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Manufacturing Medical Devices with Confidence in China

It is inevitable that more medical companies will move some of their manufacturing to China. There are more FDA-registered Class II and Class III medical manufacturers in China than in any other country outside of the United States.1 In addition to significantly lowering piece part costs, China offers efficient lead times and state-of-the-art manufacturing facilities.


The low labor cost of Chinese workers has been a key factor in the shift to manufacturing in China. Even after new minimum wage laws went into effect in parts of China in 2010, there is still a vast discrepancy between labor rates in the United States and in China. In Dongguan, one of the major areas of manufacturing in China, the minimum wage is less than $1 an hour.2


Due to the significant difference in labor rates, it is not surprising that all manufacturing has been moving to China. What is surprising is that many multinational corporations have moved not only production, but also research and development activities to China. Switzerland-based Roche and Johnson & Johnson have opened R&D facilities in China. Bayer recently announced plans for a $148 million R&D facility. Novartis plans to invest $1.25 billion into two R&D centers in and around Shanghai.3 The types of products currently being manufactured by multinational corporations in China include complex products such as intravenous and peritoneal dialysis products, anesthesia machinery, pacemakers, sterilization equipment, and all types of imaging equipment including x-ray, ultrasound, MRI, and CT scanners.4


Moving production to China also creates many new challenges, such as how to ensure that Chinese factories adhere to stringent FDA quality system regulations. FDA has recently opened several offices in China to help oversee the production of medical products and will most likely increase the number of Chinese facilities that it inspects. As more Chinese manufacturers make the transition from consumer products to medical products, U.S. companies looking to outsource to China need to make sure they select suppliers that manufacture under FDA quality requirements.


Finding a Qualified Partner


The first step is to find a good Chinese manufacturing partner. Asking for recommendations, searching the Web, or visiting trade shows to meet with potential resources are a few ways to begin this process. Once a list of final candidates has been created, it is extremely important to visit the facilities and to meet with the people you will be working with. This can be expensive, time consuming, and challenging, but it is an absolute requirement prior to starting any new project. During the initial site visit, it is particularly important to clearly define goals and expectations. Also, it is essential to meet with the actual team members that are working on a daily basis to make sure there are no communication challenges and that the people have the required level of knowledge and experience. Ask for a list of references and to talk to other people who have worked with the company in the past.


Do not to be deceived by appearances. We have visited beautiful, modern, spotless manufacturing facilities in China. We have taken tours of impressive cleanroom molding and assembly facilities equipped with imported, state-of-the-art air and water purification systems and where everyone was dressed full gowns and masks. However, upon further inspection, we realized that in some cases, basic quality system requirements were not being met. Quality control inspectors would measure random dimensions and not record any measurements. Work instructions, if they existed, were not clearly displayed. Defective parts were not marked or separated from good parts. These factories needed to create and implement an effective quality system.


Communication is Key


One of the biggest challenges encountered when working with Chinese manufacturers is a lack of good communication. The first visit is a good test of whether it is possible to have clear and open conversations with the supplier. But after the first visit, additional challenges often arise. Communication becomes more difficult when parties are separated by different time zones, by different languages, and by different cultures. Because one party is sleeping while the other is working, it is important to be available outside the typical workday and on weekends to have frequent conversations. Such accessibility enables good progress on projects around the clock. However, a slow response to a quick question can often lead to a day delay, which can accumulate into large slips in the project schedule.


 

Figure 1. Registered FDA establishments that reported manufacturing Class II or Class III medical devices for the U.S. market in September 2001. Source: GAO Report Medical Devices—Challenges for FDA in Conducting Manufacturer Inspections.

Sometimes the OEM may find the people it originally met on the first visit are no longer available and that only lower-level individuals who do not always have the same level of experience, management, or command of the English language are available. Furthermore, when the OEM is out of sight, it may find that the project is not made a priority or given the proper attention.


It is also important to remember the cultural differences that exist between China and the United States. For example, Chinese suppliers will rarely say "no" directly. They might say “maybe” or “possibly” when in fact they know a task cannot be accomplished. It is important to pick up on these cues to know when something may become a problem. Many times, if a supplier is asked if it can do something it has not done before, the supplier may say yes and then will figure out how later. Hopefully this works out fine. However, sometimes an OEM finds that the contract manufacturer is learning at its expense.


The sheer distance between the United States and China can be challenging. It can take more than a month to ship products from China to the states. Also, make sure that the schedule includes time for the parts to clear customs. With the tight schedules that most of today’s projects require, many companies are forced to ship product by air. This can help reduce shipping time by many weeks, but it is expensive. With typical tight margins, the first few shipments of a product are often at a loss just to hit the required delivery dates.


The long distances do not just make shipping products more challenging; they also make it more difficult for the two parties to meet in person. It is difficult to get to China for a meeting and then back to the states without being away from the office for at least a week. While in China it is difficult to keep up with all of the activity that is taking place back at the home office. Travel costs to send employees to China are expensive. Furthermore, frequent trips to China can take a toll on an employee’s family life.


Although the costs to meet in person are very high, it is extremely important to do so. An OEM’s physical presence at the factory leads to its project being given priority. Any challenges to the product or the schedule become immediately apparent to the OEM representative and that person can work with the supplier to come up with solutions. There is much less chance of getting an e-mail that a raw material never arrived or that a large percentage of products are not passing quality inspection. By being at the factory, OEMs can help identify and anticipate potential problems and hopefully address them before they lead to delays in the project schedule.


