A Case Study of Export Success: Cochlear

By Alex Patrick and Meg Cunningham

May 2002

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 Introductory Note
This case study was undertaken as part of the subject ECC2520/3520 'Australia in the
Asian business world since 1945' at Monash University. The opinions expressed in this
study are those of the authors alone. This study relies solely on the extensive
information on Cochlear that exists in the public domain. Cochlear, whilst being the
focus of this study have not had any direct connection with this study.

Methodology Statement
The information we obtained defined the approach we took.

Our initial intention was to focus on Cochlear’s venture into China, but as we
progressed, we discovered that accessing information specifically regarding entry into
China was not readily available.

Furthermore, we soon came to appreciate the importance of the sequential nature of the
development of the export markets. Our focus on America was not originally intended,
but it became apparent that America was appropriate for Cochlear’s first trading market
and facilitated their entry into the Japanese and Chinese markets.

A limitation of the information we obtained was that no one was overly critical of
anything Cochlear had done. We discovered that Cochlear’s rational approach to
business, the restrictive nature of the industry and lack of direct competitors made it
difficult to develop an opinion other than that Cochlear were a successful company. The
simple fact that their share price has risen from $2.50 in 1995 to $48.10 in October 2001
and steadying at $41 in April 2002 illustrates that Cochlear’s shareholders agree.

There was also a lack of information regarding financial results and performance that
was country specific. This limited the scope of our investigation in terms of comparisons
between countries, but it does not appear that having such information would have
changed the conclusion we reached.

While we were not able to access much academic material, the articles we used were
from a variety of global sources, including domestic American and Chinese
perspectives.

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Cochlear’s successful export relationship with Japan and China
Cochlear’s patience, determination and bold financial decisions have been the key to
accessing the unchartered Japanese and Chinese biotechnology markets. It has
succeeded where many large Australian companies have failed. This achievement is
reflected by an award from the Australian Chamber of Commerce in Hong Kong for its
success in the Asia-Pacific region in October 2001.

To examine the reasons for Cochlear’s success it is necessary to understand how the
vision and product developed. As the bionic ear became a reality, the commercial
aspect needed to become more sophisticated. This resulted in Cochlear commencing
operations as the internationally recognised Cochlear Ltd.

The sequential development of Cochlear’s three main international markets, America,

Japan and China, is a critical factor to their success. It is argued that Cochlear’s
achievements in Asia would not have occurred if its international standing did not begin
in the US. Cochlear’s American experience allowed them to develop connections and
trial their business etiquette and culture in a familiar market. They needed all the
experience and adaptability that they could extract from America in order to tackle the
tougher Asian biotechnology industries.

Cochlear’s distinct advantage over other Australian firms came with the nature of their
industry. Japanese and Chinese markets require patience, therefore Cochlear’s bionic
ear devices suit these markets because they take considerable time to research and
develop, let alone implement. This complements Cochlear’s approach because
extracting profit from trade with Asia is often a long-term process. Thus, Cochlear has
identified and acted upon the fact that it must first raise awareness of hearing
deficiencies and the potential success a device may have. Whilst establishing neo-natal
testing programmes takes time and money, they are particularly important given that the
devices offer maximum results to children under the age of six. If a child with a hearing
deficiency can be identified in the womb or as an infant, this increases the opportunity
for parents to organise further testing and the necessary implantation while the child
remains fully receptive to the device.

Cochlear must also train medical professionals in the implant and rehabilitation process
and obtain financial support. Their success in the Japanese and Chinese markets can,
in part, be attributed to the identification of these issues and their ability to actualise
them.

The issue of reimbursement is one that will continue to hinder Cochlear’s development.
Without reimbursement, Cochlear’s devices cannot reach as many potential candidates
due to the prohibitive costs associated with the implementation of the devices. For this
reason it will be seen that Cochlear constantly work on developing appropriate financial
programmes to increase the availability of the device.

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Cochlear’s ability to work with micro and macro factors has meant that revenues
continue to rise, facilitating further research and development and consequently
improved devices that can be offered to hearing impaired people worldwide.

