1

INNOVATION AND INTERNATIONALIZATION IN FANEM, A FAMILY-OWNED

MEDICAL EQUIPMENT MANUFACTURER
HERMANN HRDLICKA
School of Economics and Business Administration University of So Paulo
R. Joaquim de Almeida, 210 # 94 postcode 04050-010 So Paulo (SP) Brazil hhrdlicka@usp.br
EDUARDO VASCONCELLOS
School of Economics and Business Administration University of So Paulo
Av. Prof. Luciano Gualberto, 908, Room E 111, FEA 1 postcode 05508-900 So Paulo (SP) Brazil
epgdvasc@gmail.com
MARLENE SCHMIDT
FANEM Ltda. Av. Gal Ataliba Leonel, 1790
Sao Paulo (SP )- postcode 02033-020 Brazil marlene@fanem.com.br
DJALMA L. RODRIGUES
FANEM Ltda. Av. Gal Ataliba Leonel, 1790
Sao Paulo (SP ) postcode 02033-020 Brazil djalma@fanem.com.br

It is a challenge for companies based in developing nations to compete with global corporations at the international level,
particularly in areas of advanced technology, where competitiveness is less dependent on natural resources and inexpensive
labor. The present paper illustrates how FANEM, a family-owned, mid-sized company the Brazilian leader in its sector is
able to compete internationally with global companies from more than 90 countries. The following companies are among its main
competitors that invest significantly in R&D: Athom (Japan), Ohmeda (USA), Mediprema (France), Ginevri (Italy), AMF
(Turkey), and Guido Radio X (Spain). The main focus of this paper is to analyze a recent innovation. Neonatal jaundice, or
hyperbilirubinemia, is a disease that affects 70% of newborns. The traditional treatment uses equipment with fluorescent lamps
that emit infrared and ultraviolet rays. These lamps need to have appropriate filters in order to reduce undesirable secondary
effects. In extreme cases, or when treatment is not effective, the recommended alternative is a total transfusion of the childs
blood, an invasive, high-risk medical procedure. FANEM has developed a piece of equipment that employs SuperLEDs, which
emit rays in the blue spectrum, thus treating jaundice efficiently and without undesirable secondary effects or the need for
spectrum filters. We begin by reviewing the literature on innovation management and business internationalization. We then
briefly introduce FANEM, its history, and its competitive advantages, and describe a ground-breaking new product developed for
the treatment of neonatal jaundice, a condition with potentially devastating consequences. The results are analyzed and compared
with the literature, in order to afford a better understanding of the processes used by medium-sized companies in developing
countries to go international and the role of innovation in this subject.
Keywords: Radical innovation, SME internationalization, international entrepreneurship, medical equipment, phototherapy of
hyperbilirubinemia.

Family-operated businesses, Internationalization and Innovation

A dominant characteristic of the world market is the reality of family-operated
businesses. In Brazil, the most successful organizations share common elements: they are
family-operated businesses that invest heavily on innovation and have been developing
competencies required for international operations. Ninety-percent of the nearly eight million
companies currently operating in Brazil are family-run. Accordingly, family businesses are
highly participative in Brazils Gross Domestic Product, accounting for 12% of the
agribusiness segment, 34% of industry, and 54% of the service sector; in other words, familyoperated businesses are the pillars of the Brazilian economy, and constitute the most
expressive form of private ownership in most industrial sectors. Many such companies show
great possibilities of strategic international gains. Some are still only exporting abroad; others
have achieved more advanced levels of internationalization, with representative offices in
foreign nations, the establishment of strategic alliances, and even the acquisition of foreign
companies.
The consensus definition of a family business is that of a company where one or more
members of a family whether blood relatives or individuals related by marriage have
considerable administrative control over the organization due to significant capital ownership
(Constanzi & Lanzana, 1999), or exercise direct influence over corporate decisions even as
minority shareholders (Suehiro, 1997). For the purposes of this paper, we adopt the

internationally recognized concept based upon the following aspects: (a) control of the
company is held by a single family, (b) senior management is composed of members of this
family, and (c) later generations of the same family fill administrative positions left vacant by
older relatives, and so on.
The benefits of internationalization are not limited to large conglomerates: a study on
the evolution of Brazilian exports between 1998 and 2004 showed that nearly 20% of small
and mid-sized enterprises (SMEs) that exported during the study period experienced growth
exceeding that of large companies evidence that internationalization is an excellent strategy
for growth and learning (Exame PME, 2006, p.27).
Innovation is a facilitating factor of internationalization. One study has shown that the
Brazilian companies that make the largest investments on innovation are, generally, exporting
companies that (a) continually meet their clients needs and (b) believe technology
investment is of strategic importance and, therefore, cannot be halted. One of the sectors
featuring the highest R&D expenditure is that of medical equipment manufacturers (ANPEI,
2004, p.21).
In this context, a mid-sized family-owned Brazilian company with over 80 years
history has become the most internationally-representative Brazilian company in the medical
equipment sector, and a major player in the international market, particularly in the
neonatology products segment. This company, FANEM (Fbrica de Aparelhos Nacionais de
Eletromedicina Ltda.), represents a prime field for analysis of aspects such as product
innovation, internationalization speed, and service quality as a relationship tool, as this article
will attempt to demonstrate. The general objective of our study was to answer the following
question:
Can any current model of internationalization explain the rapid internationalization of a
mid-sized, family-owned enterprise based in a developing country and explain its
significant participation in the highly competitive global market for medical and,
particularly, neonatal care equipment?
Specific objectives were: (a) after a review of the literature, to identify and analyze
theoretical models on internalization process of firms, and the main elements considered by
researchers; and (b) to comprehend the logic followed by FANEM in its internationalization
process.
The theme of this paper is of the utmost importance, due to the paucity of studies on
internationalization strategies of small and mid-sized (SME) Brazilian businesses, the assetand employment-generating potential of these companies and, most importantly, because the
subject of this study deals in medical innovation.
To some companies, international business is an extension of local operations; to
others, it is an altogether different matter; but the effects of international actions become a
focus of management as they involve decisions on, among other aspects, whether or not to
operate internationally; which are the international markets and how to break into them;
which program is to be implemented; and how to structure activities in order to provide
support for new challenges.
To this end, many studies have been carried out, and have contributed to the
understanding of corporate internationalization a phenomenon related to the unparalleled,
highly complex expansion that, according to Jain (1996, p. 3), profoundly affects the world
economic order. However, most international marketing textbooks including those by

