Stryker has experienced a significant increase in revenue for five consecutive years and profits are trending upwards with double digit increases. The key to Stryker’s success can be related back to their commitment to minimizing the issues that can turn management challenges into costly problems. Since 1990, Stryker has worked with Gallup to increase employee and customer engagement; hire, train, and coach better managers; and increase the effectiveness of the company's leaders. The linkages between profitability, leadership, and engagement are clear, and Stryker works hard, and successfully, to capitalize on them. This permits Stryker to detect small shifts in internal customer service that can lead to big changes in organizational performance.
(Sharing-Knowledge, 2006).
As noted above, Johnson and Johnson had experienced a five year consecutive double digit run of revenue and profit increase with a single digit dip in 2005 and 2006.
( ). J&J's cash flow generation is more than $6 billion generated annually. Furthermore, cash on hand remained solid with an estimated $13 billion by the end of 07. This allowed room for J&J to continue to repurchase stock or make additional strategic acquisitions. In this company, one of the main catalysts is their pharma line. Investors are paying for the company’s ability to deliver consistent earnings growth from its diversified business platform, strong cash flow generation, and the likely entry into new markets with growth opportunities.
Additionally, JNJ's Acquisitions have made a significant mark in its overall growth. In June 06, the company agreed to purchase Pfizer's consumer products unit for $16.6 billion in cash. In November, JNJ agreed to buy Conor Medsystems for $1.4 billion in cash, in a deal that we believe would greatly improve JNJ's competitive standing in interventional cardiology.
(JNJ, 2007).
The impact on Depuy of is as follows; JNJ reported revenues of $12.8 billion for the 4Q:04 which was a 13% increase over the 4Q:03. DePuy, JNJ's orthopedic division, reported revenues of $952 million for the 4Q:04. This was a 19% increase as reported and a 15% increase excluding currency. DePuy's revenues for 2004 totaled $3.4 billion which was a 14% increase as reported and a 10% increase excluding currency over 2003. More recently, DePuy Orthopedics launches Pinnacle® Hip Solutions, with TrueGlide Technology, a modular hip-bearing system that provides surgeons with the freedom to choose the bearing surface and cup option that best meets the individual needs of each patient. With Pinnacle, surgeons can choose either ultra-low wear polyethylene liners or metal inserts, all in the same titanium cup to replace the socket of the patient's natural hip.
(Healthpoint, 2006).
Additional marketing mixes that lead to this continuous growth are also the fact that DePuy proudly supports the role of Johnson & Johnson as an Official Partner of the Beijing 2008 Olympic and Paralympic Games.
Zimmer gained its strong position through its October 2003 acquisition of Centerpulse AG. Centerpulse provided Zimmer with the leading position in the European reconstructive market and entry to the spine market, orthopaedics’ fastest-growing segment.
Following the acquisition of Centerpulse, Zimmer has experienced strong sales growth, with revenue up by 39% in 2003 and by 57% in 2004. This stabilized in fiscal 2005, ended 31st December 2005, with growth of 10.2% for the year, to US$3.3 billion, reflecting strong growth in all geographies and for spine, dental, knee and extremity products, despite a more challenging market environment. The company also realized record profit margins of 78% gross, 32% operating and 22% net, despite moderating price and exchange rate impacts. This was helped by a 5.2% decline in the cost of sales, to US$739.4 million, and both SG&A and R&D expenses rising at a lower rate than the sales growth, at 5.9 and 5.2%, respectively. In addition, Zimmer paid off all debt related to its Centerpulse and Implex acquisitions, leaving it in a net cash position at the end of the year of US$164 million.
If we drill down, we see that Zimmer segments its activities into four main product areas; reconstructive, including knees, hips, dental and extremities; trauma; spine; and orthopedic surgical products (OPS). The reconstructive unit is by far the largest, accounting for 82.8% of Zimmer’s total revenue in 2005, while trauma generated 5.5% of sales, spine 4.9% and OSP 6.8%.
(Espicom, 2007).