Cochlear’s progression from a research project to a company

Cochlear Ltd began with the vision of Professor Graeme Clark, an Ear, Nose and Throat
specialist. After growing up with a deaf father, in 1961, Clark had begun the challenging
eleven year research process required to make the bionic ear a reality. Working out of
the University of Melbourne, he created an implant that electronically stimulates the
damaged nerves of hearing impaired people so that they can have hearing sensations
(www.cochlear.com, 2002).

In 1978, with the assistance of a Public Interest Project Grant by the Federal
Government, Clark’s prototype implant bionic ear became operational. Given the
success of the prototype and the commercial opportunity the technology represented,
the research team concluded that to reach a larger market, a company’s financial
resources had to be sought. After receiving government permission to call for tenders,
Nucleus, founded in 1967 to ‘develop, manufacture and market innovative medical
technology’, took the bionic ear on in 1981 (Breaking the sound barrier of deafness,
1988).

A survey performed by Nucleus discovered that ‘the Australian market was too small. If
there was going to be commercial success for the implant, it would have to be in the
export market’. By 1988 sales figures supported this, finding that nearly 90% of
Cochlear’s profits were from export sales (Breaking the sound barrier of deafness,
1988). Continuing this trend, Australian sales only accounted for 5% of Cochlear’s total
revenue in 2002 (Cochlear rises to 2-month high on FDA approval, 2002).

With such evidence, it was clear that Cochlear needed assistance from a company that
offered a higher degree of experience when dealing with export markets. Thus, in 1988,
Cochlear became part of the medical division of Pacific Dunlop. With Pacific Dunlop’s
support, Cochlear took over the world-wide bionic ear business, 3M in 1989. This was
done despite the fact that 3M only held 3% of the US hearing implant market, with the
other 97% already captured by Cochlear. Cochlear chose not to develop 3M’s bionic
ear, instead opting to promote its own 22 channel device (Cochlear takes over bionic
ear from 3M, 1989).

The Cochlear subsidiary of Pacific Dunlop was successfully floated on the ASX in 1995,
creating Cochlear Ltd (How Pacific Dunlop’s Formula Won, 1988).

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Cochlear’s sequential development of its export markets

Cochlear realised that its export programme would have to occur in a specific order.
Given the highly innovative nature of the technology, Cochlear’s initial export market
had to be one that was willing and able to implement and adopt groundbreaking
technology.

America

Given the degree of familiarity and adaptability of the market, Cochlear established in
1984 that America would prove to be the most appropriate initial export opportunity. It
represented 70% of the international market for this type of high-tech medical and
health care treatment. However, to sell medical devices in the US, approval by the US
Food and Drug Administration (FDA) was required. It took two years of stringent testing
by the FDA before permission was finally obtained (Breaking the sound barrier of
deafness, 1988).

Cochlear’s sales increased 42% in the first five months of 2001, after two of its products
were approved by the FDA (Cochlear expects H2 sales lift, maintains 20 2, 2002). Due
to the events of September 11, Cochlear has witnessed a reduction in revenue given
delays in the launch of its new products. They must ensure that the reduction in profits
is merely industry related, and not a consequence of poor management. The current
economic climate in America may not be conducive to growth in the field of medical
technology, but Cochlear must not let their rivals use this opportunity to capture a
greater market share. There is currently no evidence to suggest that this is the case, but
it is not an excuse for poor financial results and reduced market share.

For the moment, it appears that Cochlear’s American operations are in safe hands since
Mr Miller, Head of Cochlear America is determined to move into the more than ‘90
percent of the market that is not currently penetrated. There's a lot of potential to help
many, many patients out there’ (Profiles of Outstanding CEOs, 2001). He has
formulated the following strategies that he believes will meet his aim.

Cochlear will aim to continue to develop and improve its technology in order to better
serve its patients. Another priority is increasing awareness about the product and its
uses (Profiles of Outstanding CEOs, 2001). However, from a consumer’s point of view,
results are imperative. While awareness and additional uses for their product are
necessary for success, the main emphasis for the general public is finding out how
effective hearing can be with a Cochlear implant. Cochlear must maintain a sense of
human interest, perhaps more than other companies, and remember that its vision is to
improve the quality of life of hearing impaired people.

