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Harnessing International Opportunities

Established and emerging markets around the world offer significant sales growth potential for medtech manufacturers.

BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT

Sidebars:

Despite the United States' majority share of the worldwide market for medical devices, there's no denying that medical technology is a truly global industry. Significant market opportunities exist in established markets around the world, and new opportunities are continually being recognized in emerging nations. Manufacturers that do not look beyond their own national boundaries and existing sales regions may fail to realize the full market potential of existing and new technologies.

Illustration by EYEWIRE

In this article, three experts—each with particular expertise in the Asian, Latin American, or European markets for medical devices—explore the current state of market demand in portions of these regions, as well as the opportunities and challenges likely to be encountered by manufacturers when entering these markets.

Medtech Opportunities in India

For a long time, India was closed to many foreign markets due to government protectionism and a nationalistic tariff system. Today, however, India is ripe for market entry for many industries, including medical devices. Entering the market soon—or expanding a company's business there—will enable Western enterprises to capitalize on India's exponential growth.

India is a country of 1.1 billion people with a gross domestic product (GDP) of $4 trillion (adjusted for purchasing-power parity), making it the fourth-largest economy in the world. After being stuck at a low rate of growth for many years, it has been booming since the 1990s. From 1996 to 2006, GDP grew at an average rate of 7% annually, and it still shows no signs of slowing.1 Within India's overall economic picture, the $1.75 billion medical device market is a strong industry, with 8% growth in 2005 and double-digit growth predicted for coming years.2

Market Characteristics. To understand medical markets in India, foreign market entrants must realize that their target consumer base is not one billion people. Even today, a majority of Indians are too poor to afford more than the most rudimentary healthcare. Rather, the target market for medical devices is the middle and upper classes in the teeming cities, translating into a customer base of about 150 million and counting.3

With no comprehensive national health insurance and an inadequate public health network, India's new demands for quality healthcare are largely being met by the private sector. About 75% of medical expenditures in India are paid privately, and the country is home to a number of large modern private hospital chains, including Apollo, Wockhardt, Fortis, and many others. These groups purchase high-end medical equipment to serve both their demanding local customers and India's more than 100,000 annual 'medical tourists' from other countries.4

The device categories poised for the highest growth in India are those connected to its changing disease profile. As Indians increasingly lead sedentary life-styles, smoke, and eat more, diseases such as cardiovascular disease and cancer are on the rise. Imaging, diagnostic, and surgical devices to treat these diseases are well-situated for both market entrance and further growth.

Figure 1. Estimated sector share breakdown of the current medical device market in India. Source: U.S. Commercial Service.
(click to enlarge)

Cardiology equipment currently makes up about 20% of India's total device market, while imaging equipment is about 15%. Other growth sectors include ophthalmology equipment, general surgical devices, orthopedics, and plastic-surgery equipment (see Figure 1). With foreign devices seen as more effective and reliable, imports make up more than 60% of all devices by value and dominate the high-end market.5

Obstacles in India. Though India's business environment has improved markedly over the past 15 years, it is still a difficult country in which to operate. India's regulatory system is complex and can be difficult to navigate. Up until very recently, there were no regulations for medical devices as a class. Today, though, various devices—such as hypodermic syringes, cardiac stents, and orthopedic implants, among others—require registration as drugs under the Drugs and Cosmetics Act. A few specific devices, such as diagnostic x-ray equipment, have individual registration requirements. The government has drafted a medical device law that may streamline the registration process within the next couple of years. However, it will likely expand the list of medical devices that require registration.

For devices that currently require it, registration may take up to a year, and will require a regulatory professional prepared to spend a significant amount of time in New Delhi following up on the process. Obviously, if a device manufacturer has its own office in India, direct registration is possible. Otherwise, a manufacturer may authorize an importer to apply for registration, or may designate an independent third party in India to make the application and hold the license. The latter choice helps a manufacturer maintain flexible distribution options.

