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  • Emerging MarketsKelvin Johnson, President Emerging Markets19-20 November 2009

  • 2

    Since the industrial revolution in the 19th Century, the rich countries of the first world have dominated the global economy... That era may be over

    The Economist, 21 January 2006

  • 3

    Market characteristics Developed markets Developed markets

    Established healthcare regulation

    Educational marketing

    Compliance

    Products and pricing

    Evolving regulation and developing business practices creates operational risks

    Strong sales and

    distribution

    Consumers are generally aware of various options and products - standard marketing campaigns can be applied

    Surgeon training focused on converting existing surgeons

    Products developed for western customers - full product portfolio can be leveraged

    Overall affordability less of an issue, and innovation is key

    Direct sales possible Well-established distributors with strong

    long-term relationship network

    Specific campaigns for customer education essential to improve consumer awareness and unlock demand

    Surgeon training can focus on winning new surgeons and unlock demand

    Products must be customised to cater for different needs, hospital environments

    Products must be provided at appropriate price points

    Direct sales mostly not yet possible Key decision makers are changing quickly,

    relationships must be continuously re-established/expanded

    Emerging marketsEmerging markets

  • 4

    Assessing the potential our process

    Clear strategy on Emerging Market / Group fit

    Identify the markets

    Research the markets

    Execute

    Stick to the plan

  • 5

    Addressing the potential

    Set clear objectives for each market

    Build the right local teams Drive efficient operations

    Right products and pricing Effective educational marketing Strong sales and distribution

  • 6

    Market size and competition

    Reconstruction Major global companies have established

    position Much more open than global market

    positions

    Trauma Significant local manufacturing competition

    Endoscopy Relatively immature market

    AWM Traditional wound care remains treatment

    of choice Global companies established, but wide

    variation on country specific basis

    1.7

    4.8

    2008 2018F

    Emer

    ging

    mar

    ket r

    even

    ue ($

    bn) CAGR

    11%

    2018F

    Endoscopy

    AWM

    Trauma

    Reconstruction42%

    27%

    12%

    19%

    1

    2

    3

    4

    5

    0

    Note: markets currently served by S&NSource: Smith & Nephew, BCG

    General observationsGeneral observationsMarket sizeMarket size

  • 7

    Market prioritisation the 3 step approach

    Global pool of all developed and emerging

    markets

    50 largest markets

    27 largest emerging markets

    27 largest emerging markets

    prioritised

    15 emerging markets

    categorisedinto 5 groups

    1Initial screening Prioritising Grouping

    2 3

    15 high-priority emerging markets selected

  • 8

    Economic outlook and healthcare market opportunity used as key criteria for prioritisation

    Key factorsKey factors

    Is the size of economy substantial? How large is the population? How many aged people in the market? How many wealthy people who can afford

    the premium products? How large is the growth potential? Any drivers to promote conversion /

    trading up opportunities?

    Data Data

    '12 real GDP '12 total population '12 population aged 60+ '12 household # with HH earning >

    US$10k per year '07-'12 real GDP CAGR '12 real GDP/capita

    WeightWeight

    1111

    12

    Overall economic outlook

    Current healthcare

    market

    Healthcare market

    potential

    Is the healthcare market substantial? Is healthcare expense affordable? Are there enough healthcare

    infrastructure / supply? How large is the medical device market?

    '07 HC expenditure '07 HC expenditure/capita '07 doctors/1,000 pop '07 hospital beds/1,000 pop '06 medical device market

    21112

    How large is the growth potential for healthcare market?

    Will the medical device market grow fast in the next few years?

    07-12 HC expenditure CAGR 07-12 HC expenditure/cap CAGR '06-'11 medical device CAGR '06-'11 medical device/bed CAGR

    2121

    20

    7

    7

    6

    Absolute-scale-related

    13

    Growth-rate-

    related

    7

    Score of 1 (low) to 5 (high) to be assigned to each factor; weight of each factor then taken into account to arrive at the final score for each market