Miller also plans to make the technology more accessible to those who can benefit from
it. He highlights that with any new medical technology, reimbursement becomes an
issue due to the high cost associated with a new product. Working with insurance

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companies to ensure that the technology is affordable to patients is essential (Profiles of
Outstanding CEOs, 2001). Cochlear must not develop their technology beyond the
financial capabilities of their target market. If they continue to introduce products at a
rapid rate, the financial burden in the absence of reimbursement will prevent Cochlear
from generating the required revenue. However, the FDA’s lengthy approval process
ensures that Cochlear does not release its devices too quickly.

Finally, given that of the nearly 700 000 people in America that could benefit from
Cochlear's technology, only about 15 000 have the implant. Cochlear is aware of the
enormous opportunity that America presents and is determined to maintain and build on
its strong market share.

Japan

In 1985, Cochlear recognised that to further expand their operations, they would need to
widen their vision to encompass Japan, the most important market after the US
(Breaking the sound barrier of deafness, 1988).

Although Cochlear wanted to recreate its preliminary success in America, it realised that
the Japanese biotechnology environment and business culture was significantly
different. For example, awareness of the product and its capabilities was far lower in
Japan than in America. This meant that a stronger education campaign would need to
be introduced. Furthermore, Japanese Ear, Nose and Throat surgeons were less
familiar with the device and its relevance in the Japanese market. Consequently,
Cochlear needed to obtain their support through an extensive education and training
programme.

Cochlear established its wholly owned subsidiary, Nihon Cochlear to provide a support
base in Japan. If Cochlear were to be granted an import licence, they would first need to
educate the Ministry of Health and Welfare on the benefits and opportunities that this
medical technology represented to the Japanese hearing impaired population
(Australian Bionic ear cracks into Japan, 1991). Working as Nihon Cochlear, they began
applying to the Ministry of Health and Welfare for an import licence in 1985.

They quickly grasped the need for a long-term commitment in the Japanese market
given the nature of the approval process. During the first six months of 1990, Cochlear’s
Former Chief Executive for the Asia Pacific region Mike Hirshorn made six visits to
study the Japanese business culture (Australian Bionic Ear cracks into Japan, 1991).
They felt this was necessary to begin establishing trust and rapport with their trading
partners. This relationship was strengthened when Cochlear decided to fund promotions
by doubling spending to around $1 million a year, even though annual sales at the time
were $500 000. All costs in developing the Japanese market were absorbed by profits
made in Cochlear's other subsidiaries (Patience pays off for Cochlear, 1992).

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Hirshorn believed that the key to success would be to apply ‘little bits of multi-
dimensional pressure’ in its campaign for acceptance by the Japanese market. He
outlined four ways in which this could be achieved (Patience pays off for Cochlear,
1992).

Firstly, Cochlear examined how the experienced US companies managed to get

licences to import into Japan. They discovered that the American companies did better
than Japanese companies trying to get approval to manufacture locally. Surprisingly,
the Japanese do not necessarily have influence in government circles, where as the US
can bring political pressure to an archaic bureaucracy (Patience pays off for Cochlear,
1992). While the companies researched were not in the hearing device market, they
were useful to study in that they provided an example of how the trust relationship could
be established.

Secondly, the US embassy in Tokyo had an officer who helped US medical technology
companies tap into the Japanese market. Cochlear, creatively turned to its US
subsidiary, as well as Austrade and the Department of Foreign Affairs, who sent a
representative with Cochlear’s management, to put forward its submission for an import
licence with Japanese Government officials (Patience pays off for Cochlear, 1992). This
illustrates tremendous persistence and trust on Cochlear’s behalf because they were
prepared to allow others to convince Health Ministry officials that an import licence
would be beneficial for Japan.