As noted, India has no comprehensive national reimbursement system. However, a patchwork of different government programs sometimes reimburses devices. Such reimbursement is more common for public hospitals than private ones, but private health insurance will soon become a larger part of the medical landscape of India. In 2004, only 1% of Indians had private healthcare coverage, but with high demand and aggressive marketing, this figure is expected to rise to 10% by 2010.

In addition, although tariffs have been eliminated for some types of medical devices, many still face tariffs ranging from 5 to 30%. These are expected to decline further in the future.

Finally, Western medtech companies preparing to enter the Indian market may also run into cultural challenges. The country's business culture is more aligned with those in the Middle East and East Africa as opposed to East Asia. Therefore, medtech firms that don't participate in other similar markets may run into unfamiliar processes and behaviors when dealing with local partners and customers.

Market Entry Strategies. Distribution networks in India are extremely dense, layered, and difficult to penetrate without connections and experience. Therefore, rather than jumping in and setting up their own operations at first, manufacturers looking to enter the Indian market may want to consider finding distribution partners or setting up joint ventures.

Large Western medical device companies often choose to create a joint venture with similarly large India-based companies. For example, GE Healthcare (Chalfont St. Giles, UK) has long been associated with Wipro Ltd. (Bangalore, India), which has invested a great deal of expertise and capital into making and marketing diagnostic equipment in India.

On the other hand, smaller medical device companies usually work through distributors when moving their products into the Indian market. They may also set up a small representative office to do advertising and market research, as well as keep tabs on the distributor. Finding the right partner is essential, and lack of due diligence can doom the entire process. At the outset of the relationship, both parties should also try to align their mutual expectations as much as possible; cultural differences can make strategic disconnects hard to repair.

In crafting a marketing strategy for India, it is vital to think regionally. India's billion citizens speak 24 major languages, practice six major religions, and are divided into thousands of ethnic groups. To market to multiple regions of India, manufacturers may need multiple distributors. Few distributors have the capacity to market to the entire country satisfactorily, so medical device executives should resist pressure to sign an exclusive distribution agreement.

Just because India has a large middle class (with a per capita income of $3000–$20,000), manufacturers should not assume the population will snap up its high-end products quickly. Brand recognition in the United States will not necessarily carry over to India. Market research is a must, and a company may find it needs to adjust a device's features or pricing. Although some hospitals may be in the market for advanced equipment, their budgets are smaller than those of hospitals in the West. A key way to stand out in the Indian market is by offering excellent after-sales service, an area in which domestic competitors come up lacking.

When entering the Indian market, some medtech companies choose to also start up manufacturing operations in the country. Such a move can enhance sales by significantly reducing costs. Due to India's huge patient base and relatively affordable scientists, outsourcing clinical trials and research and development to India is also becoming more popular among Western medtech firms.

In conclusion, India is not a place to get rich quick. Preparations take time and money, and there will be bumps in the road. But with a good product, the right partners, and a locally adapted strategy, capturing part of India's market may pay off for decades to come.—Ames Gross, president and founder, Pacific Bridge Medical (Bethesda, MD)

Latin America's Emergence

In recent years, Latin America has been receiving increased attention for its emerging opportunities within the healthcare industry in general and the medtech market in particular. A review of the macroeconomic fundamentals of the region indicates that such attention is warranted. Indicators that point to a favorable market opportunity in Latin America for medtech vendors—as well as other industries—include the following.

  • Average annual gross domestic product growth of 4.7% for the region between 2004 and 2006. Such growth has been driven by ever-higher prices for primary commodities, including minerals, oil, and other raw materials exported by the region.
  • Convenient exchange rates promoting exports combined with low interest rates in the United States and Europe have favored the relative position of Latin America over the past several years.
  • Improvements in Latin America's social indicators, including a decline in infant mortality and an increase in education level.

Although Latin America is a diverse region, several characteristics are common among many of its countries. For example, many Latin American countries are highly sensitive to political cycles. Most are also heavily dependent on public purchases (60–70% of total demand) and have considerable bureaucracy surrounding the import and registration of products. The refurbished and second-hand market is an important component of many Latin American markets, and high-end private institutions tend to be the primary technology advocates in the region. Such institutions are most likely to bring new technology into Latin America.

