Medical Device & Diagnostic Industry
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An MD&DI October 1997 Column
Economic strength combined with lax guidelines for medical device imports make Hong Kong a ripe target.
Its commercial sector well versed in the ways of the East and the West, Hong Kong has long functioned as the bridge between the West and China. Hong Kong businessmen are accustomed to both Western and Chinese ways of doing business, and many medical device exporters have used Hong Kong agents and distributors to reach Chinese markets.
View taken above Hong Kong island across Victoria Harbor toward Kowloon Peninsula. Photo courtesy of Hong Kong Economic & Trade Office (San Francisco)
The handover of Hong Kong by Great Britain to China should not affect the quality of this service or Hong Kong's internal structure for importing U.S.-made medical devices. The region's role as middleman, however, is gradually changing as Chinese businessmen become more sophisticated in international commerce and start to venture into direct dealings with U.S. manufacturers.
Hong Kong enjoys the second-highest per capita income in East Asia and maintains an open market economy. For these reasons, U.S. medical device manufacturers should examine Hong Kong's market on its own merits. The market for medical equipment, which totaled $83 million in 1996, is served entirely by imports, according to the Hong Kong Government Supplies Department (GSD), and does not include medical equipment entering Hong Kong to be shipped to other countries (Table I).
|Total market size||79||83||96|
|Total local production||n/a||n/a||n/a|
|Total imports from the U.S.||138||155||173|
U.S. Department of Commerce figures show that Hong Kong's population of 6.2 million enjoy a per capita gross domestic product (GDP) of $27,577. GDP growth has averaged 4.8% annually for the past three years. This high standard of living is accompanied by expectations of a comprehensive range of medical and health services to be supplied by the public and private sectors.
According to the Hong Kong government, its market has been particularly advantageous for U.S. producers. In 1996, the Hospital Authority (HA), Hong Kong's largest independent care provider and medical device purchaser, bought $33 million worth of medical equipment, such as MRIs, ultrasound systems, patient monitoring systems, and ventilators from U.S. producers, who captured 49.9% of Hong Kong's total medical equipment market. In the same year, the HA purchased $5.6 million of U.S.-made medical supplies, such as sterile hypodermic syringes and needles, adhesive surgical tapes, and surgical and other consumables, representing 33.3% of Hong Kong's total medical supplies market. Because these trends are expected to continue, the U.S. Department of Commerce has identified medical equipment as the best prospect for U.S. exports to Hong Kong.1 Also, no tariffs or government-imposed obstacles hinder U.S.-manufactured medical devices from entering the market.
There are two effective means of penetrating the Hong Kong market--setting up a representative office or finding a reliable agent/distributor. Although it is possible for suppliers to sell directly from overseas to the private sector or the GSD, this occurs infrequently. Hong Kong has no special legislation regarding agents and distributors, which include a vast range of types, from personnel who stock retail stores to specialists who provide sales, engineering, and technical support for complex systems. Therefore, the following points should be included in written contracts to ensure mutual understanding: definitions of exclusivity and sales territories, proprietary information, specific targets and goals for sales activity, duration of the contract, payment terms, jurisdiction for contract enforcement, direct sales, cancellation notice period, and covenants restricting activity following cancellation of the contract.
As in the case of any foreign market, U.S. suppliers will gain the most by target marketing. Agents should be provided with technical catalogs in both English and Chinese. English-Chinese business cards are a must. Quotes should be given in metrics and on a delivered basis to Hong Kong, not F.O.B. (i.e., with shipping charges included). Abbreviations of cities and states should be avoided.
Personnel affiliated with the U.S. consulate general's office can provide assistance to manufacturers who are testing the Hong Kong import waters for the first time or who need an added boost to their present programs. For example, a manufacturer can choose from one of the following three Foreign Commercial Service programs. First, the agent/distributor service can conduct a customized search to identify foreign agents, distributors, and representatives for U.S. firms based on the examination of U.S. product literature by the foreign companies. The fee is $250.
Alternatively, a gold key service is custom tailored for U.S. firms planning to visit Hong Kong and includes orientation briefings; introductions to potential partners, agents, or distributors; and interpreters for meetings as necessary. The fee is $800 for two days of service with six to eight appointments.
Third, a customized market analysis provides firms with specific information on marketing and foreign representation for their products. Interviews or surveys are conducted to determine overall marketability of the products, key competitors, price of comparable products, customary distribution and promotion practices, trade barriers, possible business partners, and applicable trade events. The fee is $2300.