SNN has also seen steady revenue growth over the past three years, with its results over the past year being particularly impressive. Its marketing mix included an addition of products and several aquisions. Over this time period, there were rumors that medical device maker Smith & Nephew was preparing an $11.0 billion bid for rival Biomet, Inc. but that it was ultimately snapped up for $10.9 billion by a consortium of private equity firms. That was the second time in three years that SNN was out-maneuvered. Earlier it had courted Centerpulse in 2003 only to lose the Swiss orthopedics firm to Zimmer Holdings for $3.2 billion.
Under competitive pressure from giants in the orthopedics industry, the company engaged Morgan Stanley earlier in 2006 to help it explore strategic alternatives. Bidders included both strategic and financial buyers. As its recent $72.3 million acquisition of Texas-based Osteobiologics shows, SNN is eager to expand operations in the United States. The acquisition of Biomet would have given SNN a secure footing in the U.S. market, and the size to compete more effectively in the orthopedic devices industry.
It is discussed that the possible combination of SNN and Biomet would create a firm better able to compete with the three giants in the field, Johnson & Johnson, Stryker Corp and Zimmer Holdings.
(Levinassociates, 2006).
Following the 2006 retirement of President and CEO Dane A. Miller, Ph.D., Biomet became a private company when a consortium of private equity firms, including affiliates from The Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG, purchased Biomet for $11.4 billion in September 2007. Biomet also achieved numerous industry accolades as it secured the leading position in the U.S. metal-on-metal hip market and The Oxford® Partial Knee was recognized as the most widely used and clinically proven partial knee in the world. Biomet looks to the future with a focus on continued growth and innovation and remains committed to the foundational principles that shaped its creation over 30 years ago
In an effort to reduce COGS. The Company is looking to identify and reduce excess capacity by consolidating its worldwide manufacturing operations. Additionally, management has announced plans to no longer outsource production of bone-cement (its former dependency on one outside supplier led to lower profit margins on bone-cement products when the Company raised its prices at the end of FY 2005.
Hip and knee and extremity joint replacements account for more than 95% of all orthopedic implants and Biomet holds about 12% of this market, which accounted for 68% of the company's net sales in FY 2006. Net sales increased 8% during the current fiscal year ended May 31, 2006, to $2.02 billion from $1.87 billion in 2005.
SUMMARY
The orthopedics industry has become the focus of attention for both the relevant patient population seeking to improve its lifestyle as well as savvy investors hunting for lucrative opportunities. The US orthopedics industry is benefiting from robust demand for technologically advanced products that accommodate the increasingly active Baby Boomer lifestyle, as well as the sedentary lifestyle that accompanies the escalating levels of obesity in the United States.
The US orthopedics industry grew by 10.4% in 05 and is now valued at approximately $8.8B dollars. This market is expected to grow over 50% over the next 5 years. Sales of spinal implants accounted for the lion’s share of the pie, approximately 39%. With its monolithic insurance system, the US accounted for over 70% of global orthopedic sales ($12.5B).
The major drivers of the orthopedics industry include robust demographics, pricing pressures, FDA regulation, and shortened product life cycles. EBIT margins at the top five firms in the orthopedic space hover around 30%, extremely attractive when coupled with the fact that these firms generate healthy cash flow, offer returns above and beyond their cost of capital, and manage their balance sheets exceptionally well.
EFFECTIVENESS MEASURES SUMMARY CHART
DOMESTIC ENVIRONMENT ASSESSMENT
INTRODUCTION
The Medical Device Indusrty, and specifically orthopedics, continues to be a very viable force in the economy. Despite the many acquisitions over the recent years, each of these companies has prospered. Often times this was the cause of the upswing in revenue. A strategic marketing mix inclusive of new product lines, new material and a targeted market has only added to the upward swing in this baby boomer generation. These organizations have very favorable capture the market and continue to grow their share.
Johnson and Johnsons advantage, as seen above, is strongly related to the pharmaceutical portion of their company. When evaluating orthopedics alone, Stryker is in the lead with 16% of the total orthopedic market hare.
POLITICAL / REGULATORY
According to Ed Kroll, senior healthcare analyst at Cowen and Co., the US government will become a much larger payer of healthcare services over the next decade. In 2004, Medicare and Medicaid paid for 25% of the total US healthcare bill. (It is expected that by 2078, total Medicare costs will amount to twice the cost of Social Security. See Gold, et al for more details.) Currently, medical device companies are able to raise prices above inflation, which is a byproduct of a national health insurance system which bars employees from negotiating prices for medical supplies.
