A NOTE FROM THE EDITOR
Securing a Future in the Global Marketplace
In the time-honored tradition, first the good news: the global medical device industry is growing at a healthy annual 6 to 7%. The bad news? The United States is disproportionately reaping the rewards.
That was one of the points made by Arnaud Sergent, director of LEK Conseil (Paris), at Intermedica 97 in Paris last month. An overflow crowd attended the conference, during which Sergent presented some of the findings and recommendations of a study on the global competitiveness of the European medical device industry. The study was conducted by LEK Conseil at the behest of the European Commission DGIII. Europe's device manufacturers can achieve greater parity with their US counterparts in the global marketplace, said Sergent, but it may require some support from the public sector, particularly if small to mid-size companies are to survive.
On the positive side, while the medical device market is heavily dominated by the United States, which represents 40% of the world market, Europe is not far behind with a 31% share. And European medical device manufacturers are doing exceptionally well . . . within Europe. "European industry supplies 76% of the EU market. Germany is the leader--82% of healthcare products sold in Germany are manufactured in the EU," said Sergent. At the low end, he cited the United Kingdom, with 66% of the products coming from the community.
EU products fare well at home, he continued, but they have a difficult time penetrating foreign markets, citing a feeble 7% market share in the US and 10% in Japan. A more disturbing trend, he noted, is the weak penetration of EU manufacturers into Asian and South American markets, which are experiencing explosive growth rates of 30% in some cases. In these countries, EU market share varies between 10 and 15%, compared to 25 to 30% for the US and 20 to 25% for Japan.
Que faire? The LEK study that is in the hands of the European Commission DGIII may not outline a revolution, but it does propose a series of measures that, according to Sergent, would provide a needed boost for EU manufacturers.
R&D is fundamental in the biomedical arena, said Sergent, and the level of spending on R&D as a percentage of sales is a good indication of why some companies fail in the global marketplace. "The EU spends an average of 5% on R&D, compared to 6.7% in the US," he said. "Part of the problem is a shortage of venture capital--there's twice as much money available for R&D in the US as there is in the EU."
Public funding is another area that needs to be reexamined, according to Sergent. While there are some well-planned public funding programs in the EU, they generally do not directly benefit the medical device industry. These programs often focus on research rather than development, he said, and procurement of funding is a cumbersome process that often intimidates small and mid-sized companies.
Cost-containment measures and global marketing strategies are additional challenges facing industry. "The biomedical market is extremely fragmented, and European companies quickly exhaust their opportunities for growth within their national markets," said Sergent. The medical device directives are a major step in the right direction, said Sergent, and the European Commission should continue to work toward harmonization through the promotion of the CE mark throughout the world and the establishment of mutual recognition agreements with other countries.
While ensuring that EU products remain competitive in the global marketplace is ultimately the manufacturer's responsibility, Sergent stressed that the European Commission can and should play a key role in creating the conditions for success. Sergent cited the establishment of communitywide standards for hospital payment terms and the encouragement of joint ventures among European medical device companies as ways in which the Commission could help to level the playing field.
"Globalization is increasingly defined by acquisitions," he cautioned. "In reality, that often translates into European companies being swallowed up by American multinationals." The single market can be a formidable tool in reversing that trend, but competing on a global scale requires resources that may be out of reach for many small and mid-sized companies. Considering that these companies tend to be the principal sources of innovation in the medical device industry, abandoning them to the vagaries of the global marketplace could have dramatic consequences for the future of Europe's medical device industry.
The LEK study's recommendations on bolstering the competitiveness of the device industry received a warm welcome in Paris. Will the climate be as favourable in the more northern reaches of Brussels? That, to repeat another time-honored expression, is the question.
