In our ebook on The 7 Deadly Sins of US Market Entry, we called out the failure to think through industry ecosystem as the fifth of the Seven Deadly Sins. In this article, we will elaborate further. Sin #5 was defined as follows:
“In many industries, you may find the whole industry ecosystem is different. The healthcare industry in the US for instance includes healthcare providers, insurance companies, the federal government, state and local government, patients, and businesses. It is different, more heterogeneous and more complex than healthcare systems in most other industrialized countries. The healthcare ecosystem will affect many elements of the business and distribution model for health tech and life science companies. Regulatory differences will compound the challenges.”
Case Study 1: The Scandinavia Insurance Industry Problem
Some years ago, we were working with a company from Scandinavia who offered a “customer experience management” solution. Their best customer segment in their home market of Scandinavia was the (non-life) insurance industry.
They wanted to replicate this success in the US. Early in the project we determined this was a “no go”. Why? Because the industry ecosystem in the US was fundamentally different from what their product was built for. In their home market, almost all customer interaction took place directly with the insurance company.
Customers mostly engaged with the insurance company’s own corporate contact center. Our client’s product “sat” between the customer and the contact center and helped the insurance companies improve the experience that customers had when contacting the insurance company.
In the US, the ecosystem was fundamentally different. For the most insurance companies there was a nationwide network of independent brokers operating as “middlemen” between customer and insurance company. These middlemen handled almost all aspects of customer interaction. The customer called or emailed the broker. The broker followed up with the insurance company. The broker got back to the customer. Our client’s product, and their sales model, were based on working with a single large corporate entity as their customer and not a nationwide network of small independent brokers.
We quickly “disqualified” the insurance industry as a target and refocused the company on the banking industry. (Note: whenever possible we advise clients to change the target, not the product).
Case Study 2: The US Healthcare System
Another example of a fundamentally different industry ecosystem is health care. The US system is unlike the systems of Europe and most other countries. In the US, healthcare service providers like doctors, clinics and hospitals are mostly but not entirely paid by insurance companies.
Insurance companies are paid by a mix of federal government, state government, employers and individuals (patients). Patients also make residual payments to healthcare service providers reflecting the “deductibles” and “copays” required under their insurance policy. Prices are set in the private sector but subsidized by the public sector.
Another key difference: driven mostly by changes in employment, patients change insurance companies fairly frequently. This affects the incentives of insurance companies. Innovations that improve the health of the patient for the long term are not necessarily attractive to insurance companies.
As an example, insurance companies were reluctant to embrace coronary CAT scans for early detection of heart disease. In most cases, the benefits to the patient were more than 5 years out, at which time a company’s existing patients would already have moved on to another insurance company. So “not worth the investment”.
Understand the industry ecosystem
For reasons like these, when companies explore US market entry, it is crucial to get a clear understanding of the industry ecosystem and regulatory framework within which they will be operating. This can have a huge impact on the business model including selection of target customer, value proposition and customer acquisition strategy.