Thirdly, Cochlear was also able to capitalise on talks between the US and Japanese
governments, aimed at increasing US access to the Japanese market. Although
Cochlear as an Australian company was ineligible to directly request help, its US
subsidiary could through its membership with the American Health Industry
Manufacturers Association (Patience pays off for Cochlear, 1992). Again, Cochlear’s US
connections were critical.

Finally, realising that the Health Ministry relied heavily on the advice of senior doctors
and surgeons, Cochlear found a way to influence this powerful group. Since many of the
older, influential Japanese ear surgeons had been trained in Europe, Cochlear exploited
this by urging their European physicians who were familiar with the implant to write to
their Japanese colleagues in support of the system (Patience pays off for Cochlear,
1992). By doing background research and thoroughly investigating the structure of the
Health Ministry, Cochlear realised that Japanese people placed great importance on
trusted and familiar business associates.

By 1989, Cochlear had conducted the necessary clinical trials in Japan. It beat 23
international competitors from the biotechnology industry and was granted a licence to
import the devices in early 1991. The aforementioned four factors were crucial to
securing the Health Ministry’s preference for Cochlear as a preferred importer of health
technology.

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The issue of reimbursement in Japan

Cochlear’s commercial success in Japan will depend on approval by Japan's Ministry of

Health and Welfare for the cost of the device to be covered by national health
insurance. After securing the import licence, they began lobbying the Health Ministry to
extend its coverage to include reimbursement. It faced a long wait as reimbursement for
the Nucleus 24 system was not achieved until eight years later in October 1999
(Australian Bionic Ear Maker Plans launch in China, Japan, 1999). Cochlear continues
to press the department to accelerate the lengthy approval process so that Japan’s
hearing impaired population can have timely access to the most innovative technology
Cochlear has to offer.

China

Cochlear’s venture into China was a natural, yet challenging, progression from Japan.
Given that China is the most populous nation in the world, it is a lucrative market for any
company provided that cultural obstacles and business etiquette can be overcome.
Cochlear’s remarkable patience, acquired over many years of product research and
dealings with various governmental departments meant that its strategy was ready to be
adapted to China.

Since Japan and China are distinct markets, it took Cochlear two years of additional
background work in China before they became operational. In 1993, to establish itself in
the Chinese market, Cochlear began by bringing Chinese Ear, Nose and Throat
surgeons to the University of Melbourne’s Bionic Ear Institute for training at a cost of
$1m (Hearing Chinese Whispers, 2001). The surgeons then returned to China and were
provided with on-going support to establish a Cochlear implant programme. Cochlear
recognised that offering training to these surgeons would increase awareness of the
product to the medical profession. This acted as a symbol of Cochlear’s intention to
engage China in the establishment of the technology in their home country.

Eventually, in 1995, Cochlear’s first device was implanted. It was a donation from
Cochlear and was implanted by the Australian trained Chinese Ear, Nose and Throat
surgeons. The operation was reported advantageously by the Xinhua News Agency
because it generated extensive public interest in the product and the company
(Cochlear implant recipients greeted by Australian Minister, 1995). Thus, Cochlear’s
presence in the Chinese market began to be recognised by the wider population.

In 1998 Cochlear, via its agent, supported the development of an audiology school in
Beijing. It also signed a collaboration agreement with the China Rehabilitation Research
Centre for Deaf Children to develop a professional programme for the rehabilitation of
children who have received an implant (Hearing Chinese Whispers, 2001). By doing
this, Cochlear illustrated their commitment to the overall hearing improvement process;
the awareness, the device, the rehabilitation and the enhanced level of hearing for the
patient.

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In May 2001, in an attempt to make the devices more affordable, Cochlear’s local agent
Beijing Orient Strong T&T Development Co. Ltd formed an alliance with the Shenzhen
Bank. Together, they established a programme to offer loans to facilitate low-cost
medical services affordable to people with hearing impairments (Programme to aid kids
with hearing defects launched, 2001). In the absence of a reimbursement scheme, a
programme such as this is vital in order to ensure deaf children have access to an
implant as early as possible.