With government agencies such as Medicare and Medicaid fronting the bill, as it were, medical tech companies find themselves at will to hike prices and further improve their margin profiles, which Wall Street adores. Nevertheless, this pricing flexibility operates in cycles, and when times are tough, according to UBS analyst Ken Weakley, employers find themselves pushing a larger percentage of health care costs on to their employees, many of which are constrained to in-network HMOs. This “pushback,” as Weakley calls it, has put pressure on health care providers to lower costs. And whenever hospitals and other providers have to lower costs, they will negotiate on price, not quality. Thus, it not uncommon today to read about hospitals emphasizing “gain sharing” programs, which essentially reward doctors for saving hospitals money.
This trend has adversely impacted the economics and pricing profiles of med tech firms. The threat of reimbursement rate cuts, handled by Medicare, hounds orthopedic companies. According to Medical Device Link, an online information hub for the med tech industry, price cuts on high margin knee replacements, for example, could be as much as 5%. While disconcerting, this is nowhere nearly as bad as the catastrophic 15% declines witnessed in Asia. The price cuts are part of what S&P analyst Robert Gold calls the “trickle down effect”: when hospitals are left with squeezed margins, they naturally “pressure suppliers for better deals.” In sum, the cyclical and unpredictable nature of reimbursement rates to hospitals could impinge on the revenue and profitability profiles of the orthopedics industry. Pricing concerns notwithstanding, we believe the demand for medical devices and the disproportionately higher percentage of health care consumed by older citizens will more than offset such cost containment anxiety (Babyboomers, 2005).
ECONOMIC: INDUSTRY AND MARKET MEASURES
As long as Baby Boomers want to enjoy lifestyles that allow them to remain physically fit and socially active the orthopedics industry will have a vast market to tap into. There are currently 77 million Americans born between 1946 and 1964, also known as the Baby Boomer generation. This group accounts for 17% of the US population and is expected to climb
On a global scale, the number of people aged 60 or older is expected to grow to 2 billion by 2050. Whereas in 1900, people were expected to live to age 50, today people are expected to live until the age of 80. This delay in mortality has dramatically altered the medical landscape and driven up demand for cutting edge products.
In the US, 80% of people over the age of 65% have at least one chronic condition. 60% have arthritis, which bodes well for manufacturers of reconstructive implants. Osteoarthritis, an inflammatory condition that afflicts over 50% of all people over the age of 65, leaves hips and other joints weak, which sparks procedure volumes. Arthritis risk has increased along with the obesity rates of the baby-boomers, and arthritis cases attributed to obesity rose from 3 percent to 18 percent between 1971 and 2002, according to researchers at Beth Israel Deaconess Medical Center
TECHNOLOGY
As a global orthopedic market innovator providing advanced Trauma, Knee and Hip replacement products, Smith & Nephew is proud to be leading the development of computer assisted surgical solutions that will change the way you look at orthopedic procedures in the future.
It is expected that Computer Assisted Surgery (CASS) will transform orthopedic surgery in the next 5 to 7 years. This transformation will result in approximately 1/4 of all orthopedic surgeries incorporating some type of computer assisted technology. The driving technology which will lead this transformation is surgical navigation, also known as Image Guided Surgery (IGS).
Image guided surgery is already considered a standard of care in Neurosurgery. Robotics and virtual surgery are being adopted in soft tissue surgical procedures in the areas of cardiology and endoscopy. Orthopedics is also well suited for these tools. The dense nature of the bony structures are well matched for imaging technologies and manipulation by robots.
These new technologies have the potential to improve the accuracy of orthopedic procedures while allowing for a less invasive approach. Increased visualization combined with computer tracking of instruments promises less morbidity in orthopedic surgery. In turn, this may lead to less pain, faster recovery, and better outcomes for patients.
(Smith and Nephew, 2007).
SOCIETAL
Surgeons can typically drive trends and influence patients on their implant choice. Many surgeons are advocates for implant designs and while others are actually designers of the implants themselves. Obviously, the surgeon’s first priority is choosing the implant and treatment that is best suited to the needs of the individual patient.
