Doing business in Russia The Medical Devices Market

Doing business in Russia

The Medical Devices Market

By: Jeroen Ketting Managing Director of Lighthouse Russia BV

WWW.THELIGHTHOUSEGROUP.RU 2

1 • RUSSIA

2 • ECONOMY

3 • MEDICAL DEVICES MARKET

4 • MARKET ENTRY

5 • BUSINESS RISKS

6 • RUSSIA IN-DEPTH

7 • DO’S AND DON’TS

8 • EXECUTION

9 • NEGOTIATIONS

10 • RELATIONS


1.  Human, generous, sincere, boundless, harsh 2.  Emotional 3.  Nostalgic 4.  Country of extremes 5.  Country of contradictions 6.  Unpredictable, surprising 7.  Power and pride 8.  Resilient and invincible 9.  Russia is never as strong, nor as weak as she appears! 10. In Russia, always that will happen what you least expect! 11. Quantity - Quality/ Capacity - Efficiency/ Purpose - Comfort 12. No middle-class or bourgeoisie

1. Russia Economy Risks


Russia fortunes are directly connected with: 1.  Oil and gas prices 2.  Growing:

1.  GDP per capita (highest of BRIC) 2.  Middle class and disposable income 3.  SME sector 4.  Business and consumer lending 5.  Demand in the regions (Ural Federal District, Volga Federal

District, Krasnodar region.)

3.  Russia’s size and hidden resources 4.  Russia’s resilience

Russia 2. Economy Risks


North-West Federal District • 9,5% of the population of Russia; • 10% of the Russian GDP

Siberian Federal District: • 13,8% of the population; • 10% of the GDP

South (incl. North Caucasian) Federal District

• 16,1% of the population; •  8% of the GDP

Far East Federal District: • 4,6% of the population; • 5% of the GDP

Volga Federal District: • 21,3% of the population; • 16% of the GDP

Ural Federal District: • 8,6% of the population • 14% of the GDP

Moscow

Central Federal District: • 26,1% of the population; • 37% of the GDP


Russia 2. Economy Risks

1.  One of the top 20 largest markets in the world. 2010 total turnover = US $5.6 bn.

2.  Annual market growth of 13.8% in next 5 years.

3.  Strong hospital infrastructure (legacy USSR).

4.  80% of equipment needs to be replaced.

5.  Two-year US $44 bn National Healthcare Program(2010) aims to modernize Russian healthcare facilities.


Economy 3. Medical Devices Market

Risks


Economy 3. Market Segmentation

Risks


Economy 3. Market Segmentation

Risks

1.  Import: 81% of the market. 2.  Largest share of import: high-tech market segments, i.e.

diagnostic imaging devices. 3.  Low-tech market segments: preference is given to local

producers. 4.  Prospective client groups

a)  Public medical centers:   Uneven distribution of funding   Procurement is done by the Russian government (tenders) b) Private medical centers:   The market only started developing in the last 10 years.   Mostly concentrated in the thirteen largest cities.


Economy 4. Market entry

Risks

Things you need to know:

1.  Highly competitive market:

a) European producers: well represented + strong track-record on the Russian market.

b) Chinese producers: strengthening position on the market with good transport links and high price-quality ratio.

2.  Preference for turn-key projects: foreign producers with wide product range.

3.  Price is the most important motivator in the Russian market.

4.  Hesitation to work with Latin American producers: no established reputation + high transport costs price + spare parts service


Risks 4. Market entry

Do’s and Don’ts

Study the market

Understand your value

chain

Brochures in Russian

Visa

Exhibition visits

Customize your offer

Partner search Certification

Contracting & Payment conditions

Transport & Logistics

Start your business!

After sales


1.   Need for distributor because of: a)  Need for a network b)  Market intelligence (lack of market transparency) c)  Specific tender system d)  State programs e)  After sales (service, spare parts stock)

2.   When dealing with a distributor: a)  Certification on your or distributor’s name b)  Exclusivity or not

i.  Regions ii.  Sectors iii.  Client groups iv.  Formulate targets (turnover, market share)

c)  Strengths are usually only in certain market segments d)  Consider

i.  Language ii.  Company size iii.  Transparency

Risks 4. Market entry

Do’s and Don’ts


Economy 5. Business Risks

Russia in-depth

1.  Mainly economic risks 2.  Mono structure of the Russian economy 3.  Problems in remote areas (Far East, Kaliningrad,

Northern territories) 4.  One factory towns 5.  Poverty gap 6.  NPLs 7.  Double dip (Russia shows boom and bust pattern) 8.  Oil price 9.  Ruble exchange rate 10. Parliamentary and Presidential elections 11. Business partnerships

1.  Suspicious 2.  Trust and personal relationships are crucial 3.  Informal networks (The Micro Cosmos) 4.  A different sense of responsibility 5.  Testing the rules 6.  The external appearance is very important 7.  Vertical authority and control minded 8.  Practical 9.  Short term (positively fatalistic) vision 10. Single-focus thinking 11. Erudition and depth 12. Extravagance


Risks 6. Russia in-depth

Do’s


Russia in-depth 7. Do’s Don’ts

1.  Understand where you are 2.  Enjoy 3.  Commit (time, money, presence) 4.  Prepare 5.  Gain some knowledge of the Russian language and culture 6.  Be entrepreneurial, flexible and patient 7.  Trust but check > Never assume 8.  Stay in control and keep the initiative

1.  Be afraid of Russia 2.  Underestimate your Russian business partner 3.  Stick to your own perspective 4.  Think Russia is Europe 5.  Think that Russia is cheap 6.  Think you know what is going on 7.  Let yourself in with corruption 8.  Judge on the basis of first impressions 9.  Forget you are foreigner


Do’s 7. Don’ts Execution


Do’s and Don’ts 8. Execution Negotiations

DOING BUSINESS IN RUSSIA REQUIRES: 1.  Continuous attention 2.  Twice the time to manage 3.  A personal hands-on approach 4.  More investment of time, money and effort 5.  A medium- to long-term strategy 6.  Attention to the language barrier

Doing business in Russia is like driving a car


Execution 9. Negotiations Relations

1.  It is never give and take 2.  No practice of reaching consensus or win-win 3.  Weakness is not shown and one always negotiates from

a position of power 4.  It is often about personal short term gain 5.  It is often about short term objectives 6.  Psychology and emotions play a big role 7.  Intent is more important than written agreement 8.  Russian businessmen can be imposing 9.  Russian businessmen think, speak and act fast! 10. Only the smartest and toughest have succeeded!


Negotiations 10. Relations Conclusions

Human relations in business: 1.  Never loose your cool 2.  Build and guard your authority/image carefully 3.  Understand your own position 4.  Lead by example 5.  Keep the initiative 6.  Maintain your added value 7.  Don’t show any weakness 8.  Separation of business and personal 9.  Show loyalty but don’t let yourself be used 10. Be present


Conclusions

1.  The Russian medical devices market: steady growth

2.  Increased government spending + need for new medical devices = opportunities for foreign producers.

3.  The demand for medical devices: mostly from the state-owned clinics. The private sector: only developed in the last 10 years.

4.  Potential foreign producers: largest in the high-end segment of the market.


Conclusions

Russia needs to be taken seriously

Documents

Doing business in Russia The Medical Devices Market