Executive summary
The paper aims at finding the best entry strategy for a US- based medium sized organisation called Sage Products Inc. The company sells medical supplies to various clients in the US and Canada, but has no physical presence in Australia.
The organization has very high chances of succeeding because the Australian medical devices market is one of the largest in the world. The kinds of products that Sage Products sells are not common in the target country, so there is demand for them, and local manufacturers are few and far between.
An analysis of possible entry mode strategies was done. Three particular strategies were identified and they included: exporting, joint venture, and green field. After taking a look at the degree of control accorded to Sage after entry, the risks involved in the entry strategy and the capital investments, it was found that exporting would be the best method to enter Australia.
However, for this strategy to work, it was recommended that Sage Products will need: to do a thorough research of the market forces in the Australian medical devices market, to establish several retail outlets in the country, to concentrate on locations with fewer medical device suppliers, and to continue to innovate.
Introduction
Sage Products is a disposable healthcare manufacturer that is based in the United States. This medium-sized company has been in business for the past thirty five years. It boasts of innovative technologies and industry-specific knowledge. Sage Products sells its commodities to a number of countries around the world.
However, it is yet to enter the Australian market. In order to assess whether this is feasible strategy, and how to effectively penetrate this market an OLI analysis will be done; the acronyms represent Ownership, Location and Internalisation.
Ownersip
Sage Products Inc. was started by the current CEO Vince Foglia alongside current Director and cofounder Paul Hills (Sage products Inc., 2011).
It specialises in disposable health care products that range from: toothbrushes, medical mouth swabs, medical protective equipments like gowns, plastic cabinets for placement of medical equipment, disposable remoistened washcloths for basin less bathing, moisturising and protecting patient’s skin, rinse-free shampoo caps and pressure-relieving heel protectors, body pads, warmers and finally microwaves (Trademarkia, 2011).
Hospital hygiene products as the core product
The organisation has curved a niche in the prevention of infections among patients. Skin based complications, foot drop, pressure ulcers and mouth infections are just some of the complications that can be avoided through this company’s products.
Location
Sage Products Inc. is located on Three Oaks Road, Cary, Illinois. The company has a number of dealers and representatives around the country. However, it is currently considering expansion into international markets, so this is prime time to consider Australia as a target market.
Sage products Inc’s tangible resources
The company has state-of-the-art facilities in Cary. It prides itself in utilising the latest manufacturing equipment for production of its goods. The organisation also has a very strong financial base.
Sage Products Inc’s intangible resources
Human resources: The Company’s employees are its strongest resource. This organisation has been ranked as the ninth best place to work in the medium sized sector. As a result, employees enjoy a sense of community in the company. They also give back to their institution through dedication and high productivity. (Seid, 2006).
Innovation: This Company has made a market for itself in the current industry through frequent innovations. The products sold Sage products Inc. are quite unique and value-driven.
For instance, it has the first ever non-alcoholic applicator cloth, heel protector, basinless comfort bath and rinse free shampoo and conditioner caps. They are motivated by the need to reduce health care related infections. Innovation is not just found in its product development division but spans across the entire organisation
Reputation resources: The Company has created a niche for itself through quality maximisation. Employees are driven by the philosophy of exceeding customer expectations.
Through the use of Good manufacturing practise standards (as specified by the Food and Drug Administration), the organisation has ensured that it maintains a reputation of high quality. Sage products are known for their reliability and superiority (Sage products Inc., 2011b). Furthermore, the firm has received accreditation from VAWD (Verified Accredited Wholesale Distributors).
Capabilities
- Effective and quick responses to sales requests as well as customer requests for information.
- A solid financial base that will allow the company to continue reinvesting back in the business through new innovations, international expansions and other opportunities (Sage products Inc., 2011c).
- A concrete reputation that is respected by a variety of hospitals around the United States; a fact that stems from its commitment to quality.
- An environmentally friendly manufacturing process: Not only does the firm recycle its computers, it also makes sure that most elements of the production process are carried out in-house, so as to reduce pollution from transport. It is selective about the kind of wood it uses for its cellulose products. Only those vendors who get them from sustainable forests are allowed to partner with the organisation (Sage products Inc., 2011a).
- A lean organisational structure: Sage Products has a family-like atmosphere in its facilities so it does not waste time and resources in excessive bureaucracy.
