Dr. Richard Bentley, a well-known British surgeon who developed a medical device that helps the wound-healing process,

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Dr. Richard Bentley, a well-known British surgeon who developed a medical device that helps the wound-healing process, was so committed to the ground-breaking technology that he left his surgical practice to found Advanced Biomedical Devices, Inc. (ABD), headquartered in the eastern United States. ABD plans to initiate exporting activities and just completed the process of assessing its readiness, using CORE (COmpany Readiness to Export). ABD’s product line includes several innovative devices called Speedheal that promote healing and also reduce postsurgical pain by keeping the wound area from swelling. Speedheal oxygenates the wound area by pulsing electrons through the bandage covering the wound. The devices are very small and portable. Versions exist for different types of surgeries: hand surgery, face lifts, abdominal procedures, and so on. Dr. Bentley launched ABD with a skillful management team whose members have worked extensively in the European market, the Pacific Rim, and Latin America. ABD’s manufacturing director is from Germany, and another manager lived in France and Malaysia for several years. Thanks to high demand, Speedheal sales increased rapidly, primarily through medical product distributors that sold to hospitals and clinics throughout the United States. Growth approached 20 percent in some years, and the staff grew to 85 people. The firm’s success stimulated the entry of competitors offering similar products, but rivals never achieved the degree of miniaturization in ABD’s products. Miniaturization thus remains one of Speedheal’s competitive advantages. Management’s projections for ABD’s future growth remain positive.

Dreams of International Expansion

ABD had received unsolicited orders from abroad and learned a great deal about handling international transactions, including foreign exchange, letters of credit, and logistics. Though ABD’s plan to internationalize was in its early stages, management intended to expand beyond occasional export sales to target key world markets. Its managers preferred dealing with psychically close markets—those with familiar culture, business customs, and legal and banking systems. But they were willing to consider others, especially large and fast-growing markets and those promising superior profitability. One expected benefit was the opportunity for ABD to learn from global competitors and markets. Many trends that start in foreign markets eventually reach the home country, and often the best way to track them is to do business internationally. Management also believed it could reduce ABD’s overall risks by diversifying sales to various foreign markets. Finally, internationalization would help preempt competitors in particular foreign markets.

International Strategic Intent

Dr. Bentley and his management team formulated some questions to clarify ABD’s internationalization goals. They knew that answering the questions would help clarify ABD’s strategic intent for going international. Management also wanted to develop a comprehensive strategic plan that would lay the foundation for international success. Following a series of meetings, the team reached consensus on the following key elements of ABD’s initial strategic direction:

■ Top management will strongly commit to internationalization, and ABD will pursue foreign markets aggressively. The firm will hire a vice president for international sales in the coming year.

■ ABD will invest up to 20 percent of company earnings in export opportunities.

■ ABD will begin building distributor relationships in a number of countries.

■ ABD will establish a marketing subsidiary in at least one foreign location within three to five years and hire salespeople who select and manage the distributors in their market area.

■ Management will seek to ensure that all international ventures reach profitability within two years of their launch.

■ Management will develop international marketing plans for each target market, each with its own budget.

■ Plans call for international sales to reach 35 percent of total sales within four years.

■ ABD will establish an annual budget of $220,000 to finance international activities for each of the first three years. Of that, about $60,000 will be devoted to market research to determine the best target markets and to understand competitors.