A patient also holds a stake in influencing implant choice. Word of mouth should never be overlooked. Many may have the preception that a specific treatment is right for them just because those in their social class are opting for the same regime. There are many aspect of driving market share and volume to increase revenues within a company but a patient, in this scenario, can often be the best advocate and driver.
ECOLOGICAL
The toxicity of phthalate esters is of considerable interest because of their use in many consumer products leading to widespread human exposures and environmental contamination. Of particular concern is their use as plasticizers in medical products and children's toys made of polyvinyl chloride (PVC). Patients receiving intravenous, respiratory, or intestinal therapies from PVC products are exposed to varying amounts of the commonly used plasticizer, di-ethyl hexyl phthalate (DEHP). In Europe and in the US, the Health Care Without Harm coalition is concerned about the potential health impacts of phthalate exposures from medical devices and has been closely following the evolution of scientific understanding of mechanisms of toxicity and identification of individuals who are particularly susceptible to toxic effects (Schelttler, 2008).
Data collected by the United States Food and Drug Administration (FDA) in the late 1980s demonstrated that almost half of all medical device recalls resulted from design flaws.9 In 1990, Congress passed the Safe Medical Devices Act, giving the FDA the ability to mandate good manufacturing practices (Murff, 2008).
COMPETITOR AND INDUSTRY ANALYSIS
Computer assisted surgery (CAS) systems such as surgical robots and surgical navigation were clinically introduced into the field of orthopedic surgery in the 1990’s. The first surgical robot was the ROBODOC, which milled bone for implants according to preoperative CT-based planning. More flexible navigation systems were then developed following the advent of position sensors which could be used in the surgical field. Spine and hip applications used CT-based navigation which required registration of each real object and its virtual model. Imageless navigation was used for total knee arthroplasty.
These CAS systems have been reported to provide better radiographic results in pedicle screw insertion and total joint arthroplasties compared with procedures performed without them. It was initially thought both systems would help inexperienced surgeons to perform like experienced surgeons. However, eliminating human error in handling these systems is still an issue and training is necessary to bring out the benefits of their use while avoiding accidents due to misuse. On the other hand, simple CAS systems such as fluoro-navigation were developed to reduce OR time and radiation exposure. Their applications were expanded to fracture, spine, and joint surgeries. Recently, a tide of minimally invasion surgery (MIS) has come to orthopaedic surgeries and the role of CAS in the safe and accurate execution of MIS procedures has been recognized. In line with this, some navigation and robotic systems have started to be used for MIS total hip and knee arthroplasties.
To enhance CAS for MIS procedures, we developed two types of systems. One uses laser guidance to control the entry point and direction of any straight surgical tools. The laser beams project directly into the surgical field indicating a point on the tissue concerned and illuminating straight tools to show the direction in which they should be operated. We used this laser guidance system clinically for acetabular reaming and cup placement in total hip arthroplasty; for femoral head preparation in hip resurfacing arthroplasty; and for pedicle screw insertion. Laser guidance increased the feasibility of navigation systems; however, 1mm and 1degree are the limits of accuracy with a hand-held tool. As a system to control of straight surgical tools more accurately than laser guidance, we developed a needle insertion robot.
(Nagel, 2006).
THE INDUSTRY’S DOMINANT ECONOMIC TRAITS
MARKET SIZE AND GROWTH
In the reconstructive device space, worldwide sales increased 10% to $1.38 billion in fiscal 2006. Factors contributing to this increase included: 14% sales increase in dental reconstructive products, a 9% increase in hip replacement sales, offset by bone cement and accessory sales decreases of 5 percent. Bone cement and accessory sales were negatively impacted by the loss of the Company's primary bone cement supplier during the year. The Company introduced its own bone cement during the year and anticipates recapturing some of its lost market share.
The knee replacement market saw healthy growth, too, with sales increasing 12% worldwide. These percentages were partially achieved by continued acceptance of Biomet’s Vanguard Complete Knee System and the domestic Oxford Unicompartmental Knee System, the only free-floating meniscal unicompartmental knee system available in the United States.
