trauma care - medical devices - blue ocean - developing countries - value for money segmentation...

MBA IN TECHNOLOGY and ENTREPRENEURSHIP

Final Report

Developing The Value-For-Money Segment In

Medical Devices

A Survey and Strategic Plan for Product Development and Operational Support

Academic Supervisor : Prof Stuart Chambers email : (Confidential)

Report By : Einstein Albert Kesi email : [email protected]

Company and Organisation Contacts

SICOT : Prof Hinsenkamp email : (Confidential)

ARSI : Dr J Gnanaraj email : (Confidential)

mailto:[email protected]

I have been a BOP,

This is dedicated to all fellow BOP people across the world.

Praying this will Flower your Dreams for a World Class Healthcare.

“Lord enabled me To Do This”

Thanks to

ENPC Family of Staff and Friends,

(For the Scholarship, Support and Concern)

Prof Stuart Chambers

(For the Timely Guidance)

To all the Professors at ENPC

(For the strong support and encouragement to go ahead with my ideas)

Organisations which Participated In the Survey

(For Approving and Supporting the need of this venture)

To Mr and Mrs Armand Diaz

(For making it possible to come to France)

Friends and Family

(For supporting me in this education)

Sajna and Friends at Cite

(For the timely Help and Assistance)

Executive Summary

In 2008, the worldwide sales of Trauma Devices were around 4.9 billion dollars which

was an increase of 12.7% from 2007. Eighty per cent Revenues were generated from US,

Europe and Japan. However, the population of these regions constitute just 20 per cent

of the world population. (20)

Road traffic injuries are the leading cause of orthopaedic Trauma. World Health

Organisation estimates that by 2020, in the low and middle income countries the deaths

due to road traffic accidents will increase by 80%. (22) The non fatal injuries will follow

the same trend, but multiple times the number.

For e.g. In India, 105,725 died of road traffic accidents and 452,922 people had nonfatal

injuries in 2006. (21) The following two statistical representations by WHO is a good

indicator of the Trauma Device market and demography.

Market growth in Trauma Devices is mainly driven by new innovations.(75) This has

resulted in skyrocketing implant costs in US, Europe and Japan.(34) Most of these

innovations have high development cost and very less Product Life Cycle due to intense

competition. 79% of this market is controlled by the top 5 manufacturers. (35) With

Source: WHO Global status report on road safety – 2009

http://www.mrg.net/News-and-Events/IQ-Industry-Insight/trauma-device-market.aspx

more than 100 companies coming up in to Trauma Devices sector (20) competition is

sure to intensify.

On the other hand is the blue ocean where 91% of the world fatalities occur. The figures

in the above table can be used as an indicator to the Blue Ocean market areas in the

Trauma Devices.

This market has much longer product life cycle, more return on investment due to

volume and needs less innovation, but needs more adaptation and an innovative

business model. This market with a potential of around 158.4 billion has not yet been

tapped by Trauma Device companies in a professional manner. (3) On one side the likes

of GE Healthcare and Philips Healthcare (4, 42) has started to tap this potential in the

more complex area of medical diagnostic devices. Japanese national research

organisations and corporates are focusing on tapping the potential of this market for

both political and business purposes.(6)

This project studies the nature of these markets by surveys and taking indicators from

existing published material in the field of healthcare. The project identifies approximate

market, key issues and key success factors for Product Development, Operations and

Logistical planning.

This project opens Technology to outside the box thinking thus leads to other lesser

investment, less marketing and more returns. Unilever, GE Healthcare and Vestergaard

Frandsen Group - Denmark are a few companies which has found success in adopting

similar type of thinking in the recent past. (1, 6)

The success of the above mentioned companies are in lines with the new business

strategy that was proposed in 1998 by Prof C K Prahalad of University of Michigan in

“Fortune at the Bottom of the Pyramid”.

Currently, the blue ocean which as seen in the above mentioned WHO statistics is

catered in fragments by Indian and Chinese manufacturers who supply low quality

implants at “premium price”. Despite irregular supply of the implant and considerable

percentage of product failures (3- 5%, from survey) the demand of the market is high.

This project analyses and segments this untapped market for Trauma Devices.

Note:

Supporting UN data is provided in Annexure (Page No 87, References Page No 109)

INDEX Page No

Executive Summary 4

Back Ground 10

Orthopaedic Trauma 10

Treatment for Fractures 11

Trauma Implants 13

Implants

Orthopaedic Trauma Implants

Internal Fixation

External Fixation

C Arm

Blue Ocean 15

Blue Ocean of Middle Income and Lower Income (Developing Countries) 17

A Practical Scenario – Story of an Implant 17

Present Scenario in Blue Ocean 18

Supporting Factors and Indicators for Blue Ocean 19

Market Leaders in Blue Ocean – China and India 21

Western Companies and Affordability in Blue Ocean 23

Advantages 23

Disadvantages 23

Affordability of Implants 26

Questions to be asked 28

Objectives of the Project 29

Methodology 32

Steps Taken 32

Solution 33

Traffic Accidents 33

Violence, Domestic Falls and Disasters 34

Survey 34

Channels of Data Collection 35

Details in Questionnaire – What and Why 37

International Publications – Studies and Reports 43

Market Segmentation 44

Need for Segmentation 44

Application in Strategy, Product Development and Operations 45

Method of Value for Money segment 46

PEST Analysis 47

Existing manufacturing process 50

Basic Production process for orthopaedic Trauma Implants 50

Costing 53

Alternative manufacturing Process 54

Supply Channel 58

Demands of supply channel in Medical Devices 58

Results and Analysis 60

Results and Analysis in order of Objectives Declared for the Project 63

1. Analysis of market demand for products 63

2. Approximate size of the Blue Ocean or demand size 66

3. The customer’s “perception” of features 70

4. Analysing the price range the customers

are willing to pay for the product 73

5. Analysing the methods of

supply channel used for product delivery 75

6. Analysing the strategic product

features needed for this market 77

7. Analysing the standard operational

process and costing involved in the 79

8. Analysis of the market based on material

used for implant 81

9. Stake holder analysis 84

Conclusion for “Value for Money Segmentation” 86

Annexure 87

Annexure for Executive Summary 88

Annexure for Survey Format 102

Annexure for Survey Results 105

Annexure – graphical Representation of Stake Holders 108

References 109

Back Ground

Orthopaedic Trauma

The Human Skeletal system is made up of 206 bones. These bones provide support,

allow movement and protect the internal organs in the body. Under certain situations

like accidents or falls, when too much pressure is applied on a bone it results in what is

known as a fracture. Fractures can also be caused when hit by an object or due to

twisting or bending of a bone.

When the bone is only cracked or partially broken it is termed as an incomplete

fracture. This is also termed as hair line fracture. These incomplete fractures are the

result minor injuries. Another common term used in fracture care is greenstick fracture.

Green stick fractures is when the bone bends and partially breaks. This is usually seen

in children as the bones of children are softer than that of adults.

Musculoskeletal System of Human Body

Source: www.whitemountainpt.com

When a bone is broken in to pieces it is referred as a complete fracture. The two types of

complete fractures are,

a) Simple Fracture

A simple fracture is a complete fracture when the bone is broken in to two fragments.

This break can be transverse (perpendicular to the bone), oblique (slanting) or spiral

(at a twisted angle).

b) Multi Fragmentary Fracture

Multi fragmentary fracture is also known as comminuted fracture. This is also a

complete fracture. In a multi fragmentary fracture a bone is broken in to several

fragments. These are usually the result of severe injuries like automobile accidents.

A complete fracture is further often classified as either open or closed. An open fracture

is a fracture where piece of the broken bone pierces through the skin. A closed fracture

is when a bone is fractured but does not come through the skin.

Further fractures are classified as compression fracture, avulsion fracture and impact

fracture.

Open Fracture

Source: video.about.com

A compression fracture is a case when two or more bones are forced against each other.

It commonly occurs to the bone in the spine due to falls in standing or sitting position.

An avulsion fracture is an injury to the bone in a place where a tendon or ligament

attaches to the bone. When an avulsion fracture occurs, the tendon or ligament pulls off

a piece of the bone. This is commonly seen in young athletes. (67)

An impact fracture is a compression fracture, but it occurs to the same bone and is a

closed fracture. This occurs when pressure is applied at the both ends of the bone. This

type of fracture is common in falls and car accidents.

Treatment for Fractures

Hairline and Greenstick fractures are usually treated by immobilising of the broken

bones by using a cast. Both simple and comminute fractures are usually resolved by

immobilisation using a cast or by using nails, pins, plates and screws. These different

types of Nails, Pins, Plates and Screws are known as Trauma Implants.

Based on the surgeons evaluation some of the fractures are advisable to be treated by

using implants. This gives faster and better healing. The alternative to use of implants is

“traction” where for proper realignment of bones pressure is applied on the body by

different methods.

Industrial / War Wounds and Fractures: Fractures from war are usually open in nature

and are accompanied by wounds which are produced by fragments of metal, bullets or

blast from mines. These types are contaminated to a variable degree by bacteria from

clothing, skin, and the environment. There is no uniform wound; the volume of dead and

contaminated tissue varies. (40) This tissue is a potential culture medium. Hence often

the treatments of these types of wounds are left to the surgeon’s discretion on the

method of treatment. Often external fixators are used (discussed below).

Traditional Methods

The treatment of orthopaedic fractures has its roots on Traditional Methods but has

scientifically evolved a long way since then. Traditionally “Bone Setters” were the

people who took care of fracture treatment. This gives rise to the name “TBS” or

“Traditional Bone Setters”.

Traditional Bone Setters do not rely on modern day imaging techniques like X-Ray or

surgical methods like implants. They reduce the fractures by physical feeling of the

fracture site followed by pushing the bones back to position by applying pressure or by

massaging. This is followed by application of herbal lotions.

Often splints are used to align the fracture and to continue support till healing is

complete. The lack of scientific approach in traditional methods of treatment often

results in pain, gangrene, malunion, nonunion, joint stiffness and infections. Some of the

complications often lead to amputation (19, 39, and 57).

Trauma Implants

Implant

An implant is a medical device manufactured to replace a

missing biological structure, support a damaged biological

structure, or enhance an existing biological structure.

Medical implants are man-made devices, in contrast to a

transplant, which is a transplanted biomedical tissue. The

surface of implants that contact the body might be made of

a biomedical material such as titanium. (Wikipedia)

Orthopaedic Trauma Implant

In orthopaedic surgery, implants may refer to devices that are placed over or within

bones to hold a fracture reduction while prosthesis would be the more appropriate

term for devices that replace a part or whole of a defunct joint. (68)

http://en.wikipedia.org/wiki/Medical_device

http://en.wikipedia.org/wiki/Organ_transplant

http://en.wikipedia.org/wiki/Biomedical_tissue

http://en.wikipedia.org/wiki/Biomedical_material

http://en.wikipedia.org/wiki/Orthopedic_surgery

http://en.wikipedia.org/wiki/Reduction_%28orthopedic_surgery%29

http://en.wikipedia.org/wiki/Prosthesis

Internal Fixation

Open Reduction Internal Fixation (ORIF) is a medical procedure. Open reduction refers

to open surgery to set bones, as is necessary for some fractures. Internal fixation refers

to fixation of screws and/or plates to enable or facilitate healing.

Types of internal fixators include bone screws and metal plates, pins, rods, Kirschner

wires and intramedullary devices such as the Kuntscher nail and interlocking nail.

External Fixation

External fixation is a surgical treatment used to set bone

fractures in which a cast would not allow proper alignment of

the fracture.

In this kind of reduction, holes are drilled into uninjured areas of bones around the

fracture and special bolts or wires are screwed into the holes. (68)

C Arm or Image Intensifier

“C Arm” is also known as X-ray image intensifier. These are imaging devices which use

low intensity X-rays that are amplified to produce live feed of images during surgical

procedures.

