Picture by Zakreski, Judy. China Business Review, January 1, 2010

Benefits of Entering the Chinese Medical Device Market

China’s Medical Device Market shows tremendous business opportunities for foreign medical device companies, as the rapid growth of China’s healthcare sector is forecasted to reach $11.4 billion by 2015 (UBM Canon research). Overall healthcare spendings (including medical devices) are expected to rise to 7% of GDP (McKinsey & Co) with the objective to reach universal healthcare for all Chinese citizens by 2020. Although there are many benefits to entering the Chinese medical device market, it is also a challenging market to enter for foreign MNC’s that are unaware of China’s regulatory system and market structures. 

Coastal Areas China

Market Overview

In 2009, China’s medical equipment (with emphasis on implantable devices) remained to be the largest value contributor and was the fourth largest market in the global medical device industry after the US, Japan and Germany, respectively (L.E.K). In 2010, China became the third largest player by surpassing Germany with a total market size of $41 billion USD. By 2015, China will have about 300 million senior citizens requiring medical services. Thus, demand for access to quality healthcare and state-of-the-art technology will grow accordingly.

However, there are currently only few nursing homes and the overall elderly care industry is still underdeveloped.  This offers tremendous opportunities to foreign MNC’s that have the experience and know-how and are willing to tackle one of the biggest markets in the world.

Market Structure

70% of the  Chinese medical device market can be divided into four categories: (1) diagnostic imaging devices, (2) medical supplies, (3) orthopedics, and (4) implanted medical devices and dental. The remaining 27% consist of other medical devices. All categories can again be divided into high, mid and low-end products.

Medical device companies in China

Medical device companies in China

Foreign Players

While local Chinese firms are doing well in the lower segments of the medical device market where they can compete on price, foreign firms still have the advantage of better technologies as well as the Chinese customer’s preference for foreign brands.

The United States remains the leader in the global medical device industry, which is mainly due to their successful development of growing markets such as China and India (GSK).

In 2010, 70% of medical devices in China were imported from abroad, primarily from the US, Japan and Germany.

However, in 2013 the percentage of imported devices dropped to 25% and Chinese products currently make-up 75% of the medical device market. Chinese medical device companies are quickly catching up in terms of innovation, however, foreign medical device products still maintain a strong technological advantage.

Another challenge for foreign medical device companies lays in their product pricing. Chinese competitors are able to produce at often lower prices. For example, Midray (China’s largest medical device company) is around 45% cheaper on average than Phillips in China. Since Chinese medical device companies are also catching up on technology, foreign companies need to be able to offer low-cost versions of their products and should consider producing locally in China in order to stay competitive. Foreign medical device companies can stay ahead of their competition by offering higher quality products with fewer defects. Finding (Western) trained staff, the right manufacturing partner and/or right JV partners might aid in offering better quality products. However, one has to consider that labour costs in China have been increasing steadily. 

The Chinese demand for quality healthcare services, and with that the need for reliable medical devices, is growing rapidly. However, many investigations by the Chinese government on pharmaceutical firms discouraged foreign medical device firms from investing in the market (E.g. Chinese authorities accused British pharmaceutical firm GlaxoSmithKline of bribery).

Regulations

China’s State Food and Drug Administration (SFDA) regulates the medical device industry and all imported devices must be registered by the agency. The registration is based on two main regulations, both describing the legal requirements: (1) the regulations for the supervision and administration of medical devices, and (2) the measures for the administration of medical device registration. Some medical devices (8 types) even need to obtain a Compulsory Certification (CCC) before they are allowed to enter China. The central SFDA directly manages all the Class III (medical devices that need strict safety surveillance) and imported medical devices. (EU SME) Additionally, the Ministry of Health is responsible for public health policies, laws and regulations. The approval process is not transparent, which leads to uncertainty and can take as long as two years. However, in some cases it is possible to accelerate the process.

Opportunities and Challenges

China offers many opportunities to MNC’s aspiring to target the medical devices market; an ageing population, new life-style diseases, the rising purchasing power of the middle class, China’s ambitious goals to develop its medical market and the superior technologies of MNCs. The regulatory system is challenging to navigate through, but with the help of an experienced partner the process can be speeded up considerably. However, to compete with local firms, MNC’s will have to consider producing part of their products in China and focus on offering high quality products and premium customer service to stay ahead of the local competition.

Opportunities

Underserved Chinese Middle Class – While mostly the higher-end of the medical market is interesting for foreign firms to target, opportunities are also rising in the lower end segments because of the overall rise in income of the middle class.

High Import Rates – Still a high percentage of China’s high-end medical devices are imported (Hua Yutao). However, the costs associated with importing devices not only drive up prices but also cut down profit margins. Localizing (part of the) production can decrease production costs and increase profit margins.

Life-Style Diseases – As a country develops, new problems arise. For instance, the cardiac surgery device market is likely to grow with 13% by 2018 as the result of an overall higher quality of life in China.

Growth Potential – In the coming years medical imaging, patient monitoring, in-vitro diagnostic (IVD) technology, and high value consumables are the sectors with the greatest growth potential. For instance, there are 7100 hospitals in China, but only 800 of them possess MRI equipment (Time Medical Systems) Hence, opportunities for foreign companies arise as China is upgrading its medical infrastructure.

China’s IVD Market – China’s In-Vitro Diagnostics (IVD) is valued at more than $4.5 billion and doubles every three years. In the next 10 to 15 years the Chinese market is predicted to become the world’s largest IVD market.

Challenges

China’s Regulatory System – The medical device approval process lacks transparency and is covered in ‘red tape’. Working together with a partner to guide you through this lengthy process is therefore highly suggested.

A Copycat Business Culture – IP protection in China remains an issue. However, the medical device industry is less at risk of IP complications than other industries.

Local Competition – local companies are fierce competitors in the low-end segment of the market. They are often able to produce at lower prices than MNC’s and foreign firms will therefore have to compete in other areas e.g. customer service and after-sales.