Buy Ontario shuts down innovation in health and medical businesses

Job growth and the big economic development resulting from these new work roles is now proven to come from the successful incubation of "small, entrepreneurial employees--not a few big companies." Even adjusting for variables such as tax or industry, Glaeser and Kerr, in a recent Harvard Business Review article, observe, "the relationship between small firms and job growth rate stands." 

In other words, industries with smaller firms and more start-ups had faster job growth than an industry without a cluster of start-ups.

Our government has introduced a program called “Ontario Buys” for all institutions it supports, such as schools and hospitals. Ontario Buys is encouraging institutions to buy in bulk as a means to save money. Quite simply put, purchasing from fewer suppliers is the Walmart model of “buy in bulk and save”.  

At first sweep, it does seem sensible to buy from fewer suppliers  and save money by simplifying processes and consolidating costs of doing business.

 Unfortunately, this well-meaning government program is killing long term, future innovation since large numbers of smaller Canadian companies are being shut out simply by not having the size or product breadth for this bulk game. As Glaeser and Kerr’s research show, small companies lead to big companies.  

It is alarming that the Government buys from big suppliers as it is already crushing small companies. Then, where will be future innovation or competition. Maybe another question to get more of a response would be the shrinkage in government jobs for those experts trying o help business owners.

As an example of how the Ontario Buys program works, a medical device manufacturer who is under $40M in revenues is refused even an appointment with the several buying groups tasked with following this new initiative for the health care industry because of their small size. The bulk of orders go to large corporations. 

You may think: Wonderful, these large corporations produce Canadian jobs through their Canadian offices, but they are actually American multi-national corporations with subsidiaries that have been set up in Canada. They do create jobs, but profits are more than likely invoiced back to the American Parent as management fees to avoid our higher Canadian Tax Rates. The goods are imported into Canada from American manufacturing parent corporations, avoiding any manufacturing in Canada. We therefore do not get the benefit of manufacturing or higher paying jobs.  If you ask health care industry people about the Buy Ontario program, they approve because, generally, they are working for these large companies.

This same medical device supplier is peppered with calls from government experts offering all manner of programs to help the business, from R&D tax breaks or government experts to build better online catalogues, and so on. But if there is no buyer, these government initiatives will be of limited use.

Ironically, the US has implemented a minority owned mandate under the Federal Initiative “Minority Owned Contract Opportunities” which forces buying groups to ensure that a percentage of the products purchased are purchased from Minority Corporations, inclusive of SME companies.  

Canadian politicians should take into account the research by Glaeser and Kerr showing that a gnat like cloud of small companies buzzing around larger companies will be a far better boost to job growth than incentives for large companies. Our politicians need to be doing a lot more to protect our future by mandating that a small percentage of purchases be from SME Canadian businesses in conjunction with the Ontario Buys initiative. The percentage could be small but it would ensure a fair and open process at the table for all Canadian Manufacturers.

I will end here but I do get frustrated hearing about R&D grants or financing being given. That is not the problem - it is the buying end. Why give all our support to US owned companies who have a branch office or corporation in Canada, but shut out our SME’s who truly are our Canadian future.

Jacoline

416 961 0862

Medical industry interesting for Private Equity

Dental implants is a highly cyclical business. It’s an underlying high-growth sector, especially in the U.S. and other markets where the population is aging, but is correlated to consumers’ ability to pay out of their disposable income.

During the crunch, as one would expect, many potential patients put off treatment, opting instead for cheaper alternatives such as crowns and bridges, or indeed doing nothing at all. As a result, revenues fell, profitability was trimmed and stocks in the space got hammered.

The very short-term outlook doesn’t look bright either. But a private equity (PE) powerhouse such as Kohlberg Kravis Roberts and Co. or a consortium comprising say Bridgepoint Capital, Permira and Cinven could bet on a cycle upswing, with growth accelerating and valuations returning to mid-cycle levels of around 20x Ebitda by 2013–not to mention the expected efficiencies that PE ownership would bring, which in turn would boost the PE exit. That is if the cycle does happen as the current bears say.

Why do we chase stars?

Three themes appear to characterize many of the responses to this Harvard Business School's column which posed the question - Why do we Chase Stars?

Three themes came up: 

1. leadership talent is portable, 
2. the reasons that we chase stars are traceable to human nature, and 
3. women have qualities that explain why they have greater success in porting their talent from one organization to another.

Several discussants maintained that portability is high for certain leadership talents. C. J. Cullinane stated, "The manager who is experienced in cost-cutting and turn-arounds can use this talent in many different situations and be successful." Philippe Gouamba said that "Management performance is 75% portable … (but) today's tough environment has forced upper management to adopt a 'welcome to the team, good luck, here is the deep end of the pool, hope you survive'" approach. Guy Higgins added, "Management is highly portable if people will take the time to learn their new company's management processes." Stephen Basikoti put it this way: "The fact that some transplanted leaders do not succeed does not negate the fact that management performance is portable; it simply points to the uniqueness of the learning curve for each change."