In addition to facilitating surgeons with quality image, easy manoeuvrability for proper

medical diagnosis and accuracy of incisions, it also provides patient comfort by

exposing the patient to only low dosage of radiation ( in comparison with traditional

methods). Another reason for increased patient comfort is the fact that C Arms

facilitates minimally invasive surgical procedures. (60)

C Arms thus enables the assessment, treatment and conformance of treatment possible

at the same place. These advantages make C Arms desirable for most of the surgeries,

especially in treatment of orthopaedic trauma. (60)

http://en.wikipedia.org/wiki/Reduction_%28orthopedic_surgery%29

http://en.wikipedia.org/wiki/Open_surgery

http://en.wikipedia.org/wiki/Bone

http://en.wikipedia.org/wiki/Fracture

http://en.wikipedia.org/wiki/Healing

http://en.wikipedia.org/wiki/Kirschner_wire

http://en.wikipedia.org/wiki/Kirschner_wire

http://en.wikipedia.org/wiki/Kuntscher_nail

http://en.wikipedia.org/wiki/Bone_fracture

http://en.wikipedia.org/wiki/Bone_fracture

Blue Ocean

(Source: Blue Ocean Strategy, by W Chan Kim & Renee Mauborgne, HBR, October 2004)

Blue Ocean strategy is a concept which started in the last part of the twentieth century

and was published in the year 2004. The logic behind blue ocean strategy is to part with

traditional models focused on competing in existing market space (termed as Red

Ocean). The idea is instead to identify an uncontested market place. The following table

gives an insight on the basic differences between the Blue Ocean and the Red Ocean.

One of the key points of the Blue Ocean strategy is differentiation and low cost. Cost

savings are made from eliminating and reducing the factors an industry competes on.

Buyer value is lifted by raising and creating elements the industry has never offered.

Over time costs are further reduced as economies of scale kick in due to high sales

volume. (50)

The article substantiates the point with the following lines “As trade barriers between

nations and regions fall and prices become instantly globally available, niche markets and

Source: www.blueoceanstrategy.com

monopoly havens are continuing to disappear. At the same time there is little evidence of

any increase in demand, at least in developed markets, where recent United Nations

Statistics even point to declining populations.” (50) This proves the need for

differentiation and low cost.

The study of Blue Ocean strategies point out that of one hundred and eight companies

studied, eighty six percent of the new ventures were line extensions. These line

extensions gave thirty nine percent of profits. On the other hand fourteen percentage of

the investment in to Blue Ocean gave sixty one percentage of the profit. This shows the

business success of the Blue Ocean strategies.

Blue Ocean of Middle Income and Lower Income (Developing Countries)

Not everyone can afford an implant comfortably. In US, prices for an Implant starts from

a minimum range of $80 - $600 for a plate, from $ 500 - $ 1000 for a screw and from

$165 - $2500 for an intramedullary nail. In countries like France, the gonverment pays

for the medical expenses incurred.

In developing countries, majority of the people are in the BOP (Bottom of the Pyramid).

Bottom of the Pyramid consists of people living on less than $3000 a year. (3)

This is not the people who live in the rural areas alone. The fast developing cities have a

fair percentage of the BOP. 32% of the BOP in Asia are in Urban areas, 77% of BOP in

South America are in Urban areas. (3)

The Blue Ocean consists of these people who are both in the Urban and Rural areas.

These are people who have been over looked by major industry players due to lack of

innovative business models.

Innovative e-business incorporated business model is one of the reasons behind the

recent technological success of businesses focusing on the BOP. The success of e –

business can be harnessed along with an innovative business model to offer a disruptive

innovation in the Trauma Devices sector.

A Practical Scenario – Story of an Implant (From Survey)

This Doctor from a developing country lives 25 km from the nearest town and is a

general surgeon who does orthopaedic surgeries (internal fixation). He often uses

implants made of stainless steel due to affordability and availability reasons. Most

surgeries he does are on people who are already treated by TBS (Traditional Bone

Setters), some of them fresh trauma cases.

Sometimes, the implant he buys does not fit the requirement of the patient. In such

cases, he carefully cuts and shapes them to size without damaging the last hole which is

critical for fixing in to the bone of the trauma patient. The unsterile packing of the

implant gives surgeon the flexibility to do this process. The hand worked implant is then

sterilised and fixed on the bones during the surgery.

Present Scenario in Blue Ocean

The above scenario highlights a few features of the blue ocean in Trauma Devices. Blue

Ocean of Middle and Lower Income comprises mostly of developing countries. It has

potential both in its fast developing Urban and in its rural areas.

Based on UN statistics the 3rd World population is booming, this is the part of the world

where the 62 % of the world currently lives and 67% of the world will live by 2030.

Within the blue ocean comes their rural area. Around 62 % of Blue Ocean lives in rural

areas. (58)

The rural parts of 3rd world depend on local produces, especially agriculture hence

International Economic crisis do not affect much. They are more community oriented; a

patient who cannot afford is more willingly supported by the community.

Some key features of this blue ocean are,

Against the common beliefs of the western manufacturers, demand for implant is

there. There are suppliers to this market as well. But mostly in a fragmented and

unprofessional manner.(2)

Majority of the people in the Blue Ocean go to Traditional Bone Setters due to

poor professional care and medication available in hospitals. (61, 39)

Patients have the money power to purchase implants and there are surgeons

who use trauma implants. They need to be more equipped to train other

surgeons. This just needs a different business model compared to the existing

business model which is more western.

Huge potential in the untapped rural areas of fast developing countries. A study

by UN on health spending of BOP alone estimates 158.4 billion as mentioned

before. The middle level is an extra category which is still untapped

professionally.

Basic innovations capture the market, hi-tech products often fail. Hence 70% of

medical devices coming from developed nations fail. (10 )

Price is sensitive, but flexibility of payment and method of payment decides the

price. Globally recognised devices with “brand equity” still expensive. (25)

People often pay more compared to actual market prices. (9)

Very little market competition. (9)

The surgeons who work in the hospitals where people belonging to the blue

Ocean are treated are often not considered or trained by multinational

companies. Often general surgeons do almost all types of surgeries here, but they

lack in orthopaedic training.

Developing world represents a market approximately 5 times more than the

market size of developed world. (10)

Supporting Factors and Indicators for Blue Ocean

The following factors make this market attractive

The International Initiatives

WHO studies have identified that road accidents will be the fifth highest reason for

mortality by the year 2030. 178 countries came together in 2009 to take measures

related to this. Developing countries are in focus (21). GIEESEC which is the UN body for

emergency and essential surgical care has already started working on low income

countries (Disease control priorities Project – 2008). WHO has started a department for

medical devices which encourages research and development of cost effective

innovative medical devices especially focused for developing countries. (14)

Countries and Healthcare Norms

Chinese Government has pledged to invest $36 billion in to healthcare sector. (15)

Chinese Government spending and reinforcing rural health care by 2020- 2011. China is

planning to cover 90% of its rural areas under insurance. (32) Indian government has

started a very effective project called “National Rural Health Mission” to rework and

develop the rural health sector. (31) South American countries like Chile have started

plans to retain and develop their rural healthcare sector with a series of incentives and

plans for doctors who work in rural areas .(69) The African healthcare systems have

been promised more support and aid by International aid organisations and by local

governments based on the Abuja declaration in 2001. (70) In East Asian country of

Thailand government is strengthening the government hospitals and 95% of the

medical devices are imported (10). By 2010 Vietnam Government is funding more than

one billion US dollars to strengthen healthcare facilities in the country. (13)

Blue Ocean - Products Currently Available

This is an unprofessional, fragmented market and monetarily exploited by money

lenders. Due to lack of competition the monopoly powers price the poor quality

products high than in mature market. The finances for the payment of these products

are usually funded by local money lenders who charge high margin of interest. (2, 9, 71)

All these result in poor quality products which are highly priced. This is also the

window of opportunity in this Blue Ocean.

Healthcare Standards

Developing countries are adopting stricter controls on to the purchase of medical lines

which follows CE / USFDA regulatory lines though not as strict as CE or USFDA. For e.g. ;

One of the fast growing medical device markets estimated to be of 1.7 billion USD (31) is

in the final phase of updating its Drugs and Cosmetics rule to be applied for Medical

Devices. This would ensure the production of more quality equipments by the domestic

suppliers which will be followed by a rise in prices when compared to the current

pricing. China has already initiated the implementation of healthcare standards.( 32)

AID organisations and NGO’s working in / funding developing countries usually follow

the procurement rules of their parent countries – which are usually developed

countries. They often face the difficulty in getting the appropriate device which suits the

field, financial and quality objectives they have.

Market Leaders in Blue Ocean – China and India

At present this Blue Ocean is supplied in fragments by Indian and Chinese local

manufacturers. Pakistan is another country who leads in manufacture and export of

locally made medical equipments.

“We mostly use implants made in Indian and China. We use European made implants as

well. It takes 5 to 6 weeks by sea for the implants to reach Africa from India or China.” -

This was the only piece of information one of the major dealers was ready to give when

contacted. More information on percentage of margin and usual stock quantities were

not revealed. The low cost supply from these Asian countries in Medical Devices is also

mentioned by US International Trade Administration Report. (58)

In the absence of stringent medical device regulations India has an increasing number

of orthopaedic Medical Device manufacturers mainly from the North, North West and

South of the country. (25)

One of the studies claim that there are around 180 local manufactures in India catering

to the orthopaedic market excluding established names. “Apart from these, there are

more than 180 such manufacturers reported to be in existence. These are ranging from

organised players — exporting to regulated markets with quality system certification,

globally accredited agencies to small scale manufacturers of unknown quality.” (47)

One of the studies estimates there are around 6,600 firms making medical devices in

China (15). In addition, the IP protection and Medical Device regulations are not stringent

in China. Though the Chinese firms are unable to produce even for half its domestic

needs in equipments, (15) China exports low value products (41)

In pharmaceutical sector, where these countries are more advanced compared to

medical devices serious problems had occurred in the past. In 2001, the loosely

regulated pharmaceutical industry flooded the market with substandard drugs. One of

these resulted in the death of 192,000 people in China. (11)

The Trauma Devices supplied from India and China is mostly basic implants made of

Stainless Steel. Though the implants are poor in quality the pricing is the competitive

advantage. But most of these price advantages are taken by middle suppliers and

dealers. The end user almost pays the price of a western implant.

The supplies are fragmented and unprofessional, there is evidence of little or no

surgeon training offered by these companies to develop the surgeon’s skills, nor proper

marketing methods to develop the supplies. The demand drives the supply.

On the other hand under international pressure India and China are increasing the

standards for manufacturing Medical Devices. This is expected to increase the product

pricing from the levels at present.

Western Companies and Affordability in Blue Ocean

“Those who dominate this Blue Ocean of lower Middle Income and BOP will secure the

future volume zone”. (7)

Trauma Devices was one of the first products in the field of medical devices. Most of the

pioneers and major players in this sector are companies from Western Europe and

United States. A few advantages and disadvantages of Western companies are listed

below.

Advantages

Reliable and High Quality products

Strict medical device regulations like CE and USFDA have encouraged the companies to

produce reliable and high quality devices. The IP protections measures pushed the

companies to bring more innovative products to stay in the market.

Technology

The medical device industry has been in the west for around 50 years. The learning

curve has enabled the companies to be professional in the medical device field both in

terms of innovation and production.

Ability and Sound Financial Reserves

Usually Blue Oceans need different business model when compared to the traditional

models. Hence, they need considerable initial investment. Western Multinationals in the

Trauma Device sector has the financial reserves for this investment.

Disadvantages

Fighting the markets with 1st world products.

