HEC – ENDEAVOR

PROJECT FOR LIXIS

ENTRY STRATEGY TO THE EUROPEAN MARKET

José-Manuel Benzanilla-GuarachiPablo Porolli

Table of contents

1. Introduction1. Objectives of the investigation2. Brief description of the industry3. Most significant players (manufacturers, OEMs, distributors, final clients)

2. Value proposition3. Business model

1. Industry needs2. Industry requirements3. Entry strategy4. Positioning5. Targets6. New opportunities7. Sustainability

4. Action plan

1. INTRODUCTION1. Objectives of the investigation

2. Brief description of the industry3. Most significant players (manufacturers, OEMs, distributors, final clients)

(To be completed)

2. VALUE PROPOSITION

Lixis offers a range of quality control equipments for the pharmaceutical industry that equals itscompetitor’s performance standards for a lower price. It offers also a higher quality of before andafter sales services. Lixis follows the concept of before and after sales nursing. Lixis alsoinclude the installation and the validation of the equipments in their services.

Details of the value proposition

In Lixis value proposition there are four distinguishing proposals:

1. Range of products2. Price3. Before- and after-sales nursing4. Installation and validation

1. Range of products

Lixis should offer a complete range of quality control devices in the “solid category” for thepharmaceutical industry. Nowadays, it is producing the following items:

• Color Vision Blister Control System• Black and White Blister Control System• Micro Systems• Barcode Readers• Pharmalyzer NIR System

The industry shows the following needs:

• Date- and Lot-Stamping Control System• Sealing Control System

• Label Control System (including character reading)• Aluminum Notification Systems (some companies are using Pharma Code’s system for

this purpose nowadays)• Over Printing Control System: a system that may control everything that is printed.

The key issue would be to integrate these systems. For example, many customers proposed theintegration of the Blister Control System with the Date- and Lot-Stamping Control System.

The market towards Lixis is orientated should be thought in a broad way. Final customersinclude not only pharmaceutical laboratories but also independent sub-contractors that workexclusively for certain labs, cosmetic- and bio-products manufactures and even the food industryfor some devices.

Lixis may develop other products for the pharmaceutical industry. Control issues also arise in theproduction of liquids and solids packed in flasks and veils.

Having a larger range of products will also allow Lixis to build a reliable image and showcustomers that it masters the technology it sells and that the firm has long-term goals and,therefore, it will stay in business for the years to come.

2. Price

Lixis’ today prices are competitive in the European market. If the company is able todemonstrate that their products perform as those of the competition, Lixis will have a market.“At equal performance, price wins.” Customers have the perception of these products as highlyexpensive and Lixis could profit from having lower prices.

The main reason why laboratories do not have the total number of their lines updated is becauseof the high expenses that the installation of these devices demand.

3. Before- and after-sales nursing

Final customers are highly concerned about after-sales service. They demand very specificfeatures:

• Immediate telephone contact.• Ability to send a technician to the site in less than 24 hours.• Availability of spare parts. This should include a permanent stock in Europe and, for

some big plants where several equipments are installed, to provide a whole machine thatmay serve as spare.

• Fast and high quality technical service. Technicians have to know thoroughly themachines. Medium quality technicians will not be accepted.

• Provide electronic and hard copy of all the documentation.• Service through internet, but under limitations due to security issues. Double approval

for changes in the system has to be warranted.

• Some sites will demand a local language speaker. But most of them will accept Englishas a lingua franca.

Before-sales service is also crucial since companies pursue a long process before purchasing theproduct. The process could be described as follows:

• URS: User Requirement Specification• DS: Design Specifications• PS: Purchase Specifications• SAT: Site Acceptance Test• IQ: Installation Qualification• OQ: Operation Qualification• PQ: Process Qualification

Note: A thorough description of the process will be presented in a book attached to the present report.

This process should be followed by the selling company in very detail. Customers would like tosee a person in charge of the sale which will deal with every single aspect of the process.

