Medtronic's International Strategy

Medtronic utilizes a transnational strategy, organized by geographical divisions with different products, prices and regulations in each. However, they utilize a common organizational structure. The products are mostly the same, so the overall company divisions have their own strategy worldwide, but with so many differences in foreign markets, regional directors must make some decisions based on the local climate.

With products sold in 150 countries, Medtronic is interested in foreign markets. They are focusing on increasing revenues in emerging markets, such as Asia and South America. While there is extensive potential in these markets, the price per unit is reduced because the disposable income of the populations is reduced. This reality is important to study before employing an international strategy. 

There are many products that customers in nondomestic markets are unwilling to pay at the price the domestic company would like to sell them.

Another issue with international strategies of companies is the interference of governments. Medtronic is currently facing issues with international governments concerning their Covidien deal. The U.S. government is tightening tax regulations and repatriation taxes to discourage companies from seeking tax shelters abroad. The Irish government is making the deal difficult for Medtronic as well to discourage all the revenues from flowing back to the United States.

Medtronic’s international strategy also includes developing new core competencies. By acquiring Covidien, Medtronic will have new products, thus experience in new areas of the market. This market extension will open new opportunities for customers, distribution channels and revenues.

Medtronic Acquires Covidien for $43 Billion

Medtronic is in the middle of the largest acquisition of its history, negotiating a now $59 billion deal. Its target is Covidien, an Irish medical technology company. With nearly 40,000 employees and revenues of $10 billion, it is a large player, producing “surgical solutions, vascular therapies and patient self-care.” This deal falls in the category of a market extension, related acquisition. While some acquisitions can create a fear of monopolies; however, Medtronic does not run the risk of anti-trust laws with this deal. By acquiring Covidien, Medtronic seeks to expand its market, increase globalization, reduce costs and increase revenue. Covidien’s products are in the same industry as Medtronic, but only a small part of their businesses overlap, meaning new product lines for Medtronic in this new company. Through Covidien’s customers and distribution channels, Medtronic will gain access to new markets. Together, the new company will serve 150 countries.  Its extensive market reach will help with Medtronic’s goal of globalization. With the growth rate slowing in the domestic industry, a steady 2%, Medtronic needs to capitalize on the booming growth rates of countries in emerging markets. These new markets are seeing 12%-19% growth. Also because of the slowing growth, Medtronic needs to find a way to increase revenues or cut costs. Medtronic was hoping to benefit from a tax inversion by moving the Medtronic business address to Ireland where the tax rate is 12.5%, as compared to 35% in the United States. Unfortunately for Medtronic, both the federal governments of the United States and Ireland are altering regulations to keep corporations like Medtronic from seeking tax shelters elsewhere. Shareholders are upset as well, citing and under- or over-valuation of deal, depending on their allegiance. While the text says that mergers should be dealt with quickly and with the fewest bidders, to benefit the bidding company, Medtronic has not found their deal as simple. With governments and shareholders both upset, there is not much positive press for this deal, which is never positive for a company’s image. In addition, Medtronic will have to have an excellent integration strategy in order to best utilize the economic benefit of the new company. Seemingly, the two companies have similar enough missions, visions and sizes to integrate fairly easily; however, the results of the acquisition will remain unknown until after the closing of the deal early next year.

Medtronic and DaVita Healthcare Partners Team Up

It is amazing the parts of the body that are connected in some way. For example, through research Medtronic has done, it has discovered that patients on dialysis are more likely to develop arrhythmias. As a result, Medtronic and DaVita Kidney Care, a division of DaVita Healthcare Partners, have announced a new joint venture for the purpose of doing more research on the correlated issues with a larger patient population. Together, Medtronic and DaVita will develop a pilot program to identify cardiac arrhythmias in end-stage renal disease patients using Medtonic’s Reveal LINQ™ Insertable Cardiac Monitoring system. The research will help DaVita learn more about how to improve the lives or ESRD patients and prevent cardiac episodes. This joint venture is classified as an asymmetric alliance with the strategy of learning from competitors.

