An MD&DI January 1997 Feature Article
Once counted among the world's poorest nations, Thailand has recently developed one of the world's fastest-growing economies, and is following closely in the footsteps of the other Asian Tigers. In 1996, the growth rate of Thailand's economy was estimated at 8.5%. The International Monetary Fund projects that from 1998 to 2002 it will grow at a solid 7.5% per year, ranking it as the eighth-fastest-growing economy in the world. In 1995, Thailand's per-capita GNP was $2310; in Bangkok the figure was nearly twice this amount. At this rate of development, Thailand is on track to become the largest economy in Southeast Asia by the turn of the century, and the eighth-largest economy in the world by 2020.
The Thai medical device market has also flourished over the last 10 years and will continue to expand as its large population ages. The market grew 24% in 1993, 16% in 1994, and 13% over the first six months in 1995. In 1995, it totaled $370 million and in 1996 is expected to be worth about $450 million. Moreover, as the rest of Thailand catches up with Bangkok's development, a number of opportunities will open for foreign medical device exporters.
Such growth, along with increased government spending on health care, expanding health-care needs, and several other factors discussed below, makes Thailand an attractive market for U.S. medical device manufacturers.
INCREASED GOVERNMENT SPENDING
Since 1990, the Thai government has made a significant effort to improve health-care facilities and extend services to a greater number of its citizens. Its plan to revitalize existing hospitals and establish new ones offers U.S. manufacturers increasing opportunities to market their products. And, as the number of insured citizens rises, the demand for medical devices will also rise.
Government-run hospitals account for 70% of all hospital beds in Thailand. The public sector includes 148 major general hospitals, 7 medical schools, 266 small general hospitals, and 369 community hospitals. Because of a great demand for medical services in Thailand, public hospital occupancy rates have been as high as 90% of capacity.
Initiated in 1992, the seventh Development Plan reflects the Thai government's efforts to improve and expand these health-care facilities and hospitals. The plan's goal is to set up 1576 new health centers, upgrade 250 10-bed community hospitals, set up 85 new 10-bed community hospitals, upgrade 16 hospitals to general hospitals, upgrade 7 general hospitals to regional hospitals, establish 5 regional centers for the care of noncommunicable diseases, and form 3 new medical science centers. In an attempt to achieve these goals, the plan's budget was expanded 54% between 1992 and 1996, from $1.33 billion to $2.05 billion (in U.S. dollars).
Another example of the Thai government's commitment to improve the country's health-care system is its work with telemedicine. According to the Bangkok Post, the Ministry of Public Health is working to link doctors in rural areas with specialists at major hospitals via satellite. The system will offer services such as teleradiology, telecardiology, telepathology, video conferencing, distance learning, and on-line medical databases. The four-year project, lasting from 1995 through 1998, is expected to serve 61 stations across the country, including a mobile station for transmitting signals.
In an attempt to meet the broadening health-care needs of its citizens, the Thai government enacted legislation in 1990 requiring companies with more than 10 employees (and perhaps as few as as 5 in the coming years) to help provide health-care insurance. Under this Social Security plan, employers, employees, and the central government each contribute an amount equivalent to 1.5% of the covered employee's salary to a health-care insurance fund. This system covers about 35 million citizens (about 58% of the population).
In 1995, the ministry proposed a plan to provide health care for those underprivileged citizens, elderly, and children who are not covered by the Social Security law. This plan would establish a multiple-fund system in which a family of five contributes 500 baht a year, or about $20, to get a health insurance card that entitles them to free medical services for a year.
Thai companies also fund private health insurance that covers 15% of the country's total health-care expenses. The number of persons covered by private companies is expected to double over the next few years.1
Hospitals may register with the government to provide health-care services to those covered by Social Security. Hospitals are paid 800 baht, or about $32, per registered beneficiary. The beneficiary is then entitled to the services of a general practitioner or specialist at that hospital. Additional payments from the government of up to 100,000 baht, or about $4000, are provided for more-expensive procedures. Thailand's Social Security plan has dramatically increased the number of people that are covered by health insurance, but in 1995 only 70 private hospitals accepted Social Security insurance because most feel that the compensation is inadequate.2
CURRENT HEALTH ISSUES IN THAILAND
Just as Thailand's economy has evolved from an impoverished, primarily agricultural economy to a more sophisticated industrial one, health-care concerns have also evolved. Because of major changes in living standards, disease patterns are also changing. When Thailand was a less-developed nation, nutritional deficiencies and parasitic infections were common causes of illness or death. Today, industrial-related and chronic degenerative diseases such as cancer, strokes, and cardiovascular diseases, as well as traffic accidents, are among the leading causes of death. It is also expected that occupational hazards and environmental pollution will become a larger health concern in Thailand (see table below). These conditions require more sophisticated medical devices than do infections and malnutrition, offering device manufacturers more opportunities to market their products.
