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Baxter’s Position in Emerging Markets—and the Potential Risks

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Emerging markets economic climate

Some of the major emerging market economies, including China, Brazil, and Russia, have been facing difficult conditions in 2016. Baxter International (BAX) has 25% of its operations in emerging markets, and so it has felt a significant impact of the challenging scenarios these markets are up against. But because the company’s product line includes hospital and dialysis products, which are essential products for hospitals and do not follow physician preference models in emerging economies, the pricing pressures and related risks for Baxter remain low.

revenues by geography

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Planned strategic expansion

Meanwhile, Baxter has been undergoing structural changes and is in the process of optimizing the business operations in order to bring process efficiencies and build higher synergies among different business segments. As part of its strategic initiatives, the company aims to explore further opportunities across emerging markets. For this reason, Baxter established innovation hubs in China and India in 2013 and set up a global IT services center in India in 2014.

Foreign exchange hedging

Baxter has significant exposure to foreign exchange fluctuations, however, because approximately 60% of its sales are generated from international markets while 25% come specifically from emerging markets. Consequently, the company’s unhedged positions in international currencies have impacted its financials significantly. Partly offset by the stabilization of developed market currencies, emerging market currency headwinds have weighed down the company’s performance to a great extent.

Baxter’s major competitors in the US that have also been impacted by currency headwinds and emerging market exposure include Medtronic (MDT), Stryker (SYK), and Becton Dickinson (BDX). Investors seeking diversified exposure to Baxter can invest in the iShares Russell 1000 Value ETF (IWD). BAX accounts for ~0.08% of the total holdings of IWD.

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