03 February 2013
From the Catalyzt Research Desk
India is placed in the top three emerging markets for investment by multinational Medtech companies with annual growth surpassing 15%, and Medtech industry revenues in excess of $3 billion in 2011. Until recently, most international companies have adopted a cautious business strategy in India, content to deliver their existing products and services to theTier 1 segment, defined as wealthy customers mainly in large urban centres .
However, increasing international and domestic competition is causing the landscape to become far more competitive, and companies searching for growth are exploring new strategies. There is a realisation that the greatest potential for growth is in catering to Tier 2 and Tier 3 segments defined as the middle and lower income individuals living in urban and rural areas , whose primary requirements are affordability and access at an acceptable quality.
As firms look to expand or enter into the rapidly changing Indian healthcare market, they need to customize and innovate breakthrough products, services, as well as business models to specifically address the unmet needs of the Tier 2 and 3 market segments. These unmet needs must be understood thoroughly, as well as usage characteristics and spending patterns amongst clinicians and hospital buyers, who cater for the lower and middle-income population living in urban and rural areas.
Customer value should be focussed upon, simplifying products and substituting lower cost materials, rather than complex technology. In addition, overcoming the poorly developed distributor networks to cater to Tier 2 and 3 market segments must be considered, while paying close attention to variations in clinical practice and health infrastructure which influences the adoption of innovation.
Multinationals and start-ups alike are accessing these price sensitive market segments with new low-cost products, innovative business models and new channels to market. For example GE Healthcare partnered with Embrace, a local social enterprise to develop a neonatal incubator solution for the rural Indian market, which was priced at $200, just 1 % of the price of the incubator solution sold in the US. In addition, an example of innovation from within India is Bangalore-based Forus Health. Forus have developed 3nethra, an award winning portable device that aids the early detection of eye diseases, and can be operated with minimal training and is available for just 17 % of the cost of comparable devices. Although developing such solutions is demanding, companies who do so, create enduring competitive advantage.
Other examples of service and business model innovation abound in mHealth and Telemedicine, making inroads into reaching lower and middle income patients. WHP, a non profit organisation operates a telemedicine facility in Uttar Pradesh with around 1,200 local people who use mobile technology to perform diagnostics, treatments, tele-consultations and referrals to WHP’s health centres, where patients can discuss their medical issues via webcams with doctors based in New Delhi. The success of this model is now leading to its replication in the state of Bihar.
These are early, but promising instances of delivering innovation in healthcare products and services to Tier 2 and 3 customers. Further progress for firms will depend on establishing local and regional operational effectiveness to deliver innovations. This involves a low-cost manufacturing network, and capabilities and channels which are specific to Tier 2 and 3 customers.
As market dynamics are rapidly evolving, the field is open for smaller, more nimble and responsive players to take advantage. Companies that are early movers and can rapidly develop capabilities that underpin a bespoke operating model for India stand to generate substantial and profitable growth as India’s healthcare system extends beyond its traditional market.