Handy tips from giants on how to seal long-term deals

About two weeks ago, Health Cabinet secretary James Macharia hailed the Sh38 billion public hospitals equipment purchase deal  “the first of its kind in sub-Saharan Africa.”

And from the five multinationals that are participating in the project, and others that have been struck with county governments, investors can draw valuable lessons on how to enter into long-term business relationships.

As Money trailed the histories of two multinationals that have a long commercial presence in Africa, Philips Healthcare and drugs maker GlaxoSmithKline, it is evident that it is not just financial muscle that has won them business.

For Netherlands-based Philips Healthcare, the company set to supply Intensive Care Unit equipment worth Sh3.3 billion in the giant plan, it was a case of drawing a parallel between the country’s diseases burden and the market opportunity in Kenya’s healthcare system.

In defending the mode of acquisition, Mr Macharia said that the government could not raise all the money at once, hence the need for collaborations.

In 2013/2014 financial year, health expenditure was Sh22.6 billion, a drop in the ocean for an ailing system: by 2013, there were only 8,682 doctors, about 21 doctors for every 100,000 people according to the economic survey.

OPPORTUNITY MEETS PREPAREDNESS

Kenya is not only hurting from diseases that have been eradicated in other parts of the world, but also non communicable ones such as cancer that claims 27,000 lives every year.

This leaves gaps for investors, as noted by Kenya Healthcare Federation and founder of Avenue Healthcare, Dr Amitt Thakker. “Supply chain, pharmaceutical, medical education and training, infrastructure… the list is endless,” Dr Thakker said.

Philips East Africa boss Roelof Assies said he is aware of the need that Kenya has for medical equipment and his firm’s presence in the country is simply ‘opportunity meets preparedness’.

After seeing the opportunity, Philips invested in building reputation and running projects targeting low income Kenyans.

During the launch of Sh38 billion project, President Uhuru Kenyatta said that it is in healthcare that stark realities of inequality show up.

Money established that the equipment were made after research, Philips dedicates a substantial percentage of its budget into research, studying infrastructural and the socioeconomic challenges that plague Kenya’s healthcare.

For instance, in its road show last year, Philips launched an 11-inch tablet ultrasound machine, in collaboration with African Medical and Research Foundation Health African (AMREF).

The tablet, VISIQ, which was later taken to a public health centre in Kibera, in Nairobi, was designed to run against the infrastructural odds that even hospitals with conventional imaging equipment face.

It uses re-chargeable batteries meaning it can operate off the grid; it weighs 1.2 kilos and can fit in backpacks so that healthcare workers can carry it even to patients in areas where there are poor road networks.

In a country with few personnel who can interpret radiology images, X-rays, computerised tomography (CT) scans, the machine not only has an interface so simple it could be interpreted by anybody with simple knowledge of a phone, but it’s also fitted with universal serial bus (USB) ports so that it can transmit images over wireless channels such as WI-FI.

Its price, $14,500 (about Sh1.2 million) is a far cry from the collosal amounts paid to buy a modern ultrasound machine.

So, even as health care providers cringed Kenya’s unacceptably high rates of maternal mortality caused by, among others lack of imaging equipment, Philips merged the need and business in VISIQ.

HOLISTIC APPROACH

A similar holistic approach to health care would be replicated in the company’s partnership in Kiambu Lang’ata community life centre where it donated solar-powered medical equipment. The company also drilled a borehole and installed a water purification system to endear itself to the society.

With its record of offering sustainable solutions, Philips’ reputation was in sync with the tender requirement.

“The legal document limited those bidding to be original manufacturers of the equipment because we wanted people who will not only supply the equipment but also keep them running” said Health minister James Macharia.

Compared to the developed world, sub-Saharan Africa does not offer instant payments to companies that seek to invest in health care.

Conscious of this reality, GlaxoSmithKline (GSK), the world’s second largest drugs maker, has embraced a rare trait, patience, to enjoy a huge market share in the manufacture of the many drugs used in local hospitals, especially for HIV and Aids.

Kenya is one of the three countries in Africa where GSK makes drugs apart from South Africa and Nigeria. Earlier this month, it announced plans of investing up to £100 million (about Sh14 billion) in expanding its factories in Kenya, and Nigeria. And in trying to rewrite a silent contract it has with the society and the vast business community, GSK has made a radical and altruistic strategy in Africa that seems to have paid off.

In 2009, GSK’S head Andrew Witty was quoted in the Guardian saying that the firm would slash prices on all drugs to countries that fall into its “least developed” category to no more than 25 per cent of the levels in Europe as well as give back 20 per cent of its profits to be spent on hospitals and clinics in these regions.

And just recently, GSK shared the sacred cow of pharmaceuticals by donating 800 patents to an intellectual property pool.

GSK’s vice-president in charge of Africa and developing countries, Mr Ramil Burden, said that the company operates on a ‘differential time frame’ in Kenya.

“The money we get from Africa is very little as compared to the US or the UK,” he said, adding that: “we have accepted that the lower prices and margins mean we will take perhaps 10 years to get substantial returns.”

Kenya, like any other growing economy in Africa, needs medical supplies, which it would pay gradually, hence the patience that companies such as GSK have expressed.

“Take time to learn the culture and then make products integrated into that culture,” Mr Ramil said.

Perhaps most visible strategy of the aforementioned companies is their partnerships with local organisations, a strategy that may have built goodwill.

In 2013, GSK partnered with global charity firm, Save the Children to “save the lives of one million children” by broadening access to vaccines, investing in health workers, improving child nutrition and researching new medicines in Kenya, and Democratic Republic of Congo.

HOW TO PREPARE YOUR BUSINESS FOR THE LONG-TERM

1. Scout for opportunities in different sectors of the economy. Turn to research and come up with viable ways of solving the problem.

2. Build a good reputation with both the society and the government founded on business ethics, quality products and consistency.

3. Patience pays: consider cutting prices in the short-term with a view to earn profits in the long-term.

4. Develop products that meet the needs of the target market in terms of expertise and affordability.

5. Partner with other organisations to broaden your reach.