As mentioned before, according to WHO estimates, 70% of the medical devices coming

from the developed world do not work in developing countries. (10) One of the best

justifications for this is the fact that unlike in developed countries, a good percentage of

hospitals in the developing countries may not have costly hi-tech equipments like C

arms which are much depended upon for certain key surgical procedures like insertion

of humeral nailing. (48)

One of the surgeon responses extracted from a published journal is as follow,

“The talk at National Orthopaedic meetings in India often dwells on major joint

replacements and revision procedures, which 95% of our orthopaedic colleagues do not

practice. We do not reject information about complex surgery but at the same time we

must learn more about the common problems and the variety of modes in which they

present, because they are numerically the major part of our work and therefore the area of

greatest need.” (38)

Have not addressed social issues which rules the business

Cultural differences are a challenge to all companies irrespective of the sector. Unlike

the West which has a more individualistic culture, most of the BOP areas are more

community oriented. Lack of business model adaptation to this difference has affected

the penetration rate and market of these companies.

The western companies have not addressed the long standing issues of the dominance

of TBS. One of the studies on the patronage of TBS reports the following.

“The study revealed that patients attending traditional bone setting centres want cheaper

medical care and more importantly quicker service and quicker union of the fracture

which they believed that the bone setters can offer. It is recommended that affordable and

accessible hospital services should be provided to reduce the TBS patronage.” The same

study continues to say that 79% of the people in the study directly went from the injury

site to TBS for treatment.

(72) Another study claim 51% of the patients goes to traditional bone setters on an

average. (73)

An Indian study states that 60% of the trauma patients are treated by TBS and there are

around 70,000 bone setters. The article goes on to say about training programs among

TBS for better co-operation with advanced medicine (30)

In another study, 74% of people go to TBS because it is cheaper (39).

Ineffective strategies for “Potential” markets.

Often the focus is on “easy” markets. This leads to intensive competition among the

companies. Business models which suit the potential markets are not adopted

proactively, instead, companies tend to wait to drive in existing business model. The

best example is a market analysis report by Smith and Nephew. The final decision was

to focus on the middle sectors which are in lines with existing business model of the

company instead of developing a suitable business model for the emerging countries.

This would have served a broader group and generated more revenues. (5)

Cultural Mismatch

Western companies believe in company direct training of surgeons. This method needs

considerable resources and time factor. Most developing countries have a community

based sharing culture. Business models and strategies understanding and addressing

these cultural and psychological are totally lacked by western companies.

Another implication of the community oriented culture is that people value relationship

more than technological advantage. A surgeon, hospital or supplier may not be willing

to shift a supplier for the availability of one technological product alone. Established

supplier power is considerably large. Hence, instead of one solution the company will

have to give a portfolio of even the simplest product to the channel.

Highly priced, hi-tech products – pushing of premium products resulting in low

penetration.

Hi-Tech products invariably come with a high price tag, to a price sensitive market.

Inefficient market supply channels

Due to the different factors discussed above business is not seen as volume-based but as

opportunity-based. Hence the supply channels are made to address the “opportunities”.

The other side of this method is the company is isolated from actual market needs. This

results in losing the potential opportunities.

This can also be due to inappropriate products in the market and results in selective

consumers alone.

Feeling Of Security

With revenues coming strongly even during economic crisis and with the technological

advantage well ahead in the medical sector, there is a feeling of security for the western

companies in the sector. The long presence of these companies in the sector has also

established a “Western” evolved business model of operation.

But with changing market scenario which demands a different business model, this

feeling of security can turn in to a weakness of opening themselves to disruptive

innovation.

Affordability of Implants

An excerpt from an orthopaedic surgeon conference explains the affordability issue as

follows. This article cite a discussion between two doctors “ . . . Ken Tuson has replied to

Raj reporting that he has had several letters in a similar vein, referring variously to

“affordable” or “appropriate” orthopaedics. It is certainly applicable and accessible.” (38)

As discussed, the present price range in US for trauma implants varies from $80 - $2900

and is increasing to extent that hospitals are focusing more on spinal treatments than

on fixation of bones. (34) On the other hand, for developing countries majority of

accident victims are people in BOP who are pedestrians, users of public transportation

systems or two wheelers. (18, 21) Any implant range above an average monthly income is

undoubtedly hard on the patient and often on the family. According to a NGO report “To

an individual living off of $2 a day, this implant can cost well over a year’s worth of

income” (57) Hence, people tend to use TBS or use traction which avoids implants.

Innovation is the driving factor in the trauma business; hence year after year the

companies come up with latest innovations for trauma market. For e.g. Trauma Market

leader Synthes from Europe which has assets over 2.5 billion has 28% intangible assets

with an investment of 114 million for 2009 in Research and Development. The company

also has its 60.7% revenues from America, 23.2 % from Europe and Asia Pacific

constitutes 10.5%. (49)

On the other hand, the markets in developing countries need basic implants which serve

basic purpose. Adaptation to the local context is the feature the product requires to be

successful in the Blue Ocean. (12)

Another aspect to the affordability of the implant is the surgical and service overheads

which adds to the implant cost which the patient has to bear. This has to be addressed

by the company for effective results. During an interview with a surgeon from a

developing country he mentioned that “the implants come unsterile, so we do sterilisation

by autoclaving or by chemical methods (standards methods usually done for surgical

instruments).” But this has an associated cost with it. Often it is this “package” deters the

patient in developing countries. (37)

One of the indicators which can be taken in to account is the charge of TBS in the local

areas. “A card (registration) at Olukole's clinic costs N5,000 naira – (about 34 dollars),

admission costs between N15,000 and N25,000 (102 dollars and 171 dollars) depending

on how long a patient will stay at the clinic. The cost of treatment itself ranges from

N40,000 to N100,000 (about 274 dollars to 685 dollars) also depending on the nature of

the fracture.” (61)

Another insight the above case gives is how much amount is affordable at a time? BOP

studies show that due to the nature of income generated they tend to give more in

instalments often paying more. (9) The same flexibility is provided by TBS. (61)

Questions to be asked

Given the background of the market, the question which is still to be addressed about

the Blue Ocean for Trauma Devices is:

What are the common types of fractures? What types of implants are needed? What is

the approx market demand size? What are the reasons behind these trauma cases?

What is the percentage of people from different income range? How much is affordable?

What is the approximate range? What are the customer perceptions?

Objectives of the Project

The objective of the project is to evaluate, define and analyse “Value for Money Segment

in Medical Devices” by considering trauma fixation devices. The present medical devices

are either dominated by the Hi-Tech manufacturers or by the poor quality

manufacturers.

This project will develop a new segment where “values” or required features for

successful product development and operations are understood and the price range the

customers are willing to pay for the above mentioned “values” is analysed.

The intended result is a group of guidelines based on which companies can plan their

product development and operational guidelines for successfully and profitably doing

business in this segment.

This will be achieved by analysing of the following sub objectives.

1. Analysis of market demand for products

As discussed above, there are existing suppliers in this Blue Ocean. They are present

both in the form of Multinationals and in a much wider size in the form of Chinese and

Indian suppliers. Is there a demand for a low cost- high quality product? Do surgeons

need such a product? These factors will be analysed.

2. Approximate size of the Blue Ocean or demand size

In the case of a demand, the next question is the demand size. Is the “Opportunity” large

enough for Resource and a dedicated Team to be allocated? Is it an Ocean? This would

show the feasibility of such a venture.

3. The customer’s “perception” of features

Who are the direct and indirect customers? What do they need? How do they perceive

things? What are the Key features that they look for? This analysis gives an insight to

the market perception and the Key Success Factors needed for the product. This will be

the market guidelines for the product development.

4. Analysing the price range the customers are willing to pay for the product

How much is affordable? What are the factors which determine affordability in this Blue

Ocean? What can be taken as the reference indicators? In present monetary terms what

is the approximate range? These factors related to the purchasing power of people in

the Blue Ocean will be analysed.

5. Analysing the methods of supply channel used for product delivery

The current supply channels in Blue Ocean and the difficulties faced will be analysed.

6. Analysing the strategic product features needed for this market

Key strategic issues in Blue Ocean which can affect the business which have to be

incorporated in to the product will be analysed here. This analysis is done so that the

issues can be addressed right from product development itself.

7. Analysing the standard operational process and costing involved in the

manufacturing of Trauma fixation implants.

Operation is one of the key functions which determines the profit margins and

feasibility of the project. Technological or process changes when incorporated

appropriately can change the business as a whole. This section will have a look in to the

standard methods followed in the industry for manufacture of Trauma implants and

areas where process can be modified to address the needs of the Blue Ocean.

8. Analysis of the market based on material used for implant

Especially three factors will be analysed here for different materials which are used in

the production of the implant - The power of suppliers, the power of customers, the

power of substitutes. These are factors which will decide the development and

operations process.

9. Stake holder analysis

Higher the number of stake holders to be satisfied more expensive the entire project

would become. Direct and indirect way of handling of stake holders is necessary for an

effective strategic plan and for product positioning which will also be a part of product

development guidelines.

The analysis of the above factors will give a strategic set of guide lines and product

features based on which the product development and operational plan guidelines of

the project can be framed.

Methodology

To reach the final aim of the project “Value for Money Segment in Medical Devices”

details on values and price range as perceived by the people in Blue Ocean is necessary.

Steps Taken

As the first step to data collection, two methods were initiated at the same time. First

was searching the data which was easily available from the internet. Hence the medical

device studies from developing world on fractures and need of implants were searched

to understand the features, market size, product availability and surgeon comments on

the products. This step failed to give results.

The second step taken was contacting voluntary and international organisations to

gather data. The plan was based on the following three steps

Gather the global data on implant needs and to separate the countries which fall

in to the BOP. This included getting data from WHO, International Orthopaedic

Associations, International Trauma Association based in US and finally an

organisation known as “SIGN” which works in developing countries in the field of

Trauma.

The second step was to get the numbers of war injuries and injuries due to

natural disaster which needed implants from organisations like MSF, ICRC -

International Red Cross, Emergency Italy and Handicap International which

work globally.

Third step was to add the above two figures to arrive at the final number of

implants. Then based on existing standard scientific studies on the type of

fractures in different situations iterate the number of each type of implant

needed.

The final step, if the both the above did not work, was a field survey, but an

international survey was demanding. It needed international contacts.

The above steps failed to give results. This forced to seek possibilities on borrowing

these reports for reference purpose from Medical Device manufacturers. One high

profile and low profile European manufacturer each, from Trauma Devices was

contacted for the availability of such reports, but both denied any reports on markets in

developing countries.

One of the interviews with the director development of a US multinational in a fast

developing country reinforced the same “there is no data available even on India and

China. So we had our own survey of twenty doctors in each of these countries and ten

dealers each from each of these countries and took it for iterating the countries’ data.”

Solution

The website of SIGN www.sign-post.org provided with an indicator which gave the

breakthrough. It reports “Road accidents, conflicts, fall and natural disasters often cause

injuries such as severe fractures. The World Health Organisation estimates that annually

20 million people living in developing countries are injured on road traffic accidents alone.

Further 50% of those are living in sustenance level.” (57)

Thus it was decided total number of implants = implant need due to

Traffic accidents + Violence + Domestic falls / Disaster

Traffic Accidents

The number of implants needed due to Road Traffic accidents is calculated using the

following method.

1. From the UN report on road accident, the number of “Non Fatal Injuries” in

developing countries is taken.

http://www.sign-post.org/

2. Based on average of International study reports on the percentage of surgical

intervention needed in road traffic accidents the numbers of implant cases are

determined. (23,24)

3. Using the above two values the total number of surgical interventions are

calculated. Considering one implant per person the total number of the

interventions is taken as the total number of implants needed.

4. Thus, the implant requirement based on the road accident is calculated. This

country also has a percentage of implant needs which arise due to violence,

disaster or domestic falls. As the data for these are not available with

organisations, the average percentage of Domestic falls and Violence from the

survey form is taken. Using the number of implant needs due to traffic accidents

and the average percentage from the survey the total number of implants and the

total number for each category is calculated.

This would give the total number of implants need, but details on localisation of site (for

which bone) was still not available.

