Originally Published MX November/December 2005
BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT
Growing RootsMedtech companies looking to establish a domestic home base and still meet worldwide demand must consider their options carefully.
Medical technology is frequently described as one of the most rapidly growing industries in today's business climate. One result of such favorable assessment is that economic development agencies in the United States fall into one of two categories: those that have already established their regions as hubs for medical device companies and those that want to establish their regions as hubs.
These days, a medical device manufacturer looking to put down domestic roots can expect fierce competition among states when circulating its initial request for proposal (RFP). And where a company decides to settle down will often depend on the factors it values most, be they tax breaks, direct financial assistance, business incubators, access to intellectual support and a skilled workforce, or quality-of-life considerations.
But among the myriad factors that go into the domestic site selection of a medtech company, there is arguably one trump card: logistics. Will a company be able to move its product where it needs to go for what it can afford to pay in the time it needs to do it? In an ever-shrinking world, this issue grows increasingly complex as domestic companies face growing pressure to reach international marketplaces.
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| Seeman |
"A lot of these companies are dealing with most fragile, most sensitive, most high-grade components," says Jerrold S. Seeman, president of Luxcore Ltd. (New York City), a marketing firm whose clients include economic development agencies. "The whole supply chain for sending those products to another country is critical. You've got to maintain control. We're not shipping tires here."
Device companies searching for a site from which they can grow internationally might instinctively turn to well-established medtech hubs where they feel confident that an infrastructure is in place to support their logistics needs, both at home and abroad. However, with medtech becoming a more attractive industry to economic development agencies nationwide, executives should take care not to overlook lesser-publicized regions that might also have the incentives and support necessary for a device company to set up home base.
An Experience Base
When a company initiates its site selection process, questions related to a region's experience with the medtech industry should be prominently featured in its RFP.
"You're looking for a number of things," Seeman says. "You want an experience base of knowledge and tangible support, and you want the state government to have a history of supporting medical device companies or a demonstration of willingness to support them."
For a company looking to grow internationally, this experience base should extend to the region's ability to move medical products overseas, Seeman says. Questions designed to gauge this ability can be written into the RFP.
"You have to say, look, if I want to ship internationally, what is your infrastructure? Are you a hub or a spoke? If I have to go from one place to another just to get to a third place, that's an added expense," he says. "You've got to look at very sophisticated supply chains that are equipped to deal with international transport. All the incubators in the world are great, but if you can't get your product over the state line, they're worthless."
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| Holt |
Most domestic companies tend to design their operations around their U.S. customer base, and then look at how to service international marketplaces, says Chris Holt, vice president of consulting for the healthcare practice of UPS Supply Chain Solutions (Alpharetta, GA).
"There's not just one distribution hot spot for medical device companies. Each business has very company-specific reasons for wanting to be in a particular location," says Holt. However, companies that outsource their transportation and distribution functions can gain certain logistical advantages, domestically and internationally, if they set up their manufacturing operations near a hub of their logistics provider, he says.
"These days you wouldn't think logistics would be much of a problem, but there are economies of scale," Seeman says. "For example, West Coast companies that want to do business in Europe are going to have special challenges. They have to find a good way to move their products the wrong way around the world."
Seeman says companies have to decide what the most cost-effective way is to get a product to its market. "Some products can sit on a tanker for 20 days. Others had better be on an international flight," he says. "Every company has a different timeline for getting its products to market. And every time you add an extra data point, there's a cost involved."
When push comes to shove, there might be certain states in which it is not practical to launch certain products into certain markets, Seeman says. This is especially the case for medical device companies shipping sensitive materials that must either reach markets quickly or cannot withstand certain environments, such as temperature extremes.
"You have to know which ports and airlines are equipped to handle those types of materials," says Seeman, adding that some areas are a no-brainer. "You've got to know intuitively that California is one of the states that is connected for being able to move sensitive materials to Asia. That whole structure grows up around the industry."
"There's been huge growth in healthcare in general of temperature-sensitive products and, to a lesser extent, time-sensitive products," Holt says. "This demands a much higher level of quality oversight, and that's really tough to achieve on a global basis."
Not all regions' capabilities to handle medtech needs are obvious. Although some regions have been supporting device companies' supply chains for decades, most states that don't already have those capabilities are now examining ways to get them, Seeman says. "You want to make sure a site is a good fit for your company. You want to fit the round peg into the round hole," he says. "The good news is, there are a lot of round holes right now."
Tried and True
|
State
|
Medical
Device Companies (no.) |
| California |
1962
|
| New York |
792
|
| Massachusetts |
710
|
| New Jersey |
689
|
| Pennsylvania |
652
|
| Illinois |
649
|
| Florida |
625
|
| Ohio |
476
|
| Texas |
420
|
| Minnesota |
391
|
| Connecticut |
299
|
| Wisconsin |
289
|
| Michigan |
273
|
| Georgia |
247
|
| Colorado |
219
|
| North Carolina |
215
|
| Indiana |
211
|
| Maryland |
193
|
| Missouri |
192
|
| Washington |
172
|
| Table I. MDR report of the top-20 states with medical device companies | |
Medical technology executives often view the known hotbeds as having the greatest potential for emerging medtech companies. Each year, a national survey conducted by the law firm of Oppenheimer Wolff & Donnelly LLP (Minneapolis) and MX magazine asks medtech business executives and venture capitalists what geographic area they believe offers the greatest opportunity for emerging medical technology companies. Minneapolis/St. Paul, Southern California, and Silicon Valley have consistently been in the top tier.