SCOPE OF COMPETITIVE RIVALRY
Year to date, we have already witnessed five acquisitions within orthopedics: Stryker bought PlasmaSol, Kyphon acquired InnoSpine, J&J purchased Hand Innovations, Ossur bought Innovative Sports, and dj Orthopedics acquired Aircast. We believe that with a year of lower pricing and revenue growth in front of us, consolidation within the orthopedic industry could increase. We believe that the number and size of the orthopedic transactions could increase at least through 2006 as orthopedic companies attempt to offset slowing revenue growth and as diversified medical devices companies seek to enter the orthopedic market.
(Note: Orthopedic Industry Forecast, 2006)
NUMBER OF COMPETITORS AND THEIR RELATIVE SIZES
Below is a revenue pie chart of the entire orthopedic industry for 2007. Furthermore, this drills down on the percent of revenue that is actually obtained from this arm of the particular medical device company. To note, Stryker and Smith & Nephew have the largest orthopedic growth rate at 16%. They are followed by JNJ and Zimmer and Synthese.
Orthopedic Market Segment Overview
2007 Worldwide Market by Company
TOTAL Ortho Revenue Sales: 31.6 billion
TOTAL Ortho Growth Rate: 11%
PREVALENCE OF BACKWARD/FORWARD INTEGRATION
At Stryker Corporation, a variety of sophisticated, high-end surface preparation technologies are employed, including periappetite coating, HA coating, and titanium foam metal surface enhancement. Condon says this amounts to a high degree of vertical integration. “We start with a low level of raw materials and end up with a surgical instrument and/or implant ready for use in the operating room.
Furthermore, he states that there is a very specific approach to manufacturing, “we are very focused on team-based cellular manufacturing. Our groups of people and equipment are organized around product lines and core processes” (Schettler, 2006). This results it the ability to run 17 autonomous businesses out of the same building. The company switched to this approach over a decade ago to get better business outcomes and the results have been impressive. Condon relates this approach to their ability to achieve a compound annual earnings growth rate of 20% over a 25-year period.
(Stryker, 2007).
ENTRY/EXIT BARRIERS
The threat of potential new entrants into the Medical Device Industry is fairly high. First, a company must possess the ability to raise a sufficient amount of capital to begin the manufacturing process. It must also create relationships with the suppliers and distributors it will be working with. If a new company is able to enter into the Medical Device Industry, they will have to compete with the strong brand names. Therefore, the overall longevity and success of a newer company can be low. Typically, if a company can raise enough capital and take a company to market, there is often a significantly high chance it will be bought out by one with deeper pockets. Many larger corporations are always looking to expand their platform and increase the competition.
NATURE AND PACE OF TECHNOLOGICAL CHANGE
Technology is a driving force for success in the medical device and more specifically, the orthopedic industry. The use of computer and robotic technology assisting the orthopedic surgeon perform joint arthroplasty is moving at a rather rapid speed. Companies must be strategizing to move in this direction to stay competitive in the marketplace. Specth, writes that, “While the individual systems are certain to change over time, the basic principles of correlating radiographic and anatomic data through a registration process, and displaying additional instrument or implant information through smart tools and surgical navigation are certain to become an increasingly important aspect of joint arthroplasty, deformity correction, and spinal and trauma surgery” (2007).
The companies need to find new areas to innovate because their implant products aren't very different, he said. Roman said potential fields of focus are surgical robots and precision surgery in the near future, and cartilage preservation and tissue regeneration in the years after that. In his view, orthopedic implant design may have peaked, and patients are increasingly turning to less-intrusive treatment options (Forbes, 08).
Determining the cost and time benefits, both before and after an obligatory "learning curve" requires a complex interaction of capital investments, time savings, and outcome research on both safety and efficacy issues. The orthopedist who understands and applies these technologies will help his patients to achieve the best possible care (Pearle, 2007).
PRODUCT AND CUSTOMER CHARACTERISTICS
In the past six fiscal years, Biomet has introduced more than 700 new products to the market. Biomet, like all of these companies are looking for revenue drivers. Currently, there is a gender specific knee on the market and more recently, Vanguard Complete. This is being marketed as the complete knee system and is designed to provide precise fit for all patients regardless of gender, race, stature or any other variables contributing to anatomical differences. According to corporate, the Vanguard is the most comprehensive total knee system on the market today (Levitt, 08).