Violence, Domestic falls and Disasters

Data on the number of implants / surgical interventions / number of injuries due to

violence, domestic falls, disasters and percentage of fractures these cases are not

available.

The need of these data made a survey necessary.

Survey

To address the need of data detailed below a survey was initiated. The format of the

questionnaire is given in Annexure No: 15 - 17. The questionnaire format was designed

in the given format to address the following issues.

Collect all the relevant data.

Collect as much data as possible.

Keep the questionnaire short.

It should give the perception it is easy and can be answered at first glance.

Generate the initial interest and open up to share details.

Surgeons are reluctant to write, hence keep written work as little as possible.

Explanation to volunteers who can provide a global network of collection.

To address the above, the questionnaire includes a number of percentages instead of

numbers and “Yes / No” Questions.

The questionnaire was translated in to four International languages namely English,

French, Spanish and Mandarin with the help of supportive friends. Apart from Mandarin

all the other data collection formats were sent both as Word document and as PDF to

avoid software compatibility issues. Survey websites like “surveymonkey” were

considered, but due to software penetration issues in developing countries this option

was turned down. The results of survey and questionnaire are given in the Annexure

No: 18 - 20

Channels of Collection of Data

Finding the contacts in developing countries was difficult as most of the surgeons who

are internationally known are contacted for a number of surveys. Another problem is

for relevant data from developing countries the questionnaire had to reach the people

who were really in the field.

The methods planned to address the above were as follows.

Try with orthopaedic companies to support this collection of data.

Try with orthopaedic associations to support this collection of data.

International Surgeons in developed countries who has links in developing

countries.

Try via internet for surgeon contacts in each country.

Network through friends.

Use direct contacts.

Use referencing

The first two options failed to give any result.

The only list of contacts available was a WHO Global Initiative for Emergency and

Essential Surgical Care report (46) from the Net which had a list of doctors across the

globe from different specialisations in the medical sector. From this list of one hundred

and forty one doctors, fifty doctors who were related to rural development programs,

head of Institutions and orthopaedic surgeons were short listed. Together they

represented twenty five countries (Twenty two Developing Countries).

These doctors were sent an email and then followed up with a phone call when ever

phone numbers where available. The difficulties faced where telephone connectivity

problems with ex soviet countries and African areas, time shift differences with places

like Mongolia and Philippines, language problems with one ex Portuguese colony in

Africa where receptionist could understand but could not convey how to contact the

doctor, Chinese searches had to be dependent on Chinese speaking friends, and the

worst was emails which never reached the surgeon even after ensuring every possible

means of issuing three different emails ID and sending the mail thrice.

One of the best results from this process was one of the mails reached Prof Hinsenkamp

from Brussels. Prof Hinsenkamp is the head of SICOT an International Society of

Orthopaedic Surgery and Traumatology. SICOT works with UN and WHO in a number of

development programs. Prof Hinsenkamp has promised his support from their contacts

in 110 countries. Organisational difficulties have delayed the results to be reported in

this report.

Another method used networking through friends from different countries that

networked through people and mission organisations to gather data. This method was

the second most effective method in getting data.

This network consisted of seventeen friends who networked with twenty two countries

(of this seven were new countries which were not there in the GIEESC list).

Finally, the two methods which worked well were direct contacts with surgeons and

references. ARSI (associations of Rural Surgeons of India) is one such contact with a few

hundreds of surgeons as members in India. ARSI sends bulletins to its members once in

three months. The questionnaire was included in the same for the month of May- June-

July 2010.

Details of the Questionnaire – What and Why

In addition to the data discussed above which are

1. Fracture details by localisation of site

2. Data on need of implants due to Violence, Domestic falls and Disasters

Other data that are needed are,

3. Confirmation on patient income class.

This data is intended to get a realistic figure of the approximate percentage of people in

the middle and lower income sector. This will be matched with the global studies

available.

4. Location of the patient – Urban / Rural.

Based on geographies, the terminologies “Middle Income” and “Low Income” varies in

its range. A person who is termed as Middle Income segment in a rural part of a

developing country will be in the lower income level in the urban area of the same

country. A better version of measurement would have been taking by annual income of

the families. But most of the developing countries lack in recording of data and this

would incur more data collection for the surgeon, which in effect would affect the

response rate. Disaster areas are areas of need where income do not come in to play and

basic medical implants are needed, hence “Disaster” was included.

5. Nature of supply channel.

This part is to understand the underlying market conditions and features the market is

looking for. Hence from second page onwards the scenarios have to be read with the

other related information in mind. For example, in the case of a rural hospital far from

the city the supply may be never easy to procure. This means that there is an underlying

expense which will have to be met for ensuring the supply. This will have to be

considered when deciding the operational cost estimates and profit margin.

This can also be read along with question in page three on the increase usage of

implants will give the possibility of an increased economy of scales. The final reason and

most important reason behind the question is to understand the inventory pattern the

hospital holds.

6. Pricing of the product.

Price of the product along with the other information gives an idea of the market at the

current pricing. This when read along with the next information on affordability gives

an idea of the final pricing adjustments which can be made for products. This can help

operations in a big way. For example, lets us consider that the current lowest market

price is $ 10 and maximum price is $100. The affordability in the same market is $25 to

$60. This means that the lowest cost product price can be slightly increased without

affecting the market much. In operations sector, there may be a possibility the same

machinery or process can be used for both these products at one stage. This can give

economy of scale effects for one of the product in the higher range and effectively

driving its price down.

7. Affordability of the patient as of present conditions.

Apart from bench marking the final product pricing and profit margins and break even,

this would also help in deciding operational process to be followed. This when fixed and

worked on the market volume can give the feasibility and idea on economy of scales. In

the product development plan, this would push for standardised features, possibilities

of multipurpose implants and other ideas to brainstorm.

8. Comments on quality issues currently faced.

These are the features that will have to be addressed by the development, operations

and Quality teams. This will also give a financial implication of the project and even

ideas to build a business model based on supply channels.

9. Methods to address specific areas to improve the usage of implants.

These questions give a detailed situation of the market which will give an idea of

strategic positioning to be made which will indirectly affect the product development

and operational process.

10. Views on advancing with proactive Biodegradable technology.

Biodegradable implants give more “Value for Money” as a second surgery can be

avoided to remove the implant. This is a value for the hospital, patient and NGO /

Government if they are involved in the treatment process. Currently it is highly priced in

the market. Recently an Indian manufacture has started the raw material for the

implant using a Chinese technology. (44) If the process cost can be driven down by

economy of scales then this should be an ideal option which can become a disruptive

technology by itself.

Added to the above reasons a few of the above questions were included expecting the

difficulty faced to collect details from developing countries. Hence, the intention was to

collect maximum details as possible which will give data to related researches and

researchers which are or who are outside the scope of this project.

Method of Calculating the Final number of Implants by Localisation of Site

Two methods of calculation are used for finding the total number of implant needed by

localisation of site.

Based on the survey report.

Based on the road traffic accidents.

Total Number of Implants =

Implant need from Survey Data + Implant need from Statistical data

Note:

Survey Data: Developing Countries from where survey forms were received in these calculations

Statistical Data: Countries which were not covered in survey results. Calculation method is implant

need from: Road accidents + Violence + Domestic Falls = Total implant need (as explained in Page

33).

The countries which are included in the survey data calculations are excluded from the statistical

data calculations to avoid repetition.

Based on the Survey Report

a. Based on the data available from the survey the data is entered in to an excel

sheet.

b. From the survey form we calculate the average percentage of the orthopaedic

cases which needs implantation in a given country.

c. Next step is to find the total number of the implant needs in the country. For this

we find the total number of patients in the country in a given year. For this we

use the population as given by Population Reference Bureau (45), the number of

hospital beds for 10,000 people in a country as given by WHO (104) and the

number of beds available for the entire population is calculated.

d. The total number of hospital bed is the number of patients the country can

accommodate in a given day. But there are two more factors. First most of the

hospitals in developing countries are overcrowded hence a bare minimum of

15% is factored into the above figure - practically this is above 20%. (76,77)

The second factor is that patients stay in the bed for a few days for the treatment.

Hence the total number of beds multiplied by the days in a year cannot be taken

as the number of patients treated. This is addressed by ALOS.

ALOS- Average length of Stay

This is a relative new terminology in calculating the capacity of hospitals. (26, 27,

28,29) We take this as an average of 13 days which is much higher than most of the

reported cases (USAID). A lesser average would show a higher number of

implant need, as the number of patients will be higher. Hence we take a

conservative approach.

The studies by ALOS for South Africa explain the considerations to be taken in evaluating a healthy

ALOS. “A persistently high ALOS means that patients are being kept in hospital for too long.

It can also be caused by an undercount of the number of discharges which will lead to a

false ALOS value. A shortage of doctors to do regular rounds, including over weekends, to

discharge or transfer patients may also be a contributing factor. Disaggregating the ALOS

for the various wards in a hospital will help identify if there is any particular ward that is

contributing to the high value.

An exceptionally low ALOS (e.g. less than 1.5 days) requires further investigation and could

imply that the quality of care afforded to patients is likely to have been compromised. It

may also mean that too many patients are being referred to other hospitals.” (ALOS for

South Africa)

http://www.who.int/

Hence the formula used to find the number of patients is

Number of patients = (Total Number of beds * 365) / 13

e. The total number of patients in multiplied with the percentage of orthopaedic

patients from a given population (which is found in ‘b’) to get the number of

implants (This is considering one patient needs one implant).

f. The Total number of implants from ‘e’ (which is the number of implants needed

in the surveyed countries) is added to the total number of implants needed for

other developing countries

Implant Needs in Other Developing Countries

The number of implants needed due to road accidents is calculated as explained

in page 33).

The number of implant needed due to violence and domestic falls have to be

calculated. This is calculated by using the average of the “Reason for Trauma”

from Question 3 of Page 1 in the survey form.

From the survey we know 71.86 % of trauma is due to road accidents. From this

the total number is calculated. This is the total number of implant needed. This

includes road traffic, violence and domestic falls.

Implants by Localisation of Site

g. From the survey form the average percentages (Survey from Page 1 Question 2)

of fractures by localisation of site is entered and the average is calculated.

h. Another set of average percentages are available from the international papers

published. An average of the survey values and values from international values

available is taken.

i. This final average percentage from ‘h’ is used to calculate from the total number

of implant needed by localisation of site.

International Publications – Studies and Reports

In addition to the survey a few International publications which gave fracture statistics

of some countries were used. This is addressed separately in the calculations done.

To support the iteration process a few data were in need like the country population

number of beds, average length of stay in the hospital etc.

A detailed online research from journals and credible website ensures collection of

study materials in relation with the project. Some journals and reports were collected to

iterate information as given below. A detailed list of international publications used is at

the reference session towards the end of the report.

Some of the Study reports collected are listed below:

2005 World Population Data Sheet of the population reference bureau

World report on road traffic injury prevention

Global status report on road safety

The orthopaedic industry annual report

Complications of Fracture Treatment By Traditional - Bone Setters at Hyderabad

Simple Patterns and Definitive Treatments of Tibial Fractures: A Private Practice

Experience in Port Harcourt, Nigeria.

Market Segmentation

Need For Segmentation

Medical device since its commercial inception around five decades back has been

growing fast. This is a sector which combines high level medical and engineering

technology. The availability of both these factors was found in the wealth western

countries. Hence this industry has emerged as high profit industry often catering to the

wealthy group of people. As years pass by it is still catering to the need of the wealthy

and has completely ignored the poor.

The proof of this is the annual report of most of the medical device companies which

will show more than 70 % of their income from US and Europe.

As each decade passes by the technology has changed especially in the engineering side.

