Although the vast majority of medical device companies recognize that vertical integration is no longer a viable business model, reliable data on the use of outsourcing is hard to find. For this reason, EMDM commissioned a study from Readex Research. We asked a sampling of companies from our subscription list a number of questions related to outsourcing, which we defined as an OEM engaging a firm to perform contract services or contract manufacturing.
Many of the answers substantiated what we knew to be true based on anecdotal evidence. But there were a few unexpected results, as well. For example, would you have guessed that more than one in five UK OEMs and well over half of their Irish counterparts partner with North American suppliers? Or that almost one in three companies based in Finland, Sweden, and Denmark that took part in our survey outsource more than half of their activities?
Here, then, is a snapshot of current and projected outsourcing activities among medical device OEMs doing business in Europe.
Growth Ahead
Medical device OEMs are bullish on the use of outsourcing as a competitive tool: By an overwhelming margin, they predict sustained growth for the practice in their own companies and, indeed, within industry as a whole.
Fully 80% of the 345 firms responding to our survey currently outsource part of their manufacturing activities or are considering doing so in the future. When asked if they expect to increase their use of contract services in the next five years, almost half (48%) said yes. Only 25% answered no (the remainder either did not know or did not provide an answer). Among firms anticipating a rise in their use of contract services, the median projected increase is 13%. One in eight companies expect to see growth surpass 15% in the next five years.
When asked to forecast the rate of growth of outsourcing for the med-tech industry as a whole, the median was again 13% over five years. However, the number of firms anticipating industrywide growth of more than 15% surged to almost one in three.
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Almost half of the companies responding to the survey anticipate an increase in the use of outsourcing within their organization over the next five years. The median projected increase in outsourcing among companies participating in the survey is 13%.
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Western Europe Is First Choice
Western Europe remains the destination of choice for outsourcing partners; it was chosen by more than three-quarters of respondents. It was a steep statistical drop to the second outsourcing magnet: eastern and/or central Europe was favoured by 29% of survey participants. North America was hot on its heels (26%), with Asia/Pacific getting the nod from 23% of firms.
Companies sourcing suppliers in eastern and central Europe favoured the Czech Republic (6%), Poland (5%), and Hungary (4%) over other locations. As to those looking further eastward, 40 out of 57 companies (70%) currently partnering with contract services firms in Asia/Pacific chose China. Malaysia came in second with a scant 4%, followed by India, Taiwan, and Thailand.
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Eighty percent of the 345 companies responding to our survey outsource part of their manufacturing activities or are considering doing so in the future. Production activities are outsourced by 174 companies, 70% of the total number of respondents.
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The Scope of Outsourcing
Companies headquartered in the United States and Germany are avid users of outsourcing services—76% and 70% of the total, respectively—but they were not the leaders in our poll. Scandinavia (which comprises Sweden, Norway, and Denmark for the purposes of this survey) is at the head of the pack, with 82% of companies currently outsourcing activities, while Italy came in second with 77%. The UK and Ireland tied at 69%.
Of the 247 companies that currently rely on contract services, 154 (62%) outsource 10% or more of their activities. Interestingly, 43 companies (17%) outsource more than 50% of their operations. Based on our survey, Scandinavia again is home to the most aggressive firms: 31% of firms report outsourcing more than 50% of their operations.
Regarding the types of activities outsourced, 70% of companies rely on vendors for moulding, extrusion, and other production operations. The percentage is even higher (89%) for OEMs that partner with Asia/Pacific suppliers. Packaging and/or sterilization came in second (45%), surface treatment and other specialized processes are outsourced by 37% of these companies, and 34% of the companies taking the survey reported using electronics manufacturing services.
While the types of activities outsourced were fairly consistent across geographical lines, there were some variances that caught our attention. Companies based in Ireland, for example, are more likely than their counterparts to rely on packaging and sterilization services (63%), while UK OEMs turn to electronics manufacturing services in greater numbers than their peers on the continent (42% versus 34% industrywide).
Logistics and product design are outsourced by relatively few companies (13% for each category). Here again, though, there are some significant variances: Nordic companies source product design services (25%) to a greater extent than other EU firms.
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Asked to forecast the rate of increase in outsourcing in the industry as a whole, almost one in three respondents answered >15%.
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About the Survey
The survey sample of 3000 was selected from European Medical Device Manufacturer subscribers with e-mail addresses on file, representing 7738 recipients at the time of sample selection. Data were collected via an electronic survey conducted between 4 and 17 January. The survey was closed for tabulation with 345 usable responses, a 16% response rate based on the net effective mail out of 2230 forms. The margin of error is ±5.2% at the 95% confidence level. The survey was conducted by Readex Research (www.read exresearch.com) on behalf of EMDM publisher Canon Communications llc.
Copyright ©2006 European Medical Device Manufacturer
