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Medical Device Industry Engineering Emerging Markets Future

Authored by James Sheppard

The healthcare industry has long seen that emerging markets have great untapped potential. In recent years many medical device companies have also begun to realise this potential and shift not only manufacturing but research and development to these emerging economies. Emerging markets are now considered one of the most important areas for growth for medical devices market. In this article Liftstream looks at some of the recent trends in investment in emerging markets.

With medical device market growth moderate in established economies (EU, US and Japan), companies are looking towards new horizons. Companies are looking to new countries and territories for growth opportunities. Recently, Brazil, Russia, India and China (BRIC) have offered the greatest potential for companies. The BRIC markets have seen a considerable investment from global medical device companies in the past 5-10 years. These countries have seen the largest growth not only in health awareness but uptake of medical devices with many governments now seeing healthcare as a main priority. As a result, demand for medical devices is increasing in these markets. It is forecast that the Chinese medical device market alone will reach $30.6bn by 2017. As a result many global medical device companies have been quick to move into and expand in these potentially lucrative markets. This move is being facilitated in a number of different ways. Two main avenues that have been used by companies include: direct capital investment into the area and strategic acquisitions.

Acquisitions have played an important part in global medical device companies establishing a foothold in emerging markets. The CEO of global device company Medtronic, Omar Ishrak, recently stated that emerging economies were now the most important segment of their business, and they will seek acquisitions and push sales of existing products during the coming years. Mr Ishrak’s strategy was recently shown in Medtronic’s $816m purchase of the Chinese orthopaedics manufacturer Kanghui Holdings. This was backed up by the strategic investment of $46m into Chinese surgical instrument manufacturer LifeTech Scientific Corp.  A number of other global players have also invested in the Chinese market. GE Healthcare having decided to locate 3 R&D centres in China. Johnson & Johnson (J&J), the largest medical device company in the world by revenue, have recently established a new $115m Innovation Centre in China and Covidien have invested $45m in opening a new R&D centre in Shanghai, which will employ over 300 personnel in the next 3 years.

China is not the only market which is seeing significant outside investment. In 2011 the Indian medical device market saw sales of $3bn and is forecast to be worth an estimated $11bn by 2023. Meaning India offers a very attractive source of revenue for companies.  GE Healthcare already spends around $50m per annum at its research centre in India. Philips Healthcare have also decided to invest heavily in India and promised to invest in headcount by expanding its marketing and sales divisions. Ronald De Jong, CEO of Philips Healthcare Emerging Markets, recently stated that Philips were going to pursue a local M&A strategy in emerging markets with specific focus on India, to further bolster their presence in the area. This strategy is designed to build on Philips recent acquisitions of the Indian medical device companies Meditronics and Alpha X-Ray Technologies.

China and India are two of the leading areas of investment for companies looking to expand into emerging markets. Yet, many companies are looking even further afield, beyond the BRIC economies. Countries such as Taiwan, Indonesia, Venezuela and Thailand, part of the N-11 (next 11), are all of interest to medical device investment and have all seen recent increases in outside investment. Philips Healthcare have recently entered their most significant project to date in Indonesia with $140m investment for their first dedicated research centre in the country. In order to further develop this second wave of emerging markets, companies are looking to new strategies such as investing in education and training in the areas. As the opportunities in Brazil, Russia, India and China become more moderate, the N-11 emerging markets will begin to play an increasingly important role for global companies.

Investment in emerging markets has been driven in part by global multi-national companies. Increasingly though, investment for early stage ventures is coming in the form of venture capital and private equity. Venture capital funding has been long established in the mature markets of EU and US, however increasingly VCs are looking towards emerging markets. The Chinese VC market is growing at a rapid rate with around 400 active VCs in 2010.  2011 signalled an all-time record for numbers of investments and total investment within the Chinese market. This growth has prompted many international VCs to enter China with the latest being Essex Woodland who opened an office in December 2012. Essex Woodland has a strong track record of investing in China with notable investments being China Cord Blood and Microport Scientific.

Medical device investment in emerging markets has largely been driven by multi-nationals looking to expand. Not only has this trend helped companies expand in these territories but they have supplied skilled jobs and helped advance the healthcare infrastructure. With the global medical device market estimated to be worth $302bn by 2017 and China and India projected to drive this growth, many opportunities still exist in these expanding markets. With significant growth on offer over the coming years and governments becoming increasingly open to outside investment,   emerging markets are a fundamental part of the growth picture for medical device innovators.

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