Despite such similarities, it is inappropriate to consider Latin America as a homogenous group of countries. Such a conception ignores key points of differentiation among the markets that are critical to understanding the landscape. Thus, achieving success in one of the key markets in Latin America does not guarantee similar success in others. Countries are shaped by local competitive dynamics, particular reimbursement systems, and varied levels of openness to foreign technology and products.

Growth Profiles. The current macroeconomic scenario in Latin America is favorable for new medical equipment acquisition. In general, patient monitoring and imaging systems are experiencing a booming demand. In particular, more-complex systems such as cardiovascular x-ray and more-mature modalities such as ultrasound are now seeing demand levels that exceed those witnessed between 1999 and 2005.

The overall Latin American region is demonstrating a willingness to acquire a wide array of products, from avant-garde technologies for high-end private medical institutions to medium- and low-end solutions for institutions that serve the masses. In recent years, low- and medium-end technology solutions have become more available in many Latin American countries, and the overall customer base has grown considerably. The emergence of local vendors with competitive pricing strategies and the market entry of several Chinese brands have resulted in an increased awareness in the region of the need to evaluate medtech products' complete value propositions.

Growth rates for medical device demand vary among countries. The most dynamic opportunities appear to be in Brazil, Colombia, Mexico, and Venezuela.

Rising demand in Venezuela can be attributed mainly to the current political and economic situation. High global oil prices generate a significant cash flow for the country, which in turn propels aggressive public spending on premium equipment. Currently, the main driver of medtech demand in the country is the public healthcare programs' need to both renew and enlarge the available installed base of medical equipment.

Brazil, Colombia, and Mexico are also experiencing public demand in response to local political cycles. However, unlike the case in Venezuela, the private sector is also driving equipment sales. In these countries, one of the main drivers of growth in medical technology demand is the purchasing being done by large private healthcare chains.

Obstacles in Latin America. Although significant opportunity exists in Latin America's market for medical technology, issues surrounding product registration, approval to import products, and go-to-market strategies present challenges for new market entrants. Depending on the country, the product registration process may take four to six months. Countries with free trade area provisions will be more permeable than others. Mexico and Chile are among the Latin American countries that take an early adopter approach to medical technologies and are likely to welcome new medtech vendors.

Import tariffs vary by country and product types; however, a correlation exists between higher tariffs and the presence of an existing local supply in that medtech sector.

Finally, the reimbursement system of a particular country must be a key consideration for a manufacturer when developing a market entry strategy. In Latin American countries, reimbursement tends to be low and remain frozen for extended periods, which undermines healthcare institutions' finances. This has been a significant barrier to further growth in the private healthcare sector.

Market Entry Strategies. When developing a go-to-market strategy in Latin America, two key issues must be considered: the manufacturer's choice of a representative and the nature of its contract with that representative. A foreign medtech company's evaluation of potential representatives must encompass not only geographic scope, but also the representatives' existing product and client portfolios (see Table I).

Areas of Consideration
Points to Evaluate
Geographic scope
Distributor access to key regions.
Geographic expansion that would prohibit future expansion.
Product portfolio
Key device sectors covered by the representative.
Opportunities for bundling and cross-selling activity.
Client portfolio
Experience with public- versus private-sector clients and
     their internal purchasing dynamics.
Experience in selling high-end products versus medium- or
     low-end products.
Table I. Key considerations for foreign medtech companies when selecting representatives to act on their behalf in the Latin American market.

Manufacturers may choose to maintain their own offices in Latin America. However, it is still beneficial to have a local representative on-site who has intimate knowledge of the market and its procedures, policies, and rules.