  • 9

    China

    Russia

    Poland

    India

    Brazil

    South Korea

    Turkey

    Mexico

    Taiwan

    Singapore

    Argentina

    Hong KongSouth Africa

    Israel

    8580

    66

    65626257

    55

    55

    55

    53

    52

    51

    51

    Malaysia

    Saudi Arabia

    Iran

    Thailand

    Indonesia

    Chile

    Venezuela

    Colombia

    Nigeria

    Kuwait

    UAE

    Pakistan

    Algeria

    47

    46

    44

    43

    41

    40

    39

    35

    34

    34

    34

    31

    30

    Markets with relatively stable business operation environment

    Favorable environment / low risks Tough environment / high risksNote: 1. Based on EIU overall operation business environment index (June 2008) 2. Based on EIU business operation risks index (June 2008)Source: EIU, BCG analysis

    MarketMarket ScoreScoreMarketMarket ScoreScore

    Operation environment1

    Operation environment1

    Operation risks2

    Operation risks2

    Operation environment1

    Operation environment1

    Operation risks2

    Operation risks2

    23 markets selected with relatively stable business operation environment

  • 10

    0

    10

    20

    30

    40

    50

    Focus in on 5 Groups with China the most attractive

    Sizable medium-term potential Steady economic and healthcare

    market growth

    0

    5

    10

    15

    0 1,000 2,000 3,000 4,000

    China

    India

    Russia

    Brazil

    South Korea

    Mexico

    Turkey

    Saudi Arabia

    Poland

    Indonesia

    South Africa

    Thailand

    UAE

    Malaysia

    Argentina

    Medical device market

    2006 (US$ Mn)

    Medical device market

    2006-2011 CAGR (%)

    5

    Smaller markets with lower growth

    A clear strategic priority Large overall size and good

    affordability

    Medical device market 2011 (US$ 500 Mn)

    India

    RussiaBrazil

    South

    Korea

    MexicoTurkey

    Poland

    South

    Africa

    0 100 1,1002002006 population (Mn)

    Medical device market per capita 2006 (US$)

    2

    1

    3

    4

    A fast-growing market but will remain small in the medium-term

    Already more developed markets

    Source: BCG analysis

  • 11

    Smith & Nephews Emerging Markets

    Countries with direct presence

    Countries with established distributors

  • 12

    Smith & Nephew local teams run by local talent

    Managed directly

    AfricaMiddle East

    South America

    ASEAN China SouthKorea

    PuertoRico

    EasternEurope

    India Mexico

    Finance

    Supply Chain

    HR

    Strategy and Direction

    Compliance

    President

  • 13

    Revenue analysis

    2008 Revenue by GBU2008 Revenue by GBU

    Asia

    Europe

    Central & South

    America

    Africa/Middle East

    2008 Revenue by Regions2008 Revenue by Regions

    19%

    35%

    15%31%

    AWM

    Endo

    Orthopaedics27%

    30%

    43%

  • 14

    Performance milestones

    Pre-2005

    Opportunistic

    2006: Formation of Emerging Markets Team

    2006-07

    Clarity on strategic intent

    Quantification and Research

    Dedicated structures and teams

    Focused teams, but matrixed with GBUs

    2009

    Strategy refined

    Clear priorities

    Investment increased

    Expectations exceeded

    Emerging market revenues and growthEmerging market revenues and growth

    0

    50

    100

    150

    200

    250

    300

    2006 2007 2008

    Reve

    nues

    (US$

    m)

    0%

    5%

    10%

    15%

    20%

    25%

    30%

    Und

    erly

    ing

    grow

    th ra

    te (%

    )

    Revenue Underlying growth

  • China

  • 16

    Growth fueled by favorable demographic, economic and HC environment

    Growth fueled by favorable demographic, economic and HC environment

    Chinese medical device market willcontinue to boom

    HC spending / cap (US$) 83 116 197 317

    Med dev/ cap (US$) 2.3 2.7 3.5 4.5

    6,130

    4,739

    3,635

    3,005

    0

    2,000

    4,000

    6,000

    8,000

    +9%

    US$ M

    2005 2007 2010 2013

    Chinese medical device market will reach US$ 6.1Bn in 20132

    Chinese medical device market will reach US$ 6.1Bn in 20132

    +10%

    1. at price of US$ 20052. Market size based on price to distributorSource: Espicom, EIU, BCG analysis

    86

    1.3

    2005

    15

    85

    1.3

    2007

    17

    83

    1.3

    2010

    19

    81

    1.4

    2013

    Aged 60+

    Aged 0-59

    0

    100 14

    50

    % of population

    Large and agingpopulation

    Rapidly increasing

    wealth

    Total (Bn)

    3.

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