Euro Medical Device Companies Face Asian Competition

February 21, 2006

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As Asia continues to emerge as a prime low-cost medical devices manufacturing site, European medical device companies run the risk of losing valuable market share.

While this trend presents a threat to European companies, some view it as an opportunity to expand into Asia's underserved market. Still, European manufacturers must move fast, analysts predict, to capitalize on early growth opportunities.

"European medical device companies looking to capitalize on the advantages offered by the Asian manufacturing industry - such as lower cost, skilled labor – are considering outsourcing, partnering with or even relocating manufacturing facilities to this region," said Claire Staniforth, a Frost & Sullivan industry analyst.

Many European companies are setting up their own production facilities in Asia to take advantage of reduced operating costs. Even though the distribution of products back into Europe is costly, shifting the manufacturing locality is nevertheless a clever move for European medical device companies, according to Frost & Sullivan, as they will be well-placed to increase penetration of the massively underserved Asian market.

Outsourcing production is also on the rise, with medical device companies in Asia taking care to produce high-quality products for the European market, thereby increasing uptake and acceptance. China and India are emerging as the favorite Asian destinations for outsourcing, said analysts, each having an increasing awareness of the need to conform to international manufacturing guidelines and standards.

"When assessing the attractiveness of China and India for manufacturing of medical devices, China has a much higher relative appeal as investment in infrastructure and global foreign direct investment are high," said Staniforth. "However, there is a greater availability of skilled labor in India, which could sway companies into investing in manufacture there instead."

Asian partnerships and alliances are other options for European manufacturers. With good material supply relationships already in place, manufacturers will have an edge in negotiating power. A logistical challenge, according to analysts, will be the shipping of finished products either to a holding warehouse close to the point of sale or to the customers themselves.

The biggest challenge European companies will likely face in Asia is intellectual property (IP) protection, as current patents do not hold global significance. "European companies must therefore ensure that they conduct business only with manufacturing organizations that understand and appreciate the importance of IP protection," Staniforth said. "In Asia, contract research organizations (CROs) - essentially R&D outsourcing companies - are starting to introduce IP standards to increase confidence levels within the foreign investment community, as well as promote greater outsourcing interest in both R&D and manufacturing in Asia."

Source: Frost & Sullivan.