisti- In a subsequent meeting, the ABD team considered less tangible cated medical care. Thus, ABD had gathered information about the aspects of the firm's readiness to internationalize. Management markets and competition in those countries but recognized that it knew critical self-assessment was vital to long-term success, and needed to do much more. internationalization would require additional working capital for foreign warehousing, longer shipping times, and larger invent Managerial Capabilities for Long-Term ries abroad. Other costs included legal help, freight forwarding. Internationalization international transportation, customs duties, bank charges, rent One concern was whether management would be able to cope with for foreign offices, and approval for certain regulatory issues. ABD's deepening internationalization. In the end, the ABD team members management was not completely clear on the amount of these recognized that they were right to take painstaking efforts to deter- costs, but it was willing to learn. Although it would use letters of mine the firm's readiness to export. Extensive meetings and prelimi- credit when first opening new markets, ABD would opt for open- nary research provided the basis for developing initial strategies and account payment systems (payable in 30 or 60 days, depending on action programs as well as for identifying improvements to make the the market). company stronger in the coming years. AACSB: Reflective Thinking Skills, Analytic Skills Case Questions 12-7. If you were a member of ABD's management team, what 12-4. Do you believe ABD's products are in a state of readiness to countries would you recommend targeting first? As a man- begin exporting to Europe? Why or why not? Are the products ager, you would need to justify your recommendation. A ready for exporting to emerging markets (e.g., China, Mexico, good approach is to investigate key characteristics of specific Russia)? Why or why not? What factors suggest Speedheal countries through globalEDGE (www.globalEDGE.msu.edu) products might enjoy demand in all types of foreign markets? or similar websites 12-5. Does management at ABD possess the appropriate knowl- 12-8. What approaches could ABD employ to estimate the firm's edge, skills, and capabilities for internationalization? Justify sales potential for markets in Europe and other affluent your answer. What steps should management take to prepare economies? Justify your answer. the firm, managers, and employees better to internationalize? 12-6. How well did ABD complete the key tasks in global market This case was written by Myron M. Miller, Michigan State University opportunity assessment? Evaluate whether it accomplished (retired), in association with Professor S. Tamer Cavusgil. ABD is a each task well or poorly. Did ABD achieve each of the objec- fictitious company. tives set out for the tasks