Opportunities in the South Korean Medical Market

The Republic of South Korea’s close proximity to Japan, China and Russia has made it a natural center for economic exchange. Consequently, international trade has become a vital part of South Korea’s character. Today, it is the eleventh largest trading nation in the world — in 1992, it exported good worth $76,600 million and imported $81,800 million. Economic growth in the last three decades has been led by exports, but the government is now working to liberalize the country’s import markets.

The country’s medical market is expanding quickly, in tandem with its overall economic growth. The number of hospitals has increased 7% annually since 1989, reaching 603 in 1992. In addition, the number of clinics has increased 15% to over 12,000.

The growth of South Korea’s medical market can be directly attributed to government efforts to make healthcare a priority sector. In 1989, a new health insurance program was implemented to provide medical coverage for all South Korean citizens and medical welfare benefits were extended to more individuals. In addition, the government encouraged construction and extension of pubic and private hospitals in 39 major cities and created or expanded health centers in small towns and rural areas in response to increased demand.

The recent demand for additional health facilities is related to the Ministry of Health and Social Affairs’ (MPSHA) new two-tier referral system, under which patients must first seek treatment at primary level clinics. If their illness is deemed sufficiently serious, they are then referred to larger general hospitals for treatment. To help fund expansion and construction of health centers, the South Korean government has been awarded a $60 million World Bank loan and is considering requesting another loan before it loses its borrowing status in 1995.

… medical device market

The value of South Korea’s medical device market has increased about 20% annually during the last decade, and is forecast to continue to grow more than 10% per year over the next ten years. The market was estimated at about $580 million in 1993. South Korea manufactures some of its own medical devices and equipment domestically, although most local firms focus on the production of low-tech items such as X-ray equipment, dental appliances, operating lamps and tables etc. In order to increase the production of high-tech medical equipment, the country’s large industrial concerns (chaebol), research institutes and medical equipment manufacturers joined forces at the end of the 1980s. Most of these manufacturing efforts involve licensing agreements with foreign firms such as General Electric, Siemens and Hitachi, but the research institutes and medical equipment manufacturers have also jointly developed local technologies.

… bureaucratic maze

Although South Korea has worked to develop domestic production, its locally-produced medical equipment, particularly high-technology apparatus, is still insufficient to meet the country’s needs. Consequently, favorable opportunities exist for foreign manufacturers in the country’s growing market. A foreign supplier’s success, however, will depend on its ability to navigate the country’s maze of bureaucratic import procedures and trade barriers.

Foreign firms wishing to export to South Korea must use the distribution channels appropriate to the type of hospital making the purchase. Certain designated hospitals — including general or university hospitals — employ around 50-60 distributors and commission agents for their equipment purchases. These distributors and agents specialize in medical equipment and are registered with the Association of Foreign Agents of Korea (AFTAK). Most public hospitals, on the other hand, purchase equipment through the Office of Supply of the Republic of Korea (PSRPK), which issues public tenders worldwide. Finally, smaller private hospitals and clinics purchase medical equipment through local distributors or agents. In all these situations, doctors play an important role in selecting the equipment to be purchased.

Despite South Korea’s need for more advanced medical equipment, the government still controls some purchases through a system established in 1991 to restrain investment in expensive medical equipment. Hospitals wishing to install such equipment must obtain prior approval from the MOHSA High Cost Medical Equipment Council. Adoption of the policy led to substantially lower purchases of certain items in 1991, but approval qualification standards were lowered the following year.

The hospital procurement process is complicated enough even without MOHSA restrictions. Imports are subject to MOHSA registration and reporting requirements, and a number of supplemental technical documents are often requested. Foreign medical equipment is also subject to inspection by MOHSA’s Korean Academy of Industrial Technology Testing and Inspection Centre (KAITECH).

Currently, all imports — including medical equipment — require an import license. Most medical equipment imports are automatically approved, although a few items are still subject to restrictions. South Korea’s import tariffs for medical equipment have been lowered in recent years to comply with GATT requirements. In 1993, the duty for most medical equipment imports stood at 8-9% of cif value — this may be further reduced in 1994. US and European firms may stand to benefit from South Korea’s recent program to diversify its import sources, which in particular seeks to limit imports of certain types of medical equipment from Japan.

… who sells there?

The US and Japan are the top two suppliers of medical equipment to South Korea, controlling almost 50% of the import market, while Germany ranks third with about a 1% market share. The US is South Korea’s major supplier of high-tech electromedical equipment, while Japan is strong in consumer-type goods. Imports of US medical equipment are expected to see a healthy 30% annual increase. However, US exporters face increasing competition from European and Japanese suppliers in certain categories, including cardiology and respiratory equipment. South Korean purchasers prefer US equipment for dependability and durability, but Japanese suppliers and praised for their better after-sales service, parts availability, and personnel training facilities.

… best prospects

Diagnostic imaging equipment is the most promising sub sector for medical equipment exports, since South Korea relies on imports for 80-90% of its needs in this area. Diagnostic equipment imports reached $45 million in 1992 and are expected to grow 10% annually. Use of this category of equipment has increased since 1992 when treatment was included in coverage under the national medical insurance system. In addition, imports of ultrasonic diagnostic equipment from Japan were banned in 1991 when the equipment was designated an import diversification item.

Surgical/therapeutic laser equipment is another promising export item, with demand growing rapidly as sophisticated laser medical equipment has come into use abroad. Imports of this equipment in 1992 were valued at $30 million.

Facts About South Korea (1992)

  • Population 44 million
  • GDP per capita $7,435
  • Hospital & clinics
    • General Hospitals 235
    • Other Hospitals 368
  • Clinic 12,137
  • Hospital Beds 107,120
  • Medical Personnel
    • Doctors 27,446
    • Nurses 33,652
  • Population per doctor 1,005
  • Population per bed 348
  • Life expectancy
    • 1987 64 years
    • 1993 70 years