This has reengineered the same products again and again. Two good examples of

Medical Devices which are often reengineered are Mechanical Heart Valves and Hip

joints. Things have not changed still; companies have not yet started looking outside

this high profit belt. The present industry trend is towards catering to the

reconstructive needs of the aging population in the developed countries. (20, 51, 52)

On the other hand are the emerging countries that are fast growing in Technology but

still in early stages of being catered by cheap and unreliable products. This creates a

huge fragment market in the middle level. As discussed this is the Blue Ocean with

majority of people from the BOP.

This market need to be clearly identified and its needs understood to cater to it

effectively. This is the reason and need for segmenting this Blue Ocean

“Value for Money” segmentation will focus on two aspects

1. What are the features (value) markets in developing world want for Orthopaedic

Trauma Devices.

2. Price range the market is prepared to pay for these values in monetary terms.

Who is the customer is an important question in this segmentation the perception and

need of features varies according to the customer. Undoubtedly patient is the ultimate

customer, but the surgeon decides.

In this Blue Ocean surgeons decision is limited by market availability. Hence dealer is a

customer as well. And considering or eliminating the dealer depends on the business

model which the company decides to implement in the supply channel.

Application in Strategy and Product Development and Operations

As discussed BOP markets are price sensitive. On the hand they have their own pride as

one of the studies mention. “In fact striped down versions of medical equipment are

sometimes rejected, despite lowered cost, because accepting them is perceived as

admitting a lesser status”. (10) The studies by Lendon and Hart mentions in detail the

need for a totally different approach in core strategy needed to address the markets in

developing countries consisting of the BOP population. Traditional knowledge, methods

of leveraging technology, operations and supply chains have failed among MNC’s. The

study addresses the success of innovative untraditional approaches and need for

specific understanding of market. (8)

The above segmentation addresses the monetary sensitivity and the market demand for

features in the Orthopaedic Trauma Devices. This guide line of features and market

pricing can be used to draw the guidelines for the product Development Project. By

keeping these two parameters as the objectives the entire project can be traced

backwards to the economic feasibility in operations to achieve this target, the optimised

QC process to be ensured to address the product features and the supply channel

methods to reduce intermediate costs.

This range will be fixed as the indicator range. The market assumed to practically ready

to pay to this limit. Any extra income to be generated will have to be brought by

incorporating suitable business models like insurance schemes or through portfolio

management of related products.

Economy of scales and optimised operation processes are the key methods to achieve

these targets. This is contrary to the present Medical Device development and

manufacturing processes where technological cost, operational cost and supply channel

costs are ever increasing.

Hence the “Value for Money Segmentation” is the key Corporate Strategy around which

all the other process will work for companies which intends to enter the emerging BOP

markets in developing countries.

Method of Value for Money Segmentation

The features which the market demands are the list of attributes which gives rise to a

group of benefits which customers buy. As discussed in previous sessions, the Blue

Ocean is predominantly BOP which is price sensitive. But features do have an important

place.

These attributes were collected by means of survey by addressing three key areas for

product success.

Product Supply Related Features

Product Environment – Instruments, Infrastructure and Training

Technical Features of the Product – Design, Operations and Quality

The monetary part of the survey collects the data on the current market situation and

consumer affordability. An average of the consumer affordability will be taken with a

standard deviation.

PESTL Analysis of the Orthopaedic Trauma Device in Blue Ocean

Political

1. Need for more equipments for same allocation of resources.

2. More exports for developed exporting country.

3. Good political image for country/company.

4. Better relation with the UN and other organization.

5. International trading to customers/channel organisation.

6. NGO and Insurance links, more jobs for local governments.

7. Logistics in political sensitive area can be challenging.

8. Pressure local TBS lobbies.

9. Cultural difficulties can turn in to political anger.

10. Risk of getting paid by health institutions of poor countries unless proper business

models are ensured.

Economical

1. Good IRR and Profits.

2. Free from impacts of economical crisis.

3. Market share and future growth potential as market grows.

Eg. Hindustan lever products.

4. Fast inventory turnover.

5. Economy of scales.

6. Low margin.

7. Risk of getting paid in the absence of proper business model.

8. If business model has Insurance schemes, lesser need for raising capital.

9. Initial investment costs in developing networks and finances to wait till “adoption

curve” picks up.

10. Need to invest on centralized communication.

11. Revenues from wider portfolios.

12. Risk of banking with unreliable banks.

13. Possibilities of inventory build up in hospitals / with government agencies due to

logistical issues and inappropriate business models.

14. Growing GDP trends.

15. Good financial monitoring needed as local financial markets often fluctuate

Social

1. Good image-Corporate social responsibility.

2. Provides better life.

3. Eradication of poverty is possible.

4. Social acceptance of other products under the same banner / brand.

5. Employee satisfaction.

6. Social anger on products failure can be damaging.

7. Dealing with varied and deep culture sensitive areas and products needs practical

and local understanding.

8. Cultural penetration and education needs time and investment

Technological

1. Can be made in to a disruptive technology.

2. Product development is simpler but should be sensible and adaptable. High level of

diverse local knowledge is needed.

3. ‘10 x’ effect features needed.

4. Product failure sentiments are high.

5. Product Risks are lower, due to low regulations.

6. Long product life cycle (PLC).

7. Need for surgeon training and technician training.

8. High investments in back end technology needed for support and monitoring.

9. Longer life expected to withstand rugged conditions. Eg After implantation patient

faces rugged surfaces to walk.

10. Reusability threat.

11. Risk of implant not being removed.

12. Risk of sterilisation and modification at site.

13. Need for centralized monitoring of surgeries.

14. Lack proper technological infrastructure and C-Arm.

16. Pressure on surgeon/Hospital by suppliers on supplies of other portfolio goods and

medicines.

17. Acceptance time.

Legal

1. Positive Tax reductions.

2. Import tax / tariffs by closed economies.

3. Meeting international product standards.

4. Importing nations do not have standard this leads to competition with poor quality

products.

5. Tie up with local banks for financing business model this needs clear local legal

ideas.

6. Will have to abide with multiple high demanding international regulations to supply

through aid organisations of that country.

Existing Manufacturing Process

The manufacturing of medical devices is highly regulated by international quality and

government regulations to provide Safety and Quality. To provide these two factors the

process is highly “Traceable” and highly monitored. These are two processes which

adds non value added cost on to the production process. Keeping this to the minimum

without compromising the Safety and Quality is the key to reducing cost. The best

method direct method to ensure this is to reduce the flow of components and to

incorporate as much production process as possible in to a single machine with high

level of automation supported by quantity.

Basic Production Process for Orthopaedic Trauma Implants

There are a number of methods to manufacture trauma implants. The production

process is dependent on the volume of the implants needed.

The volume of implants is much less when compared to other industries which use

similar manufacturing process. In terms of production quantity, the industry falls

between Aerospace components and Automobile component manufacturing industries.

With medical technology becoming more relevant, a positive trend in quantity is

observed. This positive trend has attracted may recognised industries to offer a wide

range of technological services in the form of OEM manufacturing.

This entry of OEM manufacturers in to the supply chain has integrated fragmented

areas. This in turn has opened the possibilities of processes like forging which are much

cost effective. (43, 62) This also enables the Medical device companies to invest and

specialise on the finishing process alone. One of the interviews with a key OEM player in

the supply chain gave the information that still the forging happens in batches of

hundreds which is very much in lines typical medical device industry.

In the absence of OEM manufacturing in supply chain, the most widely used

manufacturing method is CNC machining followed by CNC drilling operations. The

manufacturing usually follows a batch process. Due to more capital investment, human

resources, increased number of process and more inventory of process related

materials and smaller quantities this process is more costly. For the purpose of

understanding the maximum cost incurred in manufacturing a trauma implant this

traditional process is considered. Including an OEM supplier in the supply chain

reduces as much as 40% of the cost. (43, 53)

The production process for orthopaedic trauma implants basically follows two main

processes and then diversifies in to four processes towards the end. The components

which differ in basic production process are

Circular Components

Intermedullary Nails

Screws

Flat and Angled Components

Bone Plates

Traditional Manufacturing Process Circular Components

The process starts with the pre machining / rough machining of the round metal bars.

These are then bent to necessary profiles using bending machines.

An alternative approach is forging. This is the common option considered by large scale

manufacturers. These profiled rods are then taken in for multi axis CNC turning

machining where they are finished.

On finishing they enter the cylindrical grinding machines where they are finished to the

required surface finish. Following this process to increase the surface hardness, based

on the validated process the components may be subjected to a process known as

tumbling or shot peening process. For further increasing the surface finish there are

taken for electro chemical polishing process known as passivation.

The screws follow the same initial sequence of rough matching. As they are

diametrically smaller in size, they use CNC machines which would initially do the

roughing operation followed by the final thread cutting operation. Then they undergo

cylindrical grinding operation followed by shot peening. The final process is electro

chemical polishing method to ensure the high surface finish needed.

The implant is then ultrasonically cleaned and rinsed and depending on the local

government regulation sterilised and packed or given as unsterile implants.

Flat and Angled Components

The only difference in process is the fact that for the manufacturing of plate’s multi axis

CNC milling machines are preferred.

Non Value added Costs Incurred

The disadvantage of traditional machining is that, due to the use of jigs and

fixtures, setting time and initial calibration needed for each job is a loss of time

and capital investment in equipment needed.

For each of these operations manpower is needed.

Inventory is held for a considerable time as “work in progress” waiting for next

process.

The work is cell depended or line dependent. Break down of one machine can

cause bottle neck.

Maintenance costs are high as the full cell has to be maintained.

Any change in production plan will have a considerable impact on the process

flow and initial corrections.

Wastage removal and management is a major issue.

Tooling requirement and management is high

In between each of these stage changes values have to be recorded.

Costing

Nails are one of the time consuming implants in the Trauma Fixation Devices.

Approximate costing and average cycle time of a Humerus nail manufacturing process is

as follows (Considering maximum US rates).

Item Description Comments

Material SS 316 LVM

Material Costs $5 for 500mm, Dia

10mm

Maximum cost considered

Approx length of

a Humerus nail

325 mm including stock of material, usual range is

180 - 300mm (54 )

Diameter of the

Humerus nail

8 mm Finished Dimension, usual range is 6.5 to

8mm(54 )

CNC Machine

Per hour costs

$80 / hour ( $1.34 / min) Including Over head, machine capital and

tooling - peak rates considered (63)

We are considering machine rate per hour for costing.

Machine Cycle Time - CNC

Operation Cycle Time Comments

Rough Turning 4 min (max) 6 passes of 0.25 cut each to reduce to 9.5

mm (including job setting)

Finishing 3 min (max) 1 semi finish cuts of 0.2mm and 2 cuts of

.15mm finishing pass

Drilling 45 sec (max) 4 holes drilled using carbide (no pilot

drill)

Total 8 Minutes (approx) ie 10 dollars for the component

A skilled labour as per the same source claims (63) an hourly salary of $45 an hour an

approx over head on other activities is considered as 10 minutes. Hence the costs are

about $ 7.50.

The above includes shot peening, tumbling and passivation which are done as a batch

and inspection which is done individually.

We assume an expense of $2 for an implant for ultrasonic cleaning.

Hence the total cost is

Total Cost = Raw Material cost + machining costs + other overheads + final packing.

= 5 + 10 + 7.5 + 2

= $ 24.5 per Humerus nail (in Stainless Steel in USA at peak costs)

Alternative Methods of Processing

A variety of alternatives are possible. These alternatives are possible either by

modifying existing supply chain or by altering technology. Two methods that can be

considered are

Sourcing forged components from medical grade OEM (Supply Chain

Modification)

This method reduces the cost by reducing investment, maintenance expenditure, and

labour over head. On the other side it enables optimised utilisation of finishing

machines and increases the efficiency by specialisation. As discussed before including

OEM to the supply chain can reduce up to 40% of the cost incurred by following

traditional process.

A series of options at different levels of cost reduction is as given below.