Key weaknesses
The organisation is not without its weaknesses. Its choice to focus on the United States has prevented it from getting even more revenue from the international market. The firm has a considerable presence in Canada but sells to the rest of the world through the internet. It needs to consider establishing a physical presence in yet another country.
Sage Products Inc. does not have a well streamlined distribution system. It usually works with a number of dealers who are located randomly around the country. The organisation needs to consider having retail stores in Australia because this will strengthen the brand even more (Bloomberg, 2011).
Location
Location advantage
The United States is highly respected for its leading innovations and high quality. This means that most products made in that country are assumed to possess these same qualities. The US and Australia have a free trade agreement, and this makes it easier for investors to do business between the two countries.
Surplus capacity
Currently, the market for disposal patient care products is quite large in Australia. Furthermore, there are minimal suppliers in the country. Local producers often focus on basic medical equipments. Very few of them offer products that may rival Sage Products.
Consequently, the firm has very high chances of doing well in this market (Barkema & Vermeulen, 1998). Australia has about one thousand two hundred hospitals. Other private clinics are also available; these are run by self-employed doctors. All these institutions represent a potential market for their products.
Government policy
The products sold by Sage are subject to Goods and Services Tax as specified in the 1999 GST Act. This will be equal to 10% of the taxable importation value (Australian Taxation Office, 2011).
On the other hand, because Sage Products will be dealing with medical equipment, then no customs tax will be paid for the product. Furthermore, because Australia and the US have a free trade agreement, then this organisation will have an advantage.
Market
Australia currently represents 1.7% of the global medical devices market. This implies that the market is quite substantive. Estimates show that the current market for medical equipments amounts to 4.027 billion US dollars.
As of 2010, it was reported that medical equipment imports were worth $ 4.5 billion while only 1.89 billion dollars were exported. Most of the suppliers dwell on niche markets (Industry Commission, 1996). This means that there are several hospitals and aged care facilities that can provide a ready market for Sage Products.
Competitor’s analysis
The medical devices industry in Australia is quite versatile. There are a number of divisions that focus on specific components such as surgical equipments, laboratory equipment, body supporters, respiratory care supplies, cardiology equipment, braces, therapeutic equipment and many others (Health Directory, 2011).
However, most of these products are usually supplied from multinational companies, or they are imported directly into Australia. The country’s local suppliers usually dwell on basic medical devices. The major difference between what Sage Products offers and these other organisations is that a number of them do not focus on patient hygiene as a core competence.
Australia has a body known as the Medical Technology Association of Australia. Members of this organisation are the ones who deliver eighty five percent of all non pharmaceutical products (including self care items) (Medical Technology Association of Australia, 2011). Sage products Inc. will also need to step up its marketing initiatives in order to outdo such a company.
Another competitor is ABS Medical Pty Ltd. This business focuses on physiotherapy and chiropractice supplies. The company has a niche in Western Australia. It has a reputation of high quality. Sage needs to inform its client base about its commitment to quality so as to make the most of its reports.
Competitor’s threats
Some importers from the US are already selling their medical devices in Australia. The same things that Sage Products is promising are also being pledged by those importers.
Local manufacturers have niche markets with a number of hospitals and Sage Products may have to use aggressive marketing in order to turn this around. Government regulations on medical supplies make it difficult to do business, yet local competitors have mastered these policies. Sage will need to study and understand those regulations thoroughly before it can become successful
Opportunities for Sage
Most medical suppliers in the market are concentrated in the East Coast; Sage has the opportunity to explore other parts of the country. The products sold by Sage are not widely available in Australia, but this does not mean that they are not in demand. Aggressive marketing will ensure that hospitals and patients see the need to use those products
Internalisation
Modes of Entry
There are three options that Sage Products Inc. has: exporting, joint venture, and Greenfield investment. Before the organisation can decide on the best way forward, it needs to clarify the reasons for its entry into Australia. Most international businesses enter other countries in order to take advantage of location economies; that is, to look for lower production-factor costs.
Conversely, others may be looking to take advantage of economies of scale, where they seek to expand sales volumes in the target country. Some firms want to utilise economies of scope by exploitation of assets. Sage Products Inc. is currently driven by the need to expand its sales volumes. This is the main reason for its entry into another country. Any strategy chosen must have the capacity to meet that goal before any other.