influential authors such as Jain (1993), Quelch (1999) or Keegan (1998) do not discuss the
internationalization of small and mid-sized businesses.
This study sought to understand the international dynamics of a mid-sized Brazilian
company and to establish correspondences between the study and its theoretical basis
particularly, a model that could explain the firms growing speed of internationalization.
Despite the complexity of the theme, we attempted to establish the preliminary and most
readily apparent connections between the studys three dimensions of scope: the mid-sized
Brazilian company, the role of innovation, and the internationalization process. As our
background, we have the medical equipment sector; our focus is the neonatology products
segment.
Upon finding product innovation with considerable possibility of global success, we
chose to provide a complementary focus on the product and its main physical and strategic
characteristics.

Methods
According to Tull (1976), Yin (1998), and Bonoma (1985), in a survey where
respondents are unable to verbalize their behavior due to given circumstances, or if the
subject phenomenon cannot be quantitatively operationalized, qualitative research methods
may be used instead. Van Maanen (1979) considers description to be the fundamental step of
data collection in a qualitative study, where emphasis is placed on the process rather than the
structure of a given phenomenon. Our study has some singular characteristics that guided our
choice of the research method to be employed, namely: (a) it seeks to understand processes;
(b) it deals with classified information, due to the internationally competitive nature of the
medical equipment sector; and (c) it is an exclusively contemporary study.
FANEM Ltda. was chosen because it (a) is a mid-sized, family-operated business; (b)
develops globally interesting medical equipment innovation; (c) has a rapid international
expansion strategy (over 90 countries in six years); (d) is a sales leader in some of these
countries even though it competes with international players that invest far more in R&D,
communication, distribution, etc.
Initially, we collected secondary data from web pages, internal company documents,
interviews, and press features. Primary data were then obtained in the field through
interviews based upon a semi-structured question set, with open-ended questions directed at
the companys senior management. After the interviews had been conducted, they were
transcribed and categorized for subsequent analysis. We then compared the answers obtained
in our interviews with the findings of our literature review, and from there we obtained our
results.

Innovation
Currently, the only way of obtaining any competitive advantage over ones
competitors is through innovation, whichever type of innovation it may be. To some authors,
differentiation and sustainable innovation are at the core of competition (Sachen, 2006).
The concept of innovation involves a combination of several elements that may create
some new competitive advantage, be it cost reduction, product differentiation or an edge in a

specific market niche (Porter, 1989). It is the result of an effort to intentionally produce
change, guided by the economic potential of an enterprise and requiring talent, ingenuity and
focus (Drucker, 1985). For the purposes of this paper, we define innovation as the
development of a new product whose fundamental characteristics differ significantly from
those of products previously developed by the company or the industry.
A notable source of innovation is the incongruity of certain medical procedures,
namely, the fact that they employ equipment whose use, while originally designed to preserve
and maintain life, may become deadly, particularly to newborn children. This seemingly
perverse logic even when the thankfully low incidence of fatal accidents or severe
complications in such procedures is considered may become an excellent opportunity for
innovation (Drucker, 1985).
A typology of innovation will comprise the following categories, among others:
disruptive, application, product, process, marketing, experiential, business model,
enhancement, and structural innovation (Moore, 2004). Our study focuses on product
innovation, which is understood to be the introduction of a new product in order to satisfy
needs that are invisible to or unnoticed by end users, or to break into new markets or product
segments. The term product innovation encompasses a wide range of possibilities, such as
a new formulation, flavor or color of an existing product, a new design, new components, etc.
Three categories of this type of innovation have been defined: (a) continuous innovation,
which involves modification of an existing product; (b) dynamically continuous innovation,
which involves the development of something new, but not the creation of new consumer
patterns of the meeting of a need; and (c) discontinuous innovation, which entails the creation
of new consumer patterns and previously unknown products (Bruce, 2003).
The dilemma of whether innovation is pushed forward by technology or pulled
forward by the market is the subject of significant academic discussion. Of the factors that
influence innovation, the following may be mentioned as the most prominent in the literature:
(a) positive bias (innovation is perceived as or felt to be a good thing) (b) organizational
contexts that foster and encourage innovation, which is in turn more likely to occur in such
contexts; (c) more flexible organizational structure a characteristic of small and mid-sized
businesses, which appear to have an edge in starting innovation; (d) a reward system
individualized rewards tend to increase the creation of ideas and radical innovations, while
group rewards tend to improve implementation and creation of enhancement innovations. In
addition, certain conditions are also necessary for the development of innovative behavior in
companies, such as: (a) available resources; (b) frequent communication between
departments; (c) moderate environmental uncertainty, and observational acumen for the
evaluation of trends; (e) tight-knit workgroups and (e) low personnel turnover, among others
(Van de Ven, 2004).
Another highlight in the literature is the time-honored model of the innovation process
proposed by Rogers (1983) and composed of three distinct stages: (1) the invention of an idea
born of the perception of a market/client need, and the possible application of this
technology; (2) the transformation of this idea into an operational prototype; and (3) the
adoption of the innovation by users/clients.
We conclude that three points are important in the analysis of an innovation: (a) the
factors that influence it; (b) the organizational conditions necessary to its development; and
(c) the importance of marketing in boosting the innovations perceived value.

