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Ms Cecelia Zhou is the Senior Director of Business Development / M&A at the Stryker International Division based in Singapore.  Cecelia shares her thoughts about the challenges and opportunities she sees in the medical device market in ASEAN and the formation of the ASEAN Economic Community.


Interviews-Stryker1What is attracting medical device companies to ASEAN?

In the past decade, many global medical device companies have expanded into China and India.  These companies have benefited when the Chinese and Indian economies developed and grew.  Now companies are looking at other emerging Asian markets to drive future growth, and ASEAN looks to be an attractive region. Its 10 member countries are home to over 600 million people, and together, the region has a combined GDP of well over 2.6 trillion US dollars.  Countries like Indonesia, Vietnam and Myanmar are also interesting because of their expanding middle class consumer populations and relatively under-developed under-served healthcare markets.  For example in Indonesia, private healthcare groups are growing rapidly and the government is also trying to raise public healthcare expenditures. These developments translate into good opportunities for healthcare product and service companies.


How does the nature of the industry impact a medical device company’s expansion plans in ASEAN?

The global medical device industry is highly regulated.  Medical device companies have to navigate the complex regulatory environment of a target market, comply with local regulatory requirements, and put their products onto the market in a timely and cost-effective fashion.  In comparison with the more mature regulatory environments in the US and Europe, the ones in ASEAN are still evolving.  This means more uncertainty and risk. For companies introducing products into multiple ASEAN countries, the task is made more difficult by the country-to-country differences in regulatory requirements.  These differences can make compliance a costly and time-consuming affair.

Also, the distribution channels for medical devices in some ASEAN countries can sometimes present problems to global medical device companies.  For instance, some companies choose to enter a market initially by working with local distributors that take on majority of the sales/marketing and operational logistics work.  However, these same distributors may sometimes engage in local business practises that are seen as non-compliant in the companies’ home country.  US medical device companies, for example, typically have to comply with the U.S. Foreign Corrupt Practices Act (FCPA); many also have a global quality system which has specific requirements relating to product safety.  So companies must have good oversight and control over how their distributors or partners operate in the local market or they risk exposing themselves to breaches and penalties.


Interviews-Stryker2What is a major challenge faced by companies when they expand to ASEAN?

For some medical device companies, doing business in the ASEAN region have historically been challenging.  ASEAN is a heterogeneous grouping.  Its member nations are different in many ways: language, culture, stage of economic development, market size, business environment, just to name a few.  To be successful, companies have to understand the market differences and deploy the right resources to support different regions.

Still, one of the biggest challenges with setting up an ASEAN business division, from the perspective of a large medical device company, is coming up with an efficient setup to access and 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 demand for products, their markets are usually not sufficiently large and local demand alone cannot 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 unsustainable. For instance, companies may be exposed to the compliance issues that I highlighted earlier or they may lose touch with the end-customers due to the lack of direct customer contact and market feedback, and therefore become less competitive.


The ASEAN Economic Community (AEC) is being formed, how will it change the way that companies are setting up in the region?

The creation of the AEC will lead to many changes, such as the freer flow of skilled manpower, capital and trade within ASEAN.  Such changes will allow medical device companies to take a more holistic approach when setting up their operations in the region.   For example, 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 is loose and the manufacturing infrastructure is 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.


What does the AEC mean to companies in the medical devices industry?

ASEAN has been working towards the formation of the AEC for some time now.  I think this tighter economic integration of its member countries is good news to medical device companies that are trying to tap into the full market potential of the region.  Firstly, the integration will help drive future economic development in the region, and hopefully grow the overall size of the ASEAN healthcare market.  This means more business for medical device companies.


More importantly, the integration is expected to lead to greater regulatory harmonisation within the region.  If done well, it can potentially shorten the time and lower the costs it takes for a medical device company to register its products and bring them onto the market.  Although this is good for the companies, patients in the region will also benefit from having access to the latest medical technologies and be able to enjoy better healthcare outcomes.  This will truly be a win-win situation for all.

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