Contribution by Saket Tallapaka – Consultant at Bristlecone
As the world population continues to increase, there is a related trend in the aging population. According to the World Population Report (2013), the aging population (60 years and older) is projected to double in the next 40 years. More interestingly, in the year 2050, 8 out of 10 persons in the aging population are anticipated to be living in less developed nations.
What does this have to do with emerging markets and the medical devices industry?
The medical devices industry has exhausted its market territory in North America and Europe. Thus it is looking to expand into emerging markets which have shown promise due to increased demand for the healthcare industry, by the aging population.
The Emerging Market Front Runners – China and India
The landscape of the Chinese market, in terms of healthcare, is controlled by the government. However the recent healthcare reforms of 2009-2011, budgeted $10 billion of the $173 billion for medical institutions to purchase medical devices. Although this allocation looks advantageous for companies, the Chinese government wishes to implement a policy that restricts foreign manufactures from infiltrating the local market. The National Health and Planning Commission wants the Class III hospitals to purchase medical devices made locally. This will have a trickledown effect on smaller hospitals, who will be forced to purchase domestic products as the larger hospitals have the representation power to influence purchasing decisions. The bias toward local medical devices manufactured by hospitals has international implications. It is possible that China’s responsibility to the World Trade Organization might be under question. Since the current guidelines allow China to discriminate against outside investors, it will create more conflict for the medical devices industry to venture into the market. In China’s perspective, it is a brilliant business move to force foreign companies to establish themselves locally so that they can qualify their product as domestic.
India’s medical device industry is quite different from that of China, as imports drive almost 75% of the local market. The local market covers basic medical supplies whereas foreign goods are the high-value devices that are deemed to be greater quality. According to a study conducted by the Associated Chambers of Commerce and Industry of India, the tax for imported raw material is higher than finished products, whereas local cost of raw material is higher. This paradoxical situation unintentionally impacts the local medical device manufacturers, who are unable to tap the opportunities in their own market due to high manufacturing costs.
The dichotomy of the two front runners will add a new layer of complexity for the expansion of foreign medical device companies in these emerging markets. Especially since the companies are seeing their profit margins stagnate in the developed markets; the increasing demand created by the aging population will force them to think differently in terms of their current business model and sales/distribution strategy.
Furniss, J. (2012). Medical devices: the future is emerging
markets. pharmaphorum. Retrieved 16 September 2014, from http://www.pharmaphorum.com/articles/medical-devices-the-future-is-emerging-markets
Mishra, P. (2014). Growth of Indian medical devices’ industry marred by import-export anomaly: Assocham – The Times of India. The Times of India. Retrieved 18 September 2014, from http://timesofindia.indiatimes.com/city/ahmedabad/Growth-of-Indian-medical-devices-industry-marred-by-import-export-anomaly-Assocham/articleshow/36725630.cms
Shobert, B. (2014). A New Wrinkle For China’s Medical Device Market. Forbes. Retrieved 17 September 2014, from http://www.forbes.com/sites/benjaminshobert/2014/08/21/a-new-wrinkle-for-chinas-medical-device-market/
United Nations, Department of Economic and Social Affairs, Population Division (2013).
World Population Ageing 2013. ST/ESA/SER.A/348.