The medical device industry is quickly growing in the global market with an expected value of $228 billion by the year 2015 and will continue to grow in the coming years. The US and Western Europe are the leading developed markets while rising and new remarkable markets such as China and South Korea are expected to generate a stronger market. In comparison, both China and South Korea have the potentials to hit it big in the global medical device market due to huge market opportunities.
Global Markets and Historical Growth Trends
The People’s Republic of China has the largest population in the world. The country’s government reforms to strengthen the healthcare system which requires construction of thousands of hospitals, clinics and healthcare centers signify a huge demand for medical equipment. This great opportunity has attracted large multinational companies like GE, Siemens, Philips, Shimadzu and Toshiba to penetrate into the country’s growing market. China’s medical device market has annual sales growth of 20.2% and was valued at $19.4 billion in 2010 and is expected to reach $96.98 billion in the next few years.
South Korea’s healthcare expenses are rising due to its rapidly ageing population. This has made the country a lucrative medical device market. In 2006, its medical device market scale has an average annual growth of 9.0% and was valued at $3.9 billion and is expected to grow by 10-15% annually in the coming years. Its Free Trade Agreement (FTA) with the European Union signed in July, 2011 will eventually increase trade in the market due to reduced tariff and non-tariff barriers.
Global Economic and Financial Drivers
The increasing ageing population worldwide and the health consciousness among people combined with affordable options are the major drivers of medical device industry. As more people are aware of their illness, spending on healthcare will increase, thus, increasing the demand of medical devices. China and South Korea’s healthcare reforms demand a huge budget for medical devices which drives the market.
Competitive Advantage
China’s joint ventures with large multinational companies can help in beating sales obstacles because of strong connections and relations with distributors, hospitals and network of suppliers, thus, providing them a competitive advantage over their competitors in the market.
South Korea’s innovation for high-tech industry which includes semiconductors and industrial electronics produces medical engineering equipments that are comparable to Western countries which gives an edge over competitors.
Challenges
Challenges in China’s medical device market ranges from cultural differences and language barriers to regulatory standards. The county depends largely on imports where 70% of its medical device market is foreign-trade. Foreign companies are facing difficulties in acquiring legal and intellectual property protection due to violations of trademarks, copyrights and patents.
Like China, 60% of South Korea’s medical device market also derives from imports. One of the major challenges of South Korea’s global market is the regulatory requirements on medical device. The government policies lack proper definition where registration and approval process is often tricky making it hard for foreign traders to penetrate into the market.
Economic, Political and Cultural Operating Environments
Persistence and perseverance are the most important factors of the Chinese culture which has greatly influenced in the country’s rapid economic growth. In their quest to increase economic growth, the Chinese government is making reforms of its laws and policies to conform to World Trade Organization guidelines. The reforms include implementation of a stricter legal system for protection of their rights and that of their foreign partners, adopting a freer commerce which includes distribution of resources, production, pricing and management.
Among the so-called “Asian Tigers”, South Korea’s economy has been dominated by multinational conglomerates that played vital roles in the vibrant economic growth of the country. With its highly skilled and well-educated workforce, it has opened its doors to free trade pacts with the US and European Union. To uphold the rule of the law, the government created strong policies on free market and welfare on property rights.
Trade Environment and Statistics
China is the world’s second largest economy next to the US which has experienced rapid economic growth that increased ten folds between 1978 and 2006. Foreign investments flourished during the 1990’s and the country’s trade growth increased from $280.9 billion in 1995 to $1422.1 billion in 2005. Along with its rapid economic growth, comes environmental concerns where rivers and lakes were poisoned with pollution, water levels are dropping, farmlands were ruined due to industrialization and cities are suffering from chemical fumes suffocation. This environmental degradation is becoming a critical problem which could hinder the country’s development.
South Korea ranks on the top 15th in the world’s leading economies where business environment is dominated by large conglomerates. The country relies mostly on imports of capital goods and industrial supplies due to its limited natural resources. To support its economy, South Korea adopted an export oriented economic strategy. During the 1997 financial crisis, the country suffered economic bankruptcy. With the aid of the International Monetary Fund (IMF) and the government’s reform through stimulus budgetary plan, South Korea has quickly recovered with significant growth in exports by obtaining a total trade volume of $884.2 billion in 2010.
Strategy for Entering these Markets
The most effective way to enter the Chinese market is by setting up a Joint Venture where foreign investors can take advantage of the country’s well-educated and cheap labor cost in producing their products. To be successful in the market, foreign companies should utilize local resources and access local markets to keep them aware of the trends while utilizing global supply networks
Entering the South Korean market is a bit complicated because of the multinational conglomerates that controlled the business environment. A foreign company can successfully penetrate the market either directly or through their network of suppliers. The focus should be on a highly specialized market with a top quality product that is too complex for the conglomerates to invest. To achieve a remarkable position in the market, a foreign company should invest on local production facilities with world class manufacturing process.
Strategic Plan in Dealing with Challenges
Foreign companies are facing issues on corrupt business practices
in China where government officials are taking bribes from public or private entities in the objective to obtain business in the country. Before setting up a joint venture, a foreign company should conduct a thorough investigation about the background of the Chinese company, its officers and stockholders. If the government is involved in any of these entities, then corruption is possible. Implementing an anti-corruption policy such as the Foreign Corrupt Practices Act within the company and enforcing punishment for violations are effective ways of doing a successful business in China.
South Korea’s militant labor unrest has contributed most to the country’s economic crisis in the past years, thus, harming the confidence of foreign investors. To avoid labor disputes, foreign companies should create strong labor and management relations by developing personal relationships based on trust among employees, understanding their working habits and showing proper respect to Korean executive officers and their business culture. These strategies will ensure smooth and efficient human resource staffing.
Summary
The medical device industry has huge opportunities for growth in China and South Korea where foreign companies can take advantage of the booming industry. However, every company that operates in both countries faces challenges which must be dealt with effectively. Handling these issues should conform to the country’s culture and governing laws. Foreign investors should set goals, create vision and long-term strategic planning and enhance core competitiveness to ensure effective and successful penetration in the market.
Works Cited:
Freed, M., Tang, J., “The Foreign Corrupt Practices Act in China: A balancing act for business”, Thomson Reuters News & Insight, September 10, 2012. Web. 01 May, 2013.
Gross, A., “China Market Entry Strategies”, Pacific Bridge Medical, January 01, 1995. Web. 01 May, 2013.
“Multinational Medical Device in China, Current Situation and Analysis”, Denguan Medical, February 25, 2013. Web. 01 May, 2013.
Stenius, P., “Discovering business opportunities in South Korea”, Reddal, December 30, 2011. Web. 01 May, 2013
“The Medical Device Market: South Korea”, Market Research.com. Espicom Healthcare Intelligence (April 16, 2013): SKU ESP15021017. Web. 30 April, 2013.
