Medtronic as an MNE and Its Business Development Factors - Assignment Example

Medtronic Case Study Introduction This case study is centered towards Medtronic which was initially a small repair shop of medical equipment serving all manufacturers of medical devices. Omar Ishrak is the first non-American CEO of the company who had certain expansion plans for the firm. His aim was to reinvigorate the growth of makers of medical devices. Omar Ishrak focused on emerging markets, creative business models and therapy innovation. However in 2012, mature economies had certain budget constraints, there was medical therapies shortage coming in the market, and decline in the core business growth of Medtronic. All these factors accounted for overall failure of the company and eventually reduced dynamic growth of the company to zero. On the contrary, the newly appointed CEO of the firm, Omar Ishrak witnessed major challenges in terms of retrieving the position of the company in the market place. During the first 18 months, the new CEO was able to plan for company’s future growth prospect through R&D investment in order to develop innovative medical therapies. To facilitate short term prospect of the company, Omar Ishrak had always favored business model innovations and creative product development. However the major focus of the newly appointed CEO was to overcome all possible adoption barriers prevalent in emerging economies. The CEO even restructured his organization so that all the team members are aligned with the innovative goals and objectives of the firm. There was proper restructuring done of the entire executive team as well as their respective responsibilities. The heads of global operating regions of Medtronic now directly reported to the CEO instead of head of International. Many non-Americans were even appointed for executive committee. The company’s one of the biggest achievement was acquisition of a Chinese orthopedic company. However this case study reveals that Omar Ishrak is in a dilemma as to whether the steps taken to transform Medtronic into a global firm is sufficient or it requires more innovative strategies for sustaining growth. 2. Objectives The objective of the case study is to put across different dimensions of international business. It has been observed that in international expansion strategy organizations need to adopt innovative business models. In this study strategic dimensions will be aligned with the success or failure of international business. The entire study will be conducted from a consultant’s perspective so as to evaluate the expansion strategies undertaken by the firm. There would be even suggestions given at the end of the study in terms of appropriate strategies which can be adopted by a business. The other objectives of the study are to outline the various expansion strategies normally implemented by an organization, analyze probable results of international business expansion into emerging markets and relate obtained results with Medtronic. There are certain conceptual frameworks incorporated in the study such as Hofstede’s model, CSA/FSA, etc. These frameworks will be analyzed to determine the international position of the organization. The other environmental factors will be studied which has an impact on international business strategies. It can be stated that the major objective of the study is not only to analyze the case of Medtronic but even to highlight the various expansion strategies undertaken by a firm. 3. Analyses Analysis of Medtronic as an MNE and discussion on business development factors Medtronic was founded in 1949 and was located in a small region known as Minnesota. Since its year of incorporation the company has gained competitive advantage by facing external challenges and developing appropriate strategies. The international position of Medtronic can be analyzed well through Hofstede’s framework. Cross-cultural communication is highlighted in Hofstede’s model. Medtronic had its operations limited in United States but international growth of the business initiated entering into certain developing countries. The power distance index of the model states the extent to which less powerful members of a company consider power to be unequally distributed. For instance with the arrival of Omar Ishrak it was evident that issues of cultural diversity will arise since he was the first non-American CEO. However this proved to be fruitful for the company as more non-Americans were involved in the team who were able to support business expansion in Asian countries (Collison and Rugman 34). The factor individualism versus collectivism of the model can be related with Medtronic as Omar Ishrak restructured the entire organization where team members worked towards a common goal. Uncertainty avoidance factor was moderate for the organization as unusual circumstances were avoided by adopting right measures. Medtronic’s CEO distinguished its short term goals from long term mission. The factor masculinity versus femininity cannot be related with the organization as equal rights were distributed throughout the workforce (Verbeke 115). On the other hand, long term orientation was low for the company as CEO’s major aim was on short term orientation. In their international expansion strategy it has been witnessed that new developments were aligned with sustaining international business operations. As per the CSA/FSA framework, there are four dimensions that justify international position of a business. Figure 1: CSA/FSA Framework (Source: Collison and Rugman 35) According to figure 1, the firm specific advantages for Medtronic are its human capital, expertise in medical field, strong base of customers, financial arm, international business operations and R&D investment for innovative products (Jarzabkowski and Kaplan 4). However there are certain advantages which are weak such as poor network in global markets, less of training and development sessions for executives, focus on short