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Global medical device production value will record strong growth of almost 6% in 2016, to reach US$315 billion. However, winning market share in the traditional markets (Western Europe, and the US) will remain difficult due to growing regulatory scrutiny and pricing pressures.
Operating in and exporting to emerging markets of Latin America and Eastern Europe will also be challenging due to decelerating growth of these regions’ healthcare industries. However, although the Asia Pacific medical device market has proven to be hard to access, the region may provide medical device producers the opportunities to grow and gain new markets over 2016.
The US will remain the largest producer and consumer of medical devices, accounting for 26% of the global market. However, the Affordable Care Act brought the medical and surgical equipment producers not only higher volume sales, but also a 2.3% excise tax on gross sales, starting from 2013. The tax not only placed US medical device producers at a disadvantage against foreign competitors, but also encourages companies to reduce resources for manufacturing improvements and R&D activity. Also, the medical equipment industry in the US is facing rapidly growing regulatory scrutiny that resulted in an increased cost of compliance for manufacturers seeking to do business in the US. Similarly, the demand growth for medical devices in Western Europe is expected to stagnate, constrained by the declining expenditure from the budget-constrained healthcare industry.
Although emerging economies in Latin America and Eastern Europe have been pioneered as opportunities to grow for medical device producers in previous years, operating in these regions will also be difficult. The medical device market growth in Latin America and Eastern Europe will decelerate in relation to the slowing hospital and medical service industries. For instance, the healthcare industry’s turnover in Brazil and Russia is estimated to decline by 3% and 2%, respectively, over 2016. The leading medical device producers already feel the effects of decreasing spending from these regions’ healthcare industries. For instance, in January 2016, Johnson & Johnson announced plans to exit its small, slower-growing units in Latin America, and to cut 6% of jobs in the medical devices division.
Asia Pacific, however, presents unique opportunities for medical device producers. The region was the fastest growing medical device market, rising at a CAGR of 10% over 2008-2014 and settling at US$90,916.5 billion in 2014. The market growth was spurred by rapid expansion of the healthcare industry, as the hospital, medical and dental service industry’s revenue in Asia Pacific has been rising at a CAGR of 8% (in US$ terms) over 2008-2014, representing the highest growth among regions. The region’s healthcare industry is expected to continue to grow rapidly over 2016 as well. For instance, China’s and India’s healthcare service revenues are expected to advance by 12% and 9%, respectively, in 2016 alone, resulting in a large number of new hospital construction projects and thus soaring demand for medical and surgical equipment.
Although the medical and surgical equipment market in Asia Pacific has proved difficult to enter, the market access barriers for foreign investors have been diminishing in recent years. Traditionally, international firms have struggled to overcome challenging regulatory procedures, complex tendering for purchasing medical devices, working culture, service and quality expectations or, to effectively reach the hospitals directly, and to provide products that address local needs (like medical equipment designed for smaller body types, or cheaper, yet qualitative instruments). However, both Chinese and Indian governments have been relaxing regulations surrounding private investment into the healthcare industry and medical device and pharmaceuticals markets, and some medical equipment manufacturing companies have already found ways to penetrate the market. For instance, in January the leading global medical device producer Medtronic announced a partnership with a Chinese municipal government to expand access to diabetes treatments and plans on investing in a manufacturing facility in Chengdu, China.