Cochlear’s long-term ambition to increase awareness of their products extended to an

alliance with the Shanghai government, the Australian consul-general and the local
community. A local child, aged five and a half, was in need of an implant, but costs were
prohibitive. The community rallied, but fell short of the $26 000 required. Government
authorities from both China and Australia collaborated to ensure the sum was reached
(Hearing Chinese Whispers, 2001). This example again exhibits Cochlear’s ongoing
determination to succeed in China, where contacts, especially those in government
circles are vital.

In November 2001, Cochlear believed they were only reaching about 5% of the potential
population. In terms of commercial opportunities, the Chinese market is becoming
increasingly important since it is estimated that each year 6 500 children are born with a
condition that could be helped by a Cochlear implant (Hearing Chinese Whispers,
2001).

After making the move eight years ago, Cochlear has finally started to reap the benefits
of expanding into the world's most populous nation (Cochlear implant manufacturer
makes successful foray into China, 2001). Cochlear’s success in China is particularly
well earned as in both America and Japan, they were able to organise reimbursement,
albeit to a limited degree. However, given China’s elementary level of economic
development and subsequent lack of finance, it is highly unlikely that Cochlear will even
attempt to broach the issue of reimbursement in the near future. The financial support
from the government sector is not available.

Factors contributing to Cochlear’s success

Cochlear’s success in recent times can be partly attributed to the nature of the product,
industry and markets and their ability to establish financial assistance.

Nature of the product

Cochlear’s bionic ear is a high-value, low-weight export. It benefits from the relatively
low cost of manufacturing high-tech in Australia, has no trouble attracting top scientific
talent and is aided by Australia’s ‘clean-image’. Since the implant process is invasive,
there is a considerable importance attached to exactly who is providing devices of this

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kind and Cochlear is considered acceptable (What makes an Australian company,
2002).

Nature of the industry

The biotechnology industry has been the top performing sector on the Australian Stock
Exchange for the past three years. The S&P/ASX index for biotechnology rose 36.6%
for the year ended June 2001 and has gone up 22.7% a year for the past three years.
Cochlear, a sector leader, reported a 54% increase in earnings growth (Growth Magic:
What ignites the spark, 2001).

Cochlear is well positioned to sustain strong earnings growth because of the high
barriers to entry of the industry. Hearing implants cannot be easily replicated by
competitors and the combination of onerous regulatory and high capital requirements as
well as the time needed to develop intellectual property restricts the number of new
entrants (Growth Magic: What ignites the spark, 2001). Hirshorn feels that Cochlear has
a natural ‘corporate cultural advantage because of the nature of the medical technology
market. The product-development cycle is so long [that] everything takes a long time
anyway’ (Patience pays off for Cochlear, 1992). Because of this, successful companies
are rewarded with longer than average periods of protection for intellectual property.
According to Merrill Lynch, ‘leaders in the sector are distinguished by a strong focus on
their core business and prudent use of capital. They do not stray outside the area in
which they excel, and they do not invest capital in areas that are incapable of producing
high returns’ (Growth Magic: What ignites the spark, 2001). It can be considered that
Cochlear is one such leader given that they maintain their focus on managing and
improving the bionic ear.

While investors remain sceptical about the ability of Australian companies to compete in
the global biotechnology market, Cochlear has dominated the world market for ear
implants since 1982. This is long enough to constitute a reasonable record (Growth
Magic: What ignites the spark, 2001).

Nature of the markets Cochlear chose to enter

In order to ensure international commercial success, Cochlear had to sequentially

pursue its three major export markets; America, Japan and China. All three markets
presented opportunities, but opportunities that could only be reached through gradually
acquired experience, connections and knowledge.

Cochlear began its export programme to America given the high level of market
familiarity. Its subsequent ‘long-term entry approach’ into Japan was seen at the time as
‘the exception rather than the rule’ (Patience pays off for Cochlear, 1992). Australian
companies were not renowned for venturing into the Japanese market with a long-term
vision. Nevertheless, Cochlear proceeded and learnt early the importance of patience

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when dealing with the Japanese market and government bureaucrats. This knowledge
was essential when Cochlear decided to venture into China.

