East meets west: Emerging markets and regulatory challenges

Opportunities for medical device companies in China and the Asia Pacific region continue to be strong. However, businesses need to consider the regulatory framework in place designed to protect and encourage domestic manufacture, says Lu Rahman.

Given that over three quarters of the world live in emerging markets, opportunities for growth for global markets should be strong. For the healthcare and life sciences sectors the potential to explore new business territories looks promising as technology and procedures expand across borders to improve the health and well being of the global population.       

Back in 2011 PwC noted that, “emerging markets, led by China, India and Brazil, are gaining ground in their capacity to products the latest in medical technology innovation and may surpass developed countries in innovative healthcare delivery over the next decade”.

GlobalData recently reported that while in the US and Europe the hip and knee construction market haven’t been showing signs of growth, the same isn’t true in Brazil, India and China. Thanks to a burgeoning middle class which can afford healthcare, opportunities have increased in these regions. The company’s report states that as well as the booming populations of these countries containing individuals with the financial ability to access anew quality of healthcare, increased levels of training within the healthcare sector are also taking place, which should boost adoption of new techniques and products.

Linda Tian, MSc, GlobalData’s managing analyst covering medical devices, said: “There has been a slow and steady change in patients’ mentalities in developing countries, and more of the elderly are now willing to undergo the required joint replacement surgeries. Heightened public awareness will not only accelerate surgeons’ adoption of different types of implants, but will also effectively propel market growth.”

While opportunities exist in this region, there are challenges to overcome. Earlier this year McKinsey & Company published a report by Amit Agarwal, Franck Le Deu, and Florian Then – Meeting growing Asia–Pacific demand for medical technology.

It stated: “Asia–Pacific is a complicated collection of individual markets, often with little in common other than a shared continent. Political systems, economic development, cultural mores, and disease profiles, among other characteristics, vary widely from one country to the next. While other industries, such as high tech, have been relatively successful in approaching these complexities, med-tech companies are still finding their way. Although they’ve long been active in Asia–Pacific, these companies traditionally cater to premium customer segments.”

The report however highlights that by 2020 things will change and the Asia-Pacific market will become the second biggest market globally after the US with the majority of customers coming from “beyond the premium segment”.

McKinsey & Company advises that to gain access to these customers and “defend against new competitors, global companies will have to rethink their approach to the region, creating new business models that encompass multiple channels, developing market-appropriate products rooted in innovation, allowing greater local autonomy, and removing structural barriers.”

The main obstacles facing med-tech companies in this region were found to be “limited financial resources and a frugal attitude toward spending on healthcare; multiple customer segments that are difficult to serve efficiently; an underdeveloped medical infrastructure and workforce, which affects the adoption and use of new technology; fragmented and inconsistent regulatory and reimbursement regimes that can slow the introduction of new technology, and intense competition from regional start-ups and, increasingly, global leaders in adjacent industries such as high tech and consumer electronics.”

One area of medical plastics that is showing strong growth in the region is aesthetic improvement. A recent report in China Daily highlighted the growth in this market and its potential to become the world’s second largest market by 2019.  While some of this is due to the rise of Botox and facial injections, there has been a movement in the region towards aesthetic improvement which will bring increased opportunities for the plastics surgery and implant markets too.

The conventional medical device sector in the region is also showing good signs.  Writing in The Star Online, David Tan, described how “the medical device segment is proving to be a lifesaver for plastics manufacturers in Penang”. Given the slowdown in sectors such as semiconductors, this is good news. His article cites Rapid Growth Technology, a company that is planning to invest in a production line to manufacture a disposable medical device for a US customer. The company is also looking to make moves into the South-East Asian market.

Tan also uses talks to Cepco Trading. This business is targetting the medical sector with its high-impact polystyrene sheets which it is hoping will contribute to about 30% of its revenues in three years’ time. The company’s director Jansen Lim tells David Tan that because of the decline in the semiconductor and food and beverage businesses, the company decided to move into the medical device sector which he says is “more consistent”.

China is a particularly interesting example. Companies such as Siemens AG, Johnson & Johnson, Philips NV and Medtronic have already shown an interest in China’s fast-growing medical devices market but there has been a move within the country to encourage locally-made products and the government has introduced a set of measures aimed at making this happen.

In 2014 China’s ministry of health issued a statement via its website which explained that it would promote the use of Chinese products to "effectively control unreasonable increases in the cost of medical care and reduce the burden on patients”.

The statement quoted Li Bin, head of China’s national health and family planning commission who said: "We want to strongly advocate health ministry organisations to use domestically-made medical devices, especially

As part of the push towards localisations, domestic hospitals are being encouraged to use Chinese-made medical devices. This will see the country become a major manufacturer of medical devices as well as a supplier. It has also closed the ‘research only’ loophole that allowed European and US businesses to send their medical devices to China for non-commercial use. Not only did this allow companies to skirt round complicated registration processes, it also meant that organisations were able use many devices before receiving approval. Consider the country’s ban on refurbished imports and it’s obvious how much the country is looking to protect local products.

One company that has entered the Chinese market is Carclo Technical Plastics. This UK-based manufacturer specialises in technical mouldings and its products include drug delivery devices and diagnostic consumables. In the past, Carclo would export its product to China. However, this became a logistical challenge – exporting a container would often cost thousands of dollars by  and the shipping alternative  wasn’t much better as it could take up to 45 days. The company moved its production to a new facility in Taicang, China. By localising production right in China, it believes the benefits were significant for the customer. It also removed expensive freight costs as well as heavy customs fees.

There was also a small savings in labour since the product was now manufactured directly in China. However, perhaps most importantly, the company’s facilities no longer had to carry as much of the product because lead times improved significantly.

Of course, Carclo isn’t alone in its pursuit of the Chinese market. In 2014 Gerresheimer opened a new development centre for medical plastic systems in Dongguan City. Andreas Schütte, Gerresheimer management board member with responsibility for plastics & devices said: “The new centre in China ensures that we can optimally meet the growing demand in the Asian market. In future, we will have development operations in addition to local production operations and we’ll be collaborating closely with our customers in China.”

In the same year GW Plastics expanded its manufacturing facility in Dongguan offering in-house tool building, cleanroom moulding and assembly and shipping of finished medical devices.  The year before Stryker Corporation acquired Trauson Holdings, China’s leading producer of spinal products, for $764 million while Medtronic completed the acquisition of a Chinese company Kanghui Holdings, an orthopaedic implant manufacturer in 2012. With Chinese headquarters already established in Shanghai, the company also unveiled a research centre in Chengdu for the design of devices specifically for China’s rural healthcare sector.

Lu Rahman is the editor of Medical Plastics News magazine.