Due to recent changes in the dynamics of emerging countries—including population growth, increasing disposable incomes, and government promotion of locally manufactured products, especially in the health care sector—major industries are working to develop efficient profit models to take advantage of the opportunities in emerging economies. As a result, it is no longer unusual for multinational manufacturers to adopt tailored strategies to suit emerging markets.
With increasing frequency, top multinational corporations (MNCs) are proving that they are capable of altering their business models to suit the demands of emerging markets. This is because big MNCs, which have traditionally sold their products in developed countries, cannot sustain themselves much longer in the market unless they rejig their business strategies to adapt to the changing market landscape.
Two-thirds of the world’s population lives in Brazil, China, India, or Russia. These countries have large patient populations and a high prevalence of treatable disease; although the health care systems in these countries are cost-constrained, the huge unmet need for medical technology creates massive market expansion opportunities for medtech companies.
Major medtech players have finally started to recognize the importance of emerging countries to the future of the market and have begun to move into emerging economies. This move is hardly surprising; although the market dynamics play out differently for various device markets, the tremendous growth potential of the emerging countries is luring many MedTech manufacturers to focus more of their efforts on emerging countries.
Boston Scientific, one of the world’s largest medical device companies, has decided to establish one of its strategic R&D centers in India. According to the company, this is the biggest R&D hub outside the US. This center focuses on developing products for high-burden diseases in emerging economies, and will also supply products to other parts of the world, including the Asia Pacific, Middle East, and African markets.
We analysts at the DRG India office believe that this is just the start, and there will be many more such manufacturing shifts in medtech in years to come. Below, we present the group discussion we recently had on this interesting subject.
Swarnadip: Boston Scientific’s move may just be the start as the early bird's advantage will be hard to miss out on for any players in this space.
Isha: Yes, definitely, there is an early advantage for medtech players establishing their manufacturing hubs in emerging economies. And in future, from a business perspective, presence in emerging countries will be one of the most important criteria to measure the competitive strength of medtech players.
Megha: I believe most high-tech, novel products originate from a well-developed ecosystem and innovation cycle. The current global demand-supply dynamics indicate a significant rationale for manufacturing medical devices in India.
Ashish: Yeah, talking about the demand, apart from becoming global players, emerging economies present stable markets with substantial populations who could greatly benefit from intervention. This is one of the pillars for companies strategizing to establish manufacturing and R&D facilities in emerging economies like India.
Isha: Among emerging economies, it is not necessary to establish R&D hubs among all countries. Presence in one would suffice for the entire belt, as that provides a definite cost advantage to companies. We should keep in mind that having a presence in all geographies might not be a good option to start with. It is fair to start small and expand later.
Megha: Absolutely! And that is why I think India should be one of the target places to start the manufacturing hub. The government of India has approved 100% foreign direct investment under the automatic route for new as well as existing medical device companies. The medtech industry in India is a sunrise sector as it not only offers substantial investment opportunities for foreign players but also leverages India as a low-cost, technically advanced global manufacturing destination.
Swarnadip: In my opinion, since Boston Scientific plans to develop devices such as stents, pacemakers and catheters from their India setup, price competition is expected to rise in the cardiovascular device market, which is still dominated by Medtronic.
Ashish: For Boston Scientific, interventional cardiology devices and cardiac rhythm management devices (for details you can see our Interventional Cardiology Devices and upcoming Cardiac Rhythm Management Devices reports for the Asia Pacific region) are the two major operating segments in the vascular space. Emerging countries like India offer significant opportunities for growth of both interventional cardiology and cardiac rhythm management devices.
Isha: Oh, then establishing a direct presence here will help the company position itself better against other players in the segment.
Ashish: Yeah and not only this! Last year also, Boston Scientific opened Institutes for Advancing Science in Istanbul, Beijing, and Johannesburg, and established a new research and development center in Gurgaon, India, with a focus on designing and developing new products designed specifically for use in emerging markets.
Megha: Actually, if you see, apart from Boston Scientific, there have been some other companies who have taken steps in this regard and have started making their R&D hubs in India. GE’s John F Welch Technology Centre in Bangalore and Stryker Corporation’s Global R&D Centre in Gurgaon are a few of the examples of existing R&D and manufacturing facilities by global medtech players.
Isha: And to add to your point, if other companies cannot afford to do these on their own, they can form partnerships with local partners.
Ashish: Exactly Isha, you are right. So, Boston Scientific also signed a strategic alliance with Frankenman Medical Equipment Company to accelerate physician training and expand utilization of less invasive endoscopic technologies in China. Also, last year Boston Scientific acquired the interventional radiology business of CeloNova BioSciences to expand the interventional oncology portfolio, particularly in emerging markets.
Isha: I think even GE Healthcare has formed several partnerships with various state governments in India. As part of this agreement, GE’s devices will be used in public hospitals funded by private parties in mid-tier cites in India.
Ashish: Yes I definitely agree! Boston Scientific and GE Healthcare are some of the few companies that had already identified this opportunity and the need of going “glocal” in emerging geographies and are now working toward it.
Swarnadip: Their glocal move will surely help them eventually capture more market share in this geography, which has not been their strong area so far.
Isha: Yeah, and along with improving market shares in India, this will also get translated on global levels. As they are able to garner more of the untapped potential of India and other emerging markets, they can significantly boost up their topline with solid performance on bottom line as well. Not only this, if you think from a product design perspective, they get unique insights on making frugally innovative products, which will not only sell very well in emerging economies, but also could have strong potential for marketing to cost-conscious facilities in Europe and the US. For example, there are many startups in India that are carving out niche and lucrative segments, like Consure Medical with its unique fecal incontinence management kit, with a key focus on patient hygiene.
Swarnadip: India is lucrative because of its changing demographics, which highly fuel the need for advanced medical technologies.
Megha: Even from a regulatory perspective, India is becoming attractive. The government's aggressive push through various initiatives, such as the 2015 draft of the National Medical Device Policy (issued by the Department of Pharmaceuticals), which recommends the formation of a National Medical Device Authority (NDMA)—an autonomous body—and the Make in India campaign, will further encourage global players to open their manufacturing and R&D facilities in India. For example, the first dedicated medical devices park focused on high-end medical device manufacturing was recently announced at Hyderabad, Telangana in India.
Shruthi: Yeah I agree Megha! Even from a medical tourism perspective, India is emerging fast as a medical tourism center for patients from across the world for treatments. Of all the treatments, cardiovascular is a major segment for medical tourism in India due to low procedure prices and world-class facilities. This provides significant impetus for medtech companies to expand their market share by having a direct presence in India.
Overall, with such bold steps, medtech players can position themselves better on multiple grounds: market shares, unit sales, operating margin, and R&D.