Case Analysis "neuromonics Pty Ltd"

Executive Summary

Neuromonics Pty Ltd was established to develop and commercialise treatments for Tinnitus, a common hearing disorder, affecting approximately 15 to 20% of the adult human population. After identifying the significant opportunity to expand the business internationally, the management of Neuromonics is faced with some important decisions regarding the way in which they expand their business.

The following paper analyses the current position of Neuromonics, recommending a strategy to rapidly expand the business, focusing on one primary international market. It is however recognised that the management team should also plan to expand into other international markets shortly after to maximise the growth opportunity for the business while ensuring enough focus is placed on the first phase of the expansion.

Problem Statement

In spite of Neuromonics progress in the areas of clinical trials, regulatory approvals, secured intellectual property and commercial acceptance of the product in the Australian market, the business faces some important questions regarding the strategy and approach to the expansion of their business globally. The board of directors together with the leadership team, have recognized that the company has an opportunity to enter the international market and guide the company to achieve its full global potential. It is common for small and medium enterprise to consider expansion as form of growth, such as franchising, exporting or geographic expansion (Barringer and Greening, 1998), but not many companies going through it smoothly and so does Neuromonics. It faces a number of significant challenges in order to ensure the opportunity is realised in a sustainable fashion. These issues can be summarised as follows:

1. The potential scope of the expansion – A broad scope could place significant strain on the financial capabilities of the organisation.

2. The potential pace of expansion – A rapid expansion could place pressure on the relatively limited resources and skills of the existing workforce.

As highlighted by David and Kaiser (2003, 229): “Often SMEs lack the resources necessary to internationalise and traditionally they have appeared reluctant to engage in global business activities”, the issues above are common to many SME’s seeking to expand their business internationally.

Neuromonics Pty Ltd, like other SME’s planning to expand into the international market, needs to address these issues, and develop a strategy that meets its long term aspirations, maximising its potential, maintaining product quality and service, while ensuring the business remains viable, solvent and sustainable.

Summary of the Neuromonics situation

The problems faced by Neuronomics can be attributed by the number of factors. Firstly, the company has a relatively small core team of personnel trained in the use of the Tinnitus treatment, and a limited amount of expertise in international expansion. The company is faced with a challenge of balancing the amount of resources dedicated to the expansion of the business and the amount which can focus on training and development of new staff. This makes it difficult for Neuronomics to expand its business. Dewenter (1995) supports this fact by stating that while setting up a new business, companies require an investment for extra facilities, recruitment and training new employees. In the end this might bring the company to the resource constraints and reduce its involvement in other strategic activities.

Secondly, Neuromonics is an Australian focused business that has done some very good work evaluating the local opportunities and market, but do not have a strong knowledge of the offshore opportunities. Chen and Martin (2001) identified that those companies undertaking foreign business have far more experience in international expansion, such as knowledge of foreign business set up, managing company’s activities overseas and building relationships with local authorities. “For firms with foreign business, this knowledge helps them reduce the high learning costs of international business” Chen and Martin (2001, 559). It is therefore difficult (though not impossible) for Neuronomics to accurately predict the potential for business in foreign markets, and therefore difficult to determine the necessary level of investment in marketing, recruitment and production to match the demand of those new markets.

Another problem is that Neuronomics has access to only limited capital. In order to deliver necessary sales, Neuromonics will need to expand and train its workforce, and probably invest in efficient and targeted marketing of the product. If there is a delay in sales, the money spent to cover the above costs could