A few weeks ago, the Chinese government announced plans that could spell bad news for foreign medical device manufacturers. In a move designed to curtail soaring health care costs, the Chinese government announced its intent to create policies to formally encourage hospitals to buy locally made medical devices. It was made clear that these policies are *especially* intended for the larger hospitals, which are increasingly going to be setting the trend for medical device purchasing all over the country as the government implements its ?top-to-bottom? tendering approach, forcing smaller hospitals to follow the lead of larger hospitals. Given that the larger, wealthier hospitals have so far represented the mainstays for buying patterns for foreign manufacturers, a policy that encourages these hospitals to buy domestically made products is especially damaging.
Not all manufacturers are in trouble here though. Some companies, such as Medtronic, Stryker, and Covidien have already created manufacturing facilities in the country, satisfying the ?domestically made? criteria. This is likely to accelerate this trend, with more companies acquiring or partnering with Chinese companies in order to get infrastructure on the ground, quickly, in the country.
Although the Chinese market has been harder than initially anticipated to penetrate?manufacturers are starting to realize that they can?t just use stripped down or older versions of their traditional products in the country?it still continues to look a heck of a lot better than the traditional medical device strongholds like the US and Europe, which are both mired down in serious budget scrutiny, which is, in Europe's case, combined with ongoing economic concerns. China's market, on the other hand, continues to enjoy robust growth. So far, the Chinese market has been receptive to these companies, with foreign companies leading the way in many medical device markets despite domestic pressure.
While larger companies might be in a position to quickly throw some money at a Chinese company to get itself a partner on the ground in time to beat this policy, this isn?t going to be an option for a lot of smaller companies. And it's too bad, because there are a lot of small, innovative but low-cost US or European manufacturers out there who have a lot of potential in China?but they just might not be able to get their foot in the door on time.