term orientation and less of marketing activities in developing countries. There are certain country specific strong advantages for the firm such as scope of growth, cheap labor in Chinese markets, less competition in foreign countries such as Africa, and more customers in European markets. On the contrary, weak advantages are less of knowledge in developing countries and rapid technological advancements in developed countries (Bartett 97). The international position of Medtronic on the basis of this framework is a firm that desires to enter into foreign markets but has limitations as there are barriers prevalent in emerging economies. Business development activities comprise of wide set of factors like political environment as political stability is essential to manufacture products and gain maximum market share. On the other hand, these medical therapies are expensive which requires stable economic conditions and hence it is most suitable for developed or developing economies (Ghemawat 167). Cultural aspect is taken into consideration by CEO of Medtronic by encompassing diverse cultural workforce who can effectively manage business operations in global context. The CEO of Medtronic considered varied and customized ways of entry into different emerging and developing markets according to the specific requirements and opportunities in these markets. One of the main goals of Oman Ishrak’s objectives for the future of Medtronic was to globalize the organization through the initiation of impactful structural changes. Soon after he became the CEO of Medtronic, Ishrak recognized that it was essential to focus on making Medtronic a global organization. He identified that the company had sufficient resources and capabilities that could be used to tap in the potentials of the emerging as well as the developed markets in various parts of the world. He also recognized that Medtronic possessed an in depth knowledge of the emerging markets in which it had far flung operations. However, the CEO also understood that both the knowledge of the markets and the internal resources of the organization had not been fully used by the existing management of the company. Therefore he decided to implement a new business model which would ensure growth and expansion by giving greater emphasis on the developing market and would develop ways to enhance the revenue and profitability of Medtronic in the developed markets. Ishrak devised an expansive international expansion plan for the company with the aim of developing a globally functional organization. The international expansion plan of Medtronic included different strategies for entering different markets. A new geographic structure was developed for this purpose through which the operational areas of Medtronic were divided into nine major differentiated operating areas. These included Europe, Africa (EMEA), Asia-Pacific, Middle East, Latin America, The United States of America, Greater China, Canada, Japan and South Asia. The company focused on developing innovative and customized business models to ensure faster penetration and better success in the new markets. The company developed new products and business models specifically tailored to meet the requirements and demands prevailing in the respective markets. The majority of the international expansion plan of Medtronic included expansion in the high potential emerging markets. The company took up different strategies to enter these markets. For example, it established a wholly owned subsidiary in Pudong, China. In contrast, the company aimed at tapping the developing markets like Europe, Germany and the United States through exporting activities initially followed by joint ventures and conglomerations in the later stage of the foreign expansion process. Figure 2: Medical devices industry margins (2006-2012) Source: (Black 90). The management of Medtronic realized that in order to develop the business as multinational enterprise and to ensure continuous competitive advantage and success in all the markets of its operations, it has to re-organize the basic business model of the organization as well as introduce impactful changes in the human resources management structures and processes. The globalization strategy of Medtronic was largely dependent on strong operations and research and development capabilities. Therefore, the company focused on developing open and reverse innovation through the encouragement of different employees to actively participate in the innovation and operational processes. For this purpose, Medtronic started different training program for the employees who included multi-day workshops, online courses, lab based training programs etc. These training programs were introduced as a part of the human resource management and development strategies that would support the ultimate objectives of the company to become successful on a global platform (George and Kindred 6). The research and development strategies, foreign expansion policies, human resource development and the implementation of different business development strategies resulted in the creation of a globally integrated organization which maintained its own product lines, global distribution channels, research and development and manufacturing facilities in multiple countries across the globe. The growth of the company increased at a high rate in 2009 to 2012 and is expected to grow further in the next five years of its operation. The medical equipment manufacturing company has established itself successfully as a globally recognized brand through the use of its strategic advantages, internal capabilities and efficient management processes. The focus of the management of Medtronic is a valuable asset for the organization which has made it possible for Medtronic to achieve sustainable competitive advantage and to penetrate emerging and mature markets with the same level of efficiency. 