It was necessary for Cochlear, as a subsidiary of Pacific Dunlop, to begin exporting to a

market with which they were familiar and had an increased likelihood of success. While
America offered a common ground in terms of language and cultural familiarity, it still
presented solid opportunities as very few of the 50 states offered neo-natal testing
programmes. Since its involvement in the US, Cochlear has helped introduce such
testing programmes in over 40 of America’s states (Sounds Where There Was Silence
Cochlear implants have opened the door to a new world for the deaf, 1989). These
testing facilities raise the profile of the available technology and the company.

In the early 1980s Japan was seen as the second largest trading market in the world. In
this context it made sense for Japan to be Cochlear’s next target. Again, the
development of neo-natal and general hearing programmes was preliminary and gave
Cochlear the opportunity to establish itself. Japan’s highly-skilled surgeons were already
in a position to perform the necessary surgery with minimal additional training.

However, given the nature of the technology Cochlear offered, the Japanese Health and
Welfare Ministry were initially wary of the Australian company. Cochlear persisted and
exploited their US connections to gain entry into the market. Their decision to double
their expenditure relative to their revenue has paid off and they have since begun to
reap the rewards of this financial risk.

Entry into China required raising the awareness of not only bionic ear implants, but of
hearing impairments in general. When Cochlear first entered the Chinese market in
1993, there was no neo-natal hearing testing or trained audiology professionals. Since
both of these are considered prerequisites for the product’s success Cochlear put itself
under enormous financial strain to establish them. It trained Chinese surgeons (at a cost
of $1m), initiated neo-natal testing programmes and rehabilitation centres (Hearing
Chinese Whispers, 2001). However, these choices would have been weighed against
the fact that entry into the Chinese market would not have occurred without the support
of the surgeons and other health professionals.

In terms of population, China is the world’s largest market. Thus, in 2002 Cochlear
anticipates to implant 400 devices in China as opposed to 300 in Australia (Hearing
Chinese Whispers, 2001). This evidence supports the survey performed by Nucleus in
the early 1980s that to remain commercially viable, Cochlear would have to seek out
overseas markets.

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Reimbursement

Although Cochlear’s technology improves the quality of hearing of thousands of people

worldwide, it comes at a price of around AUD$25,000.00. Therefore greater financial
success depends on its ability to successfully lobby governments and health ministries
around the world for patient reimbursement.

While implants have been taking place in Japan since the 1980s, reimbursement was
not granted until 15 years later. In China, however, Cochlear has not begun to tackle
this issue given both the bureaucratic nature of the government and the early state of
development of their Health sector. Cochlear’s agent in China has substituted
reimbursement for an affiliation with the Shenzhen Bank.

Australia offers limited reimbursement and regulatory approval continues to be among

the slowest in the world. Cochlear’s recent device, the ESPrit 3G processor is
‘regrettably still not available in Australia despite being available to European and Asian
recipients’ (Cochlear expects H2 sales lift, maintains 20 2, 2002). Cochlear continues to
battle with the Federal Government over reimbursement for the recently developed
Nucleus 24 technology. Nucleus 24 has been launched in every market except Australia
and Japan (Cochlear Shares Soar On 54pc Earnings Rise, 2001).

Cochlear, an Australian company, is struggling to offer its home country the most
advanced technology. Since Cochlear’s world wide market share depends on its ability
to continually improve and update its devices, Cochlear continues to encourage
Australian Health Departments to support its innovations.

Cochlear’s current position

Despite a fall in the rate of growth of revenue following September 11, Cochlear still
maintains a global market share of 60-65% (Cochlear expects H2 sales lift, maintains
20 2, 2002). Although Cochlear purchased 3M in 1989 to gain 100% market share in the
US, it currently has two competitors in America; American based Advanced Bionics and
Austrian firm Med-El. As these companies are in their infancy, they pose no immediate
threat given industry barriers to entry.

In terms of expanding their market base, Cochlear are currently establishing education
programmes in Thailand and are working with other agencies to raise awareness. Given
their experience in Japan and China, Cochlear are not anticipating their Thai clinics to
return a profit until 2005 (Cochlear to open more local clinics, 2001).