The idea of nursing is to come up with a system in which the client will feel that he is lookedafter all the time. Assigning people to both stages (before and after sale) will provide thecustomer security. He will have 24 hours direct contact with his representative and the latter willdeal with every need that the client may have. Excellence in service will make a difference forthe company.

4. Installation and validation

The installation is always done by the selling company. Therefore, Lixis will have to provide theinstallation. However, validation is not usually done by the supplier. Then, providing thevalidation process within the selling price of the equipment will be a differentiating service forLixis. The clients believe that if the validation is done by the supplier their cost of purchasing theequipment will be lower and that this fact shows that the company is reliable and trustworthy.

Although validations are not usually a minor cost of the equipment, providing it in the salecontract will clarify the client’s costs. He will hence perceive a higher value added in theproduct.

The provision of validation will also convert Lixis in a solution company. In our view, this is thebest image that a firm might have in this market. Laboratories’ goal is to sell medicine, not toinstall production lines. They are willing to pay for solutions.

3. BUSINESS MODEL

a. Industry needs

There are two types of needs that have to be covered in order to enter the European market. First,needs concerning products. Second, necessities concerning services.

Products needed

1. Sealing Control System.2. Vision Blister Inspection, including Color and Black and White Systems.3. Date- and Lot-Stamping Control System.4. Sealing Control System.5. Label Control System.6. Aluminum Notification Systems (some companies are using Pharma Code’s

system for this purpose nowadays).7. Over Printing Control System: a system that may control everything that is

printed.8. Micro fissures and pores which may occur on aluminum-aluminum blister

packs.9. Raw Materials Control System.

Service

1. “On-line” technical assistance.2. “On-Site” technical assistance.3. Installation of equipments.4. Validation of equipments.5. Training programs including updating courses for operators, maintenance and

repair people.6. Availability of spare parts.7. Personal contact.8. High quality documentation.

b. Industry requirements

Details of product needs

1. Comply with regulations. The most important regulation is the FDA 21 CFR Part 11.(Detains on the regulations will be given in an attached book.)

2. The combination of the Blister Inspection with a Sealing Control System will be a veryinteresting device for customers.

3. 100% Online Check (better than aside samples). This is the tendency of the market.4. Overprinting control: Systems to control everything that is printed (blister, tablets,

brochures, date- and lot-Stamping and packaging.5. Mix-ups is the most important issue that the quality control department of laboratories

have to deal with. So, systems to avoid mix-ups are welcomed.6. Label Control System may include character reading.7. Aluminum Notification Systems. Other systems besides Pharma Code will be

appreciated.8. Complete documentation of the products. It has to include a full list of specification of

the products, the standards by with they are developed, explanation of the technologyused, concrete evidence of their performances (measurable), description of trainingprograms provided to the people who will do the after-sales services and descriptiontraining programs given to operators and maintenance people (if any). Alldocumentation should be delivered in electronic and hard format.

Attributes of the products requested

1. Reliability (dependability). No defective blister. No mix-up. Full unit.2. Efficiency. Speed is a key factor.3. User friendly.4. English language. (However, local market language can be a big competitive advantage.)5. Durability. Equipment should not break down.

Service requirements

1. Immediate telephone contact.2. 24 hours service.3. Ability to send a technician to the site in less than 24 hours.4. Fast and high quality technical service. Technicians must know the machines and must

resolve problems quickly.5. Service through internet, but under limitations due to security issues. Double approval

for changes in the system has to be warranted.6. Reliable before- and after-sales service. Continuous presence.7. Provide integrate solutions and anticipate clients needs.

