The marketing error of Sanevit

Since this week there wasn't a lot of new material taught in school, I decided to make some research on Savenit, a Romanian company that was founded in my city. I will try to explain why it failed as an enterprise.


Short history

After the fall of communism, Romania still had to import medical equipment; it lacked any means of producing cheap and competitive basic medical paraphernalia. We had to pay a lot in order to provide the patients with the basic syringes that were used nationwide on a daily basis. Shortages of these utensils cumulated and created a problem, so the state had to come out with a solution: Sanevit.

Sanevit was born in October, 1991 in Arad as one of the most important investments of the Romanian private capital; the only firm of such kind in the Eastern Europe. Its goal was to produce and commercialize low-cost syringes and needles at international quality standards (160 mil peaces syringes and 520 mil peaces needles per year) and to reduce the risk of contaminations. Its main stockholders were SIF Banat and Crisana and the rest (between 10-15%) was made out of private investors. The capital required to buy top of the art machinery valuing 37 million US dollars was attained by a loan guaranteed by the State.

Sanevit started producing around the year 1995 and detained monopoly over the domestic market.

Advantages over the competitors:
The syringes were made out of the cylinder, a plunger and a rubber piston which presented several advantages:
-the rubber piston better sealed the liquid content that was present in the cylinder when the syringe was in use
-tightness is maintained for a longer period of time, having a warranty of 5 years
-the force required to push the piston was smaller than the usual syringe (the special rubber used reduced friction), thus enabling uniform dosing of the injectable liquid through gentle slide
-superior rigidity of the plastic components
-easier to read the observation reference marked on the syringe due to the contrast present between the colored markers and the black rubber
-danger of plastic particles injection is eliminated by the presence of the rubber
- The conditions of needle manufacture comply with all existing International Standards: ISO 7886-1/1993; ISO 7864/1993; DIN 13098-1/1994; ISO 9626/1991; ISO 6009/1992; ISO 683/1986; ISO 594-1/1986


Disadvantages that lead to the fall of Sanevit

The present Romanian medical system:
In Romanian medical assistance is free. Everybody who comes into the hospital is treated upon the government’s expense; hospitals don’t benefit from financial autonomy. That makes every monetary choice matter due to the lack of funding towards this branch. The scarce monetary resources must be effectively allocated in order to achieve some level of effectiveness. The price for land transportation plus the initial high price of the superior quality syringes made it an impediment for this industry to evolve. Hospitals argued that too much money was spent on buying these products instead of importing them. They wanted to keep the Romanian syringe factory, but at the same time try to buy the products from the most convenient seller. The government was funding the syringe factory to produce and sell high-class, expensive products which the government had to buy indirectly in order to satisfy the demand present in the hospitals.


Location:
Due to its extreme western location, it was cheaper for most of the major cities in the east to import similar syringes (of approximately the same quality) from the eastern countries, or just ship them on the Black Sea. The price they had to pay on transporting the products was becoming an issue. Placing the factory somewhere close to the center of the country could have reduced these costs, or at least distribute them evenly to the marginal cities. Placing the factory in the far west led to an unbalance price of the product and thus to inefficient allocation of the scarce funds the eastern hospitals had.


Outside competition:
First the Romanian state tried to prohibit imports of syringes thus forcing the domestic market to buy Sanevit’s products and imposing import barriers. They wanted to give the syringe factory a head start to recruit its buyers and to have time to accommodate into the new market, taking into notice the fact that there was no other firm that created the same products, no other model in the Eastern Europe from which the company could learn or take as an example.
But later on, because of the high costs the government incurred in its strive to maintain and develop this “experiment”, because of the pressure created by the hospitals and some unjustified errors and ordinances issued by the Ministry, the gates that allowed outside competition to invade were opened. In 1997 the import barriers were no longer and the market was taken over by the foreign firms. In that year Sanevit held 7 million syringes in his stock for the purpose of selling and was confronting financial difficulties regarding the repayment of the loan. Because of the multiple sellers most of the stock wasn’t sold as planed and thus the money needed to pay the loan did not arrive.
By doing this, the government will experience a better use of their funding towards medical paraphernalia, but at the same time kill their investment they had done in the Romanian syringes industry. It was a bad move made with the sole purpose of stopping the avalanche of medical riots that was beginning to cumulate nationwide.

Late payments:
After loosing monopoly upon the market, Sanevit experienced a great loss in their sales. Still it did not lose all of its customers and was still able to make a profit. But late payments of the buyers because of the lack of funding and multiple crisis and riots present during that time in the medical sector pushed the factory on the edge of bankruptcy. They were distributing syringes but were not receiving any money from them; still they had to provide the products because the debtors were the only buyers, thus their only way to get the money was through them.
Another factor that determined the late payment of the loan was the delay vis-à-vis of the starting of in the production. Because of internal financial difficulties and bad management, the production started in 1995 instead of 1993. The company lost 2 years in which they could have produced syringes and needles for the Romanian market.


Failure to pay the loan:
All the delays leaded to the failure of the company to pay its loan. The opening of the domestic market to the international sellers in 1997 and failure of the buyers to pay in time the products purchased led to the inability of Sanevit to pay back the borrowed money. The loan cumulated till the profit of the company was not enough to cover the loan. The company had no way of getting out of this situation, so it declared bankruptcy and turned to the government for help. The state compensated the loaning agencies and the company was given to AVAB, a governmental agency designed to sell the company on the market. The factory was transferred under the property of the Health Ministry by selling the stocks in order to pay the loan.


Info found on the company (till 2003):
Most of the buyers paid meanwhile the loan they had, giving Sanevit a second chance. Besides that, the company was trying to obtain a short term loan in order to attempt to restart the production. All these could lead to the rebirth of Sanevit.
An advantage that Sanevit had now was the financial autonomy of the county health centers. The Health Ministry (the present owner of Sanevit) was having a fierce battle with the independent importers of syringes for the domination of the market. The Health Minister wanted to provide superior products at a higher price, thus reducing contaminations, and tried to stop Romania from becoming dependent from imported articles, but this initiative was pushed backwards by the importers who buy cheap products from outside or products that are dumped or sold for nothing because they are close to the expiry date.

I could not find any relevant info about the factory starting from 2003 onward. So.. in a way I don't know how the factory is doing today. Still, when I left home this summer the factory was still functioning. I don't know at what capacity though.

Sources:
http://www.visualia.hu/sanevit/syringes.htm
http://www.e-next.ro/modules.php?op=modload&name=News&file=article&sid=2798&mode=thread&order=0&thold=0
http://www.prefectura-arad.ro/cpresa/cp0615II.pdf
http://stiri.acasa.ro/1252.html
http://www.activebancare.ro/index.php?unde=prs_int&id=131&PHPSESSID=b5f21fbb0098d242de03ad467615b8cd