Another market driver has been the Oxford Unicompartmental Knee System. It is the only free-floating meniscal-bearing Unit available in the U.S. As far as its buy in, according to Biomet, more than 100 U.S. surgeons completed Oxford training in the 4Q:06. (Levitt,08).
SCALE ECONOMIES AND EXPERIENCE CURVE EFFECTS
The Journal of Bone and Joint Surgery writes that, “our advances in medical technology has outpaced our ability to pay for them” (2007). With such rapid growth in the technological sector of the medical device industry, it is important to differenciate your benefits from your limitations. Economical analysis is assuming an increase importance in the role of health care. In relation to the health insurance issues this country faces, close attention must be paid to the overall care and need of patients.
CAPACITY UTILIZATION AND RESOURCE REQUIREMENTS
A study, published in EJBJS 2007, evaluated the adequacy of the current orthopaedic workforce in Canada to meet the present and future demands for orthopaedic services raise the need for accurate estimates of the supply and demand for orthopaedic services. The present study provides estimates of current supply of orthopaedic services in Ontario, the largest province of Canada. The estimated supply of orthopaedic surgeons in Ontario (two full-time equivalents per 100,000 population) falls short of the recently calculated requirement in the United States (5.6 full-time equivalents per 100,000 population). These data suggest that there is currently a shortage of orthopaedic services in Ontario, which will be exacerbated by the aging of a profession already working near full capacity.
(Shipton, 07).
INDUSTRY PROFITABILITY
The global orthopedics market grew by 8.5% in 2006 to reach a value of $14.7 billion. The major drivers of the orthopedics industry include robust demographics, pricing pressures, FDA regulation, and shortened product life cycles. EBIT margins at the top five firms in the orthopedic space hover around 30%, extremely attractive when coupled with the fact that these firms generate healthy cash flow, offer returns above and beyond their cost of capital, and manage their balance sheets exceptionally well. In 2011, the market is forecast to have a value of $21 billion, an increase of 43.5% since 2006.
(global-industry-guide, 08).
RELEVANCE OF KEY ECONOMIC FEATURES (TABLE)
THE NATURE OF COMPETITION AND STRENGTH OF COMPETITIVE FORCES
Porter’s 5 competitive forces model can be applied to the Orthopedic Sector of the Medical Device Industry in order to discover insight into its driving forces and profitability. Porter examines the following 5 forces:
• The rivalry between existing sellers in the market.
• The power exerted by the customers in the market.
• The impact of the suppliers on the sellers.
• The potential threat of new sellers entering the market.
• The threat of substitute products becoming available in the market.
The Five Forces Analysis allows determining the attractiveness of an industry. It provides insights on profitability. Additionally, it supports decisions about entry to or exit from industry or market segment. (The Manager, 08).
-
Bargaining Power of Suppliers – The Orthopaedic Industry relies heavily on its suppliers to get product out to its accounts. Historically, these companies have experienced longevity with their suppliers. Orchid McVee and Sandvic are two well know supplies in the organization.
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Bargaining Power of Customers – Large orthopedic companies have leverage in this area. Supplies want to have their business and will often grant discounted rates because of the volume.
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Threat of Potential New Entrants –For a new company, the barriers of entry are large and difficult to overcome. In addition to raising sufficient amounts of capital for the manufacturing process, new entrants must also establish relationships with suppliers and distributors. If a new company is able to enter into the will have to compete with the strong brand names and the reputation.
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Threat of Substitute Products/Services- There are a large variety of products to choose from in the implant world. The driving factor is most likely the surgeon you age being evaluated by. Typically, he or she has one particular brand on implant that they utilize. The reason can vary but it is not uncommon that they may have some sort of vested interest in the company and therefore, use its product.
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Rivalry among Existing Firms –Rivalry is very high in this industry. Implant companies compete for business and invest millions of dollars in doing so. In addition to DTC advertising, many companies will partner with a high volume, well renowned surgeon to help design and drive business.
