Devices & Diagnostics

How to fix the U.S. economy: buy less of their stuff, sell more of ours

If the United States truly wants to boost the economy and narrow its ginormous trade deficit, then medical technology would seem like a good place to start. Minnesota’s bread-and-butter industry generated a $5.4 billion trade surplus last year, one of the few American industries to do so. Which is why Obama administration officials visited Medtronic […]

If the United States truly wants to boost the economy and narrow its ginormous trade deficit, then medical technology would seem like a good place to start.

Minnesota’s bread-and-butter industry generated a $5.4 billion trade surplus last year, one of the few American industries to do so. Which is why Obama administration officials visited Medtronic Inc. (NYSE: MDT) Friday, to encourage small to medium medical device companies to pursue emerging overseas markets like China, Japan, Eastern Europe and Latin America.

Ever since President Obama announced his National Export Initiative (NEI) –– an ambitious plan to double American exports in five years — during his State of the Union address in January, top trade officials have been crisscr0ssing the country, “targeting high-growth, high-potential sectors like medical devices,” said NEI Director Courtney Gregoire.

“Our economic recovery requires that we continue to reach outside our borders,” Gregoire said.

It’s no secret why the feds chose Medtronic’s headquarters in Fridley, Minn. to pitch NEI.

The medical device giant’s international sales now make up 41 percent of its annual revenue of $15.8 billion. Assuming Medtronic maintains its current growth rates, international will overtake domestic operations in just four years. By 2015, international operations will account for 53 percent of the company’s overall revenue versus 47 percent in America.

“We really put a major focus on exports,” said Medtronic CEO Bill Hawkins. “It’s near and dear to my heart …When President Obama [announced NEI during the State of the Union], no one was clapping louder in the back than me.”

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Hawkins said the company has made “significant organizational changes” to boost international growth. For instance, Medtronic no longer views its businesses as U.S. and non-U.S., but rather developed and emerging markets. The company wants to triple the number of patients it serves from 7 million last year to 20 million by 2020.

Medtronic has a particular interest in helping small- and medium-sized companies tap international markets and grow. The company wants to “leverage its global footprint” by identifying, collaborating and eventually buying these emerging businesses, Hawkins said.

He noted Medtronic has made several “tuck-in” acquisitions over the years, including ATS Medical Inc., CoreValve Inc. and CryoCath Technologies Inc.

“If you’re successful, it will benefit the U.S. and selfishly, Medtronic will benefit,” Hawkins said.

Exporting to high-growth markets like Japan and China sounds good in theory but in reality can be very difficult for smaller companies with fewer financial resources.

One executive at a medium-sized publicly traded medical device company said he has been trying to crack Japan and China for years, but with little success so far. Japan’s reimbursement policies are tough to crack and Chinese distributors are not yet willing to pay a premium price for American medical technology if they can obtain lower-priced, lower-quality alternatives first, he said.

“Medtronic could afford to bleed during its first three years in China,” he said.

Nevertheless, America must continue to innovate and boost its exports if it wants to defend its economic supremacy over countries like China and India, said Sen. Amy Klobuchar (D-Minnesota), who gave the keynote address.

“We need to move away from being the world’s best customer to being the world’s best salesperson,” she said.