Conceptual Models of Internationalization

Changes in the international market and in global communication structures have
greatly helped companies undertake the internationalization process (Manolova, Brush,
Edelman, & Greene, 2002). The meaning of internationalization is not without controversies,
including some concerning its object: the business itself. According to several authors,
including Paula (2003, p. 29) and Hitt (2002, p. 317), internationalization of a company is
taken to be (a) the sale of products in markets other than the firms home market and (b) the
set of activities involved in carrying out transactions beyond the boundaries of the domestic
market (Jain, 1996, p. 5).
To Grosse & Kujawa (1992, p. 6), several activities exemplify internationalization of
a business, such as exporting, importing, direct investment, product licensing, portfolio
investment, loans, and unilateral transfers (i.e. sending and receiving gifts). The authors also
note : the different scales of impact on companies regarding production, product, marketing,
financial, accounting, tax, and personnel management; the complexity of conducting
international business, due to the different stakeholders involved, such as other international
organizations and governments; cultural diversity; import and export activities of small and
mid-sized businesses; and others.
The present study defines business internationalization as any activity carried out by
a company with the objective of expanding operations beyond its home nation. This implies
consideration of transactions (product, brand, and patent marketing), direct investment
(opening factories and service offices and joint ventures), and special projects in which
products and services are developed in a certain foreign country due to their size or
complexity. The business environment has been undergoing transformations that have led
companies to consider internationalization under a new light: if it was once seen as a way of
capitalizing on new deals in foreign countries, it now means nothing less than corporate
survival. Crossing the border is therefore the only way out for major Brazilian companies
such as Embraer, AmBev, Embraco, Natura, Alpargatas, Tigre, Votorantim Cimentos, and
Caloi, as they outsize the internal market (Balbi, 2004).
Several authors (Jain, 1998, p. 713; Cintra & Mouro, 2005; Kotler & Armstrong,
1999, p. 441) have pointed out the main reasons for internationalization: a saturated or
withdrawn domestic market, international competition in the domestic market, the
development of new emerging markets, market globalization, opportunities in the form of
foreign aid, international expansion of domestic clients, comparative advantages, threats from
domestic stakeholders, the risk of isolation within or dependence on a single market, and
others.
Quelch and Bartlett (1999) note the following as reasons why companies go
international: (a) to capitalize on economies of scale and make use of idle capacity; (b) to
leverage specialized production or marketing potential to market niches that may be found in
different countries; (c) to learn how to compete in international markets and, in doing so,
develop skills and knowledge that can improve competitiveness in the domestic market; (d)
to challenge international competitors moving into the companys home market; (e) to
diversify risk and stabilize sales when the domestic economy is excessively volatile; and (f)
to satisfy the goals or ambitions of the companys head entrepreneur.
These many reasons all share points in common, such as the better use of installed
capacity in the companys home country, government incentive, a defensive (or offensive)
strategy against international competitors, corporate learning, and internalization of new

technologies, which abound in the international market.

To the authors mentioned, process-based theories are rooted in behavioral models of
risk aversion. Their main characteristic is internationalization conducted in an incremental,
highly controlled manner, on which Quelch and Bartlett (1999) believe how to move in and
when to move in have a strong strategic impact. To answer the first question, companies
may make use of agents, gradually set up a representative office or joint venture, or even
acquire a foreign competitor, as shown in Figure 2 below. As for the when, first movers
have a number of advantages, such as the opportunity to build a brand reputation, deals with
the best suppliers and partners, political and fiscal incentives, etc.

ACQUISITION

JOINT VENTURE

om

itm

en

LOCAL PRODUCTION

RISK AND CONTROL INVOLVED

High

LICENSING
REPRESENTATIVE
OFFICES

AGENT
Low

COST

High

Figure 1 Methods of entry into international markets

Source: Loosely adapted by authors after references

Some authors (Blomstermo & Sharma, 2003, p. 20) recognize only two approaches to
internationalization: the Uppsala model or U-model (Johanson & Vahlne, 1977) and the
innovation-related internationalization model or I-model, proposed by Bilkey and Tesar
(1977), Cavusgil (1980, 1984), and Czinkota (1982). Both approaches share certain
similarities (both are based on experience, both are behavior-oriented, etc.) and have their
differences, such as adaptation versus a stage-based internationalization process and having
proactive versus reactive models as their basis. To Andersen (1993), the theory behind these
models does not match actual procedure.
Other authors present models based on export development, focusing on the
differences between successful and unsuccessful exporters through analysis of export
behavior and management profiles. This approach produces factors such as environmental
perceptions, demographic considerations, and whether the company is actually directed and
committed to internationalization. These viewpoints are, however, not contradictory,
although they may seem to be so; rather, their domains may be somewhat fluid, determined
by characteristics of the company they are applied to and its environment (Korri, Autio, &
Sapienza, 2004).
It must be noted that these models and approaches were developed in consideration of
studies carried out in major international corporations over the past 30 years (Blomstermo &
Sharma, 2003, p. 19). This may account for certain shortcomings; traditional theories of

