In the last decade, many global medical device companies have invested heavily in the emerging markets of China and India. These companies have subsequently benefited as the economies of these two Asian giants developed and grew. Now as the Chinese and Indian markets become more mature, medical device companies are casting their sights on other countries in Asia where the healthcare sectors are largely untapped and hold tremendous potential. Among these countries are those belonging to the Association of Southeast Asia Nations (ASEAN). This regional bloc, set up in 1967 comprises of 10 member countries, has a total population of over 600 million people and a combined GDP of more than US$2.6 trillion. In recent years, ASEAN has been working towards the formation of the ASEAN Economic Community (AEC) to further integrate the economies of the member countries. Hence, tighter economic integration is expected to help drive future growth and development of the region. This initiative is good news to medical device companies that are trying to access the full market potential of the ASEAN region.
Prior to the recent slow-down in Asia, ASEAN has been one of the fastest growing regions in the world. Countries such as Indonesia, Vietnam and Myanmar have attracted the interest of medical device companies because of their rapidly expanding middle class consumer populations, and the abundant business opportunities in their growing economies. For instance, Indonesia’s middle and upper income consumer segment is expected to double from 74 million in 2013 to 141 million in 2020, representing a 9.6% CAGR . Furthermore, with only nine hospital beds for every 10,000 Indonesians (compared to 29 beds per 10,000 in more developed nations), the Indonesian healthcare market is currently under-served. There are public and private efforts to addressing the ongoing issues (e.g. by building more hospitals), and they can be achieved by providing good opportunities for healthcare product and service companies. However, for many global medical device companies, business activities in the ASEAN region has historically been very challenging. This is because ASEAN is a heterogeneous group of countries for the member of the nations are different in many ways: language, culture, stage of economic development, market size, business environment, etc. Besides having to cope with these market differences, medical device companies entering the ASEAN markets also have to contend with a variety of challenges, predominantly among them are as follow i) evolving regulatory environment; ii) opaque distribution channels; iii) and a fragmented regional market.
The global medical device industry is highly regulated. Successful medical device companies must be able to navigate the regulatory environment of a target market, comply with local regulatory requirements, and put their products onto the market in a timely and cost-effective manner. Compared with the regulatory environment of more mature markets in the US and Europe, the regulatory environment in most ASEAN countries is still evolving and presents much uncertainty and risk. For companies that are trying to introduce their products into multiple ASEAN countries, the task becomes even more difficult because of the country-to-country differences in regulatory requirements. These differences and the dynamism of the regulatory environment can make compliance a costly and time-consuming affair.
The distribution channels for medical devices in some ASEAN countries can sometimes present problems to global medical device companies. For example, a company may choose to enter a market by working with local distributors that do the “heavy lifting” on their behalf. However, these distributors may carry out local business practises that can cause the company to contravene laws back in their home country. For instance, many global medical device companies have to comply with the U.S. Foreign Corrupt Practices Act (FCPA) or other compliance regulations in their home countries. If they do not have good oversight and control over how their distributors or partners operate in the local market, they place themselves in a position with a greater risk exposures.
Finally, from the perspective of a large medical device company, one of the biggest challenges to setting up an ASEAN business division, is to introduce the right approach to access and to serve the fragmented regional market. Setting up individual dedicated operations in each ASEAN country is not optimal. Although many of these countries have good operating environments and to serve the demand for products, their markets are usually not sufficiently large, and local demand alone is not able to ensure profitability of an “in-country” operation. In such cases, medical device companies often choose to rely totally on distributors for their operations in these countries. This type of setup may work well at first but in the long term, it can potentially create more risk and become detrimental to the business. For example, companies may be exposed to the compliance issues highlighted earlier or they may lose touch with the end-customers due to the lack of direct customer/market feedback and therefore become less competitive.
For the various reasons mentioned above, the formation of the AEC and its promises of a unified market with a harmonised medical device regulatory environment is a much welcomed move for global medical device companies. If we can imagine for a moment that all regulatory requirements for ASEAN countries were to be harmonised for medical devices, it would significantly shorten the time required for a medical device company to register their products, and to bring them onto the market in the ASEAN countries. Furthermore, with a freer flow of skilled manpower, capital and trade within the AEC, medical device companies can take a more holistic approach when setting up their operations in the region. For instance, they may better serve the entire region and beyond by setting up different types of operations in different ASEAN countries. Regional warehousing, service centre and certain manufacturing activities may be set up in countries like Malaysia, where the labour market exerts much liberty, and the manufacturing infrastructure has shown to be robust. On the other hand, Singapore may be the ideal location for a business HQ, logistic hub or R&D centre due to its central location in Asia, connectivity to the region, excellent R&D environment, and favourable government tax policies.
The formation of the AEC will allow global medical device companies to take better advantage of the comparative strengths of each ASEAN country to maximise the overall return on their investments in the region. More importantly, patients residing in the region will also benefit from having access to the latest medical technologies and be able to enjoy better healthcare outcomes. That will indeed be a win-win for all.
About the Author
Cecelia Zhou is currently the Senior Director of Business Development / M&A at the Stryker International Division based in Singapore. In this role, she is responsible for all the M&A and strategic alliance opportunities within the International region, which covers any geography outside of US and Europe. Prior to joining Stryker, Cecelia has held a broad range of finance and operational leadership experiences. Most recently Cecelia was Director of Business Development for The Coca-Cola Company based in Shanghai, China, where she led the M&A and Alliance activities for the Greater China and Korea business unit. Prior to that, Cecelia spent eight years with Life Technologies (now part of Thermo Fisher) in a variety of roles including Head of Business Development and Integration for Asia Pacific, Director of Global M&A Finance, and Pricing and Operations Director. Cecelia Started her career with Lehman Brothers where she spent 6 years working in capital markets and equity research functions in Hong Kong, New York and Los Angeles. Cecelia holds an MBA from the Anderson School at the University of California at Los Angeles and a Bachelor of Arts degree from Wesleyan University in Connecticut, USA. She is also a Chartered Financial Analyst (CFA).