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Impact of Low Cost Asian Manufacturing on the European Medical Devices Markets
Frost & Sullivan, Dec 2005
Asia’s Appeal as a Medical Devices Manufacturing Destination on the Rise
European medical devices companies are actively considering outsourcing or relocating their manufacturing to Asia to take advantage of its significantly lower costs for skilled labour. The favoured destinations in this respect are China and India, which are both increasingly aware of the need to conform to international manufacturing guidelines and standards. However, companies must understand the bigger picture of such a shift before taking any steps in this direction. For instance, huge differences in language and culture could pose a major challenge. English is the preferred language of business in many parts of Asia such as India and European companies might find themselves compelled to use it for business purposes even if it is not their first language. Since effective communication is essential to keep transition difficulties to a minimum, companies can consider forming a management team from the particular Asian country, with representatives that speak both the native and the business language.
This Frost & Sullivan research service examines the impact of three regions within Asia - China, India and the Association of Southeast Asian Nations (ASEAN) - on the European medical devices market. However, the focus is mainly on China and India. It discusses opportunities for low-cost medical devices manufacturing in Asia and assesses the relative attractiveness of key factors such as custom duties, industrial electricity costs and the availability of skilled labour.
Meeting International Manufacturing Standards a Necessity
The Asian medical devices market does not have to follow any particular standards, unlike its counterpart in Europe, which has to comply with the Conformité Européene Mark (CE Mark). Until recently, most sales from Asian manufacturers to the European market were made to eastern European countries, which purchased products without the CE mark because they were significantly less expensive. This lack of standards in the Asian market is likely to pose a challenge to European companies looking to outsource their manufacturing activities there.
However, this is gradually changing, with the Asian market beginning to follow manufacturing standards such as the International Organization for Standardization (ISO) and the good manufacturing practice (GMP). Manufacturers in Asia are realising that pursuing CE Mark certification can help them compete more effectively with companies producing higher-quality goods for sales into Europe, says the analyst. Compliance with international standards such as the ISO and CE Mark right from the first stage will ensure that sales to both domestic and foreign markets can take place with minimal problems.
Protection of Intellectual Property the Most Critical Challenge
Intellectual property (IP) protection is usually achieved through patenting. However, since there are no existing patents that have global coverage, the challenge for medical devices companies looking to move manufacturing to Asia is to safeguard their IP in areas where patents cannot be upheld. Although a company might have a product protected by patent within Europe, this could cease to have effect once manufacturing moves to a region outside Europe. The product then runs the risk of being copied, mass-produced at lower costs and then sold into the domestic market.
European companies must ensure that they conduct business only with manufacturing organisations that understand and appreciate the importance of IP protection. In Asia, contract research organisations (CROs) - which are research and development (R&D) outsourcing companies - are starting to introduce IP standards to increase confidence levels within the foreign investment community and to promote greater outsourcing interest in both R&D and manufacturing in Asia.
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