By Ames Gross, President and Founder of Pacific Bridge Medical
This article was also published on MedTech Intelligence.
From consumer electronics to children’s toys, it is no secret that Western manufacturers have taken advantage of sourcing and manufacturing opportunities in Asia. With the recent increasing demand for medtech products across the Asian region, and a strong interest in lowering Western medtech product costs, growing opportunities to make and source medtech products and components in Asia shouldn’t come as a surprise either. The following are the top four reasons why many companies have moved to Asia to source and manufacture.
1. Cheap labor and manufacturing costs
Generally, a key reason to source and manufacture medtech products in Asia is due to cheap labor costs. Asian laborers in general are not only cheap, but they are also oftentimes highly skilled. In addition, overhead costs such as rent, utilities and raw materials are often much less in Asia than in the United States or Europe. While China has traditionally been well known for cheap manufacturing costs, countries such as Vietnam and India have also recently become competitive medtech manufacturing and sourcing locations for commodity devices. While Chinese manufacturing costs have increased in the past couple of years, they are still oftentimes significantly cheaper compared to Western medtech manufacturing.
2. Increasing quality standards
An issue commonly associated with cheap labor and manufacturing is poor product quality. However, in recent years, Asian manufacturers have become increasingly more compliant with international standards such as ISO or good manufacturing practice (GMP), as well as FDA and European quality standards. Local Asian manufacturers have also been improving infrastructure in order to keep up with advances in medical technology. Nowadays, quality standards and production capabilities in Asia are oftentimes able to meet Western expectations.
3. Ability to produce in high volumes
Manufacturing plants in Asia are often large-scale operations, meaning there are additional cost savings as well as increased operational efficiency. This allows you to efficiently produce high volumes of your medical device or component. Several multinational companies, including GE, Siemens and Johnson & Johnson have taken advantage of this opportunity by establishing their own device manufacturing bases in key countries such as China or Malaysia.
4. Increased medical device demand in Asia
As the per capita income increases in the Asia Pacific region, the growing middle class throughout the region is demanding more and better healthcare. Various governing bodies have already been implementing plans to increase and improve healthcare practices. Many Asian governments are also increasing reimbursement structures for medical devices. On top of that, several Asian countries are experiencing an increase in elderly populations, furthering the need for quality healthcare. By sourcing and manufacturing at an Asian location, device companies will be physically closer to the Asian market and the Asian customer base, allowing them to tailor products for Asian consumers.
PBM recently had a client that was a U.S. medtech company manufacturing biopsy forceps in a Mexico plant for $10/unit. They wanted to reduce the costs by moving to China for $5/unit. The client wanted to determine if there truly was a cost differential by moving production overseas. We investigated the most qualified factories in China. Once we determined the specific Chinese factory we wanted to work with, we set up technology transfer deals and supplier agreements. We then helped the chosen manufacturing site to be compliant with CFDA, ISO and other regulatory requirements. Product samples were carefully and thoroughly examined to determine adjustments that had to be made in the manufacturing processes. Finally, PBM conducted a mock audit to ensure that FDA standards would be met.
Although the technology transfer and local production took two years to finalize, the move to the Chinese facilities (from Mexico) did indeed pay off for our client. Taking advantage of lower costs, the Chinese factory produces 500,000 units per year at $5/unit (instead of $10/unit), providing a total savings of $2.5 million. Our client also took advantage of the factory’s ability to produce other medtech devices where they were looking to reduce costs. They are now manufacturing seven other devices in China, saving a total of $8 million per year.
Of course, in order to successfully source or manufacture in Asia, you must conduct extensive due diligence. Even after you’ve determined the proper Asian country and companies to source or manufacture from, you must continue to be very diligent with your suppliers. Continuous monitoring, checking the quality standards, and follow-up audits will be key to your success. Despite the work involved and the time needed to set up, the pay offs will oftentimes be worth it!