Emerging MarketsKelvin Johnson, President Emerging Markets19-20 November 2009
2
Since the industrial revolution in the 19th Century, the rich countries of the first world have dominated the global economy... That era may be over
The Economist, 21 January 2006
3
Market characteristics Developed markets Developed markets
Established healthcare regulation
Educational marketing
Compliance
Products and pricing
Evolving regulation and developing business practices creates operational risks
Strong sales and
distribution
Consumers are generally aware of various options and products - standard marketing campaigns can be applied
Surgeon training focused on converting existing surgeons
Products developed for western customers - full product portfolio can be leveraged
Overall affordability less of an issue, and innovation is key
Direct sales possible Well-established distributors with strong
long-term relationship network
Specific campaigns for customer education essential to improve consumer awareness and unlock demand
Surgeon training can focus on winning new surgeons and unlock demand
Products must be customised to cater for different needs, hospital environments
Products must be provided at appropriate price points
Direct sales mostly not yet possible Key decision makers are changing quickly,
relationships must be continuously re-established/expanded
Emerging marketsEmerging markets
4
Assessing the potential our process
Clear strategy on Emerging Market / Group fit
Identify the markets
Research the markets
Execute
Stick to the plan
5
Addressing the potential
Set clear objectives for each market
Build the right local teams Drive efficient operations
Right products and pricing Effective educational marketing Strong sales and distribution
6
Market size and competition
Reconstruction Major global companies have established
position Much more open than global market
positions
Trauma Significant local manufacturing competition
Endoscopy Relatively immature market
AWM Traditional wound care remains treatment
of choice Global companies established, but wide
variation on country specific basis
1.7
4.8
2008 2018F
Emer
ging
mar
ket r
even
ue ($
bn) CAGR
11%
2018F
Endoscopy
AWM
Trauma
Reconstruction42%
27%
12%
19%
1
2
3
4
5
0
Note: markets currently served by S&NSource: Smith & Nephew, BCG
General observationsGeneral observationsMarket sizeMarket size
7
Market prioritisation the 3 step approach
Global pool of all developed and emerging
markets
50 largest markets
27 largest emerging markets
27 largest emerging markets
prioritised
15 emerging markets
categorisedinto 5 groups
1Initial screening Prioritising Grouping
2 3
15 high-priority emerging markets selected
8
Economic outlook and healthcare market opportunity used as key criteria for prioritisation
Key factorsKey factors
Is the size of economy substantial? How large is the population? How many aged people in the market? How many wealthy people who can afford
the premium products? How large is the growth potential? Any drivers to promote conversion /
trading up opportunities?
Data Data
'12 real GDP '12 total population '12 population aged 60+ '12 household # with HH earning >
US$10k per year '07-'12 real GDP CAGR '12 real GDP/capita
WeightWeight
1111
12
Overall economic outlook
Current healthcare
market
Healthcare market
potential
Is the healthcare market substantial? Is healthcare expense affordable? Are there enough healthcare
infrastructure / supply? How large is the medical device market?
'07 HC expenditure '07 HC expenditure/capita '07 doctors/1,000 pop '07 hospital beds/1,000 pop '06 medical device market
21112
How large is the growth potential for healthcare market?
Will the medical device market grow fast in the next few years?
07-12 HC expenditure CAGR 07-12 HC expenditure/cap CAGR '06-'11 medical device CAGR '06-'11 medical device/bed CAGR
2121
20
7
7
6
Absolute-scale-related
13
Growth-rate-
related
7
Score of 1 (low) to 5 (high) to be assigned to each factor; weight of each factor then taken into account to arrive at the final score for each market
9
China
Russia
Poland
India
Brazil
South Korea
Turkey
Mexico
Taiwan
Singapore
Argentina
Hong KongSouth Africa
Israel
8580
66
65626257
55
55
55
53
52
51
51
Malaysia
Saudi Arabia
Iran
Thailand
Indonesia
Chile
Venezuela
Colombia
Nigeria
Kuwait
UAE
Pakistan
Algeria
47
46
44
43
41
40
39
35
34
34
34
31
30
Markets with relatively stable business operation environment
Favorable environment / low risks Tough environment / high risksNote: 1. Based on EIU overall operation business environment index (June 2008) 2. Based on EIU business operation risks index (June 2008)Source: EIU, BCG analysis
MarketMarket ScoreScoreMarketMarket ScoreScore
Operation environment1
Operation environment1
Operation risks2
Operation risks2
Operation environment1
Operation environment1
Operation risks2
Operation risks2
23 markets selected with relatively stable business operation environment
10
0
10
20
30
40
50
Focus in on 5 Groups with China the most attractive
Sizable medium-term potential Steady economic and healthcare
market growth
0
5
10
15
0 1,000 2,000 3,000 4,000
China
India
Russia
Brazil
South Korea
Mexico
Turkey
Saudi Arabia
Poland
Indonesia
South Africa
Thailand
UAE
Malaysia
Argentina
Medical device market
2006 (US$ Mn)
Medical device market
2006-2011 CAGR (%)
5
Smaller markets with lower growth
A clear strategic priority Large overall size and good
affordability
Medical device market 2011 (US$ 500 Mn)
India
RussiaBrazil
South
Korea
MexicoTurkey
Poland
South
Africa
0 100 1,1002002006 population (Mn)
Medical device market per capita 2006 (US$)
2
1
3
4
A fast-growing market but will remain small in the medium-term
Already more developed markets
Source: BCG analysis
11
Smith & Nephews Emerging Markets
Countries with direct presence
Countries with established distributors
12
Smith & Nephew local teams run by local talent
Managed directly
AfricaMiddle East
South America
ASEAN China SouthKorea
PuertoRico
EasternEurope
India Mexico
Finance
Supply Chain
HR
Strategy and Direction
Compliance
President
13
Revenue analysis
2008 Revenue by GBU2008 Revenue by GBU
Asia
Europe
Central & South
America
Africa/Middle East
2008 Revenue by Regions2008 Revenue by Regions
19%
35%
15%31%
AWM
Endo
Orthopaedics27%
30%
43%
14
Performance milestones
Pre-2005
Opportunistic
2006: Formation of Emerging Markets Team
2006-07
Clarity on strategic intent
Quantification and Research
Dedicated structures and teams
Focused teams, but matrixed with GBUs
2009
Strategy refined
Clear priorities
Investment increased
Expectations exceeded
Emerging market revenues and growthEmerging market revenues and growth
0
50
100
150
200
250
300
2006 2007 2008
Reve
nues
(US$
m)
0%
5%
10%
15%
20%
25%
30%
Und
erly
ing
grow
th ra
te (%
)
Revenue Underlying growth
China
16
Growth fueled by favorable demographic, economic and HC environment
Growth fueled by favorable demographic, economic and HC environment
Chinese medical device market willcontinue to boom
HC spending / cap (US$) 83 116 197 317
Med dev/ cap (US$) 2.3 2.7 3.5 4.5
6,130
4,739
3,635
3,005
0
2,000
4,000
6,000
8,000
+9%
US$ M
2005 2007 2010 2013
Chinese medical device market will reach US$ 6.1Bn in 20132
Chinese medical device market will reach US$ 6.1Bn in 20132
+10%
1. at price of US$ 20052. Market size based on price to distributorSource: Espicom, EIU, BCG analysis
86
1.3
2005
15
85
1.3
2007
17
83
1.3
2010
19
81
1.4
2013
Aged 60+
Aged 0-59
0
100 14
50
% of population
Large and agingpopulation
Rapidly increasing
wealth
Total (Bn)
3.
