The Chinese healthcare and medical equipment market is on a growth spurt that has Western OEMs salivating over its sales potentials, and priming their supply chain for profit opportunities in the world's most populous nation. Danger looms in the $357 billion market, however, and failure to understand the challenges of China's evolving healthcare industry could lead to missed opportunities and losses for medical equipment vendors, according to a research firm.
Researcher and market consultancy McKinsey projects the Chinese healthcare sector will nearly triple in value to $1 trillion by 2020 (from $357 billion in 2011) on demographic changes, increased investment under the country's latest 5-year plan, and the increased involvement of the private sector in healthcare delivery. The mouthwatering growth has attracted Western multinationals in droves, but according to McKinsey, an inevitable shakeout in the industry could leave many late starters and losers disappointed.
The supply chains of healthcare services providers and medical equipment vendors, including large swaths of the electronics component and manufacturing sectors, could also take a hit if the companies back losers, or are unprepared for the evolution of the market. While the McKinsey sales projection makes sense and seems realistic based on steps being taken by China to transition its health industry into a Westernized model, the Chinese system is also quite peculiar to the country, and failure to successfully navigate its quirks could result in huge losses.
McKinsey expects consolidation in the Chinese medical equipment and healthcare delivery industry, and says "multinationals will find it harder to compete" as local players jockey with them for a larger share of the market. The researcher went on to say:
Medical-device and -equipment companies, such as GE Healthcare and Philips, have built China businesses that now boast annual revenues of more than $1 billion and are still expanding rapidly. This steady growth of China's market stands in stark contrast with those of the United States, Japan, and Western Europe. Especially in the United States and Europe, many companies have resorted to rounds of downsizing, shrinking their R&D and manufacturing footprints, as well as their commercial operations.
It is therefore not surprising that multinationals are ramping up their investments in China, tapping into the unmet needs of its huge population, its manufacturing and emerging R&D ecosystem, and the government's support for the biomedical industry.
OK, I understand that McKinsey sees some concerns in China for healthcare service providers and medical equipment vendors, but I also believe a different set of dynamics is playing out in this market. This is one of the few industry segments where China is offering medical equipment manufacturers the opportunity for local sales growth, as opposed to jostling with them for chances in the international market.
It's possible many companies will fail in China, but the handful that succeed in getting a piece of the market will be divvying up a large and fast-growing industry segment. I see opportunities here for increased semiconductor sales and medical equipment manufacturers, as well as the potential for contract manufacturing service expansion.
If China delivers on the promise everyone expects in healthcare services and medical equipment, local and Western companies will benefit from the continued opening of its economy.
@SP: many thanks for sharing your vision, speaking for myself, is really fascinating. After all, we are still discussing a matter strictly related to the culture of civilitations.
Anna, it's already proven that China is a leader in terms of Hardware manufacturing and they are still growing with software. So there is no surprise that, any type of industry can be get flourished in China. But the only problem is, eventhough they have a large population, none of the companies may not be able to sell much of the products in local market.
@mfbertozzi , I guess you are correct. I guess everything in China must be done under the full control of government. One way that is correct in order to control such a huge population and still have good infrastuctures. But the Western world where freedom is more a right, dont know how they would take it in business sense. BUt one thing is clear no one can deny China being one of the biggest controller in terms of manufacturing.
@SP: well, I believe the message from Anna is right. On one side, We need to hold a "neutral" approach, avoind to be prevented, but on the other side, only way from them to demonstrate how is realistic their presence within medical market, is to fit 100% regulations in the matter. It seems for telecom market, it is not happend and several concerns about equipment are still not open. Am I wrong?
China has taken the best advantage of the communist government and such a large population. Its going to become one of most developed economies. But when it comes to professional ethics not sure how satisfied the customers would be.
I can only imagine as the earning power of the population increases that the role of traditional medicine will decrease. However, I am no expert so it would be interesting to hear from others on this subject.
Undoubtedly, with the living standard enhance and people increasingly emphasizing health, the medical equipment will offer great investment opportunity to vendors, including foreign vendors, because they hold the advanced technology which is an important requirement for medical equipments.
@Anna, I just checked the census at 1.4 billion for China. I also understand that the middle class is appeariing and growing rapidly in China. How do you think the traditional medicine business will be impacted with the introduction and implementation of Western technology becoming pervasive throughout China? The traditional approach to medicine is more than just a medical issue. It is also a philosophical approach that borders on the spiritual. Do you think new tech in medicine will be universally accepted? Payback time or break even on capital equipment could also be extensive. Will the import of our tech end up driving up Chenese health care cost as it has in the US?
The new government rules and regulations may prove to be a double-edged sword: achieving some positive goals but costing organizations a great amount of money and work and, perhaps, lost sales as well.
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Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
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Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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