8. Warranty that equipments comply with international regulations (proofs).9. Commercial representatives in Europe.

10. Stock of products in Europe to warranty fast delivery of spare parts. Less that 24 hoursto deliver parts.

11. Guarantees its customers the supply of spare parts for the entire lifetime of eachmachine.

12. Some sites will demand a local language speaker. But most of them will accept Englishas a lingua franca.

13. Salespeople with a solid technical background.14. Installations and validation tests at the OEM and customers' plants.15. Complete Manuals and validation procedures.16. Estimates for new systems, upgrades, overhauls, spares.

c. Entry Strategy

As clients are highly demanding in their needs, a simple export model will not work. It mightsatisfy a tiny demand, but will not produce a sustainable presence in the market. A successfulentry strategy would have, in our view, two steps that may be simultaneously carried out. Thefirst step would be to re-enforce sales to groups that have presence both in Europe and in Latin-America. This step implies an entry through a subsidiary strategy. The fact that the company isalready selling its products to a group subsidiary will facilitate access to customers in Europe andwould smooth the first selection criteria of the clients. As previous knowledge of the supplier isusually a key factor for choosing it, the fact that the provider is already working with asubsidiary of the group may boost its chances of success doing to the next phase of thepurchasing process.

The second step would be to make an alliance with an existing player. A partner can solve manyrequirements that a company from Argentina without a strong presence in Europe would not beable to do by its own. A partner may be in charge of the following:

• Sending a technician to the site in less than 24 hours.• Providing spare parts quickly.• Showing local presence to the customers.• Integrating Lixis’ products in their own sales catalogues.• Exhibiting the products to existing customers.• Backing up Lixis’ products with its brand and presence in the market.

The benefits of an alliance can be listed:

• Combination of sales efforts.• Access to existing market base.• Exchange of expertise.• Knowledge of the market.

Among the drawbacks, it can be found:

• Product overlap.• Addition of an additional margin.• Loss of control of products.

Two types of targets for alliances can be identified: integrators and distributors.

Advantages and disadvantages of an alliance with integrators and distributors are:

Advantages Disadvantages

Integrators

• Better knowledge of thetechnology. Thus, a prioribetter after-sales service.

• Good and long relationshipswith customers.

• Good position for accessingthe market of new lines.

• Fewer competing devices intheir catalogue.

• Possibility to increasemargins due to Lixis’ lowprices. So, they may beinterested in the partnership.

• Exclusivity contractsmay make difficult tomake an alliance withthem.

• Limits the number ofclients that can betargeted to theintegrator’s target.

Distributors

• Easier to establish analliance. They might bewilling to add new productswith competitive prices totheir catalogue.

• Possibility to increasemargins due to Lixis’ lowprices might boost interestin partnership.

• Customers disregarddistributors.

• More numerouscompeting devices intheir catalogue.

• Few importantdistributors.

Two main targets are suggested, one in each category.

Integrator:

Although Uhlman has a preferred supplier with is Visiotec, the important presence in the marketthat this company has makes it the most desirable target for Lixis to make an alliance. Lixis has alower price for the same performance. Therefore, the value created can be shared with theintegrator. Uhlman may be interested in such a proposition. However, it is crucial for thispartnership that Lixis is able to explain properly the characteristics of its products and to provetheir performance. An exclusivity agreement may tempt the integrator even more.

Distributor:

Packunion seems to be the best known distributor for the pharmaceutical industry in Europe. Aproper demonstration of the products performances and an excellent presentation of the companymight be enough to start the dialogue in order to enter the firm’s catalogue.

d. Positioning

Lixis should be recognized as an actor able to offer quality control devices for thepharmaceutical industry in the solid category with “the best price/quality relation” and a “beforeand after sales nursing service”.

To achieve this positioning it is necessary represent the current value curve of the market.This value curve captures the current state of play in the known market space. This allows you tounderstand where the competition is currently investing, the factors the industry currentlycompetes on in products, services and delivery; and what customers receive from the existingcompeting offerings on the market. Its X axis captures the range of factors the industry competeson and invests in. The Y axis captures the offering level that buyers receive across all of thesekey competing factors. A high score means that a company offers buyers more and hence investsmore in that factor (except for price which in this case means a higher price).After several interviews with some potential customers we identified the most important criteriafor the industry. We built the value curve using these criteria where it is possible to see thecustomer’s needs and what the customers are receiving from Lixis’ future competitors in theEuropean market. The level expected by the customers in each criterion is depicted by the redline. The level offered buy Lixis’ main competitors (Laetus, Scanware, Tattile, etc.) is depictedby the black line.