Product Readiness for Export

Following approval of ABD’s strategic intent, Dr. Bentley and his management team addressed questions about the challenges of internationalization. The first dealt with training sales representatives in foreign markets to sell medical devices to hospitals and clinics, the primary end markets for ABD products. Sales reps require training because they deal with doctors, nurses, and other professionals who are deeply involved in decision making about purchases of hospital supplies. Because training costs can be high in foreign markets, Dr. Bentley wanted to ensure ABD was prepared to make this investment. Dr. Bentley also raised the issue of after-sales service, which can be challenging in foreign markets. Because ABD’s products were seldom defective, the solution for a defective product was to replace it rather than trying to make a repair. U.S. customers counted on a ready backup stock in the event of product defects. ABD planned to employ the same solution for its foreign operations, and management assumed there would be no need for a separate staff to deal with after-sales service. Because Speedheal devices are small and lightweight (though valuable), per-unit transportation costs are very low. In fact, in urgent situations abroad, ABD already made it a practice to ship a replacement device by air. While management well understood pricing in the United States, there was much it did not know about foreign pricing. Dr. Bentley and several managers had attended trade fairs in Europe and concluded that ABD’s prices were not too high, particularly since no other firms offered similar products. In fact, ABD had filled unsolicited orders from Europe and found that customers never challenged its pricing. In the end, however, management decided research was needed to refine ABD’s pricing approach. Next, the team discussed foreign inventory management. Because the devices were cheap to transport by air freight, distributors could replenish inventories quickly and economically, a significant benefit because they would not have to maintain much inventory to support sales. On the other hand, Speedheal devices were sensitive to changes in temperature and humidity and functioned best when warehoused in climate-controlled facilities. Such warehousing was increasingly common, so ABD should have no problem locating the right warehousing in Europe and elsewhere. ABD’s management realized the firm’s flexible packaging put them in a good position to enter foreign markets, and they were also prepared to modify the product in various ways to meet worldwide standards and regulations. Two in particular were the CE mark, a mandatory safety mark required on toys, machinery, and low-voltage equipment, and ISO standards, which aim to make development and manufacturing of products efficient, safe, and clean.

Knowledge, Skills, and Resources

In a subsequent meeting, the ABD team considered less tangible aspects of the firm’s readiness to internationalize. Management knew critical self-assessment was vital to long-term success, and internationalization would require additional working capital for foreign warehousing, longer shipping times, and larger inventories abroad. Other costs included legal help, freight forwarding, international transportation, customs duties, bank charges, rent for foreign offices, and approval for certain regulatory issues. ABD’s management was not completely clear on the amount of these costs, but they were willing to learn. While it would use letters of credit when first opening new markets, ABD would opt for open-account payment systems (payable in 30 or 60 days, depending on the market). Dr. Bentley also considered the appropriate growth rate for the firm. A company’s business could increase rapidly, demanding more product than the firm could reasonably supply. Or domestic sales could drop sharply, requiring management to divert all efforts to rescuing domestic operations, thus disrupting the export program. Competitive intelligence was another concern. A key incentive for venturing abroad was to learn more about foreign competitors. Some major medical device manufacturers marketed their products in the United States, while others were based strictly abroad. ABD would have to research and understand the strategies and marketing practices of the important competitors. Dr. Bentley recognized the importance of getting patent coverage on his inventions around the world and of protecting the intellectual property rights of his firm. He planned to retain legal counsel, at home and abroad, to protect ABD’s critical assets from patent infringements; to develop suitable distribution and agent agreements, sales agreements, and licensing; and to ensure compliance with local employment laws. Management believed ABD’s initial foreign markets would be Australia, Canada, Western Europe, and Japan, because of their large proportion of affluent consumers with the ability to pay for sophisticated medical care. Thus, ABD had gathered information about the markets and competition in those countries but recognized that it needed to do much more.

Managerial Capabilities for Long-Term Internationalization

One concern was whether management would be able to cope with deepening internationalization. In the end, the ABD team recognized that they were right to take painstaking efforts to determine the firm’s readiness to export. Extensive meetings and preliminary research provided the basis for developing initial strategies and action programs, as well as for identifying improvements to make the company stronger in the coming years.

1. Do you believe ABD’s products are in a state of readiness to begin exporting to Europe? Why or why not? Are the products ready for exporting to emerging markets (e.g., China, Mexico, Russia)? Why or why not? What factors suggest Speedheal products might enjoy demand in all types of foreign markets?

2. Does management at ABD possess the appropriate knowledge, skills, and capabilities for internationalization? Justify your answer. What steps should management take to better prepare the firm, managers, and employees to internationalize?

3. How well did ABD complete the key tasks in global market opportunity assessment? Evaluate whether it accomplished each task well or poorly. Did ABD achieve each of the objectives set out for the tasks?

4. If you were a member of ABD’s management team, what countries would you recommend targeting first? As a manager, you would need to justify your recommendation. A good approach is to investigate key characteristics of specific countries via globalEDGE™ (globalEDGE.msu.edu) or similar Web sites.

5. What approaches could ABD employ to estimate the firm’s sales potential for markets in Europe and other affluent economies? Justify your answer.