In conclusion, turning the attractive growth of the emerging Latin American market into a profitable venture for a foreign medtech company requires careful assessment of the local landscape. Such an assessment must encompass not only a regulatory and competitive analysis, but also an evaluation of the market's specific demands and its way of doing business. Thus, choosing a reliable and convenient partner is a primary step in getting started.—Natalia Scomparin, industry manager, Latin American healthcare group, Frost & Sullivan (San Antonio, TX)

Complexities of European Market Entry

The European market currently accounts for an estimated 30–34% of the global market for medical devices. This makes Europe the second-largest market following the United States. Within Europe, Germany and France account for about half of the medical device market.6

For manufacturers looking to move sales of their medical devices into Europe, market opportunities must be considered on a country-by-country basis. When examining market opportunities, multiple considerations come into play.

The level of internal medical device production in Europe varies by country and is one factor to consider when evaluating how evolved a market is from a medtech perspective. A more highly evolved market may contribute to a more favorable reception for a medical device sales or manufacturing venture from the United States.

In terms of internal production, high heterogeneity exists among European countries. In 2001, the ratios of medical device production output to the total manufacturing output in individual European countries ranged from 0.1% (Portugal) to 3.8% (Ireland). In Ireland, this ratio more than doubled from 1997 to 2001 and peaked at 4.1% in 2002.6

In terms of volume, Germany is the top medical device producer in Europe, followed by France, Italy, Ireland, and the United Kingdom. However, with the exception of Ireland—which exhibits a higher level of specialization in the medical device industry—these countries' industry-specific manufacturing to total manufacturing ratios are in line with the average of the EU-15, a term that refers to the 15 countries in the European Union (EU) before its expansion in 2004. The EU's new member states are characterized by a ratio of medical device production to total manufacturing that is lower than the EU-15 average.6

Healthcare expenditure policies—which vary by country—also directly affect the size of a country's market for medical devices. In recent years, increasingly cost-conscious healthcare systems and providers have put pressure on medical device markets in most countries and regions. In Europe—much like in the United States—large budget deficits have pressured governments to lower overall healthcare spending. Consequently, many are looking to reduce spending on medical devices and associated medical procedures.6

Market Characteristics. Despite the increased standardization that the formation and expansion of the EU has brought to many areas of the European market, an exceptional amount of policy variation is still present. Thus, the level of opportunity European countries afford foreign medical device manufacturers also varies.

Germany. As the third-largest national medical device market in the world—ranking behind the United States and Japan—Germany accounts for 6.4% of the global medtech market. In 2006, the German medical device market was estimated at $11.8 billion, which equates to $143 per capita.

Germany has a history of producing high-quality medical equipment. However, government funding of hospitals in recent years has remained static. Therefore, Germany's hospitals are maintaining existing equipment rather than investing in new appliances. As a result, domestic medtech manufacturers have become increasingly reliant on the export market. Approximately 85% of domestic production is currently exported to other countries.7

France. Right behind Germany, France is the world's fourth-largest medical device market. The continuing deficit of the national health insurance funds, which finance the majority of health expenditure, has prompted a series of reform programs for the country's health sector. The latest such reform was approved by the French Parliament in July 2004.

Similar to measures already in place for pharmaceuticals, certain reforms are directed at controlling spending on medical devices. For this reason, the medical device market in France will likely see only moderate growth during the next few years.

However, opportunities do exist for certain foreign medical device manufacturers. In an effort to address its shortfall in some equipment areas, the French government has launched several initiatives as part of a €10 billion hospital investment program that offers promising prospects for medical equipment manufacturers in cer- tain sectors, most notably imaging and radiotherapy equipment.7

United Kingdom. In 2006, the United Kingdom's medical device market was valued at $7.6 billion. It is the third-largest medtech market in Europe behind Germany and France. However, per capita expenditure in the United Kingdom is much lower than it is in Germany and France. Growth of the UK medical device market has been led predominantly by imports, as many domestic manufacturers are not able to rapidly adjust to changes in demand.