internationalization (Uppsala and the I-model) were, for instance, insufficient to explain the
internationalization of Canadian SMEs in a study by Su & Poisson (1998).
The authors who have developed models of internationalization make no mention of
what to bring to the foreign market and how fast to move in, however; rapid introduction
of innovative products into international markets is the most interesting strategic option for
medical equipment manufacturers because such products can change the degree of risk
attached to medical procedures and improve patient care, as we shall explain in the following
section. Nonetheless, several studies point to the problem of adoption of innovation and the
main obstacles faced by innovative and entrepreneurial companies.
In the last decade, the role and contribution of SMEs as players in the international
market has received widespread attention in international business literature (Fletcher, 2004,
p. 289). The vast majority of companies operating in OECD member states are SMEs, and, as
large firms outsource more functions, SMEs will carry more weight in the economy (OECD,
2000); the internationalization of SME has accelerated remarkably since the 1980s (OECD,
1997). Studies focusing on SME internationalization have been published since the 1990s.
They provide evidence of the unique risks to which such enterprises are exposed while going
international, such as limited resources and financial constraints, faulty internal coordination,
and operational challenges; these risks may be further compounded by the companys sector
agriculture, retail, services, etc. These studies usually focus on one of three distinct, though
interrelated, perspectives: internationalization process, export development, and, last but not
least, international entrepreneurship (Manolova, Brush, Edelman, & Greene, 2002). This
alternate approach is based on the entrepreneurial competencies and insight of company
management, and on the speed of internationalization as determined by competitive forces
(McDougall & Oviatt, 1999).
A notable characteristic of agile international companies is that they do not follow a
long learning process when expanding from one country to another, as traditional (Uppsala /
I-model) models of internationalization maintain. Conversely, such companies quickly break
into the global economy by dealing with sophisticated clients and suppliers the world over.
This accelerated internationalization process is complex and difficult to model (John &
Zander, 2007), and several studies have shown that classical internationalization theories fail
to adequately explain the processes and patterns found in SMEs (Simon & Houlden, 2005, p.
417).
Other broad studies suggest that SMEs expand internationally in several manners,
including traditional ones (direct and indirect exports, etc.), interactions and relationships
with buyers, sellers, and intermediaries; business activities may be simultaneous in several
countries, or the company may break into a string of foreign markets in rapid succession.
Innovative companies defined here as those capable of effecting technological change and
involved in the development of novel technological possibilities excel in the
internationalization process, and their characteristics flexibility, responsiveness to change,
technological competency, and regarding innovation as a standard business practice stand
out, coupled to the entrepreneurial spirit of their managers and local government support
such as relevant policies, export incentives, and market development programs (Crick &
Marian, 2000, pp. 6468).
In this context, a new object of study has surfaced: international entrepreneurship,
which may be defined as the entrepreneurial process a firm undertakes in order to integrate
itself with international trade, through the use of knowledge, skills, resources, and sales

activities (John & Zander, 2007, p. 9).

To Oviatt and McDougall (2005), international entrepreneurship may be defined as the
discovery, enactment, evaluation, and exploitation of opportunitiesacross national
bordersto create future goods and services. In the same article, the authors propose a
model of internationalization speed (reproduced here in Figure 2) and reinforce the idea that
the sooner a firm begins internationalization, the faster it will grow.

MODERATING
ENABLING

Knowledge
Foreign market
Intensity

Technology

INTERNATIONALIZATION
SPEED

MEDIATING

ENTREPRENEURIAL

Initial entry
Country Scope
Commitment

Entrepreneurial
Actor Perceptions

Opportunity

MODERATING
MOTIVATING
Competition

Network Relationship
Tie strenght
Network size
Network density

Figure 2 - A model of forces influencing internationalization speed

Source: (Oviatt & McDougall, 2005, p. 541)

The authors define three aspects as being vital to the speed of internationalization: the time
between discovery or enactment of an opportunity and its first foreign market entry; the speed
with which country scope is increased, defined as how rapidly [] entries into foreign
markets accumulate and how rapidly are countries entered that are psychically distant from
the entrepreneurs home country; and how quickly the percentage of foreign revenue
increases.
In the model proposed by Oviatt and McDougall, the speed of entrepreneurial
internationalization is determined by four types of forces, namely (a) the enabling force,
which makes accelerated internationalization feasible, (b) the motivating force of
competition, which encourages the firm to take preemptive advantage of technological
opportunities in foreign countries, (c) the mediating force the person or group that discovers
or enacts an opportunity, and is central to the dynamics of international exploitation, and
(d) moderating forces related to network relationships and knowledge intensity.
Citing several previous studies, Oviatt and McDougall note that (a) the network
approach appears to be the best explanation for the internationalization of software
companies, (b) strong business networks are one of the seven most important characteristics
of successful global start-ups; (c) networks help entrepreneurs identify international
opportunities, establish credibility, and often lead to strategic alliances. The size of the
network, its overall density, and the strength of ties are presented as key factors. The authors
place additional importance on weak ties relationships with customers, suppliers, others that

are friendly and business-like. For instance, brokers (representatives) establish ties between
actors who, without the broker, have no link to each other. The authors believe that indirect
ties established through brokers between different actors can have a positive influence on the
speed of internationalization (Oviatt & McDougall, 2005, p. 545).
The authors go on to explain the influences of knowledge on accelerating the
internationalization process, based on the Uppsala model, companies need to obtain
knowledge from (and on) international markets, and the importance of international learning
to entry into foreign markets or the expansion of international operations. The management of
such knowledge is quite challenging due to the complexity of government systems, cultural
diversity, and languages involved; even time zone constraints have an impact. Citing a study
that related the differences between established companies and new entrants, the authors
explain that the speed of internationalization is greater in more knowledge-intense firms,
which implies that a greater commitment to internationalization is both necessary and
desirable. Knowledge of the international market and the intensity of such knowledge are
therefore important variables contributing to increased internationalization speed.
The theoretical basis described above will be taken into account for the case study that
follows.

The Company
FANEM (Fbrica de Aparelhos Nacionais de Eletromedicina Ltda.) is a familyowned, mid-sized Brazilian manufacturer of medical equipment specializing in neonatology
products, that is, products and equipment for the care of newborns, such as incubators and
specialty infant beds. Founded in 1924, it is now operated by the founders heirs and
descendants; it is responsible for 240 staff and indirectly generates around 1000 jobs, and has
a team of specialized engineers for product development, technical support, and training both
in Brazil and abroad. The companys growth and brand consolidation were based on quality
control, technical standardization and continuous technological improvement. It currently
invests 10% of yearly earnings on research and development and has a close relationship with
universities and research institutions in the sector.
FANEM holds ISO 9001:2000 certification, and its products are competitive with
regard to quality, embedded technology, price, and, most importantly, the range of its product
line, which has received several other certifications, including the European Unions CE
Mark.
Three product lines are currently manufactured: neonatal, laboratory (diagnostic
equipment), and biosafety. The neonatal line consists of neonatal care equipment such as
stationary and transport incubators, warmers, intensive care beds, phototherapy systems
(Bilitron being the highlight of this category), irradiance meters, and others. The
diagnostics and laboratory line encompasses incubators, acclimatized chambers, autoclaves,
heated baths, agitators, homogenizers, germination chambers, vaccine and blood storage
systems, and other products. The biosafety line provides products for non-invasive bilirubin
measurement (transcutaneous bilirubinometers), to assess the degree of hyperbilirubinemia,
and a sepsisa marker. FANEMs biosafety line also carries incubators, culture chambers,
autoclaves, and block heaters for spore assays.
a