Since DaVita and Medtronic do different things and occupy different markets, there is no need to fear tacit collusion. There is also little risk of either company moving into the other’s industry as competition because their roles are so different. Their common factor is the patient itself but not the role in the healthcare industry. In addition, because it is a pilot program for the purpose of research, the project has a defined scope, and likely, a timeline. There is little risk for a learning race because the research must be completed to obtain credible results. The two companies appear to be sharing duties well, as DaVita has the patients and the medical records, while Medtronic is providing the device and the monitoring.

One strategy Medtronic may be using is managing uncertainty. This venture is based on research and Medtronic needed a wider pool of patients. Before releasing a new product on the market, or to gain credibility for an existing product, Medtronic is doing the studies to verify the product’s effectiveness. The study itself may be managing the risk of marketing the product.

While most strategic alliances have to worry about the possibility of cheating by one or both parties, joint ventures are the least likely alliances to experience cheating because both parties are financially invested and the venture is its own separate entity. 

http://www.zacks.com/stock/news/154470/will-davita-kidney-care-gain-on-medtronic-collaboration

http://www.nephrologynews.com/articles/110548-davita-medtronic-to-collaborate-to-identify-cardiac-arrhythmias-in-patients-receiving-dialysis

Corporate Diversification: Medtronic's Corporate Structure

Medtronic is a large, global company with more than 48,000 employees in 140 different countries. Particularly with the complicated nature of the health care industry, Medtronic has a complicated leadership structure. It utilizes a modified M-form with a shared corporate staff. There are currently three groups, or divisions, with Executive Vice Presidents who report directly to the CEO, Omar Ishrak. The three groups are Cardic and Vascular, Restorative Therapies and Diabetes Group; these three are soon to be joined by the Covidien Group. The structure becomes more complicated with Vice Presidents of geographical region who have dotted line relationships with counterparts in each technology division and the CEO. While most companies either organize by product type or geographic region, Medtronic has a complex structure organized by both. This is due, in part, to complicated health care regulations that differ in each country and also varying cost of products due to differing economic maturities around the globe. Therefore, Medtronic has, for example, a dedicated employee of spine technology that focuses only on China. That person reports to the head of Spine and the VP of Asia. Above all of these complicated structures, there is a group of corporate staff called Quality. These positions are in human resources, finances, administration and so on.  The organization shares these leaders as common cost centers to centralize the administrative work.

Medtronic’s board of directors is made up of diverse business leaders, with CEO Omar Ishrak as the Chairmain. While there is some controversy about whether Chairmans should be internal or external to the organization, Medtronic’s board structure works quite well.

As far as budget allocation, each group has its own budget based on their percentage of value of the company. The revenues of the groups are listed below.

www.medtronic.com

Medtronic's Diversification Strategies

Medtronic is made up of several business units, all under the larger umbrella of medical technology. The different foci of the company include Aortic and Peripheral Vascular, Cardiac Rhythm and Failure, Coronary and Structural Heart, Diabetes, Neuromodulation, Spine and Surgical Technologies. These business units are part of a related linked strategy. In each of these units, the technology is very different. Some of Medtronic’s products are machines like glucose monitoring insulin pumps or pacemakers, while others are synthetic heart valves and artificial cervical discs. All of these parts require vastly different manufacturing materials and processes; however, some of the products are likely to share some common materials, such as silicone or the inner workings of the medical machines. Therefore, some of the business units may utilize the same suppliers. 

In addition, because hospitals have become corporate conglomerates of different types of practices, Medtronic may be able to market these vastly different products to similar distribution channels. After all, the same hospital that puts in pacemakers would also fit a patient with an insulin pump. In addition, the businesses are linked through common core competencies and a common mission, which is to “contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.”

In previous chapters, we have already established that Medtronic’s products are valuable, rare and costly-to-imitate, which is why it operates all of its business units from within the boundaries of the firm. Medtronic utilizes a hierarchical governance strategy in order to best develop economies of scope.