Japan’s medical device market is one of the largest and most attractive in the world, offering immense opportunities for foreign companies. However, navigating this market comes with significant challenges that demand strategic planning and a deep understanding of the regulatory environment. This article explores the size and complexity of Japan’s medical device market, the various registration pathways available to foreign manufacturers, and the benefits and drawbacks of using a Marketing Authorization Holder (MAH) or a Designated Marketing Authorization Holder (DMAH).
The Japanese Medical Device Market: A Competitive and Complex Landscape
Japan’s medical device market is a key player in the global industry. Factors such as an aging population and a high prevalence of chronic diseases like diabetes and cardiovascular conditions are driving demand for innovative medical technologies. The Japanese government has also been investing in healthcare infrastructure and promoting the adoption of cutting-edge medical devices to meet the needs of its citizens.
Despite its potential, the Japanese market is notoriously complex and competitive. Foreign companies entering this market often face stringent regulatory hurdles, cultural differences in business practices, and stiff competition from well-established domestic players. The Pharmaceuticals and Medical Devices Agency (PMDA) enforces strict standards to ensure the safety and efficacy of medical devices. These regulatory requirements, while ensuring high-quality healthcare products, can be difficult to navigate for companies unfamiliar with Japanese regulations. Moreover, Japanese consumers and healthcare providers have high expectations for quality and reliability, raising the bar for market entry.
The competitive landscape is dominated by both large foreign multinational companies (as well as mid-sized to small foreign device companies) and domestic manufacturers, all vying for a share of the market. To succeed, foreign companies must not only meet regulatory requirements but also tailor their products and marketing strategies to resonate with Japanese stakeholders. This involves understanding local preferences, forging strong relationships with distributors and healthcare providers, and maintaining a long-term commitment to the market.
Options for Foreign Companies Entering Japan
To enter the Japanese medical device market, foreign manufacturers must register their products and comply with local regulations. There are three primary pathways for doing this: establishing a local subsidiary, partnering with a local distributor, or appointing an independent third-party MAH or DMAH. Each option has its own advantages and challenges, and the choice largely depends on the company’s goals, resources, and desired level of control over its operations in Japan.
Establishing a Local Subsidiary
One option for foreign companies is to set up a wholly-owned subsidiary in Japan to act as their own Marketing Authorization Holder (MAH). By doing so, the company can directly manage its product registrations, marketing strategies, and operations.
This approach offers several advantages. First, it gives the foreign manufacturer full control over its business in Japan, allowing it to directly oversee sales, marketing, and regulatory compliance. This level of control can be particularly valuable for companies with a very large market opportunity and long-term plans to expand their presence in Japan. Additionally, owning the product registrations under the company’s name simplifies the process of switching distributors if needed, ensuring continuity and stability.
However, establishing a local subsidiary comes with significant drawbacks. The initial setup costs can be prohibitively high, as they include office space, staffing, and compliance with local laws and tax regulations. Furthermore, the process of establishing and operationalizing a subsidiary is time-consuming and requires a thorough understanding of Japanese business practices and regulatory requirements. For many small to medium-sized device companies with unique products, this option may not be financially or logistically feasible.
Partnering with a Local Distributor
Another common approach is to work with a local distributor who will be responsible for registering and marketing the manufacturer’s products in Japan. In this case, the Japanese distributor will be the local MAH or DMAH. This is often the most straightforward and cost-effective option, especially for companies new to the Japanese market.
By partnering with a distributor, foreign manufacturers can leverage the distributor’s existing market presence, networks, and expertise. This can be particularly beneficial for companies that lack the resources or experience to navigate the Japanese regulatory landscape on their own. Additionally, distributors typically cover the costs of product registration, reducing the financial burden on the manufacturer.
Despite these advantages, partnering with a distributor has its limitations. One major drawback is the lack of control over marketing and sales strategies. Since the distributor holds the product registrations, the manufacturer may find it difficult to influence how its products are marketed and sold in Japan. Moreover, if the distributor underperforms, or if there is a need to switch distributors, transferring the product registrations can be a complicated and time-consuming process. Oftentimes, tranferring registrations requires a large buy-out.
Appointing an Independent Third-Party DMAH
A third option for foreign manufacturers is to appoint an independent third-party DMAH. The DMAH is a local entity that acts on behalf of the manufacturer, handling product registrations, regulatory compliance, and post-market surveillance. Unlike a distributor, the DMAH does not sell or market the products; its role is strictly limited to regulatory responsibilities.
