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Deloitte: China's fast-growing medical device market presents huge opportunities for foreign firms

Published: 1 March 2021

Deloitte's Chinese Medical Device Industry: How to thrive in an increasingly competitive market? 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.

China's medical device market revenue is estimated to hit RMB800 billion in 2020, more than doubling from RMB308 billion in 2015. With an annual growth rate of nearly 20% since 2015, the industry has consistently outpaced GDP growth. From 2015 to 2019, Chinese foreign trade in medical devices grew at nearly 10% a year, outpacing global growth and making the country an increasingly key market in international medical device trade.

"China now accounts for about 20% of the global medical device market. This fast-growing industry is expected to continue on an upward trajectory, supported by multiple drivers including an aging population, rising incomes, and the continued enhancement of health services in hospitals and clinics throughout China," says Deloitte China LSHC Industry Leader Jens Ewert. "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."

In recent years, changes to the regulations governing China's medical device market have impacted foreign brands, with policies rolled out by national and local authorities favoring domestic manufacturers. However, full localization of the medical device market is impractical, especially as imports from foreign manufacturers still play an important role in disseminating new innovations and technology in the industry.  

Deloitte China Financial Advisory Partner Alan MacCharles adds, "Foreign firms can either look into investing directly in a local operation or partnering with an original equipment manufacturer (OEM) to overcome regulatory challenges. Moreover, 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."

Foreign firms are also 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. A dramatic 90% reduction in the price of stents following the introduction of China's centralized volume-based procurement (VBP) system for high-value medical consumables is a case in point.

According to the whitepaper, foreign firms can focus on establishing high-value, technical niches that are less likely to be undercut by local suppliers or become the targets of VBP schemes. By adding value and services arising from the Internet of Medical Things (IoMT), device manufactures can avoid the commoditization of their offerings and at the same time propel value-added growth in the industry.

"We've been seeing 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," concludes Alan MacCharles.

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