Sepsis (formerly known as septicemia, blood poisoning, or generalized infection) is a set of severe, body-wide
pathological manifestations brought about by an extreme response to infection. It is currently the leading cause

10

FANEM is a market leader in neonatology equipment in Brazil and is one of the

countrys foremost exporters of healthcare equipment and products. It holds an 18% share of
the world neonatal incubator market; business is constantly growing, with a 90% share of the
Brazilian neonatal care segment. In Russia, it was the segment leader in 2006, outperforming
competitors such as Drger (of Germany), Atom (Japan), GE Healthcare (USA), Mediprema
(France), and other Asian companies.

International Knowledge
FANEM began exporting in the 1970s initially within Latin America and from the
year 2000 onwards, internationalization established itself as one of the pillars for the
companys development. Its main incentives to internationalization include: (a) a reduction in
popularity of the open tender route for hospital purchases of equipment, changes in bidding
procedures, etc. (in the Brazilian market); (b) increasingly fierce competition; and (c) the lack
of new investment to private hospitals. The company developed a successful high speed
internationalization strategy and currently exports to the United States and over 90 countries
in Europe, Africa, and Asia; Oceania is being scouted.
Another factor that provided momentum for internationalization was product quality.
FANEM products are considered to be of remarkable quality in a market where bidders will
seek generic products below a certain price ceiling that may not be available abroad, as
foreign manufacturers often go for quality instead of competitive prices.
Original equipment manufacturer (OEM)-type exports, made to Egypt and the United
States among other countries, consist of the local partner branding the final product as its
own, thereby carrying FANEMs penetration strategy into these local markets. According to
our interviewees, with regard to the U.S., [the OEM] contract proves the quality and
competitiveness of our products, as the U.S. market is extremely protective of local
manufacturers and products and is therefore very strict when it comes to certification.
The subset of FANEMs neonatal care line sold outside Brazil includes incubators,
microprocessor-controlled intensive care beds, maternity beds, phototherapy equipment, and
radiant warmers. In the laboratory and research segments, FANEM exports blood and vaccine
storage refrigerators, centrifuges, autoclaves and incubators.
Our interviews pointed to a triad of strengths: ease of maintenance, quality technical
support, and systematic training. Proving that is the fact that we frequently host groups from
Saudi Arabia, Morocco, Egypt, Jordan, and Syria, who come to Brazil exclusively to take
part in training we also send our engineers overseas to train our foreign clients, said one
interviewee.
A strong driver of the internationalization process was participation in international
trade fairs, considered by FANEM to be its main marketing tool for exposure to new markets
and the establishment of representative offices in foreign nations; this strategy was supported
by the Brazilian Trade and Investment Promotion Agency (Agncia de Promoo de
of death in ICU patients and one of the foremost causes of late-onset, in-hospital mortality, ahead of myocardial
infarction (heart attack) and cancer. Sepsis is also the leading generator of cost in both the public and private
healthcare sectors, as its management requires high-end equipment, expensive medications, and thorough,
intensive attention from healthcare professionals. Sepsis accounts for 25% of ICU occupancy in Brazil (Latin
American Sepsis Institute, 2004).

11

Exportao e Investimentos, APEX-Brasil). Another fact thought to have contributed to

international success was the strategy of keeping exclusive representative offices. One of the
strategies adopted for Latin America was setting up an OEM channel in Miami.
Current positioning in the global and domestic markets was obtained through constant
technological updates, including the acquisition of technology, IT- and electronics-based
process improvements and innovation, surveys of buyers needs, and, as mentioned above,
certification. A partnership with Air-Shields, a U.S. market leader in the neonatal care
segment (and now a Drger subsidiary) gave FANEM access to technologies, in a significant
strategic leap.
Exports allowed a 250% increase in earnings over the past five years and are creating
new advantages from new product launches, growing numbers of sales representatives,
commercial partnerships, and a boost in sales efforts. This scenario suggests FANEM has
followed different strategic guidelines for internationalization, which have been theorized
earlier in this paper.

Competitive advantages
According to Zaccarelli (2000), there are several alternatives for companies wishing
to obtain a competitive advantage over their competitors, which is essential to the success of
an organization. A critical challenge of internationalization is the ability to transfer, adapt,
and create new competitive edges to face competitors in new markets.
FANEMs advantages are outlined in Table 1. The first column lists the five
fundamental competitive factors. The second column discusses the configuration of each
factor, explaining how FANEM is able to surpass its competitors in Brazil. In the third
column, these factors are analyzed with regard to FANEMs competitors in foreign markets.
Table 1 Competitive advantages for internationalization
Factors
FIRST-MOVER
ADVANTAGE

QUALITY

PRICE

CUSTOMER
SERVICE

INNOVATION

Brazil
FANEM began operations in Brazil before any
competitors; when these came into the market,
the FANEM brand was already recognized and
well-accepted.
FANEM products are recognized by their
remarkable quality, and are certified both
nationally and internationally.

Highest price on the market

Significant emphasis on training healthcare

professionals, which contributes to brand
loyalty.
Has always been a company priority, due to
the corporate culture established by its
founder.
Close-knit
partnerships
with
technology sources in the country; several
deposited patents; highly professional
innovation culture.

