Growing Opportunities in the Indian Medical Device Market

With a population expected to exceed 1 billion by the year 2000 and a gross national product (GNP) that surpassed $250 billion in 1994, India has begun to attract the attention of U.S. medical device manufacturers. The country’s GNP is projected to grow 4% per annum through the end of the century, but demand for medical devices should grow at a much faster rate — approximately 15% per year.

With extremely high import tariffs, unwieldy investment regulations, and a reputation for corrupt officials, the Indian market used to be very difficult to penetrate. Entering it started to become easier in 1991, when the Indian government began liberalizing its trade and investment regulations and lowering import tariffs in order to encourage foreign trade and investment. In response, direct foreign investment grew rapidly: imports and exports boomed. This flurry of economic activity was helped by the stability of India’s currency, the rupee, which is now fully convertible on trade and current accounts.

Government seeks to improve health care

As part of the World Health Organization’s “Health Care for All by 2000,” the Indian government is working to improve the quality and accessibility of medical care. While individual states retain control over many aspects of health care, the central government sets overall goals and informs the public of policy changes. One such goal is to make quality medical care available to all Indians, including those residing in rural areas, by the turn of the century. To achieve this, India aims to increase substantially the number of hospital beds, increase new hospital construction, and acquire advanced technologies, primarily from foreign companies.

Despite their social, economic, religious, and cultural differences, the vast majority of Indians — particularly in the growing middle class — consider improved health care to be a national priority. Such care requires foreign equipment and expertise.

Government expenditures reflect this consensus: over 6% of the national budget was allocated to health care in 1991, and this percentage has since increased steadily. The Eighth Economic Plan, covering 1992 to 1997, places a high priority on improving health care, setting out specific targets such as opening more health-care clinics and updating the facilities and equipment in the 25,000 rural primary-care clinics. Because domestic manufacturers do not have the resources or technology to meet the increased demand for more sophisticated medical equipment, a large percentage will have to be satisfied by imports.

Health-care structure

Understanding the structure of the Indian health-care system is a prerequisite to cracking this vast market. Until the 1980s, most hospitals in India were run by the government, charities, or religious organizations, such as the Catholic Church. Since 1983, however, private hospitals have established a strong foothold. Of the 7300 hospitals in India, 4000 are run by the government, 2000 by charities, and 1300 by the private sector.

Private hospitals typically offer higher quality service than their government — or charity — run counterparts by using more advanced technology. Since many middle and upper-class Indians now have health insurance, many of them can afford high technology treatments. This trend toward increased access to medical insurance will shape the future of the device market in India.

When marketing their products in India, foreign manufacturers need to focus on public and private hospitals in order to take full advantage of India’s market opportunities. While government hospitals still treat the majority of patients in India, most new growth is expected to occur in the private hospital sector. India currently contains approximately 9 hospital beds for every 10,000 people. By the end of the century, the government plans to increase this ratio to 10 beds for every 10,000 people, which will require almost 400,000 new beds. The government will rely on private hospitals to satisfy much of this growth in demand and is encouraging the private sector’s involvement in this area.

Medical device market

The medical device sector is one of the most promising markets in India. In 1993, total medical equipment sales approached $550 million, with almost $350 million of that total accounted for by imports. Domestic production consists primarily of low technology products: demand for high technology devices is met predominantly by imports. And India’s medical device market relies heavily on the government, which accounts for 78% of the country’s $1.25 billion in annual R&D spending.

At present, the three leading exporters of medical devices to India are the United States, Japan, and Germany. Although imports constitute over half of the total Indian market, the proliferation of new joint ventures will erode this share slightly. Joint venture agreements have already been signed by Wipro-GE, Hewlett-Packard, Toshniwal Borthers, Medi Systems, Ltd., and other firms. However, there is plenty of opportunity for U.S. device manufacturers to increase their market share over the next few years.

Even more alluring than the size of the market is its projected growth: 15% annually through the year 2000. Some of the best sales prospects in the Indian medical device market include cancer diagnostic, medical imaging, ultrasonic scanning, and plastic surgery equipment, as well as polymerase chain reaction technologies. According to the U.S. Commerce Department, the Indian market for ultrasonic scanning equipment topped $21 million in 1994, helped by demand from the new hospitals and clinics opening as part of the national health-care plan.

Another promising sector is the $12-million-plus market for cancer diagnostic equipment. Cancer is the sixth-leading cause of death in India, and awareness of the disease has increased greatly in recent years. Imports constitute 80% of the market for cancer diagnostic equipment.

Market entry strategies

Medical device suppliers seeking to enter India’s market typically arrange joint ventures or licensing agreements to manufacture their products within India, or employ local agents to distribute them. The Indian government encourages all of these options. For the supplier, the best alternative depends on the size of the market, its projected growth rate, the technology, and the extent of the manufacturer’s commitment to the Indian market. Foreign firms often participate in the Indian medical market by teaming up with a domestic partner, which manufactures or assembles and packages the device, and these arrangements are typically structured as licensing agreements or equity joint venture. Another option is to hire a domestic distributor or agent to market, sell, and service the product within India. An Indian partner can better monitor the market and competitors and is usually better equipped to navigate India’s regulatory system. The choice of an agent or joint venture partner will go a long way toward determining the outcome of the investment.

Prior to entry, foreign companies must understand the particularities of the medical device market in India. First, most medical devices do not require an import license. Second, import duties vary depending on whether the buyer is a government, charity, or private hospital. If devices are essential to their mission and not manufactured domestically, Indian hospitals and research laboratories pay no import duties on them. Many life-saving devices are also exempt from import duties if they are going to research institutions and government hospitals. Duties in general have fallen during the 1990s and the system has been greatly simplified, but import duties still vary according to country of origin, domestic production capability, and other factors. Specified medical equipment is assessed a 15% duty, while the remaining devices are assessed at a rate of 40%, down 45% from last year.

Government-run hospitals usually issue pen global tenders for capital equipment purchases, even if the product in question is produced domestically. Although private hospitals may also issue these tenders, over two-thirds are issued by the government. The process of responding to these tenders is often slow and frustrating, however, since many of India’s hospitals are very bureaucratic. By U.S. standards, the private hospitals are not much faster, but their purchase decision-making does tend to be less bureaucratic and more flexible than that of their government-run counterparts. Most foreign companies still use local agents to negotiate these types of sales in India.

The developing countries of the world will account for an increasing percentage of global economic growth in the next century, and U.S. device manufacturers must continue to pursue opportunities in these markets in order to remain competitive. With steady growth in both GNP and population and continued improvement in its standard of living, India represents one of the most promising of these markets, and will be a major consumer of medical equipment in the 21st century. The recent liberalization of trade and investment laws, coupled with a growing commitment to national health care, makes India one of the most promising emerging markets for medical device manufacturers.