Criteria definition

• Service: include technical assistance, technicians know how, after sales service, etc.• Norms: Warranty that equipments comply with international regulations.• Zero defects: In the inspection and avoid mix-up mistakes.• # of languages: Number of languages required (English and others).

In order to give more add value to the customers we recommend Lixis to create, eliminate,increase or reduce some these important criteria.

• Increase: Above the industry standards or at least at customers´ expected level for thosecriteria.

• Reduce: Those criteria that customers are taking from granted as a consequence of priorcompetition, and now are over designed.

• Create: those that would be necessary for Lixis• Eliminate: Those that are not necessary anymore.

Therefore the new value curve for Lixis would be:

e. Targets

The universe for quality control devices for packaging lines is huge. It could also be extendedfrom the pharmaceutical industry up to cosmetic industry, food and others.We recommend Lixis to remain in the solid category for now. After several interviews withpotential customers in Europe we concluded there is an opportunity for Lixis to sell its productsin Europe. These potential customers are big players of the pharmaceutical industry with

presence in Europe and Latin America (such as Pfizer, Sanofi Aventis, Merck) who need toupdate or buy new packaging lines for the solid category.

f. Opportunities in the European market

Some uncover needs were detected. These are existing opportunities for the suppliers.

1. Sealing Control System and blister inspection ideally in the same device. Most of thecustomers manifested there is not possible to be detect if the blister is complete sealed.

2. Overprinting control. Integrate the control of all the information required to be printedand the instructions.

3. Complete solution that guarantees to avoid mix-up mistakes. Today the mix-up mistakeexists and there is not solution.

4. Differentiation through service. Give more add value to the customer than the currentcompetition with “before and after sales nursing service”. This idea would give to thecustomer better service according their needs and expectations. Some customerscomplained that they have not received the expected level of service or the supplier didnot carry out what they promised. Some key elements are no mistakes at the beginningof the relationship with the new customer, never offer something that is not achievable,installations and validation tests at the OEM and customers' plants, and no guarantee tocomply with international regulations.

g. Sustainability

How could Lixis make its entry to the European market sustainable? Which are the Key SuccessFactors to gain market share and establish a solid business in Europe for the company?

Lixis could make its entry to the European market sustainable combining 3 elements:

1. Build an innovative business model.

In this case the business model would be the alliance between Lixis and existing OEM.Without a partner would be difficult or very expensive for Lixis to solve manyrequirements by it own (see entry strategy above).

2. Satisfying uncover needs and opportunities.

After our investigation we found out that even if there are important players in the market(Laetus, Tattile and Scanvision) there are still some uncover needs which meanopportunities for Lixis. Some of them are mentioned above (Opportunities in theEuropean market). The challenge for Lixis is to be able to develop the quality controldevices to satisfy these opportunities and give the expected level of service through itspartner.

3. Using the advantage that Lixis has.

During our investigation we concluded that “at equal performance, price wins” Lixis hasa competitive advantage base in a superior capabilities-cost ratio. Therefore, Lixis couldmatch the expected quality and performance required in the European market with betterprices for the consumers. The challenge is to find the correct partner to create an alliance.However, we also found out that for a new player or brand would be critical to makemistakes (with the service, technicians, etc) at the beginning of the relation with the newcustomer. This probably will cost to loose the customer for ever.The key successful factors would be:

• Give real add value to the customers.• Build strong relation with the new customers.• Continue investigating the market to find new uncover needs.• Be able to develop new devices to satisfy the current and future opportunities in the

European market.

4. ACTION PLAN

To be finished

Fairs

Attendance to fairs is essential in this industry. All production managers go to fairs in order tomeet suppliers and to have information about new offerings. The main fairs, in order ofimportance, are:

1. Interparck. Location: Düsseldorf, Germany.2. Salon de l’emballage. Location: Paris, France.3. Achema. Location: Frankfort, Germany.4. Hispack. Location: Barcelona, Spain.5. Ipack. Location: Milan, Italy.

The first two are the most important fairs. They are the biggest and the most expensive. The lasttwo are less expensive and interesting places in terms of attendance of potential clients.