Foreign markets
FANEM had to win over market share from
established competitors.
FANEM products are recognized by their remarkable
quality, and are certified both nationally and
internationally.
Lower price than market leaders an important
differential, since quality is comparable to that of
competitors products. Process innovation and greater
economies of scale due to internationalization made
this strategy easier
Significant emphasis on training healthcare
professionals, which contributes to brand loyalty and
strong relationship with customers and users.
Holds a worldwide patent on Bilitron, the first LEDbased phototherapy system to replace traditional
fluorescent-lamp phototherapy.

Below, we discuss the factors found at FANEM:

FIRST-MOVER ADVANTAGE: A pioneering company suggests one holding the relative

12

strategic first-mover advantage. However, it is indeed only relative, as new competitors may
come into the market with novel technology or other advantages. Successful pioneering
companies have kept the first-mover advantage over time by knowing how and when to
explore the effects of acquired experience (Ghemawat, 1998), as well as maintaining strong
encouragement to R&D activity including partnerships with scientific institutions in
enhancement innovation and low employee turnover. As a pioneer in the manufacturing of
medical and laboratory equipment such as microbiological incubators, autoclaves,
refrigerators and cold storage chambers, centrifuges, diathermy equipment, inactivation
baths, etc., FANEM built experience that was fundamental to his international success. The
joint development of products with researchers from several medical schools has supported
the companys growth since it was founded in 1924. Lastly but importantly, FANEMs target
activity-staff turnover rate of around 3% is considered adequate for employee retention and
the dissemination of knowledge.
QUALITY: Another highlight at FANEM is the concern of the company with quality control
and the compliance of technical specifications with standards developed by the Associao
Brasileira de Normas Tcnicas (ABNT) and the pursuit of international certifications, such as
ISO 9001:2000 and CE Markings. As sources of competitive advantage, quality control and
compliance with standards feature quite prominently in the literature.
CUSTOMER SERVICE: One aspect that became visible in the course of this study was the
importance to the company of aftermarket service, which focuses mainly on training
consumers in the correct use of the equipment sold; the number of healthcare professionals
(nurses, physicians, etc.) trained by FANEM over 3,000 a year between Brazilian and
foreign professionals is evidence of this concern, which is well justified; when it comes to
sophisticated products directed at the preservation of human life, proper handling and
operation are paramount, so that the quality of patient care is not adversely affected (which
would carry significant financial risks and risks to the companys reputation). Consumer
training and certification should therefore be followed closely by the equipment
manufacturer, to ensure that standard procedures are performed. In doing so, FANEM
displays the B2B nature of its natural and international trade relations; among other factors,
this requires high client participation (Lovelock & Wirtz, 2003) so that truly effective service
can be provided to end users. In short, FANEMs emphasis on training both its employees
and its customer base strengthens the companys relationships and provides evidence of its
corporate values and strategic focus on quality, which extends far beyond its range of
products.
PRICING: FANEMs pricing policy for the domestic market is based on quality and value,
which makes its products the most expensive in the sector and its prices, the reference for
competitors. In the foreign market, policy is to set prices according to those of competitors.
The choice to follow the leaders when pricing for export is based on the diverse
conditions offered by the global market: (a) several global competitors offer quality products;
(b) some competitors are part of financially-strong and secure conglomerates or groups; (c)
distribution channels are readily accessible; and (d) the competition has a high level of
knowledge and well-honed international marketing skills (Churchill & Peter, 2003).
According to our interviewees: If we make an analogy with the automotive sector FANEM
products are Toyotas competing against Mercedes-Benz, BMW, and other prominent luxury

13

brands []
INNOVATION: Innovation is another point of emphasis for the company. The constant
search for innovation that has always guided FANEM was taught a new lesson: international
competition sustains leadership in the domestic market. In order to become international, an
organization must be familiar with the technologies and processes demanded by different
markets; in meeting the needs of a highly demanding market, competitive advantages are
obtained in technologically underdeveloped markets or markets that do not require special
consideration regarding technology or process appropriateness. Towards this end,
relationships must be established between the development team scientists, engineers, and
other collaborators and the international trade department, and communication between
them must be frequent, so that new concepts and products may be developed to meet the
diverse needs of the global market. An effective system to provide information on and follow
possible technological paths under development should also be in place, as, in the medical
equipment sector, an unforeseen novel technology may become a threat to competitiveness.
In FANEM, this is done through structural adjustments: the international unit
comprises a foreign trade management office directly below the commercial director in the
companys hierarchy , led by a manager who is a scientist by training, but also holds a
degree in international trade. Three foreign trade technicians (specializing in logistics and
foreign exchange) are employed by the unit, as well as two MBA holders and a biomedical
engineer. The manager coordinates the activities of 50 sales representatives in over 90
countries.

Neonatal jaundice: an opportunity for competitive innovation

Neonatal jaundice, also known as neonatal hyperbilirubinemia, is a common
occurrence, affecting up to two-thirds of all newborns. It is easily diagnosed by observation
of the yellowish tint to the skin that results from a buildup of bilirubin in the bloodstream.
Bilirubin is a by-product of normal metabolism, and its accumulation (hyperbilirubinemia) is
a transient phenomenon in most babies; it is most frequently caused by a difficulty in taking
up bilirubin in the liver and an increase in its reabsorption in the intestine. There are varying
degrees of jaundice, visible as varying degrees of change in skin color.
In most newborns, jaundice is benign; in some cases however, bilirubin levels may
become excessively high, and bilirubin may reach the brain as well as the bloodstream,
directly causing brain damage at the cellular level. This condition is known as acute bilirubin
encephalopathy; kernicterus, a severe, devastating form of bilirubin-induced neurotoxicity, is
associated with a mortality of up to 10%, and causes severe neurological sequelae in 70% of
its sufferers. The main objective in the management of neonatal jaundice is to prevent
bilirubin buildup in the brain, which requires: (a) reference ranges of bilirubin to which
patients levels can be compared, even during follow-up; and (ii) adequate treatment.
According to Willems et al. (2004), visual inspection alone was long accepted as a
way of determining total serum bilirubin (TSB) levels, which are the main indicator of the
degree of jaundice. This method is subjective by definition, and experience has shown it is
not a reliable predictor of severe hyperbilirubinemia.
More modern devices in current
useb provide a complete spectral analysis of the wavelength of light reflected by the skin,
b

One such device is Bilicheck, developed by SpectRx Inc. (Norcross, GA).

