31 Dec 14 Distribution challenges for medical equipment & devices in India

India has a huge unmet demand for healthcare and consequently for medical devices and equipment. Most global companies, large and small, are either already selling products in India or are planning to enter the market. However, setting up a distribution network for selling in India is no mean task. Distribution systems are complex with multiple layers.

Diverse heterogeneous market

A key factor contributing to the complexity of the Indian market is its heterogeneity and diversity. There are 29 states, each with its own set of health policies (Health is a state subject in India), and over a dozen main languages spoken. There are around 50 cities with populations of over a million each and the disparities between the markets in urban, semi urban and rural areas are stark. Companies selling to these diverse set of markets need to customize their strategies for each.

Non availability of data

Hospitals are the key buyers for medical devices and doctors are among the key influencers. However, comprehensive databases of hospitals and doctors are not available. The lists that are available have only local/regional coverage, have incomplete and outdated information, and lack granularity. For example, a company selling orthopaedic equipment would be interested to know which hospitals have the relevant expertise, but such a list is not easily available. This is a significant challenge as the hospitals sector is highly fragmented with a very large number of small hospitals (despite the recent trend in consolidation of hospitals). Over 70% of the hospitals in the country have less than 30 beds. Additionally, overall health data such as incidence of diseases is inadequate. Registries of different types of procedures conducted simply do not exist.

Fragmented distribution

There are very few distributors that have nationwide coverage. Companies need to forge multiple relationships to establish a pan-India network spanning urban as well as rural areas. Many of the suppliers currently only reach the metros and tier 1 & 2 cities.

Non performing distributors

Medical device companies, particularly the smaller ones, often forge “exclusive” relationships with distributors in the regions allotted to them. A non-performing distributor can prove disastrous for the company. Some distributors (of low technology products) have even leveraged their understanding of the product and the market to manufacture “copied” versions of the products. Evaluation of distributors is therefore extremely critical.

Unethical practices

An additional consideration is the existence of unethical practices in the distribution of medical devices. Distributors are known to bribe decision makers and doctors at hospitals to buy their products, which are sold at very high margins. In some cases distributorships are owned by doctors themselves. Recently a couple of MNCs were penalized for looking the other way, while their distributors paid bribes paid to doctors.

Customer intimacy

Suppliers often cannot rely on a network of distributors alone. In a new market, they need to gain a deep understanding of how their products are being used, customer dynamics, end-user pricing, etc. in order to fine-tune their strategies. Distributors don’t always share this detailed information with the company. So, many companies have their own sales force in addition to a network of distributors.

After-sales service

Availability of good after sales service is very important for hospitals. Medical device and equipment manufacturers have found this to be a big challenge. Having a trained maintenance engineer who can address the issues fairly quickly is expensive unless the installed base of the equipment in a particular area is large enough. In semi urban and rural areas, this is a huge pain point, but even in the large cities it is difficult.

All in all, navigating the distribution complexity is a big challenge. Some very large MNCs like GE have bypassed these challenges by partnering with a large local company (Wipro). Others need to tread cautiously and take evidence based decisions based on rigourous research.