Exporting is plausible because Sage Products will not need high initial investments. The firm will not have to spend too much money on establishing production facilities in Australia without being certain about its returns. This is the reason why the entry mode has relatively low risks. Such a plan allows Sage Products to reach its clientele quickly.
Trying to get into Australia through third parties or other business partners may slow down the firm’s abilities to communicate, deliver and get feedback from customers. The business can also maintain control over production. Usually, exporting eliminates the need for local production in the target country. Sage Products Inc. already has a very effective production process in the US.
It would be devastating if it lost this great quality due to an entry mode that requires local production. Lastly, the organisation will learn from future expansions. Exporting provides an easy way to learn about the market so that the firm can consider other large scale internationalisation processes. This serves as a platform for training the organisation on how to deal with the Australian market.
However, the main disadvantages of exporting are: high transportation costs and tariffs, and difficulties in responding to clients. High transportation costs are a serious problem because the products would be made in the parent country.
Nonetheless, they can be easily offset through establishment of warehouses that would store bulk entry of the medical devices. The tariffs would also be low because the products fall in the medical equipment category.
Joint ventures would be advantageous because they allow access to local knowledge, reduce overpayments and provide some degree of control to operations (Hennart & Reddy, 1997). They operate by having two partners work together in a target country. Sage Products would need to identify a local business to work with hence explaining why it would access local knowledge.
It is for this same reason that joint ventures also reduce overpayments; the local partner already knows what needs to be done. On the other hand, neither of the partners will have an incentive to perform, or will have full control. Besides, Sage could lose proprietary knowledge.
An organisation should only consider a joint venture when trade secrets can be protected and when concerned partners have contributed inputs that are hard to measure. Sage Products does not have any of these qualities.
Since its devices are uniquely made, it may be difficult to hide the trade secrets from its joint-venture partner. Since Sage Products does not belong to the service industry, then its input contributions can be easily measured. Joint ventures are therefore problematic for this company.
Greenfield entry allows full control, minimises integration issues and reduces risks of overpayment (Brouthers & Brouthers, 2000), (Hennart & Park, 1993). In green field entry, the concerned business establishes a new subsidiary in the host country and is entitled to the profits made in the establishment.
This is why full control is maintained. Integration usually comes about when different partners are collaborating, but this is not the case. The same situation applies to the risk of overpayment. On the other hand, the mode of entry slows start-ups, is risky and requires foreign management experience.
Green field would be an appropriate plan when the concerned organisation already has expertise knowledge on the local environment, but Sage products Inc. does not have this quality.
Recommended entry
Currently, there are low trade barriers between Australia and The US so exporting would be appropriate. Customisation of the products is not so important since patient care is quite similar between these countries (Kogut & Singh, 1988). There will be minimal costs advantages if Sage moved production to Australia as this is a high-wage country (Erin & Gatignon, 1986).
Exporting is a low risk strategy and has almost negligible integration needs although its returns may not be very high. Such a mode of entry allows the company to do business in Australia at a smaller scale so as to establish itself in the market after studying it. If Sage Products Inc. had a first mover advantage, then it would have been better to use another strategy other than exporting as this would allow large-scale entry.
Currently, there are other organisations selling medical devices to Australian hospitals so this is not new. Additionally, Sage Products Inc. needs to have as much flexibility as possible in the market. Some methods like joint ventures would bind the firm to certain obligations and this would minimise Sage’s level of success.
Not only is it necessary to be able to respond to market forces as soon as the company enters Australia, but it will also be imperative for this company to focus on the customer; not its obligations to its business partners.
Exporting is always the best method when three conditions have been met and these include: low barriers to trade, having a home-cost advantage and when customisation of the products is not so important. All these qualities exist in the case study thus illustrating that this plan would be the best.
As stated earlier, Sage products does not need to take advantage of production incentives or assets in a foreign country; it needs to expand its sales volumes. Exportation can ensure that this takes place without all the complications of the other modes.
Recommendations
- Export Sage Products to Australia.
- Invest in market research to understand what drives the Australian medical devices market.
- Invest in marketing strategies to let Australian consumers know about Sage products.
- Establish a physical presence in various parts of the country especially away from where traditional medical device manufacturers are located. This should entail creation of a number of distribution outlets throughout the country.
- Minimise frequent tariff costs by streamlining the logistical and warehousing capabilities of the firm.
- Focus on hospitals and private clinics as they are the main customers in the Australian health industry.
- Continue to innovate in order to minimise these challenges.
References
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