Appointing a DMAH offers several key benefits. Perhaps the most significant is that it allows the manufacturer to retain ownership of the product registrations, even without establishing a local office in Japan. This provides greater flexibility, as the manufacturer can switch distributors or adjust its market strategy without affecting product registrations. Additionally, the DMAH ensures that the manufacturer complies with all Japanese regulations, providing peace of mind and minimizing the risk of non-compliance.
However, there are costs associated with using a DMAH. These include device registration fees, monthly DMAH service fees, and normally warehouse fees. While these costs are typically lower than those of establishing a local subsidiary, they can still add up, particularly for smaller device companies. It is also essential to choose a reliable and experienced DMAH to ensure that all regulatory requirements are handled effectively.
How the DMAH System Works
Japan’s Designated Marketing Authorization Holder (DMAH) system is a critical component for foreign medical device manufacturers aiming to enter the Japanese market without establishing a local subsidiary. As Japan enforces strict regulations requiring all imported medical devices to be registered and marketed through a local entity with an MAH or DMAH license, the DMAH system provides an efficient alternative for companies seeking greater control over their operations while avoiding the high costs of setting up their own subsidiary.
The DMAH acts as a local representative, handling all regulatory responsibilities on behalf of the foreign manufacturer. This includes registering products, ensuring compliance with Japanese regulations, and managing post-market surveillance. Importantly, the DMAH registers products in the name of the foreign manufacturer, which offers significant advantages in terms of flexibility and control.
The Role of a Third-Party DMAH
For foreign companies, appointing an independent third-party DMAH offers a balanced approach between cost-effectiveness and operational control. Unlike distributors, who often register products in their own name, a third-party DMAH ensures that the foreign manufacturer retains ownership of its product registrations. This is particularly advantageous when switching distributors or transferring licenses due to mergers or acquisitions, as the registrations remain with the manufacturer.
The operational framework of the DMAH system involves structured flows of documents, products, and payments. Each flow ensures compliance with Japan’s stringent regulations while facilitating smooth interactions between the foreign manufacturer, the DMAH, and the Japanese distributor.
Document Flow
The document flow begins with the Japanese distributor sending a purchase order (PO) to the DMAH. The DMAH then forwards this PO to the foreign manufacturer. Once the foreign manufacturer receives the PO, they issue an invoice to the DMAH, which the DMAH subsequently forwards to the distributor. This structured flow ensures transparency and regulatory compliance at every step, as all transactions are formally documented.
Product Flow
The physical movement of products in the DMAH system involves several steps. The foreign manufacturer ships the products to a warehouse managed by the DMAH. Upon arrival, the DMAH conducts a quality check to ensure the products meet Japanese standards before releasing them to the Japanese distributor. This additional layer of quality assurance underscores the DMAH’s critical role in maintaining compliance and ensuring product reliability in the Japanese market.
The DMAH typically charges a warehouse fee for these services, which may also include domestic transportation costs. By managing these logistics, the DMAH provides a seamless bridge between the foreign manufacturer and the Japanese distributor.
Money Flow
The financial transactions in the DMAH system can follow one of two approaches. In the first approach, the Japanese distributor pays the DMAH, who then transfers the funds to the foreign manufacturer. This method allows the DMAH to manage all financial interactions and ensures that any associated fees, such as transportation costs, are accounted for.
In the second approach, the distributor makes a direct payment to the foreign manufacturer, bypassing the DMAH in the financial flow. While this option simplifies the payment process, it may require additional coordination between the distributor and the foreign manufacturer.
Conclusion
Entering the Japanese medical device market is a complex but rewarding endeavor. With its stringent regulations, cultural nuances, and competitive landscape, success in this market requires careful planning and strategic decision-making. Foreign manufacturers must choose the most suitable market entry pathway based on their goals, resources, and desired level of control.
Whether establishing a local subsidiary, partnering with a distributor, or appointing an independent DMAH, each option has its own set of advantages and challenges. For many companies, the DMAH system offers a balanced approach, combining regulatory compliance with flexibility and control. By understanding the intricacies of the Japanese market and leveraging the right resources and partnerships, foreign manufacturers can unlock the full potential of this lucrative market.
Written by: Ames Gross – President and Founder, Pacific Bridge Medical (PBM)
Mr. Gross founded PBM in 1988 and has helped hundreds of medical companies with regulatory and business development issues in Asia. He is recognized nationally and internationally as a leader in the Asian medical markets. Mr. Gross has a BA degree, Phi Beta Kappa, from the University of Pennsylvania and an MBA from Columbia University.