Scenario Cost

OEM reduces Ten percentage of cost compared to traditional method $ 22.05

OEM reduces Twenty percentage of cost compared to traditional

method

$ 19.60

OEM reduces Thirty percentage of cost compared to traditional

method

$ 17.15

OEM reduces Forty percentage of cost compared to traditional method $ 14.70

The cost can be further be reduced by following the latest trends of medical outsourcing

from Asia. This option can be considered as the basic process involved like forging is not

technology intensive.

Selective Laser Melting / Electron Beam Melting (Technology Alteration)

Contrary to the metal removing process the two new technologies which are

increasingly becoming popular are “Laser Melting” and “Electron Beam Melting”. This is

a Rapid Prototyping technology where metal powder is melted to desired shape by

using laser or electron beams depending on the technology used. Recently this

technology is used to produce hip joints in medical applications. (64, 65, 66)

Questions to be considered

The process offers a range of advantages as mentioned below, but the mass production

capability, raw material cost and the initial investment on the machinery have to be

evaluated.

Interview with company sources and companies who use the technology suggests an

approximate investment of around 400,000 Euros for the machine alone. The

technology is moving towards mass production with fast strides in reducing cycle time,

increasing accuracy and surface finish.

Costing of Selective Laser Melting

Available data (from Interview of an executive)

Details Specification Cost Comments

Screw made of

SS 316 LVM

5 x 10 mm 1 Euro Rate per component including

machine, material cost & over

head cost.

Cycle Time 2500 Screws /20

hours

Screw of size 5 x 10 mm. This

comes to 125 screws an hour.

Which is 3000 screws a day.

Screw 5 x 20 or 10 x 10 2 Euro Double the size is double the rate

Calculation for Humerus nail

Details Specification Cost Comments

Humerus Nail 300 x 8 mm 60 Euro Rate per component including

machine, material cost & over

head cost.- size and length

doubles Cycle Time 41.66 / 20 hours This is equal to 2.083 nails in an

hour. Which is 50 nails in a day. At

peak capacity this will produce

18,247 nails in a year.

Though the process has several advantages as of present the process is costly. Another

major drawback is that it can produce only to a fraction of the demand

Location of Plant

To make most of the cost savings the ideal location of the plant can be in Eastern Europe

or in Northern Africa to take advantage of the fast response the machine breakdowns,

reduced manpower costs, relatively high technically skilled labour compared to Asia

and to take advantage of the globally centralised location for logistics across the world.

A part from these more traditional forms of processing another potential technology is

Biodegradable implants.

Biodegradable Implants

This is an alternative that is achieved by altering both technology and business model.

The technological process behind the manufacturing of biodegradable implants is

currently under patents. These are premium priced in the markets. Rising competitors

supplying the technology from Developing countries (44) can be contracted to

manufacture these implants. Though comparatively priced on the higher side at present

the economy of scales and the increasing number of suppliers in technology offering can

be used in the future to drive the cost down.

Questions to be considered

One key question is the time period it will take for biodegradable implants to be

competitive with the metal implants in terms of existing production cost. Another

question is the feasibility of the technology to produce long implants like intermedullary

nails.

Conclusion - Alternative Methods of Processing

Latest technologies like SLM prove to be costly and not suitable for mass production as

of present. Biodegradable implants have a few key questions to be answered. Hence the

opted manufacturing option is Traditional Method with OEM incorporated in to the

supply chain with plant in a developing country with availability for skilled labour.

This decision also meets the five key factors namely Quality, Speed, Dependability,

Availability and cost that an ideal operational plan should address.

At present credible Medical Device OEM’s are becoming more popular in the industry

and competition is increasing. The process supports mass production and is

dependable. Material, technology and skilled labour are available abundantly for the

process. Most importantly the process addresses the issues of cost and gives flexibility

in capital investment.

Supply Channel

The sterility and the safety of the Medical Device which is manufactured under highly

regulated conditions has to be ensured till the device is implanted in the human body.

The supply channels play an important role in ensuring this product conformity. The

supply channels also play an important part in the product lifecycle itself.

A well designed supply channel can reduce the cost of Trauma Implant and increase

market penetration in the developing countries.

Demands of Supply Channel in Medical Device

Some of the factors which stress the need of good supply channels are as follows.

Average life cycle of medical device is eighteen months (55)

Market studies (mainly markets in developed countries) show an average product life

cycle of 18 months. Though the life cycle in the blue ocean is expected to be

comparatively longer, this comparatively short product life cycle shows the advantage

and need of having an excellent supply channel. This demands supply channels which

can ensure faster market penetration.

High Cost of Distribution(55)

One of the factors which add to the cost of Medical Device is the sterility of the product.

The distribution costs depends on

a) How the product is supplied - sterile / non sterile

b) Based on the sterilisation method – Steam/ EO / Gamma

c) Based on the geographical areas where the product is to be supplied

The product packing, storing and handling methods are highly depended on the above

three factors. As per ISO 13485 guidelines, organizations have to establish documented

procedures for the control of product which has a limited shelf-life or for products

requiring special storage conditions. These special storage conditions have to be

controlled and recorded. (56)

Currently Trauma Devices are supplied both in sterile and in non sterile conditions

depending on different legal and commercial factors. Supply channels have to effectively

address the above conformity measures as well as keep costs minimum.

Product Recall and Traceability

All supply channels should be equipped to effectively trace defective products on

information from the manufacturer or notified bodies and recall of the defective

products. (56)

Demands of Market

A product with shelf life can be a demanding task for the supply channel. It demands

both responsiveness to immediate market demand and should ensure minimum

inventory which is controlled in a “First-in, First-out” basics to ensure shelf life of the

product. This can be much more demanding in developing countries where the medical

devices have to reach remote areas and hence will have to be stocked or supplied

frequently and economically.

Communication Partner

Eighty percent of the Medical Device companies are small to medium level enterprises.

(56) Hence supply channels also have to act as the communication partner between the

medical community and the company both in relation to the product as well as in

relation to product innovation ideas.

Results and Analysis

The results and analysis of the “Value for Money Segmentation” of Medical Devices

focusing on Trauma Devices are based on the result of survey conducted and based on

the international study reports.

The summary of the survey is as given below (as on 15th June 2010)

Details of Response

Doctors Contacted 56

Completed forms 6

Awaiting 2

No of Countries

Number of Countries Contacted 32

Number of countries covered 3

No of Languages Used for Survey 4

No of Organisations Participating

Organisations Participating 3

Reports from organisational links 0

Results of the survey in detail

Total requirement of implants by localisation of site is calculated as per the procedure

mentioned in the methodology. The following table shows the final results (1st Row –

Total number).

TOTAL Considering Average of Survey reports and Study Reports

Humerus Radius/Ulna Femur Tibia Fibula Other

Total Number 203,679 182,835 540,645 295,803 53,100 230,493

Considering 60% below BOP 122,208 109,701 324,387 177,482 31,860 138,296



This number is the total number of implants needed for the total population in the

developing countries (124 Countries). Hence this includes the people from Upper

Income, Middle Income and Lower Income segments.

According to the World Resources Institute reports on the BOP (3) seventy two

percentage of the population in one hundred and ten developing countries are in the

BOP sector, this constitutes the Blue Ocean. Hence a series of scenarios with sixty,

seventy and eighty percent of the population is worked out to get more realistic figure.

Seventy can be taken as a conservative and optimistic figure as in addition to studies the

survey also reveals that the around seventy five percent of the patients are from Lower

Income level.

The above figures can be further supported by the fact that, the few survey forms that

were received were majorly from cities of developing countries. This can be taken as a

good indicator of the situation in more rural health centres where the percentage in

BOP can be even higher. A part of this Blue Ocean market is supplied by cheap

manufacturers.

The following are a few key findings which gives an idea of the Blue Ocean in Trauma

Devices.

Femur and Tibia leads in the number of implants by localisation of site. This

finding is also supported by the international study reports. (17,19)

Major reason for internal fixation using implant is due to road accidents (Seventy

Five Percent).

Most of the patients who need implants in developing countries are from the

Lower Income segment (Seventy Five Percent). The Upper Income constitutes to

only three point two five percent of the entire demand.

Thirty three point three three percent of the market in developing countries does

not have sufficient supply of implants.

Major supply channels are commercial ventures (Seventy Five Percent).

Government / NGO channels are suggested as options to improve availability.

Bulk purchases are preferred, hospital inventory of Trauma Devices are

maintained in most of the hospitals.

The implants are supplied as unsterile. Sterilisation is often done in the hospital.

Stainless steel Implants are mainly used in developing countries (Eighty Five

Percent).

Huge variation in patient affordability range and present product price range.

Possibility of a minimum profit margin (worst case scenario) of forty percent per

implant is observed.

Market is in need of quality of the products (Eighty Three point Three Three

Percent). Affordability is still the key.

Instruments are not available for doing orthopaedic surgery (Sixty six point Six

Six Percent) of this only Twenty Five Percent needed funds the rest Seventy Five

Percent needed instruments.

Surgeons need training (Sixty six point Six Six Percent).

Demand is for standardised basic implants (Sixty six point Six Six Percent).

The above observations match with the characteristics of the Bottom of the Pyramid

Markets as mentioned in different international studies. (3, 6, 7, 8, 9)

A detailed graphical representation of the survey results are given in Annexure 18 - 19.

Results and Analysis in order of Objectives Declared for the Project


Difficulties Faced

As discussed under the “Market Leaders” session the major suppliers in this Blue Ocean

are a number of small manufacturers from India, China and Pakistan. Due to inadequate

organisational monitoring mechanism in the field of medical device the exact quantities

of medical device export in each sector is not available. Hence to calculate the market

gap other indicators from the field survey has to be depended upon. One indicator

which can be considered is the report on availability of implants.

Another problem that was faced is unavailability of research or study reports on market

conditions in the developing countries. Especially market studies on the quality of the

implants. Hence clinical case studies are taken as indicators.

Supporting Factors

The survey gives a clear idea on the demand of the number of implants, and availability

factor. International study reports mentioning need of affordable orthopaedic solutions

and concerns over increasing prices of implants were available.

Common behaviour pattern on Healthcare in developing countries, concerns to be

addressed in design on medical device in developing countries were also available.

Together they form evaluation criteria for evaluating the market view on existing

products.

This can be effectively used to understand how the market is being catered to.

Findings

Thought the market has suppliers in the form of multinational companies and

comparatively more in the form of low quality supplier’s demand for trauma implants

exist. The findings are

Market has a potential for products but they are not using the products as basic

equipments for internal fixation surgery is not available. Surgeons have

expressed wish to accept even used equipments.

33.33% of the market never gets sufficient supplies of implants. Another 16.67

percent was okay with availability but was not satisfied.

Due lack of proper patient care and appropriate treatment, transportation

facilities and social education, majority of the patients often go to traditional

bone setters.

One of the surgeons stated the efforts needed to convince patients to use

implants due to economic factors.

83.33% of surgeons stressed the need to improve quality with a stress on

affordability.

Present price range of Trauma Devices in a few developing countries is almost

near to the price range in developed countries.

Implant failure rate of 3% to 8 % is observed.

Analysis of Data

Fragmented, inefficient, unprofessional supply and products which does not comply

with safety standards is the nature of the market in this Blue Ocean. There is a market

demand for better products. Other initiatives by national governments, WHO and other

international bodies confirm the same.

The key market needs to be developed organically along with offering of quality and

affordable products. Simple methods of social education are also needed for developing

the market.

To understand the sustainability of this market the power of the market forces are

analysed. Potter’s five force analysis is done for the market conditions, the results are as

follows. The power of the different forces increases from left to right.

Potter’s Analysis

-ve +ve

New Entrants

Power of

Suppliers

Power of

Customers

Power of

Substitutes

Internal Rivalry

Average

New Entrants: Any company currently in medical device can enter the market. The

market is not technology intensive. But developing the network, developing a suitable

business model and breaking already established partnerships are difficult given the

nature of this Blue Ocean.

Power of Suppliers: Steel prices affect the cost of the product, so does the increasing

salary of skilled labour. Hence the suppliers have considerable power.