|Rank||Cause||Number of Outpatients||Rate per 1000 Population|
|1||Diseases of the respiratory system||11,684,922||203.7|
|2||Diseases of the digestive system||6,597,400||115.0|
|3||Accidents, poisoning, and violence||3,700,794||64.5|
|4||Infectious and parasitic diseases||3,694,356||64.4|
|5||Diseases of the musculoskeletal system and connective
|6||Diseases of the skin and
|7||Diseases of the nervous
system and sense organs
|8||Diseases of the circulatory
|9||Endocrine, nutritional, and
|10||Diseases of the
Table I. The top 10 causes of illness in Thailand and the
occurence based on data from 1992.
Heart disease is one of the nation's leading health problems. According to the Singapore Straits Times, over 35,000 Thais died of heart disease in 1994. Cigarette smoking, lack of exercise, and poor diets all contribute to this high rate of heart disease. Complicating the problem is the lack of experienced surgeons to treat these patients.
Another serious health problem in Thailand is the AIDS epidemic. In 1995, there were over 800,000 reported HIV cases, representing one of the highest levels of infection in Asia. This number is expected to grow to 3 million to 4 million Thai HIV carriers by the end of the decade. Such infections, it is estimated, will cost around $9 billion by the year 2000.3 Although the Thai government has had a well-developed program for fighting AIDS in the past, recent leaders seem to be less concerned with AIDS than previous ones were, so the problem might only get worse.
Several other factors are combining to make Thailand a potentially large market for U.S. medical device manufacturers. Even though Bangkok is near its saturation point for hospitals, the rural areas lack health care of the quality that can be found in the city. It is not surprising that hospitals are concentrated in the Bangkok metropolitan area, because per-capita income is often as much as 12 times that of the more destitute northeast region. Consequently, citizens in these rural areas are in need of better health care.
To deal with the large increase in people seeking medical attention, the Thai Board of Investment has exempted private hospitals from corporate income tax for up to five years, and has reduced import taxes on medical equipment by 50% in order to encourage investments in private hospitals. The number of such hospitals will continue to grow at about 1520% per year. Currently, there are 186, and over 30 more are scheduled for construction by the year 2000.
Another important incentive for U.S. manufacturers to market their devices in Thailand is the fact that Thailand lacks the manufacturing capabilities to produce expensive medical devices, such as electromedical and diagnostic imaging equipment. Domestic production consists mostly of latex-based products (e.g., condoms and latex gloves), hospital beds, and other low-technology products. Hence, nearly all high-technology medical equipment is imported. In 1992, the United States held 30% of the Thai medical device market; Japan, 32%; Germany, 13%; and France, 2%.
Finally, Thai doctors already welcome the idea of using U.S.-made medical devices. Many of them received their medical degrees in the United States and thus are already accustomed to U.S.-made devices, often preferring them to those manufactured in other countries. Nonetheless, competition from price-cutting foreign manufacturers is substantial. In addition, these firms often provide after-sales services more easily than can U.S. manufacturers.
MARKETING MEDICAL PRODUCTS IN THAILAND
Even though Thailand has tightened up import regulations in the last year or so, perhaps in an effort to protect its domestic market, import tariffs are still relatively favorable for foreign medical device suppliers. In January 1994, duty rates were reduced from a range of 1530% to a maximum of 5%. However, there is a valueadded tax of 7% on imports.
Foreign medical device suppliers can sell their products in the Thai market either to the government through a bidding process or to private hospitals. The Thai government regulates the purchase of medical devices by the prime minister of procurement. It presents a proposal to purchase a certain amount of a particular product, then awards the contract to the companies with the lowest bids. As expected, preference is give to domestic industries, which normally have a 3% margin over foreign bidders. Unfortunately, this centralized bidding process can lead to possibilities of corruption.
Selling to private hospitals may circumvent some of the corruption.4 However, foreign medical device manufacturers who want to sell directly to hospitals will need a local presence in Thailand to be successful. They can establish such a presence by contracting importers or distributors. A good distributor can also adjust product specifications and prices to win government contracts. Sales to individual hospitals are usually done case by case. Physicians and administrators often take part in making the purchasing decisions, so strong supplier-to-physician relationships are crucial.
NEW THAI MEDICAL DEVICE REGULATIONS
As Thailand's medical device market expands, its registration procedures for medical devices is changing. In 1995, the Thai FDA changed a number of its medical device regulations that affect the way foreign firms register products to be imported to Thailand.
In order to better regulate medical device products sold in Thailand, the Thai FDA recently introduced a classification system. Before 1995, product registration was a relatively simple process: foreign manufacturers could legitimately self-certify that their products were freely sold in their home markets simply by filling out a certificate of products for export or a certificate of free sale. Recent changes, however, established three classes into which all medical devices are categorized. These devices are not, however, categorized according to risk as they are in the U.S. FDA classification system. The classes are as follows.
Class I. The first class is the most rigidly regulated by the Thai government to balance imports and domestic manufacturing. It includes syringes, condoms, surgical gloves, fever thermometers, sutures, contact lenses, magnetic vibrators, and x-ray machines. These products need to go through a complete registration process in order to be sold in Thailand.
In addition, hypodermic and insulin syringe products have recently been subject to further regulation. The new standards have been written by the Thai Industrial Standards Institute in accordance with ISO 9000 standards. Depending on the type of product, group testing may or may not be required. Product retention samples also must be on hand at the importer's warehouse to provide a local sample if there are any problems with the product. The syringe products must be accompanied by product specifications and go through a Thai labeling process. The label must be written in Thai and the Thai characters must be as large as the English. Furthermore, the expiration date must be written in accordance with the Buddhist Era calendar (e.g., 1996 is translated as 2539 according to this calendar system).
Class II. This category includes those products that need only product specifications in order to be registered with the Thai government. An HIV reagent kit is an example of one product that falls in this category. Product specifications include technical drawings, details of the raw materials used, a data sheet on raw material safety, and a manufacturing process summary.5
Class III. The items in the third class need only to be accompanied by a certificate of free sale or certificate of products for export. These certificates are valid for five years. The process for obtaining either one of these documents is becoming increasingly difficult.
A certificate of products for export is issued by the U.S. FDA and may be accompanied by the foreign country certification statement (also issued by the U.S. FDA). These documents must be forwarded to the Office of Commercial Affairs at the Royal Thai Embassy to be notarized for a nominal fee. For products not regulated by the U.S. FDA, a certificate of free sale can be obtained from the state's chamber of commerce, notarized, stamped, and then authenticated by the Office of Authentication in the U.S. State Department. It is then forwarded to the Office of Commercial Affairs at the Royal Thai Embassy. It is becoming increasingly difficult for companies to prepare certificates of free sale.6
RECENT SUCCESS STORIES IN THAILAND
Many companies have been able to benefit from the growth of Thailand's medical industry. BioWhittaker, Inc. (Walkersville, MD), a manufacturer of diagnostic and endotoxin kits and cell culture products, recently decided to enter the Asian biotech market. The company is planning to distribute and market its products, and is considering future joint ventures for manufacturing. It is planning to participate in the U.S.-Thailand Commercialization of Science and Technology Program (UST/COST) to begin business in Thailand.
Israeli companies are also trying to take part in Thailand's growth. In 1995, medical imports from Israel were expected to increase sevenfold from the 1994 level, which was valued at $4.54 million. One reason for this exceptional growth is the boom in private hospital construction in Thailand.
Thai companies, too, are profiting from the growing medical market. Bangkok Ria (Bangkok), a producer of HIV/AIDS diagnostic kits, has grown tremendously after just one year of production. The company was formed when the U.S. Agency for International Development (USAID) granted $50,000 to help transfer HIV dipstick technology from the United States. In 1993, its first year of production, the firm earned 7 million baht, or about $280,000, and in 1994 it increased its earnings to 36 million baht, or about $1.44 million, selling nearly 1 million test kits. The company has even started exporting product to countries as far away as Mexico and Cameroon.
Despite increased regulation, Thailand's medical device market still presents tremendous opportunity for foreign medical device companies looking to export their products. The government's continuing commitment to improving the Thai health-care system, as well as the country's rising standard of living, longer life spans, new disease patterns, and affluence, demonstrate a demand for better health-care products and services. U.S. medical device manufacturers should try to meet that demand.
1. Maire K, ThailandHospital/Health Care Industry IMI 960612, Market Research Reports, Washington, DC, National Trade Data Bank, U.S. Dept. of Commerce, June 29, 1996.
2. Thailand Social Security Act in Summary, Washington, DC, Health Industry Manufacturers Association (HIMA), November 27, 1995.
3. Ruderman PS, "Doing Business in Southeast Asia: An Overview of Markets in Thailand, Vietnam, and Indochina," presented to HIMA at Doing Business in Japan and Asia, Washington, DC, December 1995.
4. "AIDSCounting the Cost," Economist, September 23, 1995, p 26.
5. Update on Thailand's New Regulation of Medical Device Products, Washington, DC, HIMA. April 1995.
6. "How to Obtain a Certificate of Free Sale/Products for Export," Bangkok, Office of Commercial Affairs, Royal Thai Embassy.