Chinese Medical Device Industry: How to thrive in an increasingly competitive market?

Chinese Medical Device Industry: How to thrive in an increasingly competitive market? was released by Deloitte China LSHC Team. The whitepaper examines how foreign brands can enter the Chinese market by adopting an "In China, For China" strategy amid a changing regulatory environment and increasingly competitive landscape.

Viewpoints / key findings

China's medical device market revenue is estimated to hit RMB800 billion in 2020, accounting for around 20% of the global medical device market, more than doubling from RMB308 billion in 2015. From 2015 to 2019, Chinese foreign trade in medical devices grew at nearly 10% per year, outpacing worldwide growth. China is thus increasingly becoming a market foreign firms cannot afford to ignore. However, like all nations, it has its own distinctive regulatory and competitive environment. Device makers need to consider how best to position themselves in the market.

How to enter the Chinese market

If a manufacturer has decided to enter the Chinese market, they must then decide how to enter the market. There are broadly three ways to enter the market:

• Rely purely on importing. It allows for faster market entry and requires relatively lower capital investment. Imports also help protect against the risk of IP theft.
• Directly invest in setting up a local operation. This requires more capital investment and takes longer to enter the market, but in the long run manufacturers can lower production costs and develop localised after-service capabilities.
• Partner with an OEM. By using a local OEM partner, the company can meet local production mandates, thereby reducing regulatory barriers to market entry.

Under reforms of the medical device industry, key considerations for incorporating a business in China are shifting from traditional issues such as labor costs and infrastructure towards tax incentives, local financial subsidies and industry compliance support from local governments.

How to thrive in a price competitive market?

Foreign firms are feeling price pressure amid rapid growth in new manufacturers, following accelerated approvals of medical devices in light of the COVID-19 pandemic. Government reforms to reduce healthcare costs have also made hospitals more price sensitive. Under the pressure of medical device manufacturers' margin, they can thrive in such a market through the following actions:

• Targeting volume rather than product margins. The size of the Chinese market means that the overall level of profit can still be substantial even if the margin on each individual product is small
• Establishing a high-value, technical niche cannot be so easily undercut by local suppliers
• Adding value and services arising from the Internet of Medical Things (IoMT), and considering a partnership with a domestic firm for rapid value-added growth in the industry
• Multinational medical device companies need to revisit their existing China business model and supply chain arrangement to mitigate the current short term price and cost pressure to capture future market growth in China

The medical device Chinese market is one of opportunities. It is both large and growing. But device makers must think carefully about how they wish to position themselves in the market and secure support from the government. More foreign firms in China pivot towards an 'In China, For China' strategy, enabling them to seize China's enormous market potential and respond more rapidly to changes in demand. Looking beyond those short term changes in the competitive and regulatory landscape, multinational medical device companies need to invest in innovative technology and revisit their China business models to capture future market growth.