14

obtained through a probe fitted with fiber optic sensors and infrared and ultraviolet filters,
which is later run through an algorithm that eliminates biases caused by skin color or
maturity. The end result can then be used to determine the depth of jaundice in the newborn
patient.

Treatment
The therapy of neonatal jaundice involves different approaches, which have been
developed as the result of several stages of learning over the past fifty years. They include as
prophylactic actions, blood transfusion, phototherapy, and the use of medications that
decrease the production of bilirubin or make its excretion easier; regardless of the therapeutic
course chosen, monitoring of bilirubin levels is of the utmost importance, as well as complex
decision patterns regarding the satisfactory cutoff level at which therapeutic action should be
started or can be dismissed; this level varies from patient to patient.
Phototherapy is now considered the best approach for the treatment of neonatal
jaundice. The exposure of bilirubin to light in the blue spectrum (between 420 and 470 nmc)
causes the natural form of bilirubin to convert (by isomerization or photo-oxidation) to other
isomeric forms and to another molecule, lumirubin; these are readily excreted through the
biliary system and kidneys.
The widely used traditional phototherapy devices use fluorescent lamps, some of
which emit light in the blue spectrum. Others use halogen lamps, with or without fiber optic
light emitters; more modern devices use sets of 300 to 600 LEDs (light emitting diodes).
Adverse reactions to treatment, such as dehydration, diarrhea, and others, may occur if the
patient is not followed closely. Therefore, adequate control of temperature, hydration, and
urinary volume is paramount to ensure the efficacy of treatment.
The most important care to be taken by healthcare professionals is constant
monitoring of the jaundiced infant, so as to avoid the aforementioned adverse effects of
treatment. Phototherapy equipment that offers remote control and monitoring software can
therefore be very useful in the healthcare setting, offering professionals greater control,
reduced risks, and an opportunity to collect information that can be used to improve and
refine current standards of care in neonatology.
An innovative device was developed entirely by FANEM for the treatment of
neonatal jaundice. Trademarked Bilitron, it is highly effective and provides fully
microprocessed control of irradiance, exposure time and light source. The device employs
only five SuperLEDs, light-emitting components produced with a unique semiconductor
material that allows for irradiant power over 50 times greater than that offered by traditional,
cumbersome fluorescent lamp-based systems. Bilitron is the first SuperLED-based
miniphototherapy device.

The nanometer (nm) is a unit used to measure wavelength. The light spectrum visible to the human eye ranges from
700 to 400 nm.

15

Figure 2 Technological evolution of phototherapy

The devices main innovative characteristics are (a) a drastic reduction (and near
complete elimination) of the need for exchange transfusion, an undesirably risky and invasive
procedure, (b) high usability, thanks to the devices reduced weight and dimensions and its
practical design, (c) safety, as, unlike traditional phototherapy equipment, the product does
not emit undesirable ultraviolet or infrared radiation, (d) a display for direct monitoring of
relevant parameters, (e) versatility, as it includes a probe adapter that allows the device to be
used as an irradiance meter, (f) connectivity: the product is capable of transmitting data to a
computer and to other peripherals, and can also generate monitoring reports and send them
directly to a printer, (g) it poses no risk to the environment, as it does not require fluorescent
lamps (which are being gradually phased out, and have already been withdrawn from use in
several countries such as Australia, the U.S., and others), (h) when compared to other
devices, it offers lower cost, mostly by reducing the length of treatment, (i) the remarkably
long service life of SuperLEDs, and (j) an irradiance curve ranging over the spectrum that
most efficiently treats hyperbilirubinemia, as shown in the figure below.
Bilitron irradiance curve
4,00E-02

3,00E-02
2,50E-02
2,00E-02
1,50E-02
1,00E-02
5,00E-03

Wavelength (nm)

Figure 3 The Bilitron irradiance curve

Source: FANEM Ltda.

60
0

58
0

56
0

54
0

52
0

50
0

48
0

46
0

44
0

42
0

40
0

38
0

36
0

34
0

32
0

30
0

0,00E+00
28
0

Irradiance
E (W/cm2 nm)

3,50E-02

16

Bilitron has a current growth rate of 40% per year on units sold, and a significant
possibility of growth by even larger increments due to the size of the yet-untapped market to
which he product is still mostly unknown, as it was launched in 2004. Led by a perceived
trend towards miniaturization through the use of nanotechnology, the development of this
revolutionary product underwent several stages of adaptation and improvement until a set of
only five SuperLEDs was able to attain efficiency equivalent to 300 conventional LEDs. It is
important to note that the Bilitron is the only device in its category to offer fully
microprocessor-controlled therapy and monitoring functions; other distinctive features, as
well as those mentioned above, are its usability and ease of maintenance.
The product was developed entirely by a team of over 15 FANEM staff, with the help
of important partnerships between the company, research centers, and research labs (the
Instituto de Pesquisas Tecnolgicas do Estado de So Paulo [IPT], the State University of
Campinas, Clinica Laranjeiras in Rio de Janeiro, and the National Institute for Space
Research) and relevant government agencies and legal support (Ministry for Science and
Technology, APEX-Brasil, and the Information Technology Law [Lei de Informtica]).
Initial testing at the development stage was conclusive of efficacy, and risk mapping showed
no evidence of hazards to the patients safety. The product is now patented in Brazil and the
U.S., has received several awards and testimonials from clients throughout the world; further
evidence of its effectiveness was presented at the 2007 World Congress of Neonatology. The
main competitor to Bilitron is manufactured in the United States, and employs conventional
LED technology rather than SuperLEDs, making it less efficient.
The following table presents a comparison of the several technologies that have
driven evolution of phototherapy equipment. The Analysis factor column outlines the main
points of comparison chosen by experts and used in evaluating the different technologies
currently available. The Weight column shows the relative weight associated with each
factor, ranging from 1 to 3 (of little relevance, relevant, and highly relevant respectively).
From a set of ascending analysis scores ranging from 1 to 5 (very low, low, medium, high,
and very high respectively), we calculated final scores by multiplying each analysis score in
each technology by its relative weight. Final scores are indicators of efficiency for each factor
in each of the existing treatment technologies.
Table 2 Comparison of phototherapy technologies.
FL, fluorescent lamp; H, halogen; HFO, halogen with fiber optics; LED, light-emitting diode; SLED, SuperLED; Max,best score overall.
Source: Authors