Power of Customers: In very long term the consumers may have power with economic

development or with the arrival of new technology or new suppliers. But these will take

time to establish themselves. Hence the customers in this Blue Ocean have very little

power

Power of Substitutes: TBS is a strong substitute. Cheap manufacturers cannot be

expected to leave the market in a short time; they are also expected to respond to this

new threat. Hence power of substitutes is strong. This is majorly due to the influence

TBS has in the society. This has to be handled by education and partnership with

credible local NGO’s.

Internal Rivalry: Strong internal rivalry exists in the orthopaedic industry, but the

power of this is very less in this market consisting of BOP. Hence it is considered as the

Blue Ocean.


Difficulties Faced

Difficulties were faced at each phase of data collection to find the size of the Blue Ocean.

As it happens in projects often, all the planned possibilities failed. The first method

based on the internet did not yield any result.

This was basically due to two factors. Though the Trauma Device side is almost

maturing, medical device industry as a whole is in its boom period. The new innovations

in surgical methods like laproscopy has taken this maturing field to new levels of

keyhole surgery. This growth has kept the western companies from entering the

developing markets. The statistical information industry which depends on these

companies hence does not have any data on developing countries. If at all the survey

contained data on developing countries, it was limited to Russia and Brazil or China and

India. The option of information on BRIC countries was not considered due to two

factors. The first reason was that, none of the available reports had the data for all the

BRIC countries. The second reason was the fact that each of these reports contained

bulk of the data on developed countries and hence was premium priced and was too

costly to purchase.

The second factor was due to the reason that, focus in markets in developing countries

is a relatively new topic in the international scene which started after the rising of the

BRIC countries. The earliest reports on this topic was as recent as the year 1998 and a

few more studies around 2004-2006. Hence, even the device market size indicators are

not available for developing countries.

With the first method failing, the hope was on the second method which focused on data

from World Organisations like MSF, ICRC, Handicap International or WHO. They also

reported the same results. WHO recently started a department for initiating affordable

medical devices for developing countries, hence data was not available.

In the list of organisations, MSF reports had some data on number of internal fixation

surgeries for the year 2007 but there were only for a few countries. (33) Second limiting

factor was that only war injury data did not represent the major reason for trauma

across the world. (57)

The sub option which came in was to take the current supply statistics from these

organisations. But with Haiti disaster mission being the focus of the time for most of the

NGO’s, this was not a priority. Italy was interested but at the moment did not have data,

but promised a survey in war affected Iraq in June 2010. The Worlds Organisations also

failed to provide data.

Moving in to survey, difficulties were also faced in the method of collection of data

through different channels.

Orthopaedic companies and International Orthopaedic Associations failed though

multiple companies and organisations were contacted to ensure availability of data.

Results were very discouraging. Focus was given on one established and one expanding

European orthopaedic manufacturer. Both after a weeklong correspondence over e mail

and telephonic conversation denied interest in the project.

Orthopaedic Associations did not respond, Internet did not have many links to

orthopaedic doctors in developing countries. Surgeons from German and US Institutes

assisting surgeons from developing countries were not available by phone or email.

Short time duration for the survey also added to the difficulties.

The data collection channel of networking through friends also posed difficulties, this

included adapting covering letters for each organisation on how the project would

address their interests, introducing again and again to the chain of contacts till it

reached the surgeon. Some of the key people were often travelling hence there were

delays, some people wanted to be educated more on the subject to present this to their

contacts and finally technology penetration played its part. Internet is not widely used

as in Europe, hence people depend on internet cafes which they visit as frequent as once

a week or once in few months.

The method of collecting data through direct contacts with surgeons and references was

the least troublesome. But after a perfect start, organisational difficulties played its part

along with logistical difficulties in reaching the rural surgeons. As of date of the filled

forms have not started coming primarily due to factors involving communication

difficulties.

Positive Factors

Global Status Report on Road Safety 2009 (29) provided with the basic data necessary to

find the size of the market as explained under methodology. Other supporting studies in

the form of ALOS (Average length of Stay) provided the break through to calculate the

data along with the information extracted from the survey feed backs and international

clinical study reports.

Findings

Survey shows that there is a potential market demand of 1,054,589 implants each year

(considering 70% BOP). This consists of implants to be used in different sites.

TOTAL Considering Average of Survey reports & Study Reports

Humerus Radius/Ulna Femur Tibia Fibula Other Total

203679 182835 540645 295803 53100 230493 1506555

Considering 60% below BOP 122208 109701 324387 177482 31860 138296 903933



Study reports show that a good percentage of the developing world go to traditional

bone setters for treatment as they need cheaper medical care, quicker service and

quicker union of the fractures. With appropriate products addressing the BOP needs

along with innovative business models and partnering with organisation this population

can be tapped.

The opportunity is big enough for investing dedicated resources.

Analysis of Data

The numbers is taken with a conservative approach. The data itself is based on the

number of reported cases from a country. In certain countries like Mongolia domestic

falls are much more than the percentage of road accidents. Hence the total number of

implants should ideally increase.

It should be noted that a part of this opportunity is already catered by cheaper suppliers

and a small fraction by multinational companies.

Another point to be noted is the fact that to tap this potential suitable business models

and partnerships with local organisations have to be established. The market potential

is also dependent on the availability and training of surgeons who can perform surgical

procedures successfully.


Difficulties Faced

The first difficulty here is to define the customer as this is dependent on situation. For

example according to the survey feedback in Nigeria the patient buys the implant

according to the specification he is given. The doctor comments that “sometimes this

makes poor patients to buy implants of poor quality”. Here the customer “preference” is

price. Another occasion it is the surgeon who decides on the implant, yet again then we

come across a hospital in China where Medical Devices are sourced by the government

and “sold” to the hospital or in India where the hospital administration decides in which

implant to buy based on established supplier relations.

Hence surgeon who is “powerful costumer” concept cannot be applied here. To solve

this we have to consider “Attribute – Benefit – Preference” method to understand the

perception of the three types of customers

Surgeon / Hospital

Patient

Dealers – Private / Government

These three types of customers need more or less the same thing but differ significantly

in certain perceptions.

Positive Factors

The survey and International Reports provide with important attributes and benefits

the Trauma Device customers in BOP / developing countries look forward for. Based on

this the benefit the product should posses can be drafted.

Findings

The different finding from the survey, interviews and the study reports are made in to

the form of a matrix to converge to the benefits the customers look for.

Attributes Benefits

Cost/Price Performance Fulfilment

Affordable x

Strength of Implant under

extreme conditions x

Biocompatible x

Correct Material Combination x

Faster Implantation (Surgery) x

Strength of the Implant x

Traceability x

Profit Margin x

Fast Healing x

Reduced Hospitalisation x

Reduced Transportation x

Standardised Basic (Design) x

Technology Used

eg : screw thread technology x

Proper Union x

Cash flow x

Less Inventory x

Implant Site Comfort x

Minimum Surgical Trauma

eg: Big incisions x

Less control and monitoring

procedures x

Availability x

Meets local regulations x

Government / NGO

involvement x

Product Portfolio x

Purchase flexibility x

Equipments for surgery x

Surgeon Training x

Cost/ Price – Cost of ownership.

Performance – The customer expectation of what the product should give them.

Fulfilment – Delivery, availability, documentation and legal.

Analysis of Data

These “Benefits” are the perception of “Values” the customers have in their minds.

Hence this becomes their preferences. The three “Benefits” - Cost / Price, Performance

and fulfilment are perceived in three different ways by the customer.

The different attributes showed the characteristics of a price conscious customer group. This

is typical to the characteristics of the BOP segment. The patient is price conscious here where

as the dealer is cost conscious as his profit margins are dependent on the same.

Performance consists of the more technical and the physical expectations by the doctor and

the patient who are in direct contact with the product.

Fulfilment is the different aspects of the security of the product for the different customer

group. For eg : For products made by western manufacturers customer security is based

on the credibility of the company and the customer support it extends. In the Blue

Ocean where security is more community oriented, Government or links with credible

NGO’s are key factors of success.

Customers of premium priced western implants will look for a few more benefits like

product support, customer/ dealer care and a number of methods to ensure these. But

customers in this Blue Ocean need basic benefits which serve the need. This is another

characteristic of the BOP segment in general.


Difficulties Faced

The price range the customer is willing to pay should be compared to the existing

market pricing of the product for effective understanding. There were difficulties in

understanding the present market price range.

Trauma device market consists of a wide variety of product for each localisation of site.

This again differs from company to company portfolios and from country to country.

Covering the price range of all the devices is a challenge by itself. Getting the feedback in

details is the second difficulty. Hence the option which was considered was a general

question.

The response which was received was wide than expected as some surgeons have

considered even small orthopaedic pins in to the price range. A few of the price range

also gives the feeling that though the questionnaire was focused on Trauma implants

which was clear right from the start, surgeons have considered the price ranges of

implants used for joint replacements as well. This reason for this should probably be to

the fact that the word “Trauma” was not used in each of those subsequent questions.

Another difficulty is that the upper and lower range differs considerably from country

to country.

Another major difficulty is that the price of the implant is not the major factor which

makes the patient decide on whether to undergo a internal fixation surgery. Other costs

like hospitalisation cost, surgical expenses and other indirect costs like stay of patient

relatives in the hospital premises for the duration, transportation expenses together

determine the “affordability” factor.

Positive Factors

The above factors push the upper limit of the range to a much higher range and the

lower range to a much lower range. Still the middle range can be estimated from this.

The lower range when compared to the average production costing is still showing good

profit margins which supports the feasibility of the business as well. Charges by TBS can

also be taken as an indicator on patient affordability.

According to International studies in the BOP “affordability” has different meaning.

Flexibility mode of payments make even highly priced product affordable in this market.

A customer is ready to pay the entire amount in if flexibly of payment in instalments is

given. (2)

Findings

A few stimulations were done on the market pricing feed backs and on the patient

affordability feed backs to avoid the noise, get a clear idea and to come to a more logical

conclusion. The details are as given below.

Average market price of Implants

Excluding *China

(in US Dollars)

Considering all Values

(in US Dollars)

Lower

Range

Upper

Range

Lower

Range

Upper

Range

106 907 210 8077

(* Range from China showed huge difference in current market price range)

Average affordable price of Implants

Excluding *China

(in US Dollars)

Considering all Values

(in US Dollars)

Lower

Range

Upper

Range

Lower

Range

Upper

Range

150 227 267 768

(* Range from China showed huge difference in affordability level)

Analysis of Data

In both the cases we note that the patients can afford much more than the minimum

cost in the market. This price when compared to production cost of humerus nail which

one of the cost intensive components to produce by traditional methods (costing twenty

four Dollars and fifty cents) still gives a margin of eighty three percent. Hence it is

feasible to do business.

Based on reports, on analysing the market indicators by TBS it is found that the

minimum charge for a fracture treatment would be around Four Hundred and ten US

dollars. Hence the ideal surgery cost including implants should be within or around the

same range to ensure tapping the patients from TBS clinics.

Hence the affordability range is fixed as one hundred and fifty to two hundred and

twenty seven dollars.


Difficulties Faced

The survey form had the right questions to collect the data from the side of the doctor

and more or less the perspective of the patient on the supply channel which exist in the

developing countries. But the perspective of the people who own and operate the

supply channels need to be understood.

To address the same, a pilot interview was conducted over the phone with one of the

mail dealers in the African region. Contact detail was gathered from the internet. The

interview did not yield much result. The person was reluctant to disclose business

related details including inventory and modes of purchases. Hence the idea on the

survey was dropped. This result in lack of information on inventory, methods of implant

delivery, conformity monitoring methods and details issues related to local legal

regulations which are some of the important criteria to be met by a medical device

supply chain.

