Is an 'India Strategy' a must for medical device majors?

Recently, HBR had published an interesting article titled “Does your company have an India Strategy?”. I remember eagerly clicking on the link to read it, as the topic resonated with me.

The article talked about diversified MNCs like Nestle, Unilever, comparing them to their Indian subsidiaries on parameters like the P/B ratio, growth rate, asset utilization and profitability. It argued that the Indian subsidiaries were valuable had a stronger growth rate, higher asset utilization, and better profitability. concluding that an India strategy is a must for diversified MNCs.

My thoughts came back to healthcare and medical devices in particular, though the industries are very different and in many aspects incomparable. ?

Anyone who has worked in a medical device or diagnostic MNC in India in the last few years has undoubtedly felt the pressure to deliver improved profitability. Let’s take the parameters in the article and look at why medical devices are so different from these diversified majors the article talks about, and if indeed, an India Strategy is a must in medical devices.

Growth rate: India with a population of 1.43 billion is large and with a growing middle class, an improving per capita GDP (at $ 2450 in fiscal 2023) is fast becoming a consumption powerhouse. The market consumption is supported by affordability and a desire for a better quality of life. This factor is common for the FMCG majors and medical device majors.

Asset utilization: This ratio becomes more relevant for companies with sizeable manufacturing in India- which the diversified majors mentioned in the article are. A significant percentage of the products sold in India are manufactured in India. This manufacturing in India has been in place for the last many decades. Compared to them, ~80% of medical devices are still imported in the country (historically medical device manufacturing is restricted to a few locations globally).

Profitability: So, why do these diversified MNCs with significant local manufacturing deliver better profitability in India, despite selling at far lower rates due to the lower affordability in India? Why are Medical Device and Diagnostic majors struggling to deliver profitability?

We can look at the main points here- local manufacturing means lower manufacturing and distribution costs in India. Predominantly local manufacturing also means minimal/low spends in import logistics, import duties, taxes, and having to buy from the parent company at high prices to sell here at higher prices. It means having the flexibility to develop a local product portfolio, suited to cultural needs, behaviours, affordability and preferences in India and being able to penetrate the market better. It means a flexibility in packaging which can result in market penetration and growth.

Medical Device MNCs which import goods are neither able to customize the product to the Indian market, create a distinctly Indian portfolio (not every device will need to be localized) nor able to change usage or packaging to be different for India. Not to mention the importing costs (inter-company transfer prices, import logistics..) being higher than local manufacturing would cost them.

That’s where the medical device majors are very different from the diversified majors mentioned in the article. Indian device players with local manufacturing are able to price products aggressively while delivering profits.

Local manufacturing or Make in India is possibly the most efficient way for MNCs to deliver better profitability in the current scenario. That’s one way to make India a sizeable and relevant market for any global medical device major.

That’s one perspective.

What’s your perspective? What else do you think the Indian subsidiaries of medical device and diagnostic majors can do to ensure India remains relevant for the parent MNCs?

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