4. Discussion of issues Though Medtronic has achieved impressive growth over the last few years of its operation, yet the sustainability and success in the future years of the business remain significant challenge for the management of Medtronic. This is because the external environment of the business is experiencing dynamic shifts and new influences and barriers. The increasing adoption barriers for the medical tools and treatments in different countries are one of the main challenges that are faced by Medtronic (Cullen 44-48). Other than this, the heightened focus of Medtronic on its growth in the emerging markets seemed to have affected the success and presence of the company in the medical equipment industry in the developed countries like Europe and the United States. The company is facing the pressing need of adapting to the changing requirements of the global consumer groups. Also, the high level of competition in the developed and emerging markets is major issues faced by the company in the recent years. The increasing number of investments in this sector and the entry of new companies is further threatening the existence and competitive position of Medtronic in the global medical equipment sector (Hitt 506). The medical equipment industry is becoming a highly targeted industry for new business because of the high potentials of this sector. Figure 3: Annual growth rate of the medical equipment industry (Source: Hitt 45) The fact that the sale of medical equipment remains unaffected by external economic factors like recession makes the scope of profitability much high and consistent in this industry. Also, the products in the healthcare and medical industries are necessary goods which are purchased by the consumer groups as obligatory requirements. These factors combined with the increasing power of investment of the existing and new companies in this kind of business are increasing the level of competition in the global medical tools and devices industry. This is likely to directly impact the success and sustainability of companies like Medtronic. The medical equipment industry is a fast changing industry which is largely dependent on technology. A company must take up the latest technologies in its product designing and development processes in order to remain competitive in this industry. The obsolescence of the technologies used in the medical equipment is one of the largest threats faced by the companies that function in the medical equipment sector. Therefore, Medtronic may face the risks of obsolescence of its products if it is not able to invest sufficiently in research and development. The lack of innovation may also act as a significant issue in the future years of the industry, the medical equipment sector shows trends of significant increase in demand levels over the next few years which would be driven by the advancements in the medical treatment procedures and techniques. The medical equipment industry in the developed countries like The United States, Europe and Germany are likely to be dominated by large scale investments and the entry of strong new players in the market. Also, the new regulations and the stringent monitoring of the quality and efficiency of the medical equipment provided by different companies may act as significant challenges for Medtronic. The fast development of this industry in the emerging economies like China and Asia Pacific are also likely to bring about major challenges of innovation and sustainability for Medtronic. Since, Medtronic operates across borders; it has to keep on improving its policies in order to remain aware and compliant with the existing and changing legal and political requirements and guidelines that rule the medical equipment industry (Black 40). The company is likely to face the challenge of losing its prominence in the fast changing and increasingly competitive sector. The social factors like consumer buying patterns and increasing consciousness of the global customer groups towards high end medical equipment would act as both threats and opportunities for the business depending on the way that the company responds to the varied demands and requirements in the different regions in which the company has established its operations. 5. Recommendations and implementation Figure 4: Mega trends in the medical equipment industry in 2014. (Source: Burton, 301) It can be identified from the above analysis that Medtronic needs to focus on developing suitable sustainable strategies that would ensure that the company is able to maintain its established position in the global markets. The effective considerations of the different corporate and business strategies would further help Medtronic to overcome the barriers of entry into new markets and to grow its business in the new countries of operation. The management of the company should consider alternative strategies for growth and development. The expansion in the developing markets may not be sufficient in the future. Therefore, the company needs to devise and implement new innovative strategies to increase its competiveness as well as accelerate the growth and sustainability of the company in all types of economies. One of the ways in which Medtronic can secure its position in the global market is through leveraging on the high levels of operating cash flows in the company. Since, Medtronic is a cash rich company, therefore it can use its reserves and financial resources to develop new products and foster innovation as an effective avenue of growth and development. Also, the high cash inflows can be used for making acquisition and vertical and horizontal irrigations in different levels of the industry supply chain so that the capabilities of the company are enhanced suitably. Using the financial strengths of the company would be an intelligent move on the part of Medtronic to negate the increasing competition from the existing companies and the emerging threats from the new entrants in the global medical equipment industry (Burton, 302). The acquisitions, joint ventures and