Over the next few years, some of the most dramatic medical procedure volume growth will be seen in China, an emerging economic powerhouse. According to the Economist, it is possible for China's economy to overtake the US economy within the decade, resulting in increasing disposable incomes for Chinese citizens. In a country where reimbursement for health care is severely lacking, economic development in China will be of particular interest to the medical device industry. In fact, according to MRG, medical procedure volume growth in the country is expected to dramatically outpace the US and Europe as an increasing proportion of the large Chinese population is able to afford health care. For example, between 2010 and 2015, reconstructive knee implant procedures in China will grow at a rate of over 25% annually compared to under 6% in the US. Over the same time period, dental implant placements in China will grow at a rate of over 23%. Even procedures that are not generally considered elective will see substantial growth; peripheral vascular procedure volumes in China will grow 13% annually between 2010 and 2015 compared to only 4% in the US.
Many of the medical device giants have been quick to recognize this trend. Recently, in September 2011, Covidien announced the establishment of a large research and development facility in Shanghai. Covidien follows in the footsteps of Johnson & Johnson which through its subsidiaries manufactures everything from neurovascular devices to hip implants which announced the establishment of a research & development facility in mid-2009. In the next few years, companies able to gain a strong foothold in China will be best positioned for revenue gains as demand for medical procedures skyrockets.
Competing in China is no picnic, however. The Chinese market is characterized by a large number of domestic manufacturers that are able to dramatically undercut prices of foreign manufacturers; despite economic growth, price still remains an important factor in the country, especially in rural hospitals. Additionally, domestic companies are generally better able to navigate complex distribution networks and maintain relationships with local hospitals. Current legislation also favors the marketing of domestic products, although this may change over time.
Foreign companies in China will therefore need to be prepared to heavily market their devices, focusing on additional features that may not be available in local products. International competitors may also be able to take advantage of local distributors to get their foot in the door at local hospitals. Other strategies to cope with the threat of domestic manufacturers will undoubtedly also emerge as more companies attempt to gain a piece of the growing market.