South Asia’s Growing Market Tops Global Outsourcing Destinations
in Medical Device Business
by Chris Wiltz on March 5, 2014
Countries in Southern and Southeast Asia were the top global outsourcing destinations over the past year.
Countries in Southern and Southeast Asia were the top global outsourcing destinations over the past year according to a report, “2014 Top Outsourcing Destinations,” by Tholons, a strategic advisory firm for global outsourcing and investments.
Analysts have reported that countries among the Association of Southeast Asian Nations (ASEAN)—encompassing Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Laos, and Vietnam—have been gaining attention among medical manufacturers as the next emerging medtech markets. ASEAN countries are joining Brazil, Russia, India, and China (collectively known as the BRIC countries) as markets for medical device products as well as options for outsourcing destinations.
Asian countries made up the majority of the top global outsourcing destinations.Source: “Tholons 2014 Top 100 Global Outsourcing Destinations: Rankings”
“Southeast Asia’s maturing ‘Outsourcing Brand,’ improving macroeconomic environment and expanding domestic markets continue to draw the attention of large service providers into the region, resulting in the upward movement of key Southeast Asian service delivery locations,” the Tholons report says.
The ASEAN countries have typically been thought of as destinations for outsourcing lower-end manufacturing of Class I devices. However analysts point to a growing skilled labor force in many ASEAN countries that can manufacture Class II and Class III devices as well.
According to the Tholons 2013 Top Outsourcing Destinations report, the Philippines, Malaysia, and Indonesia were among the most promising Southeast Asian destinations for outsourcing in 2012. The Philippines, in particular, has a growing information technology business process outsourcing (IT-BPO) industry that has attracted several large Western providers, including U.S.-based healthcare provider UnitedHealth, which has established back-office operations for healthcare in the Philippines in response to the market demand created by the U.S. Patient Protection and Affordable Care Act (PPACA).
According to Pacific Bridge Medical, a consulting firm that works with medical companies doing business in Asia, the average Filipino spent more than $100 on healthcare in 2013, compared with $33 annually a decade ago. The firm values the Philippines’s medical device market at more than $300 million, with a 10% annual growth rate thanks to a growing private sector and rising healthcare spending.
Indonesia and Malaysia are also strong markets. According to Pacific Bridge Medical, it is estimated that Indonesia’s per-capita healthcare spending will reach almost $150 by 2015, up from $36 in 2005. Malaysia’s total healthcare expenditure reached more than $12 billion in 2013 and is forecast to climb to almost $17 billion by 2015. The country’s medical device market is currently estimated at $1 billion and is expected to climb to $2.7 billion by 2018.
“Brand owners have been impacted by increased budgetary pressures, as a result of both the European debt crisis and the U.S. medical device excise tax implemented as part of the PPACA. Ongoing pressures to reduce production expenses will drive the shift toward increased outsource manufacturing, as [contract manufacturers] are able to streamline manufacturing practices and reduce overhead costs associated with purchasing capital equipment,” says Julia Wall, author of the report. Analysts at technology research and advisory firm TechNavio predict the global medical device manufacturing services outsourcing market to grow at a CAGR of 11.86% over the period of 2014–2018.
The global market for medical device outsourcing encompasses the vascular, orthopedic, and general surgery device segments—all of which have seen market growth in the ASEAN countries, making them attractive markets for Western
device makers. Cardiovascular disease, for example, is the leading cause of death in many Asian countries, and almost 200 million of the world’s 370 million people diagnosed with diabetes live in Asia, according to Pacific Bridge Medical. In Malaysia it is estimated that 25–30% of deaths are caused by cardiovascular disease. For example, 50% Malasians over the age of 30 have hypertension, and one in five in the same age range have diabetes.
“Some foreign cardiovascular firms are also developing cardiac technology centers, manufacturing sites, and R&D facilities. For instance, several years ago, Medtronic set up a new facility to manufacture cardiac devices in Singapore, taking advantage of large government tax breaks,” Ames Gross, founder and president of Pacific Bridge Medical wrote
recently in MD+DI
However, despite the growing market potential, Millennium Research Group cautions that brand owners face risks when working with contract manufacturers overseas. The firm points to recent concerns over poor product quality due to outsourced manufacturing as well as a push in the United States to “on-shore” more manufacturing as a means of improving quality control.
“Another trend in the medical device outsourcing market is the increasingly collaborative and long-term relationship between brand owners and [contract manufacturers], Wall says. “Building an established partnership encourages accountability and helps the contract manufacturer become more invested in the design process. Brand owners are thus working with contract manufacturers earlier in the design process to optimize and streamline manufacturing processes.”
Wall adds that, in response to these concerns, many contract manufacturers are broadening their range of products and services through acquisitions of smaller contract manufacturers to address brand owners’ diverse needs.
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