conglomerations are likely to help Medtronic successfully mitigate the issues in the external business environment like the increasing pressure in the healthcare cost across the globe. The company should also develop new strategies that would support innovation and development in the product design, manufacture as well as in other processes and departments of the organization. The long term development of any company functioning in the dynamic modern business environment is largely dependent on the sustainability practices of the company. Also, innovation through sufficient investments in the research and development processes is another way in which an organization can strengthen its current position and be prepared for the future challenges and risks that may emerge in the market. This is especially true for a company like Medtronic which operates in a highly profitable and competitive industry. The company should continue focusing on the globalization strategies. However, competing on a global platform would require that Medtronic is continuously developing its business processes and business models so as to cater to the changing requirements of the global consumer groups as well as mitigate or minimize the risks emerging in the different markets of the world. Strategic alliances and partnerships should be used by Medtronic as a part of their global expansion process. Along with this, the organization should also focus on strengthening the core business resources and capabilities through the use of latest technologies for medical equipment products and through the implementation of sustainability best practices in the operations of the country in all the markets across the globe. Figure 5: Shifting of model of healthcare provisions. (Source: McDonald, Burton and Dowling 145). Strategic alliances are considered to be one of the most efficient ways of combating competition pressures from other existing and new companies in the specific industry. The strategic alliances would not only help Medtronic to increase its resources and capabilities but also help in reducing the threats from the different verticals of the industry (Peng 140). Sustainability is another main factor that should be stressed upon by Medtronic to remain successful in the future years of operation. The company should invest highly in resource and development practices so that it can develop sustainable products and processes in the organization. This would enhance the reputation of the organization and help to achieve competitive advantage on a global scale (McDonald, Burton and Dowling 144). The foreign expansion processes of Medtronic should be continuously fuelled by rapid innovations and developments in the different processes of the business. It can be identified that the organization is moving in an advantageous and value generating strategic direction through the establishment of its operations in multiple emerging markets across the globe. This is because the emerging nations are seen as high potential business regions which are likely to dominate the future of the global business landscapes. As such, the early initiatives of Medtronic to build on efficient global operations are likely to act as strategic and sustainable corporate decisions of the company that would add value to the future operations and competitiveness of Medtronic. Additionally, the management of Medtronic should take suitable measures to make the organization and its different resources including the financial, physical and human resources sufficiently developed to meet the external risks and threats for the business. The role of the human resources of a company is pivotal in the success of the foreign expansion processes of the company. Therefore, Medtronic should not only develop the cultural factors but should also alter the business models and organizational structures to meet the requirements of different types of markets. 6. Conclusions The corporate mantra of Medtronic is “innovation for life”. This seems to be the right philosophy for an organization which belongs to a fast evolving and rapidly shifting industry like the medical equipment industry. The analysis of the international business development processes of Medtronic indicate that the company has a number of strengths within the business which it can use to tap in the external opportunities in the industry and mitigate the risks and challenges that are prevailing in this sector and are likely to emerge with the future developments in this sector. Open collaboration, connected care and borderless commitment are some of the main principles followed by Medtronic over the years of its existence. These principles have created sufficient value for the business and are likely to add more value to Medtronic if they are followed in an efficient manner in the future years as well. Medtronic should continue focusing on the differentiated entry and development strategies in different regions of the world. This is because the selected foreign expansion strategies have led to the success of the company in various locations. Medtronic should continue operating in the same strategic direction so that it can further establish itself as a globally recognized and functional brand in the medical equipment and tools industry. Nonetheless, it can be concluded that Medtronic is functioning as a capable and sustainable business and that the management of the company is steering the business in the strategically right direction. This is expected to create more value for the company as well as its stakeholder groups existing in the multinational business platform. Works cited Bartett, Charles. Transnational Management: Text, Cases and Readings in Cross Border Management. 5th Ed. New Jersey: McGraw-Hill Higher Education. 2009. Print. Black, Sam. Old Medtronic headquarters is sold to Islamic group. Minneapolis / St. Paul Business Journal, 14(1). 2012. Print. Burton, Thomas M. 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