Why medtech might just be the emerging market’s next big thing
Emerging markets are widely recognised as important growth areas for the development and sale of medical devices. To tap into this lucrative sector, multinationals must look at the characteristics of each country to plan for success. While the sector is poised to become one of the next industries to break out of emerging markets, it has been a late bloomer.
Currently, most multinationals are focused on the premium customer segment with pre-existing products and commercial models. But, according to a McKinsey report, the next wave of growth could take place in the largely untapped mid-tier, as emerging markets experience growth in its middle-classes, coupled to increased access to care. 1
Multinationals hold a strong position, and many products and services have solid intellectual property protection. These companies can meet various government standards and regulations, and often have long-standing relationships with prominent healthcare facilities and hospitals. Many also straddle several different segments, including equipment, devices, tools, and supplies. This allows them to function at a bigger scale than more blinkered companies.
This is an ever-changing environment. Demand for health care, discretionary spending, and ageing populations will give rise to demand, allowing local companies to make inroads. Understanding diverse markets will give medtech suppliers the ability to adapt products and business models and match these to customer requirements.
Small but powerful
Emerging-market medtech companies have the potential for rapid growth from a small base -especially as health care sector infrastructure continues to grow. It is estimated that manufacturers of medical devices from industrialised countries will try to further expand their market share in the major emerging markets such as China, India, and Brazil. Emerging markets are also the main drivers within the market for medical technology and will exert a lasting influence on the sector over the coming years.
Although Western developed medical devices enjoy a high amount of trust with consumers, this trend will change as emerging manufacturers join the technology race. This is very true for the Asiatic region that is seeing rising income levels, coupled to significant investments in healthcare infrastructure. The region is also home to more than half of the world’s population, which could further impact market potential. In order to be successful, companies must meet individual medical requirements of different regions to secure a market position. Apart from Asia and India, it is especially Brazil that offers a market with a very high growth potential. At the moment, the US export rate to Brazil is around 30% of the total volume of medical products.3
Compared with multinationals, emerging-market companies also have additional advantages to facilitate growth:
Emerging-market medtech companies will still have lower costs than their Western competitors. This advantage will likely persist even as multinationals build manufacturing and R&D operations in emerging markets. For products that are not labour intensive, such as stents, local manufacturing will not be a panacea, but it could still lower logistical costs and help avoid tariffs. Additionally, product simplification should be part of multinationals’ cost strategies. For price-sensitive hospitals and health care providers, durable, no-frills products represent the best value for limited budgets.
Regional companies often spend less on nonessential elements than multinationals, that are often intent on maintaining their branding edge. For example, MRI machines built by emerging-market medtech companies are often less visually appealing because they use less expensive material and offer fewer costly ‘accessories’, but their functionality is good enough for most medical practitioners. As lower- to mid-tier products are less costly to engineer, the R&D operations of emerging-market medtech companies are also less costly than those of their multinational competitors. This advantage, however, may diminish for sophisticated products developed by more expensive talent.
Innovative go-to-market approaches
While the typical multinational medtech product may be too expensive, complex to operate, or encumbered, it would be a mistake to simply produce a dumbed-down version of the standard product line without addressing other elements business elements. Multinationals need to develop sophisticated customer insight capabilities in their most important emerging markets. R&D, business development, and marketing teams in these markets must work closely together, possibly adopting an agile and fast-feedback approach to deliver quality technology.
The history of emerging-market companies shows us that when they set their sights on an industry, they often catch multinationals by surprise. If you require information about the cost of doing business in an emerging market, contact Clarity Medtech.