Transferability was thought to be particularly difficult in a move from a large, successful organization to a smaller, struggling one. In Gerald Nanninga's words, "If you put a super-operator in a place where the position is poor and resources are weak, they have nothing to leverage. Their skill-set is wrong."

We chase stars for a number of reasons: "… corporations and the media encourage stardom and discourage team work" (Nauman Lodhi); "It is the expectation that some 'miracle worker' or 'hot shot' can come in and fix issues without the board facing the pain and agony of doing the hard work themselves." (Phil Clark); "It's about selling the dream that the star will add to the bottom line fast with new clients, etc." (Jacoline Loewen); "Rather than create succession plans to hone existing talents, it's so much easier to scavenge for those floating around in the industry." (Vanitha Rangganathan); and "We chase stars because we are fallible …Glamor always is enticing." (Vadeed Lobo)

Women are particularly successful in porting their skills because "… women are more associated with transformational leadership," according to Fidel Arcenas. As Ratnaja Gogula put it, "…traits (that) make women better contenders for talent portability (include) … women's ability to better cope with stress, better communicate and multi-task …" Tom Dolembo asks "are women really different, or have they simply evolved in management by gender bias with skills and talents so alien to their male counterparts that they are uniquely powerful in an information world?"

Canadian business owners in Health Care in demand by Private Equity

Healthcare in Canada is admired by many Americans. Jeff Immelt spoke in Toronto last month and said, "Canadian health care should be a #1 expertise exported to the world." GE is benefiting from Buy Ontario where the government is trying to reduce costs by buying from big suppliers, like GE, but shutting out small Canadian companies.

Our Canadian Government needs to support Canada more.

A full story on this appears in this week’s LBO Wire.

Health-care reform and stimulus spending were pilloried in the recent American election, but the government’s drive to digitize the sector has found support from private equity.

One of the main objectives of reforming health care is to improve the quality of the care while reducing costs. Health-care information technology companies that focus on capturing revenue and implementing electronic medical records provide important tools necessary to achieving that outcome.

Making sure that hospitals and doctors get paid is an increasingly difficult task as providers grapple with bad debts and face tighter reimbursements from insurance companies, Medicare and Medicaid. Revenue cycle management software that boosts reimbursements, clears insurance eligibility, and helps the uninsured find coverage is in big demand.

There have been several PE deals in this area recently. In October, for example, health-care payment systems provider Emdeon Inc., backed in part by General Atlantic LLC and Hellman & Friedman LLC, bought PE-backed reimbursement specialist Chamberlin Edmonds & Associates Inc. for $260 million.

“Wiring the system,” as the industry puts it, is another driver behind health-care IT investments. The plan to adopt electronic health records — championed by the oddly allied Newt Gingrich and Hillary Clinton in 2005 — is getting a big push from the 2009 federal stimulus package, which will spend about $40 billion by 2016 to help hospitals and doctors go digital.

Although there is a lot of money floating around, picking the winners in the fragmented health-care IT market is a challenge for investors, especially as a wave of consolidation unfolds in the sector.

Large hospitals, which evaluate vendors based on their track record and ability to invest in upgrades and services, will likely award contracts to the dominant players, said Dr. Bruce Darrow, a cardiologist and assistant professor at Mount Sinai Medical Center, who is leading the implementation of the hospital’s new electronic medical records system.

“We look for companies that are actually going to be around when you’re done implementing the system,” he said.

Tony Clement blames business for not hiring employees

Tony Clement is blaming business owners for not hiring more employees, says a CBC report today.

I find that hard to believe as Clement is one politician who does get out there with business owners and he must have heard their issues with minimum wage, hiring and firing legislation and the amount of taxes taken from employee payroll.

One comment that I hear all the time from business owners is that they want to hire Canadians and they want to keep their current staff, but they simply cannot compete with the price of goods coming in from overseas competitors.

So do we blame Walmart?

If there is someone to blame, don’t pick on business owners, let’s pick on the Canadian consumer making the cheaper choice.

I wish I had $100 for every owner who has told me they are sending jobs to China and they do not want to make that decision but the buyers of their light bulbs, plastic bags, T-shirts, etc. have made the cheaper choice. Canadian business owners are heartbroken about laying off their long time staff. Do you think that is easy? Canada Goose is still manufacturing here but it is a challenge and their coats are expensive.

Our Canadian government is a boy scout in the world. We are playing checkers while the USA and China are playing chess.