China’s Medical Device Industry: How Can Companies Thrive in an Increasingly Competitive Market? Published by Deloitte China Life Sciences & Healthcare team. The report reveals how foreign medical device companies are responding to changes in the regulatory environment and fierce competition by implementing a “in China, for China” strategy when exploring and developing the Chinese market.
With an estimated market size of RMB 800 billion in 2020, China now accounts for nearly 20% of the global medical device market, more than doubling the 2015 figure of RMB 308 billion. Between 2015 and 2019, China’s foreign trade in medical devices is growing at an annual rate of nearly 10%, outpacing global growth. As a result, China is increasingly becoming a major market that foreign companies cannot afford to ignore. However, like all national markets, the Chinese medical device market has its own unique regulatory and competitive environment, and companies need to consider how to best position themselves in the market.
Core ideas/Key results
How foreign manufacturers can enter the Chinese market
If a foreign manufacturer decides to develop the Chinese market, it needs to establish a method of market entry. There are three broad ways to enter the Chinese market:
Relying exclusively on import channels: helps to enter the market more quickly and requires a relatively low capital investment, while also helping to protect against the risk of IP theft.
Direct investment to establish local operations: requires higher capital investment and takes longer, but in the long run, manufacturers can reduce production costs and develop localized after-sales service capabilities.
Partnering with an Original Equipment Manufacturer (OEM): With a local OEM partner, companies can fulfill local production requirements, thereby reducing the regulatory barriers they face in entering the market.
Against the backdrop of reforms in China’s medical device industry, the main considerations for foreign companies entering the Chinese market are shifting from traditional labor costs and infrastructure to tax incentives, financial subsidies, and industry compliance support provided by the local government.
How to Thrive in a Price-Competitive Market
The new crown epidemic has accelerated the speed of medical device approvals by government departments, driving rapid growth in the number of new manufacturers and creating competitive pressure on foreign companies in terms of pricing. At the same time, government reforms to reduce the cost of medical services have made hospitals more price sensitive. With margins being squeezed, medical device suppliers can continue to thrive by
Focusing on volume rather than margins. Even if individual product margins are low, China’s large market size can enable companies to still make significant overall profits
Tapping into a high-value, technical niche that prevents local suppliers from easily undercutting prices
Leverage the Internet of Medical Things (IoMT) to create added value and consider partnering with local companies to realize rapid value growth
Multinational medical device companies need to revisit their current business models and supply chain structures in China to minimize price and cost pressures in the short term and capture future market growth in China
China’s medical device market is full of opportunities, large and growing. However, medical device manufacturers must think carefully about their market positioning and how they can access government support. To capitalize on the huge opportunities in China, many foreign companies in China are shifting to a “in China, for China” strategy and responding more quickly to customer needs. While the industry is now facing short-term changes in the competitive and regulatory arenas, multinational medical device companies need to look ahead, invest more in innovative technologies, and revisit their current business models in China to capitalize on the country’s future market growth.
Post time: Aug-08-2023