Analysis factor

Weight

FL

HFO

LED

SLED

Max

Body surface coverage

15

12

12

15

Power consumption

Dimensions

10

Generation of heat and undesirable radiation (UV and IR)

12

12

Irradiance level

15

15

15

Portability

10

10

10

Price cost-benefit ratio

10

10

Risk involved in use

Service life of emitter component

10

10

As for difficulties in development, Bilitron faced several technical challenges,

including: (a) study of the devices emittance spectrum, to ensure its efficacy in treating
jaundice; (b) compliance to relevant standards; and (c) demanding clinical trials in research

17

institutions. The main commercial challenges faced by the company are: (a) the difficulty in
encouraging adoption of a revolutionarily innovative product, especially in the Brazilian
public sector; (b) achieving the necessary speed in entering both local and foreign markets, as
FANEM is a mid-sized company; and (c) in the international market, overcoming technical
barriers found in several countries.
The company believes that: (a) the contribution of Bilitron to its overall earnings
will grow in the short run; (b) the innovation life cycle will last 20 years; (c) innovation will
be subject to cloning and copying; and (d) there is a disturbing hindrance to its intellectual
protection, which is the delay in patent certification (up to two years in the U.S. and nearly
ten in Brazil).
Conclusions
This case study sought to review certain concepts relating to innovation and
internationalization in the case of a mid-sized, family-owned company that became a player
in the international medical equipment market. Corroborating our findings, Collinson and
Houden (2005) note that companies employing 500 collaborators or less are those that grow
the most, and the internationalization variable is one of the main reasons for such growth. On
the other hand, currently available studies on internationalization are based on the experience
of major multinational corporations, and tend to view internationalization as a stage of an
incremental process. Bearing in mind that our subject company focused on the contribution
of technological innovation to internationalization, we also reviewed some important
considerations on the organizations corporate innovation culture and presented an overview
of its main innovative product, Bilitron.
In searching for answers to our research question, we found the following:
(i)

(ii)

(iii)

(iv)

FANEM is the Brazilian market leader in neonatal care equipment; is began exporting in
the late 1970s, initially to neighboring countries such as Bolivia, Paraguay, and
Colombia, mostly influenced by the export incentive policy in place at the time. But in
the last six years FANEM got 18% of the global market share in medical equipment,
competing with major manufacturers able to make significantly higher investments in
R&D, marketing, etc, boosting the speed of his internationalization process.
FANEMs management then learned they would need to develop new competencies,
aligned with its corporate philosophy of product quality and innovation. New products
were developed, with a high level of embedded technology, and launched in trade fairs
such as the Feira Hospitalar (So Paulo) and international medical equipment shows in
Dsseldorf (Germany), Dubai (United Arab Emirates), and Miami.
We found the learning curve of a company with over 80 years experience to be a major
advantage when it comes to developing innovation; it is not, however, enough. Other
essential conditions were noted: flexible organizational structure, which is typical of
SMEs; a high degree of involvement, established relationships, and frequent
communication between those involved in developing innovation, as well as continuous
contact with clients through training courses and aftermarket service; low employee
turnover (under 3%); and adequate R&D investment (10% of earnings).
Bilitron, an innovative product launched in 2004, has had a growth rate of 40% per
year and has enjoyed fast international acceptance; it is currently sold to over 60
countries. The main challenges faced by the company correlate with themes mentioned by

18

several authors found in our review of the literature, including (a) the adoption of
innovation; (b) the importance of communication to make innovation known; (c)
compliance with specific regulations and trade barriers, particularly those found in the
international market; and (d) the speed required to become the standard when first
entering a new market.
The results of our research show that FANEM adopted a behavior which could be
situated somewhere between the two approaches: the traditional internationalization theories
(Uppsala and I-model) focusing on adaptive and incremental processes; and the new school
of international entrepreneurship, into which Oviatt and McDougalls model of forces
influencing internationalization speed provided excellent insights.
In the initial stage (19702000) of its international history, the firm exported
occasionally to neighboring Latin American countries; these activities contributed little to the
companys total sales. From 2001 onwards, FANEM focused heavily on entering new
markets backed by trade support from the Brazilian government and invested in the
development of an innovative product for the global market (Bilitron). This new stage
matches the characteristics of international entrepreneurship as described by Oviatt and
McDougall (2005), where the speed of internationalization is a key competitive factor.
The model proposed by the authors explains this internationalization stage, as
evidenced by (a) an emphasis on R&D, (b) relationships with customers and users, (c) the
companys policy of employing brokers (local sales representatives in foreign countries)
and establishing partnerships, (d) the use of accumulated knowledge, (e) the range of
countries quickly entered into by the company, (f) competitive intelligence, (g) a corporate
commitment to internationalization, and (h) management ability to identify opportunities in
the global market.
In conclusion, we must mention that this case study has important methodological
shortcomings, whether due to the confidential nature of the information obtained and
presented, whether to the fact that data collection was conducted exclusively by company
management, or to the highly flexible structure adopted for our interviews, which was
necessary as we sought to gain better understanding of a corporate phenomenon.

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