One of the keys to a successful product launch is having someone on-site with a strong command of both English and Chinese. Obviously, it is important to have someone at the factory that is fluent in English so that there are no misunderstandings during conference calls with the overseas headquarters. But it is just as important that the person at the factory has a strong command of Chinese so that any directions or requirements can be implemented without difficulty. Further, this person can inquire about problems, such as an assembly worker that is having trouble with a certain assembly step or secondary supplier experiencing quality issues. It takes more than an effective translator to ensure good communication. It is important to have someone who is bilingual, but also has a strong understanding of manufacturing practices and quality systems.


FDA Quality Systems: If You Don’t Ask, They Won’t Tell


In 2008, FDA opened its first overseas office in China. The agency now has offices in Beijing, Shanghai, and Guangdong.5 Its goal is to ensure the safety of products being imported into the United States from China. By setting up offices in China, the agency hopes to work more closely with China’s State Food and Drug Administration (SFDA) to identify and prevent potential problems before products arrive at the U.S. border. The plan is to work with Chinese manufacturers in order to educate and help them comply with U.S. requirements.


In February 2010, in a speech titled “FDA and the American Public: The Safety of Foods and Medical Products in the Global Age,” Margaret Hamburg, FDA commissioner, stated, “Companies that sell contaminated products because of loose supply chain oversight need to face serious penalties. . .and cannot excuse themselves by blaming their suppliers, blaming FDA, or blaming anyone else. Only when we have a sense of shared responsibility—and accountability —will we have a truly safe global supply chain.”6


It will most likely be easy to find plenty of manufacturers in China that are eager to work on a medical device project. Additionally, it should not be too difficult to find suppliers that are ISO 13485 certified. However, do not assume that this means that the manufacturer has a solid understanding of FDA quality system regulations. There are plenty of ISO 13485–certified suppliers that would not come close to passing an FDA audit. Even for those manufacturers that do have a strong grasp of FDA requirements, it is important to ensure their quality system aligns properly with the OEM’s. This requires good planning and should be completed prior to starting any new projects.


Manufacture with Confidence


Working with Chinese manufacturers to ensure the safety and quality of products has been a main effort of Insight Product Development, and the reason it opened an office in Shanghai in 2007. Because many of its products are manufactured in China, the company felt the best way to maintain control was to have a team on the ground. For many years, the firm had been sending researchers, designers, and engineers back and forth to Asia. However, it found that by having a team of U.S. and Chinese medical product developers based in China, it could respond quickly and cost effectively to challenges and opportunities as they arise, as well as ensure the safety and quality of its products.


OEMs should not try to cram everything into an expensive one- or two-week international trip. Instead, what may work is having a team of bilingual developers at the plant for months at a time prior to a new product launch. That team helps to reduce risks by performing initial supplier audits, developing test methods for in-process controls, creating detailed work instructions (in Chinese and English), and maintaining on-site support with daily updates back to the company’s headquarters. Having teams work closely with different manufacturers ensures that products are manufactured safely, comply with FDA requirements, function as desired, meet cost targets, and are delivered on time.


With an increasing number of multinational corporations opening R&D and manufacturing centers in China, along with the huge market for medical devices and China’s commitment to spend $124 billion to improve the quality of their healthcare over the next decade, medical manufacturing in China is sure to continue to increase.3 In addition to the volume of products increasing, so will the quality of those products as Chinese manufacturers continue to become more knowledgeable and experienced. The demand for high-quality products at reduced costs can lead to increased production of medical products in China, just as has been seen in other industries such as apparel and consumer electronics. Many companies decide to look to China or other low-cost regions to remain competitive and find it a rewarding experience. The Chinese place a high value on developing guanxi or relationships. Building safe and high-quality medical products in China is possible and the potential for success is high, as long as the proper investment is made to develop the partnerships.


References


1. United States Government Accountability Office, “Medical Devices—Challenges for FDA in Conducting Manufacturer Inspections,” January 29, 2008; available from Internet at www.gao.gov/new.items/d08428t.pdf.
2. Tom Mellen, “Guangdong Boosts Minimum Wage by 20%,” Morning Star (March 19, 2010); available from Internet: morningstaronline.co.uk/index.php/news/content/view/full/88198.
3. Dexter Roberts, “Novartis Unveils $1.25 Billion China Investment,” Bloomberg Businessweek (November 3, 2009); available from Internet: www.businessweek.com/globalbiz/content/nov2009/gb2009113_520982.htm.
4. “China: Accessing the Medical Market,” Espicom Business Intelligence, July 2007.
5. “FDA Beyond Our Borders,” FDA (Rockville, MD: December 9, 2008); available from Internet: www.fda.gov/ForConsumers/ConsumerUpdates/ucm103036.htm.
6. Margaret A. Hamburg, “FDA and the American Public: The Safety of Foods and Medical Products in the Global Age,” remarks at Center for Strategic and International Studies, February 4, 2010; available from Internet: www.fda.gov/NewsEvents/Speeches/ucm199926.htm.


Mark Slaven is partner and general manager of Insight Shanghai.

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