Increased government healthcare funding in the United Kingdom is guaranteed until 2008. A spending review is planned for 2007, but it is unlikely that the current level of expenditure will remain, which will allow the private sector to develop further.7

Obstacles. Despite a degree of uniformity in regulatory requirements, a single integrated market for medical devices in the European Union does not yet exist. Multiple models of healthcare exist among Western European countries. Although they are based on different philosophies, structures, and methodologies, they all include a strong social base. On the other hand, healthcare systems in the new EU member states in Eastern Europe are moving toward market-based systems and away from state-sponsored health protection. Regardless, even under social models for healthcare, unrestricted and fully equitable access to innovative medical technologies does not exist anywhere.

The list of areas that a company must evaluate in considering whether to move its devices into the European market is extensive. Considerations related to logistics, labor force quality, and countries' existing industry bases all play a role in planning a European venture. Discrepancies among national reimbursement and regulatory policies are also among the many challenges manufacturers face in entering the European market.

Coverage and reimbursement for medical devices vary considerably among European countries. In addition, considerable price differentials exist across the member states as differences in value-added tax (VAT) imposed on medical devices. Most older EU member states, including France, treat medical devices as societal benefits by imposing reduced VAT rates on medical devices. However, Germany subjects medical devices to a full VAT.8

Although the EU provides a unified regulatory scheme for medical device manufacturers outside of Europe to follow, entering European markets can still be a complex process. Europe's regulatory requirements necessitate several levels of compliance, and a manufacturer must retain an on-the-ground representative to serve as the company's interface with country and EU regulatory authorities.

The role that individual national agencies play in regulating medical devices cannot be discounted, as these agencies add another level of oversight to the European medical device market. Thus, companies looking to move medical devices into Europe must still maintain an understanding of the regulatory requirements unique to each country.

A Market Entry Strategy. In light of the complexities of the European medtech market as a whole, perhaps one of the most sensible—and safest—means of entering the European Union as a medical device manufacturer is to partner with an established European company that operates in a related sector. Delphi Medical Systems (Troy, MI) has chosen to pursue such a strategy. In November 2006, the company announced that it was looking to expand the global presence of its IVantage infusion pumps, accessories, and disposables. In moving toward this goal, the company sent a team to medical trade shows in Europe in order to find the top distributors in Europe and beyond.

In conclusion, although unified points of entry are available for some aspects of medtech sales in the European Union, significant negotiation of the regulatory and economic landscapes of each country is mandatory for a successful venture. However, for companies with the resources and determination to make such a commitment, the rewards are commensurate.-- Jerrold S. Seeman, president and CEO, Luxcore Ltd. (New York City)


References

1. "World Economic Outlook" [online database] (Washington, DC: International Monetary Fund, 2006);
     available from Internet: www.imf.org/external/pubs/ft/weo/2006/02/data/index.aspx.

2. Sunil Patel, "India's Medical Markets" [Webcast] (Bethesda, MD: Pacific Bridge Medical, 2006); available
    from Internet: www.pacificbridgemedical.com/Webcasts/5_2006.htm.

3. Ames Gross and Sunil Patel, "Indian Pharmaceutical Industry" (Bethesda, MD: Pacific Bridge Medical,
    2002); available from Internet: www.pacificbridgemedical.com/publications/html/IndiaMay2002.htm.

4. Amelia Gentleman, "India's Healthy Appeal; Modern (and Cheap) Services Promoted," International Herald
    Tribune
(31 August, 2006): finance, 13.

5. "Best Export Markets for U.S. Medical Equipment and Supplies, 2005" (Hawthorne, CA: U.S. Commercial
    Service, 2005); available from Internet: www.buyusainfo.net/docs/x_1476361.pdf.

6. F Pammolli, M Riccaboni, C Oglialoro, L Magazzini, G Baio, and N Salerno, Medical Devices: Competitiveness
    and Impact on Public Health Expenditure
(Rome, Italy: Competitività, Regolazione, Mercati, 2005).

7. "The Medical Device Knowledge Centre" [online report abstract archive] (Chichester, England: Espicom
    Business Intelligence, 2007); available from Internet: www.espicom.com/web.nsf/structure/med_main.

8. Christa Altenstetter, Regulatory Governance of Medical Devices in the European Union Beyond Theories of
    European Integration
(New York City: City University of New York Graduate Center, 2004).

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