HONG KONG'S MEDICAL SYSTEM
There are four basic categories of consumers of medical equipment in Hong Kong. The largest of these, public hospitals, account for 70% of the market. Private hospitals, private practitioners, and private laboratories account for 15, 9, and 6%, respectively.
Private-sector consumers have their own procedure for medical equipment purchases. Recommendations are generally made by department doctors or technicians and submitted to the department head for approval. Private hospitals may encourage open bidding (tender) from medical companies for necessary equipment, usually items costing more than $30,000. The hospitals may also structure the bids to be placed from a specific group of companies, or they sometimes may even deal with only one bidder (selective or single tender). Information about the open bidding is sent to local agents and distributors. Thus, although U.S. exporters should send product literature to the purchasing department of private hospitals to be kept for reference, the best way to promote and introduce equipment to private hospitals, practitioners, and labs is through a local agent.
The HA is responsible for the management and control of all public hospitals, correctional institution treatment centers, clinics, and maternity homes. The HA controls 43, or 90%, of Hong Kong's hospitals. Its 19971998 government grant is $2.85 billion. Additionally, the HA executive summary from 19961997 shows that $157.4 million has been earmarked for information technology development along with $251.6 million for the purchase of additional or replacement equipment.
The 10 priority areas identified by the HA as being in need of developing new or expanded programs to improve the outcome of patient care are: cancer; cerebrovascular disease; ischemic heart disease; end-stage renal disease; chronic lung disease; diabetes mellitus; prenatal, perinatal, and neonatal care; adolescent care; geriatric care; and services for the mentally ill.
Accessing the public health-care market is fairly straightforward. The Hong Kong GSD is responsible for the procurement of goods and services ordered by the government, including the HA. Individual HA-member hospitals decide what equipment is needed and report the functional specifications to the GSD in writing. The GSD usually makes its purchase by open tender, with decisions based on price, quality, and delivery. Selective tender and single tender are rare. The GSD gives no preference to any particular supply source from any country or organization.
Hong Kong is bracing for an influx of 2 to 4 million immigrants from China during the next 25 years, which will certainly increase the demand for medical devices. However, as medical technology becomes more expensive, the HA is increasingly careful to justify its high-technology purchases in terms of cost-effectiveness. As part of its annual plan for 19971998, the HA refers to a "seamless health-care environment that can be created by removing or reducing structural systems or process barriers." In effect, this means that private sector services are considered when the HA makes purchasing decisions. Such was the case with the gamma knife. The HA decided on the basis of efficacy, safety, and cost-effectiveness that just one gamma knife would suffice for Hong Kong's current population and that a private sector consortium would probably buy one. In exchange for the HA's promise not to acquire a gamma knife, the private consortium agreed to let public sector surgeons use the knife.
Potential suppliers must be prequalified with the GSD, which can be reached at 12 Oil St., North Point, Hong Kong; 852/2802-6102, fax 852/2807-2764. To become registered suppliers, companies must provide background information about the goods they offer. The GSD evaluates this information and selects qualified suppliers for inclusion on its register. The forecast of major Hong Kong government purchases, including the equipment, usage, and tender-issuing dates, is accessible on the Internet at the GSD home page: http://www.info.gov. hk/gsd/tender.htm. Potential imports need not be registered, and only x-ray machines and other devices with a radioactive potential must be licensed by the radiation board. Inquiries regarding the import license of radiation medical equipment can be directed to the Radiation Health Unit, Department of Health, Third Floor, Sai Wan Ho Health Centre, 28 Tai Hong St., Sai Wan Ho, Hong Kong; 852/2977-1888, fax 852/2834-1224.
Maintenance is a strong purchasing consideration, and hospital administrators prefer to deal with companies that can guarantee immediate service. The ability to provide doctors with hands-on exposure to the product can also be vital in affecting purchasing decisions.
Because of Hong Kong's rising standard of living, improvements in health-care delivery and an influx of patients from China, the prognosis for Hong Kong's medical equipment market is excellent. The market, the procurement process, and the regulatory environment are not expected to be affected by the recent handover of Hong Kong to Chinese rule.
1. Hong Kong: Leading Sectors for U.S. Exports & Investments, Washington, DC, U.S. Department of Commerce, National Trade Data Bank, December 27, 1996.
Lauren Brosler is an international trade specialist for the U.S. Department of Commerce, Washington, DC.
For trade figures and reports on Hong Kong and China as well as information on upcoming trade missions and other trade promotion events in the region, contact:
International Trade Specialist
U.S. Department of Commerce
Washington, DC 20230
For information on the Foreign Commercial Service programs described in the article, contact:
U.S. Department of Commerce
Foreign Commercial Service
American Consulate General
26 Garden Rd.
Central, Hong Kong