Case study: The right focus for innovations

The story

Mindray Medical International was set up in China in 1991 by 29-year-old Xu Hang with a modest outlay of RMB900,000 ($142,000). The company was created to import and distribute medical devices such as patient monitors.

But by 1995, Mr Xu had decided to transform the business into a manufacturer of cutting-edge medical monitoring and diagnostic devices. Eleven years later, Mindray launched the first domestically produced digital, fully patented and colour ultrasound imaging device.

The challenge

The successful launch caught the attention of Mindray’s international rivals. Mr Xu had to work out how to maintain his company’s transition into manufacturing as its competitors were adjusting their own products and prices.

The strategy

From the start, Mindray adopted a cut-in approach: building the in-house competence to develop products for the mid-tier markets as a springboard to enter the bottom of top-tier and top of bottom-tier markets.

To achieve this, the company focused both on improving the functionality of its products and on their emotional benefits to doctors and patients.

● Innovations focused on providing value to the customer. The aim was to understand what doctors, specialists, purchasers and hospital administrators wanted out of it rather than treating technological enhancement of the product as an end in itself.

Mindray also stressed the “high performance-to-price ratio”, which it believed resonated with medical professionals. Mr Xu argued that “a Mindray product is the world’s best for the same price and the cheapest for the same quality”.

● Mindray was shrewd in how it marketed and positioned its products. One objective was to stress that the high-quality product buyers were purchasing was made in China.

At the China launch of its colour ultrasound machine, for instance, local musicians played traditional Chinese instruments to strike a patriotic chord among domestic customers. Follow-up launches across the country emphasised the point.

● When selling overseas, Mindray avoided big, sophisticated institutions with whom big name competitors already had deep relationships. In Asia, Africa, and eastern Europe, the target customers for the colour ultrasound were small or medium-sized hospitals. In western Europe and the US, Mindray focused on private clinics and small private hospitals.

The results

By 2008, Mindray had more than 5,500 employees worldwide, and had introduced more than 50 new products in local and international markets.

It had established the largest research and development team in the Chinese medical devices industry, with more than 1,500 engineers representing about 30 per cent of the total staff.

The company’s heavy investment in R&D has helped to drive innovation and protect its market share: when rivals entered the Chinese market and slashed prices, Mindray was able to respond with well-judged innovation.

It invests about 10 per cent of net revenue in R&D, and it recently launched a project to improve efficiency and streamline the process between R&D centres around the world. Mindray averages eight new products a year and in the first quarter of 2012 net revenue stood at $219m.

Its successful approach to innovation also allowed it to stave off several takeover attempts by General Electric.

The lessons

Mindray’s innovations are geared to customer value rather than emphasising product capability only. This approach is highly effective in building a company in an emerging economy, especially when facing technologically superior competitors.

The approach is successful at least in part because the company has a clear understanding of the functional and emotional benefits that its products will have for purchasers and end users. 

- Financial Times, 25 June 2012