Smith & Nephew Restructures and Refocuses

The news that Smith & Nephew plc is combining its orthopedic reconstruction and endoscopy units is part of a larger shift that’s been taking place for the past few years. The company has actually been revising its focus since about 2008, but on a global scale. Industry executives are expecting similar announcements to be made on August 5, when CEO Olivier Bohuon is said to be presenting the company’s financial results for the first half of the fiscal year.

According to a company spokesperson, the new division will focus on serving customers in Smith & Nephew’s more established markets in the United States, Canada, Europe, Japan, Australia and New Zealand. However, the company is also increasing its focus in Brazil, Russia, India and China because of a higher growth potential, according to a company spokesman.

“In the last few years we have seen the markets around us change, some significantly,” Joseph Metzger, senior vice president of corporate communications, said. “Our established markets, especially in North America and Europe, are under pressure. At the same time emerging markets have huge potential. We are going to ensure we have a focused organization and allocate appropriate resources to seize these opportunities.”

The company has been preparing for the market change for several years: in 2007, the company announced that it would close its high-tech wound care dressing facility in Largo, Fla., and move production to Suzhou, China. The following year, Smith & Nephew announced that manufacturing facilities in China would be expanded to capitalize on the market’s growth. In 2010, the company began producing parts for artificial joints specifically for the Asian population at a 10,000- square meter facility in Beijing, China. Smith & Nephew also announced plans to train 5,000 surgeons in advanced orthopedic techniques at this time. The education initiative is still underway, and the company has four dedicated centers in China.

In the first quarter, Smith & Nephew’s international business grew 8 percent, compared to a 4 percent increase in the United States and a 1 percent increase in Europe. Combined, the orthopedic and endoscopy divisions made up about 90 percent of the company’s total sales in the United States that quarter, and 78 percent of its approximately $1 billion global sales.

In a separate statement, Metzger shared that “additional resource and focus will be given to the emerging markets of China, India, Brazil and Russia and other international markets.” Smith & Nephew’s geographic spread of revenue has made it somewhat of an attractive takeover target for larger corporations: Zimmer Holdings Inc., Stryker Corp., Johnson & Johnson and Biomet Inc. have all been named possible suitors.

Announcements made in the past several weeks by other companies might be an indicator that the industry as a whole shares Smith & Nephew’s viewpoint on the global marketplace, and that China currently is the hot commodity, GE Healthcare announced that it is moving the headquarters of its X-ray business from Waukesha, Wisc., to Beijing, and Boston Scientific Corp. announced that it plans to spend $150 million in the next five years building up its China presence.