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.