Positive Factors

The detailed explanatory sessions in the survey form gives a detailed idea on the supply

chain. Another source of information is the International reports on the supply channels

at the BOP segment. Final and the most important source of information came from a

telephonic interview with one of the surgeons who gave a detailed idea on the issues

with supply chain realities.

Findings

The findings are as follows.

There are a number of intermediate channels before the product reach the

customer.

The supplies are purchased in bulk through the dealer or from company

representatives.

Supply of nonconforming products - Repacking of used implants exist.

Monopoly in supply channel - Appropriate sizes are not available often, the

surgeon has to buy the available product and modify.

Patients are encouraged to buy from the suppliers directly in few areas.

Almost all the implants are purchased by the patients, government supplies of

free implants is not common. NGO’s have free supplies at areas of relief.

Implants are supplied in unsterile condition.

Instruments needed for surgical procedures are not available in open market.

Organisations like SIGN – POST is working efficiently in the developing countries

and expanding by giving direct training and direct supplies to the hospitals.

Organisations like Riders (109) effectively cater medical supplies to millions of

people spread across Africa.

Analysis of Data

The large number of intermediate channel involved can possibly justify the reasons why

the implant is highly priced as it reaches the customer. The market is fragmented and

suppliers have negotiating power. The mode of encouraging the patients to buy from

the suppliers directly encourages more margins for the supplier. Conformance of the

product is not given importance. Availability of the implants is an issue in areas far from

big cities. The unsterile supply of implants eliminates the need to ensure shelf life. Low

margin products like instruments which are not regularly sold in the market are not

available nor supplied, this shows a very unprofessional approach to the market. The

system works based on demand unlike in developed markets a variety of products are

available for the customer to choose. Bulk supply indicates more inventory holding in

hospital. This along with unavailability of the implants can be taken as an indicator that

and less inventory holding and fast cash flow is aimed by the suppliers.

Direct supplies and surgeon development activities can be considered as an option to

existing supply channel issues and for cost reduction. Organisations like “Riders” can be

partnered along with for effectively penetrating interior markets which has trained

surgeons.


Difficulties Faced

The products which are currently supplied to this Blue Ocean are reverse engineered

products hence strategic product features cannot be understood by studying the

product.

The descriptive questionnaire in the last part meant for sharing the desired design

features did not have any comment as well.

Positive Factors

The descriptive questions on quality, sterility, material of the implant provides a better

idea of the features to be ensured in the product. International Clinical studies were

also taken as indicators. One of the clinical studies is on the “Mechanical Failure of

Intermedullary Nails”. (55) This is taken as an indicator of the common problems facing

implants in developing countries.

There are international studies available on the product features needed for developing

medical device products for the developing countries, especially for the BOP segment.

Another International study details on the effective management of medical device in

developing countries. (19)

Findings

The key finding are

Basic Standardised product is preferred over more customised product. But strip

down versions of products from developed countries do not work in developing

countries.

Implant should be adaptable to basic minimum instrument needs.

The implantation will have to take place in facilities which does not have hi-tech

facilities like C arm, sometimes not even power supply.

Implant failure should not happen – the implant should be designed to even

tougher conditions than for urban use as the cyclical loading of the implant will

be more in the rough rural terrains.

Aesthetic packing is not important.

Implant should be affordable.

The implant should be destroyable before discarding it – this avoids recycling of

the implant.

The product should ideally be individually packed but should be designed for

bulk supplies through rugged means of transport.

Meet local and international Medical Device regulations

Should use the right raw material to prevent failure.

Process which use standardised procedures during manufacturing.

Components like screw heads should be adaptable to instruments made by major

suppliers as well.

Rugged reusable instruments are preferred.

Analysis of Data

Basic product features with high degree of adaptability is needed to tap the potential of

this market. Power independent equipments or powered equipments with a power back

up system can be a huge advantage.

Ruggedness of instruments is important. As the instruments are reused, design features

which make cleaning easier should be ensured. Materials which are in lines with regular

surgical cleaning methods will avoid confusion and ensure life of the instrument.

Affordability is one of the key success factors.

Surgeon support is another main factor which needs to be considered as a feature to be

incorporated with the product. Quick reference electronic data base for surgeons or a

central call centre to discuss difficulties during surgery can be an added feature

supporting the product and its features.


manufacturing of Trauma fixation implants.

Difficulties Faced

To proceed with the operational costing involved realistic and authenticated costing

data had to be found. This was quiet difficult as there is not such mechanism for

authentication of skilled labour and processes. Hence business discussion forums from

internet and consultation with process experts were depended upon.

Obtaining an authorised rate for the SS 316 LVM raw material was quite a challenge.

The rates offered by different firms had huge variation in prices. In addition, companies

never had the right size of material required for costing, and the price varied with the

material size and shape offered.

For advanced methods like EBM (electron beam melting) and SLM (Selective Laser

Melting) data was not available in the discussion forums as these were recent

technologies. Hence companies using these technologies were contacted, but response

was negative. The sources of information on these technologies are that provided by the

companies who provide these technologies.

Supporting Factors

Some of the interviews with OEM companies were successful as they readily shared the

information on the process that they followed.

Findings

Raw material costs are lower for traditional methods of manufacturing

New technologies are not yet ready to face mass production requirements.

Skilled labour in developed country is highly costly.

Industry leaders have entered Medical Device OEM’s and have integrated to

provide forging solutions.

The manufacturing process has bottle necks towards the end of the process

chain.

The initial process is labour intensive, finishing process is more capital intensive.

Technology intensive and value added operations are towards the end of the

process chain.

Analysis of Data

As the initial operations are labour intensive and are not technology intensive, these

operations may be outsourced to OEM who have credibility in Medical Device supplies.

This would ensure value addition, specialisation and control over key processes. This

would step reduces raw material inventory, tooling inventory, equipment maintenance

and other over head costs which does not add much value.

The final processes may be automated as they are mostly cyclical finishing processes. To

avoid bottle necks a short fat line may be adopted.


The three most commonly used materials are Stainless Steel (SS 316 LVM), Titanium (Ti

6AL 4V) and finally we consider Biodegradable polymers.

Difficulties Faced

No major difficulties were found during the process of collection of data for this

analysis. Detailed insight to the biodegradable medical grade polymer was not available.

This was the only drawback.

Positive Factors

Clear information on the market sources are available, market reports on the success of

these materials and the customer response is also available.

Findings

Stainless Steel is the most economic and the most widely source able material

Titanium alloys are stronger than stainless steel, but costlier and supplier is

comparatively limited.

Medical grade Biodegradable polymer has only countable suppliers across the

globe.

Suppliers for Medical grade Biodegradable polymer are increasingly coming

from developing companies.

Variety of raw material specifications are available for Stainless Steel 316 LVM

followed by Titanium.

Customer preference is in order of Biodegradable polymers, Titanium & then

stainless steel

Steel & Titanium prices are going up while biodegradable polymer prices are

falling.

Analysis of Data

Three forces (supplier, customer, substitutes) on the three materials are analysed as

shown below. The power of the different forces increases from left to right.

Analysis of Forces for Stainless Steel - SS 316 LVM

-ve +ve

Power of

Suppliers

Power of

Customers

Power of

Substitutes

Average

The stainless steel suppliers have considerable power. From the customer point of view

as affordability is the main criteria stainless steel is the best option. Hence the customer

does not have much power. Titanium has more strength but is costly hence it has a

slight advantage over stainless steel.

Analysis of Forces for Titanium alloy - Ti6Al4V

-ve +ve

Power of

Suppliers

Power of

Customers

Power of

Substitutes

Average

Titanium suppliers have considerable power compared to Stainless steel suppliers as

the number of suppliers are less when compared to Stainless Steel suppliers. From the

customer point of view as affordability is the main criteria Titanium is not an option.

Hence the customer has considerable power. Titanium has more strength which is an

advantage but is costly this is a disadvantage in a price sensitive market.

Analysis of Forces for Biodegradable Polymer

-ve +ve

Power of

Suppliers

Power of

Customers

Power of

Substitutes

Average

In the case of biodegradable Polymer the three powers are much stronger. With limited

number of suppliers the suppliers have the power. In a price sensitive market the

customer has the power, but the benefits offered by the product are quiet strong as well

hence the power is not stronger, but on the higher side. Stainless steel is a strong

competitor with its price advantage.

The analysis favours Stainless Steel in many ways. Hence the most suitable material for

this market is stainless steel.


Difficulties Faced

No difficulties were faced.

Positive Factors

Detailed analysis was possible with the help of survey feed backs and international

study reports.

Findings

A detailed graphical lay out of the stake holders is attaché in Annexure 21.

Analysis of Data

Unlike in developed countries the community orientation of developing countries

brings in a number of stake holders. Certain stake holders bring in positive synergies

where as certain others have to be managed very carefully.

The people who are benefitted by the product are the people who would bring in

synergy.

The first group consists of the direct stake holders, excluding TBS and TBS middle men.

These are people who are directly benefitted by the product. This groups works

towards promoting the product.

The second group which brings in synergy are the different departments under the local

government. They will be much benefited by the product. This is due to the fact that for

the same health expenditure the government gets more value. This gives positive

political benefits to the government. For example the health ministry of the government

is benefitted by the faster recovery of the patient which reduces the hospital services

expenditure taken care by the government. This is followed by other indirect benefits

like short average length of stay in the hospital by the patient. This enables the hospital

to accept more patients in need and to reduce the condition of the hospital.

Hence active partnering and participation of local governments & social organisations

should be encouraged.

Under companies are the different groups which are benefitted excluding the local

dealers.

The management of the company gains good social image and is directly linked with the

product. Logistic agencies gain business opportunities as more and more products are

transported.

Financial institutions can be involved to create innovative and disruptive business

models in this market. It can also be used to develop a win – win platform where both

the company and the local financial institutions like banks. Micro credit organisations &

insurance agencies get the benefits and more jobs are created.

Two wheeler companies are benefitted as amputations and seriousness of road

accidents reduce. Aid agencies have more value for the same money they spend, added

they get products which meet international standards.

The ones to be managed very carefully are the TBS, TBS middle men and the local

dealers. Any disputes arising through these two stake holders can turn out to be costly.

TBS people and their families should be effectively involved and rehabilitated.

The dealers in developing countries, especially in interior areas are often the only

supplier of the day to day supplies of the hospital. Any tension in this relationship will

affect the working of the hospital and the customers.

Conclusion for “Value for Money Segmentation”

The “Value for Money” segmentation of Trauma devices have been done based on

1. Product Supply Related Features

2. Product Environment – Instruments, Infrastructure and Training

3. Technical Features of the Product – Design, Operations and Quality

4. The affordability of the customer.

The aim was achieved by addressing the following objectives










Based on the analysis of the above objectives, product positioning can be decided and

guidelines for the core strategic plan for this market can be developed. Based on these

guidelines the plan for Product Development and Operations can be developed.

The main observations are this is a Blue Ocean where the market is sensitive to price

but needs quality and availability of products. This market needs a totally new approach

and business model for successful implementation of the project.

Annexure

Annexure 1 (DATA SUPPORTING EXECUTIVE SUMMARY)

(Source: From Global Injury chart by UN 2002)


(Source : From Global Injury chart by UN 2002)



(IPV – Inter Personal Violence)


(Source: Distribution of Physicians – UN Stats 2010)

Annexure No 15 - Survey Format

Annexure No 18 – Survey Results

Annexure 21– Stake Holders

Stakeholders

Direct

stakeholders

Under

government

Companies Others

Patients

Relatives

Traditional

Bone Setters

(TBS) TBS Middlemen

Surgeons

Nurses

Others hospital

staff

Social Welfare Health ministry

Road traffic Transport

Management

Dealers

Logistic

agencies

Financial

institutions

Automobile

companies

Social workers

Hospital

management

Political

institutions

Rehab centers

Aid agencies

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trauma care - medical devices - blue ocean - developing countries - value for money segmentation...

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trauma device market

blue ocean market leaders

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blue ocean china

trauma device companies

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approximate market

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