Forty-one years later, the founder of the bionic ear, Professor Graeme Clark remains
committed to the cause. Working out of Melbourne’s Bionic Ear institute, Clark
continues to discover ways in which hearing impaired people can improve their quality
of life.

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Cochlear’s development from a research project to a successful company has been
characterised by its ability to sequentially progress in all areas of business. Starting with
humble beginnings, they have appealed to higher authorities when called for. While the
government has contributed through funding and departments such as Austrade, it has
not been a key player in Cochlear’s overall development. Instead, Cochlear has
preferred to rely on fostering its own connections.

As Cochlear establishes itself in new markets around the word, the devices, to a
degree, can draw attention to themselves. However, given the diversity of cultures,
societies and economic circumstances around the world, Cochlear’s initial mode of
entry will vary. Since Cochlear did not have the initial resources to export internationally,
Nucleus and Pacific Dunlop, recognising Cochlear’s vision, were prepared and in a
position to encourage the development of the export of the implants.

The sequential progression from America to Japan to China was critical. While America
offered a relatively familiar market in the beginning, it presented the necessary
challenges and obstacles that needed to be overcome so that the Japanese market
could be accessed. The process that Cochlear adopted when solving such issues was
the key to gaining a stronghold in Japan.

Japan was the necessary progression from America as it offered a balance between the
East and the West. Having traded extensively with America for many years, its
export/import culture has been somewhat Westernised. However, its internal
governmental departments and social culture remain traditionally Japanese. Given
America’s strong trading position in Japan, Cochlear was able to exploit its highly
favourable American connections.

Cochlear appealed to recommendations from its European surgeons who had trained
their Japanese counterparts. They carried considerable weight given the trust the
Japanese had in their European mentors. The Japanese Health and Welfare Ministry
finally accepted Cochlear as an approved importer on the weight of the support its
American subsidiaries offered. If Cochlear had progressed directly from Australia to
Japan it seems most unlikely that they would obtained an import licence.

Given the questionable nature of relations between China and the US, not to mention
the structure of the Chinese business culture, Cochlear could not appeal to its American
subsidiaries again. Based on their Japanese experience, Cochlear felt it could begin by
appealing to the surgeons who would eventually be required to implant the devices.
Unlike Japan, China had no suitably trained audiology profession and Cochlear used
this to their advantage by offering a free education and training programme at the Bionic
Ear Institute in Melbourne.

Cochlear has a natural competitive advantage given the nature of its product and the
industry in which it operates. Its American based competitors are currently showing no
inclination to pursue the Asian markets given the barriers to entry. This supports

13
Cochlear’s initiative and bold decisions to invest heavily when the returns were
uncertain.

The issue of reimbursement is one that will continually challenge Cochlear. It will always
be launching new devices with the intention that they be available to as many patients
as possible through financial aid. While establishing reimbursement is predominantly up
to Cochlear itself, much depends on the financial situation and empathy of the relevant
government.

Cochlear defines what it means to be an Australian multinational in the 21st century’s

globalised economy. They have been prepared to incur short term financial risk in order
to secure long term benefits. Over the last 20 years, Cochlear’s vision of providing
hearing devices to as many people as possible has remained the driving force behind
its strategy.

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(2001), “Growth Magic: What ignites the spark”, Business Review Weekly (Australia),
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(2001), “Cochlear Shares Soar on 54pc Earnings Rise”, Sydney Morning Herald,
22 August.

(2001), “Program to Aid to kids with hearing defects launched”, Xinhua General News
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(2001), “Cochlear to open more local clinics”, Bangkok Post, 17 April.

(1999), “Australian Bionic Ear maker plans launch in China, Japan”, Asia Pulse,
20 October.

(1995), “Cochlear implant recipients greeted by Australian Minister”, Xinhua News

Agency, 4 October.

Burrell, S. (1991), “Australian Bionic Ear cracks into Japan”, Australian Financial
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Cooke, R. (1989), “Sounds Where There Was Silence Cochlear implants have opened
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