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.
@Jacob: well, thanks for the post, it is a good topic to discuss and honestly, I have forgotten to mention it; in fact, we have assisted till a recent past to a sort of attitude in copying products, but I would like to be positive in the future. After all, I think the medical sector could act as another chance for bringing on the market some innovations, without any "duplication". Who knows?
"In case we are speaking about a quite long timeframe for doing that, maybe Chinese medical equipment can lose a competitive position within the market." Mfbertozzi, would you think Chinese people's will spent time and money to come up with some new technology or products. I don't think so because they are expertise in duplicating/copying technologies. Once while visiting China my my technical expert from China told me that "I can get a duplicate of anything and everything from China, except parents '
Anna, no wonder that initially they will accept technology/product with warm heart and then they will start duplicating it. Recently I had read some allegations from Volkswagen that their Chinese counterpart had copies/duplicated some technology from them and introduced a new car with the same technology. It can happen to medical equipments too.
@Anna: well, speaking for myself, this is another fascinating topic to share; possible concerns about the different Eeastern or Western approach to healthcare could be approached as you have pointed out; an additional piece of the puzzle, in my opinion, is about how long process for collecting needs for a giving market will take before producing that finalized equipment; in case we are speaking about a quite long timeframe for doing that, maybe Chinese medical equipment can lose a competitive position within the market. Is only my individual opinion?
They will have to smuggle the counterfeit medical equipment into the US and the EU to sell them and also patronize dubious healthcare practitioners. It's tough enough getting medical equipment certified by regulators in the US, try having them even manufactured overseas as contract manufacturers have discovered. The hurdles run in the hundreds.
Barbara good point. I think despite the alternative medicine, electronic medical equipment is good thing for China. Undoubtedly, the medical equipment will be tailored to local market's condition that is incorporating various forms of alternative health care provisions.
Daryl, I share your concern. IP infringement is a significant issue in China. International companies are bound to contend with tough competition from locally manufactured counterfeit devices. However for now, the government's action is helping to move electronics medical equipment industry forward.
Hi Ariella, No I have not come across a census of that sort. I will be glad to read one if any of EBN readers have. The researches mainly focus on the increase in ageing population and the need for medical equipment to cope with various medical demands.
Anna, McKinsey sees some concerns!!!!!! What about counterfeit Medical Equipment. Taking over all the manufacturing in the world. Question, is China the only country that can make manufacturing equipment? Is China the only country that manufacture product? Why is the USA starting manufacturing operation only in China? Are GE Healthcare and Philips USA company's?
Anna: for awhile, I kept wondering how the Chinese health system differs so much from ours that demand for medical electronics wouldn't skyrocket. Then the term "alternative medicine" penetrated my foggy brain. Of course there is a risk that OEMs might not thrive in a market that incorporates acupuncture, herbs and spiritual beliefs into its healthcare. That moves the debate beyond "should we build equipment for this market" to "is there demand for this equipment?" Great blog, well done -- I learned something new today!
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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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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