Omar Ishrak’s global ambition for Medtronic (NYSE:MDT) includes two targets.
First, it’s India: a nation Ishrak describes as the “biggest hole” in the Minnesota company’s global operations.
Secondly, it’s the engineers and researchers overseas – especially in nations like China, India and South Korea – who will help shape local research and development strategies. That is part and parcel of Medtronic’s bid to obtain deeper penetration in emerging markets and improve its stagnant growth rates.
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The future of Medtronic more now than ever is (far) east.
“It’s a much more strategic healthcare market than we probably have thought about it,” Ishrak said of India during an interview with MedCity News. “We’ve thought about it only as today’s market… and we need to pay a lot more attention to it.”
Ishrak’s outline of Medtronic’s future comes at a time when the medical device industry is crossing the Rubicon. U.S. healthcare reform is putting new pressures on the medical device industry through new taxes. Plus, medtech executives are already chafing under what many consider a slow U.S. Food and Drug Administration approval process.
Medical devices are almost always introduced in Europe and other nations before they make it to the American market. What’s more, while the United States is still the single most lucrative nation for medtech, every medical device company of note wants to leverage the health problems of underdeveloped nations. Medtronic generates 60 percent of all overseas revenue from “emerging markets,” a collection of nations that includes Brazil, Russia, India and China. China makes up 40 percent of that emerging market revenue.
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A ramp up in China is a no brainer given that the country accounts for the lion’s share of current emerging market revenue. Medtronic employs 1,000 in China and is set to double by 2015.
Meanwhile, India – the world’s second-most populous nation – has just 300 Medtronic employees.
Medtronic won’t say how much emerging markets revenue India generates, but, judging from a conversation with Ishrak, it’s clearly not enough.
“I think the biggest hole I see is India,” Ishrak said. “I think India’s a big market.”
Ishrak did not provide any specific details on how he wants to take advantage of the Indian healthcare opportunity. However, Medtronic spokesman Steve Cragle said Medtronic’s vice president of innovation is in India currently “scouting and evaluating R&D options.” That’s part of current plans to build an R&D center there.
Consider what India has to offer. The Indian market for medical equipment is valued at around $2.7 billion in 2011 according to business intelligence firm Epsicom. The International Trade Administration estimates about 80 percent of healthcare costs in India are paid for from out-of-pocket expenditures that come directly from personal resources.
And a healthcare system largely based on patient pay is one of the reasons that Ishrak is attracted to the country.
“I think India’s got huge potential because the health care system in India is unique. It is largely patient pay,” he said. “I think the healthcare capability, at least to a certain extent, is very good. In many instances, you have institutions in India with a fair degree of scale where you have high quality outcomes with very low cost with a lot of volume.”
Of course, Ishrak recognizes that these capabilities and opportunities exist in pockets alone. But he believes that the Indian model can be copied in other regions of the world with similar dynamics.
Ishrak’s international focus also includes a shift in hiring strategy. While international operations historically involved manufacturing personnel, Ishrak sees Medtronic hiring more engineers in Asian nations.
“The level of skill that’s available in India, in China in Korea, in places like that, are actually quite good,” Ishrak said. “We need to leverage that. That could well be a way of us growing quite quickly in a much more efficient fashion. In terms of basic R & D, there’s a lot of expertise in a lot of countries in niche areas. We can structure basic science work and we’re exploring that as well.””
Another undeniable reason to hire engineers overseas is simple: cost.
“The cost today of engineering talent in many of those countries is much lower for almost as good output,” Ishrak said.
Ishrak also noted that different countries have a lot of expertise in specialized subject areas, although he did not elaborate on what those niches were.
“Even in terms of basic R&D, there’s a lot of expertise in different countries in the world in niche areas that’s very high,” he said. “We can structure basic science work in different areas of the world and we are exploring that as well.”
Medtronic’s ramp up in Asia is coming at a time of overall retrenchment. In February, former CEO Bill Hawkins said that Medtronic would be laying off 1,500 to 2,000 workers in the following three months. The company did not specify where the layoffs would occur, but the Cardiac Rhythm Disease Management Division in the U.S. and Japan have been hurt by slowing sales. The Spine division too has been taking hits with continued declining sales in Kyphon and a marked drop off in sales of controversial bone graft product Infuse.
In announcing those February layoffs, Medtronic made the list of 10 companies nationwide that had the biggest layoff announcements this year.
But Ishrak said R&D hiring efforts overseas are meant to complement domestic R&D initiatives, not to duplicate them.
“More engineers, yes absolutely,” Ishrak said. ” (But) I am not going to start hiring engineers randomly tomorrow. It has to be a very specific program, a very specific opportunity and based on that opportunity we will create centers as needed.
Read from the interview with Omar Ishrak:
