In recent years, profit margins for medical device manufacturers have started to erode and are projected to continue their decline. One of the primary drivers of downward pressure on margins is the growth of the medical device manufacturing industry in emerging markets. While growing populations and higher average income for people in those markets suggests that there is plenty of demand for medical devices, lower cost regional competitors are nipping at the heels of their North American and European counterparts. They have distinct advantages over major medical device companies like Medtronic because they are intimately familiar with the unique needs of their populations, and their governments are passing legislation to favor domestic medical device companies.
India’s Growing Medical Device Industry
A recent report by Deloitte forecasts the growth of India’s medical device industry at 15 percent annually, which could mean that India’s medical device industry will be worth $8.6 billion by 2020. In order to make sure that medical devices sold in India are made in India, their government passed a law in 2015 removing the need for companies to seek government approval before making their investments. This law applies to manufacturers of all medical tools, surgical instruments, diagnostic devices and even implants. In addition, they established the National Medical Device Authority, allowing them to regulate the industry separately from the pharmaceutical industry, with the goal of optimizing domestic manufacturing, controlling prices and device quality. Moreover, in 2016, the government also raised import duties on medical devices from five percent to 7.5 percent in order to favor domestic manufacturers. All of these efforts increase the costs for foreign companies to sell into these growing markets. Furthermore, India has been investing in research organizations for developing new devices, increasing future competition in the Indian and global medical device markets. The expansion of this market and it’s involvement in the foreign market is starting to see medical device brands pay $94 million dollars just to get premarket approval outside of India.
China’s Efforts to Favor Domestic Medical Device Manufacturing
China has also actively taken measures to favor domestic medical device manufacturers. China’s current Five Year Plan (2016-2020) contains targets that will assist in the development of their domestic medical device industry. Until recently, foreign manufacturers have been able to sell their devices for much higher prices than their Chinese counterparts because of perceptions among Chinese consumers that foreign products are superior. This led the China National Health and Family Planning Commission to announce that they would favor local manufacturers as a means of lowering health care costs. China also stepped up their game with regard to developing more advanced devices thanks to math and engineering students returning to China after graduating from Western universities and being unable to secure H1-B visas to stay and work in the U.S. These graduates are quickly hired by local device companies that compete with Western counterparts. Chinese device companies have been so successful that they are even beginning to compete with Western companies for sales in other emerging markets such as Brazil, India and Russia.
Medical Device Manufacturing Competition is Growing
Competition with Western manufacturers isn’t limited to India and China, even countries in Latin America are gaining momentum in the industry. In 2015, Mexico exported the eighth largest amount of medical devices in the world. In fact, it was the only other emerging nation besides China among the Top 10 Medical Device Exporting Countries. The increasing competition from emerging economies in the industry is a simple demonstration of basic economics. When existing businesses are making profit, competitors will soon join the market. Learn more details about what’s happening in the MedTech industry by downloading this white paper.
Note: This article was updated on May 15, 2018.