SITE SELECTION
CHOOSING THE RIGHT PLACE AT THE RIGHT TIME
Medical device manufacturers and suppliers, site selection agencies, and consultants offer helpful hints for setting up new or expansion operations abroad.
Lori Bryan
"Medical device companies are not flash-in-the-pan type companies," says Dan Mabey, director of the International Business Development Team at the State of Utah Department of Commerce and Economic Development (Salt Lake City, Utah, USA). "Device manufacturers have to establish themselves for the long term, so the most important thing for them is to choose the right environment. Quality goes to quality; success follows success."
Although medical device firms can find an abundance of region-specific information by contacting the companies listed in the accompanying site selection directory, they may also benefit from listening to other manufacturers, site selection agencies, and consultants talk about their experiences. Such general advice for potential transplants follows.
Know the Business Environment
Before breaking ground, device companies should cultivate an understanding of the region's business environment. Companies that make the effort to learn the fiscal, regulatory, legal, and cultural climate of a location before setting up shop can anticipate potential problems and, therefore, possibly avoid them altogether.
"Knowledge of the local regulatory and governmental agencies was essential to setting up business in Selangor," says B. L. Lim, managing director of Perfecseal Asia Pacific, packaging supplier Perfecseal Inc.'s new 22,000-sq-ft production facility in Malaysia. "We spent a significant amount of time completing the legal issues that were necessary to get the governmental licenses required for a start-up operation." Device manufacturers that carefully investigate a location can, to a certain degree, anticipate such investments of time and money and plan accordingly.
"A joint venture partner might also be valuable to medical device companies that are looking to relocate," says Judi Gorski, president of NAMSA Pacific (Hsinchu, Taiwan). "We determined that it would be very difficult to establish an operation in Taiwan without a local partner," says Gorski. "We wanted a joint venture partner—a local Taiwanese firm or individual that had knowledge of [prevailing] business practices; we thought that was important for establishing ourselves and working through local government requirements." NAMSA also felt strongly that the partner should be dedicated to actively participating in the firm's success, says Gorski, rather than acting solely as a financial investor.
According to Gorski, it can be important to have a local presence in the country of choice to monitor construction of the facility. "Construction contractors," she says, "can sometimes view foreign companies as risky clients. You come from outside the region, you build a facility there, and then you assign someone to manage the operation. If the builders perceive you as a risk, they could mark up your quotation to exceed the standard charges for the project." A local presence, she says, will help to establish confidence with the building contractors that the work will be paid for by the company that will be operating there.
Evaluate the Labour Force
Medical device firms considering relocation must determine much more than the absence or presence of workers in a given location. They must evaluate such critical factors as skills (i.e., level and type), cost, productivity, and linguistic capability of the labour force in a given region.
At the outset, "a medical device company needs to determine that it can access labour with the technical capability to match its level of automation," says Jackie Couper, director of manufacturing at Johnson & Johnson Medical (Gargrave, N Yorkshire, UK). When Johnson & Johnson came to North Yorkshire, explains Couper, they were searching for a European site suited to the production of cotton yarn bandages. "At that time," says Couper, "the clothing industry was predominant here, and a lot of people were skilled in using the machines that made clothing. Thus, it was the ideal site for the business that the company was in at that time."
But today, production processes are more technical and complex than they have ever been, and manufacturers considering relocation are best advised to prepare accordingly. "Current processes do tend to be more automated than labour intensive, and the labour that Johnson & Johnson Medical now requires involves much more technical capability than it did in the past," Couper says.
A region should also be judged in terms of its ability to provide temporary labour. "While the medical device manufacturing business is not seasonal, it does go through peaks and troughs. Temporary labour has been a benefit for us," says Couper, "because it has allowed us to better respond to the ebbs and flows in the marketplace."
Consider Research/University–Based Regions
"It is important for medical device companies to relocate in an environment that is geared to medical technology," says Willem Thöne, executive director, Office for Europe, Netherlands Foreign Investment Agency (The Hague, Netherlands). "This implies, among other things, an environment that offers a supportive network of medical and research institutes." Specialized research institutes, he says, are valuable for supporting the development of medical instruments and systems.
Martin Liddament, head of corporate affairs at the Yorkshire & Humberside Development Agency (Leeds, UK), notes that a university-based setting can help medical device firms to grow and prosper in a new region. "The combined action in Sheffield, for example, between the universities and the manufacturing industry has worked very well," says Liddament. "The two universities there have an excellent reputation for medical development and medical-related research. Many people don't realize that the city—known for its production of steel and cutlery—has taken a lot of its skills in metal and used them to turn the area into a successful medical equipment industry." According to Damien Grenie, consultant for foreign investors at the Agence Régionale de Développement Auvergne (Clermont-Ferrand, France), such "synergy between private industrial labs and public universities provides advanced training systems and can help in the development of emerging technologies."
Science parks are often established in these regions, and they can be an ideal port of entry. "NAMSA Pacific," says Gorksi, "is located in the Hsinchu Science-Based Industrial Park, which is specifically designed to make it easy for international companies to do business in the region. Benefits include a five-year exemption from income tax, and low-interest loans for construction or equipment purchase, which are typically less than local bank loans." Taiwan is reportedly planning another high-tech industrial park in the southern part of the island specifically for biotechnology companies. According to Gorski, medical device firms considering the long-term advantages may benefit from a high-technology industrial park such as the Hsinchu site.
Follow Your Customers
"Being close to your customers and serving them from a local facility has significant communication and service advantages," says Lim. Perfecseal Asia Pacific, he says, is located centrally (i.e., no more than seven travel hours from current customers and the regions the company intends to serve--Thailand, Malaysia, Japan, Korea, China, Taiwan, Australia, and India). "Many of Perfecseal's existing customers," he says, "have set up manufacturing operations in the Pacific Rim."
John Rottunda, executive vice president of Perfecseal North America, adds: "Our design engineers at Perfecseal Mankato (Minnesota, USA) work with multinational companies on new product manufacturing, and as these firms expand their businesses offshore, we follow. Companies feel more comfortable working with suppliers who are manufacturing in the same locality, but who also have broader resources to support the design phase."
NAMSA, too, followed its customers in its move to the Asian Pacific region. "We looked at Taiwan as a place of opportunity because of the size of the medical device market," says Gorski. "A few years ago, Taiwan began implementing a universal health-care system that was expected to increase healthcare coverage throughout the country, and thus increase the demand for medical devices." Reportedly, the country's national development plan proposed significant growth in R&D and projected US$1.5 billion in medical device production by the year 2000. Such factors were important in the company's decision to establish a facility in Taiwan.
Conclusion
In the most general sense, the best site selection strategy that a device manufacturer can adopt is a well-rounded one. A device company can encounter problems if, for instance, it focuses on a region's tax advantages but ignores its transportation infrastructure, explains Simon Bezzina of Malta Development Corp. (Valletta, Malta). "A decision to locate should not be lopsided," he says. "It should be made by a well-balanced professional team that has considered all viable options."
Continue to part 2 of this article, which gives a breakdown of various manufacturing regions across the globe.
