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.
I am sorry but I have to be a little cynical here. China only needs to purchase one of something and then they can counterfeit "it" to death. "IP" means nothing to the Chinese. They compete straight-on with no legal constraints. A great advantage for the Chinese but bad for anyone else trying to compete in their market.
@Anna very intersting. Do you know if anyone has done a census for healthcare in China to ascertain whether western methods have grown more popular than traditional ones?
@Bolaji, I was considering the history of the elderly who believe that traditional herbal medicines are all they need to stay healthy. This is a quote from China Daily Nov 14th. It concerns the increase of Medical Check-ups in China.
Liu Qi, 27, an engineer with the CITIC Groups in Xi’an, Shaanxi’s provincial capital, says the company is likely to skip medical checkups this year because of financial constraints.
In his hometown at Ankang city in Shaanxi, his parents don’t go for medical checkups.
“They think it unnecessary,” Liu says.
Douglas, Legend has it China has 5,000 years of recorded history. I bet they'll find a way to navigate through the next 5,000 years and even make some money. Let's hope in good health :)
Good point Anna, exactly; as you have perfectly outlined within your article, it is really important to avoid any skepticism in advance, holding a neutral approach; I really guess civilizations' merge output will be the mix of the best part of each one.
mfbertozzi, The culture of civilizations you referenced is, happily, not developing in isolation. Cultures borrow from, influence and impact each other in various ways. China is influencing the West even as it is being changed by the West.
Jacob, Actually many Western companies are already selling hugely to the Chinese medical equipment market. Healthcare isn't one of those areas where you want to be treated with a coin toss. If anyone is going to treat me, I want to be sure they know what they are doing and that the equipment they are using works, has been certified and, preferably, from a reputable company. There aren't many companies in China making such equipment and it will take time for local ones to achieve the same level of efficiency and effectiveness. Companies like GE have taken advantage of this.
SP, We are right to be concerned about professional ethics in China but we can also go overboard by focusing on this issue alone. It is a growing economy and there are numerous changes taking place in all areas of the country. We don't know how things will play out eventually but it seems to me most of the changes occuring are moving the country in the direction of Western developments. They are being transformed by the rest of the world and are also transforming the rest of the world.
These questions are the ones China healthcare service providers and medical equipment makers should be asking. The population figures alone can be deceptive as not all of the people will use Western healthcare services. However, I believe that a majority of Chinese people are already using modern healthcare services. This is not new to China. It has always co-existed with alternative and traditional health services and I believe it will remain so. I believe, though, that a greater percentage of the population will begin to use modern healthcare in future. This is because many of the younger folks are not growing up with traditional healthcare.
New technology-based medicine is already well accepted in China and has been for generations. There have been modern, West-educated doctors in China for years and they are quite respected.
As to the payback on investment in China, OEMs appear to be quite optimistic about this and perhaps too optimistic, hence the McKinsey research warning. It's a big and fast-growing market and there are opportunities for sales growth. There will also be missteps and the possibility, as you well noted, that some Western IP will get borrowed, stolen and not get adequate compensation.
Answering your last question is quite easy. Yes, Chinese healthcare costs are bound to go up.
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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