THE INDUSTRY DRIVERS OF CHANGE
THE COMPETITIVE POSITION OF EACH RIVAL
The Orthopedic Market Segment Overview
Stryker leads with a 16% marketshare in the orthopaedic industry. Zimmer, Medtronic and Smith & Nephew follow with a 12%, 10%, and 9% market share, respectively.
THE STRATEGIC MOVES OF EACH RIVAL
The strategic moves and marketing mixes of each of the key companies resulted in the ability to effectively capture market share. As discussed in detail earlier in this report, we have seen and analyzed the common drives of these strategies (listed):
- emphasis on new product development
- brand new products with innovative new features
- reinventing processes, renewing products, rebuilding financial strength and regaining momentum
- shutting down its to balance its finished goods inventory
- bring a new level of design, excitement and awareness of the brand to the marketplace
- increase research and development
- engage in new strategic moves with a new Chairman & CEO,
- Improved operating performance and succession planning.
THE KEY SUCCESS FACTORS
The key success to the implant business is in being an innovator. It has been discussed that the implant industry has been rather stagnating for years. For example, a total knee replacement (TKA) has been the gold standard in this industry for decades. What research has discovered is that prior to a patient needing a TKA, there may be many more treatment options than once thought. Unicompartmental knee replacements (Uni’s) are now becoming more common and have been bridging the treatment gap. In addition to this method of treatment we also must evaluate the technique in which it is done. Computer Assisted Surgery and Robotics is now front and center in these industries.
CONCLUSIONS ABOUT INDUSTRY ATTRACTIVENESS
As discussed earlier, it is forecasted that the orthopedic industry will sustain long term growth of about 15%. The baby boomer generation is now approaching 60 years of age, a common for the development of osteoarthritis. There is money and marketshare to be made. The industry has experienced upward trends and continues to climb. Companies are investing more in R & D and becoming more innovative. Lastly, patient outcomes are favorable and allow for an improved quality of life.
SUMMARY OF THE DOMESTIC MARKET AND COMPANY POSITION
Because of FDA requirements, the United States is typically the last in the game when it come to introducing new products. Our rigorous testing and clinical trials help to bring confidence to our consumers and keep the playing field competitive.
GLOBAL ENVIRONMENTAL ASSESSMENT
All of these companies have expanded their distribution channels to include other countries. The largest profits are made in the United Sates and we also hold the greatest market share, as shown above.
GLOBAL MARKETING STRATEGY
Rationale for international growth
Bucholz (2004) writes, “Historically, many seminal surgical procedures in our specialty originated abroad. Such revolutionary techniques as total joint arthroplasty, intramedullary nailing of long bone fractures and arthroscopy were founded on innovative work by orthopaedic surgeons from outside the United States. More recently, new technologies in cartilage transplantation, bone morphogenetic proteins, numerous promising biomaterials and spinal arthroplasty are being driven by our international brethren. As a result of burdensome regulations by the U.S. Food and Drug Administration restricting clinical trials here, much orthopaedic clinical research can now be conducted quicker and cheaper abroad. This trend toward globalization of the next generation of orthopaedic research and innovations will only accelerate.”
Additionally, only 10 percent of the estimated 175,000 practicing orthopedic surgeons in the world are American. Although they are said to hold little interest in our health care system they are increasing interest in the scientific and educational opportunities available. The AAOS, the largest and most innovative orthopaedic professional society in the world, should logically serve as the proper forum for such international exchange.
Over the last few years, an average of 500 to 600 registrants at each of the four to six annual programs have benefited from these courses. The demand for these jointly sponsored courses exceeds our current capacity to provide speakers. Several national associations—including those of Brazil, Argentina, Egypt and Thailand—have sponsored several programs (Bucholz, 2004).
Simply, this industry must reassess and redefine itself constantly as both the general medical and the orthopaedic surgical marketplaces evolve. The globalization of the orthopaedic industry, instantaneous worldwide communication and exponential growth in orthopaedic research abroad demand that this industry strengthens its interactions and collaborations with international colleagues. As we have discussed, this is a rapidly growing industry and it is dependent on the innovators within to continue to raise it to the next level, stay competitive and provide excellent patient outcomes.
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