In a globalized world, many international medical device companies choose to source or manufacture their devices in Asia. Relatively low labor costs, low overhead costs and improving technical capabilities are all reasons for making the move. Labor costs have risen significantly in China. However, they are still very low in Vietnam, India and Indonesia. And overhead for rent, utilities, medical device components, raw materials and equipment is often much cheaper.
While Asia has been known for manufacturing low-end medical device products like drainage bags, surgical tape and rubber gloves, this has slowly changed. There are now many device manufacturers in Asia who are capable of producing sophisticated Class III medical devices like drug-eluting stents.
Another cost advantage to sourcing in Asia is the proliferation of special economic and free trade zones. These areas — often located at ports or in border cities — are created specifically to attract foreign investment. For example, Shanghai’s Waigaoqiao Free Trade Zone offers tax breaks and incentives like lowered tariffs and duties to foreign companies wishing to do business there.
While there are many benefits to Asian sourcing, different cultures, different languages and different business practices can make relationships between Asian and Western companies challenging. Looser protection of IP laws and less stringent adherence to contract terms are also concerns. Picking the right country and the right partner is often the key to success when outsourcing to Asia.
China is home to nearly 3,000 medical device manufacturers, and the industry is quickly improving in quality and moving up the technical ladder. Good Manufacturing Practices (GMP) are now standard for implantable and sterile medical devices. There are also development zones designated for medical and healthcare research and production. These zones focus on research and product innovation in the life sciences, including medical equipment and pharmaceuticals.
China is generally thought of as the leading location in Asia for sourcing low- and middle-end medical device products. However, as China’s capabilities have improved and developed, the cost of doing business in China has also increased dramatically. As a result, some foreign medical device companies already operating in China are now transferring operations to Vietnam or India.
In the past, India was considered a poor second choice to China for medical device manufacturing, due to inadequate infrastructure and cumbersome government oversight. But since the mid-1990s, significant advances have taken place. India has lower costs of labor than China. Its technical capabilities are improving, and its large population of English-speaking workers makes collaboration with Western companies easier.
India has more than 170 Special Economic Zones (SEZ), which offer many exemptions for customs duties and taxes. For example, the SEZ at Sri City frees manufacturers from paying central sales tax and service taxes, and offers a 15-year graded income tax holiday to companies within the zone.
Vietnam is quickly becoming a viable and low-cost alternative to China as a sourcing and manufacturing location. While labor costs in China’s factories are quite low, those in countries like Vietnam are even lower. Most domestic Vietnamese medical device makers focus on low-end products, such as medical disposables, hospital garments and hospital furniture. There are only a few foreign owned or joint venture firms making higher-end devices such as imaging equipment. Japan’s Omron Medical has recently set up a factory in Vietnam to make blood pressure devices.
Malaysia has a large population, inexpensive land and low wages, making large-scale manufacturing more feasible than in rich countries like Singapore. B. Braun Medical, for example, has several large manufacturing centers in Malaysia.
The Malaysian Industrial Development Authority (MIDA) has identified medical devices as a priority sector for further promotion and development. Malaysia’s medical industry is currently concentrated in rubber based products, as the country is among the world’s leading producers of medical gloves and catheters. More sophisticated medical devices will be made in Malaysia soon.
Singapore’s biomedical industry is one of the country’s fastest growing segments. With a population of just 5 million people, more than 10,000 are employed in the manufacture of drugs and medical devices. The country has a talented pool of scientists, researcher and engineers. Many large medical device companies have chosen to manufacture their products in Singapore, including Applied Biosystems, Baxter, Becton Dickinson, CIBA Vision, Fisher Scientific, Medtronic and Siemens Medical Instruments. In addition, Singapore provides strong protection for IP rights, which is not typical in many Asian countries.
SOURCING AND MANUFACTURING
The sourcing and manufacturing process consists of the following important steps:
- Identifying manufacturers: the first step is identifying appropriate suppliers or manufacturers for your medical devices.
- Differentiating trading companies from manufacturers: manufacturers perform the actual design and production of the goods, while trading companies purchase the goods from the manufacturers and sell them to foreign buyers.
- Initial investigation: initiate contact with the manufacturers or trading companies to make some basic inquiries in order to determine which companies are viable choices for sourcing or manufacturing your device. Get medical device samples and pricing.
- Qualifying the manufacturer: after initial investigation of potential manufacturers, narrow the field down to a handful or so of serious candidates. It is important to qualify every manufacturer that you may have any dealings with prior to entering into a business agreement or contract.
- Factory visits: when you have several Asian suppliers or manufacturers that are solid candidates four sourcing your devices, it is necessary to visit the factories.
- Building relationships: build trust with your Asian partners. Do not just focus on excessive legalese.
COMPANIES THAT HAVE OUTSOURCED TO ASIA
Included below are some companies that have recently begun or expanded their sourcing or manufacturing operations in Asia.
- Synergy Health (Swindon, England): The medical device sterilization firm recently announced the acquisition of the Malaysian company Sterilgamma in July 2011. This purchase will help Synergy Health increase its medical device sterilization capacity in Malaysia.
- Thermo Fisher Scientific (Waltham, MA): The company plans to set up a new medical device factory in Suzhou, Jiangsu province in China in 2011. The factory will develop medical device products for the local market. The Suzhou factory was scheduled for completion in early 2012.
- Stryker Corp. (Kalamazoo, MI): The orthopedic implant company acquired Mutoh Co., Ltd., a Japanese company. Stryker acquired assets used to produce parts of the Sonopet Ultrasonic Aspirator, and the rights to market and sell the products. The transaction was completed December 2010.
- Sanmina SCI (Ma’alot, Israel): This company invested $10 million in building a new factory in the city of Suzhou, Jiangsu province in China in May 2010. The plant will develop and manufacture high-tech medical device systems for leading global companies such as General Electric, HP, Philips Medical Kodak and Applied Materials. The company hopes that the new Chinese plant will help it reach sales of $200 million in the next five years.
- Medtronic (Minneapolis, MN): The company has established a new manufacturing facility in Singapore in 2009, anticipating significant growth in the Asia medical device market, particularly for cardiac devices. The company aims to begin producing Cardiac Rhythm Disease Management (CRDM) devices in 2011, and to hire more than 100 staff over the next two years.
Many medical device companies are sourcing or manufacturing their products in Asia now. This trend will continue to grow in the future. Picking the right Asian location and partner is key to your success.