Big and Getting Bigger
In this year's Oppenheimer/MX survey, for the first time, Florida and Texas both made their way onto the list in the 'other' category. Both are already strong medical device manufacturing states, but neither had been mentioned by executives in previous years' surveys as having the greatest potential for emerging companies (see Table II). According to officials within the states' economic development agencies, both regions are ready to make the most of their growing reputations, and each has the infrastructure in place to support medtech companies looking to move devices overseas.
|
Geographic Area
|
2003 Respondents
(%) |
2004 Respondents
(%) |
2005 Respondents
(%) |
| Atlanta |
5
|
0
|
2
|
| Baltimore |
7
|
3
|
0
|
| Boston |
18
|
22
|
11
|
| Kansas City |
0
|
1
|
2
|
| Minneapolis/St. Paul |
25
|
27
|
26
|
| Philadelphia/Northern New Jersey corridor |
7
|
3
|
3
|
| Salt Lake City |
0
|
1
|
2
|
| Santa Fe |
0
|
2
|
0
|
| Silicon Valley |
18
|
16
|
22
|
| Southern California |
25
|
25
|
21
|
| Other |
—
|
—
|
11
|
| Table II. Geographic areas offering the greatest opportunities for emerging medical technology companies, according to respondents to the 2003-2005 national medtech investing surveys sponsored by Oppenheimer Wolff & Donnelly LLP (Minneapolis) and MX magazine. | |||
Texas. While Texas already has a significant medtech presence with more than 400 companies, a great deal of opportunity still exists for further establishment of the industry within the state, and the Dallas–Fort Worth area, though landlocked, provides significant logistical support for international trade.
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| Williams |
"The North Texas region is advantaged by having DFW Airport, which serves as one of the two U.S. gateways to Latin America, with Miami being the other," says Nancy A. Williams, president of the Health Industry Council (Irving, TX). "The airport also provides direct service to Europe and Asia-Pacific cities. DFW Airport is also a major airfreight center with global reach."
The Fort Worth area is also home to the Alliance business development, an 11,600-acre international trade and logistics center featuring the world's first industrial airport. "Federal Express maintains its southwest regional hub at Alliance for time- sensitive transportation," says Williams. "And Alliance has just completed a new air trade center, which is also the home of UPS, Excel Logistics, Ryder Logistics, and other leading third-party logistics organizations."
The Burlington Northern Santa Fe Railway also maintains an intermodal center at Alliance, which features air, rail, and trucking capabilities. And although Alliance now houses 130 companies, Williams says its facilities are only 25% built-out.
"Both DFW Airport and Alliance Airport have foreign-trade zones that benefit the user by reducing, deferring, or eliminating duty and reducing inventory tax," she adds.
The Health Industry Council was established in 1988 to develop Northern Texas's health industry, and since then has increasingly turned its attention to the medical device arena. One of its projects is the Medical Device Action Alliance, which coordinates regular industry roundtables and an annual medical device industry educational program. According to a survey conducted by the council this summer, more than 100 medical device companies are located in the Dallas–Fort Worth Metroplex alone.
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| Kelley |
Florida. Another well-established medtech region with more than 600 device manufacturers in its borders, Florida offers a variety of incentives to companies, including easy access to Latin American markets.
"Like any sector in Florida, medical device manufacturing has an edge in international trade and business development," says Darrell Kelley, president and CEO of Enterprise Florida Inc. (Orlando). "Florida boasts a unique combination of a strategic geographic location, state-of-the-art infrastructure, multilingual workforce, and concentration of corporate and financial resources. Florida has 20 foreign-trade zones, mostly located at or near its seaports and international airports. In these zones, value can be added to foreign goods tariff free before shipping them on to another country.
"In addition, Florida has identified the medical device industry as part of its high-impact life sciences sector, which qualifies medical device companies for a variety of business incentives," Kelley adds. "Medical device companies that locate or expand in the state are eligible for tax refunds for job creation in the field."
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| Steinocher |
The Tampa Bay area, home to the Florida Medical Manufacturers Consortium, is one of the top 20 medical technology clusters nationwide, according to Chris Steinocher, vice president of marketing and strategic planning for the Tampa Bay Partnership. And although the area has a history with the industry with almost 250 medical device companies, Steinocher says new companies are increasingly making use of the area's location for international expansion.
"Now we're seeing new companies coming in that are using the area to access both North and South American markets," he says. "Access is a big key. We have access to three international airports and three deep-sea ports."
And, Steinocher says, when considering access to international markets, companies must factor in an area's ability to move people as well as products. "Tampa International Airport is consistently ranked one of the top three most business-friendly airports," he says. "And TIA has the third cheapest air fares of any major airport in country."
Turning Spokes into Hubs
While medical device hotbeds are only looking to get hotter, other areas that previously might not have considered device manufacturers as major targets are coming around. Many states and regions are learning how to harness their experience and investment in other industries and use it as leverage in attracting medical product manufacturers.
"This has become big business now," says Luxcore's Seeman. "States are taking places like former military facilities that are empty now and turning them into R&D and incubator parks. The loss to an old business is a boon to new industries that need to go in there."
Likewise, areas surrounding well-established medtech hubs are capitalizing on their neighbors' resources and infrastructures, setting themselves up as desirable alternative locations. And whether they're looking to increase their share of medtech companies or approaching the industry as a new opportunity, they all recognize the importance of logistics, location, and infrastructure for international trade in attracting new companies and meeting the needs of existing ones.
North Carolina. With its more than 200 companies, North Carolina is by no means a medtech lightweight. And with a solid foundation of experience, resources, and international trade support in place, the state is looking to grow its base of device manufacturers further.
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| Denny |
Jeff Denny, director of life sciences and technology recruitment for the Greater Raleigh Chamber of Commerce, says that the region's access to leading medical schools, research centers, and one of the largest clusters of life sciences companies in the world provides fertile ground for medical device companies. He also says the state's Research Triangle region boasts the largest concentration of contract research organizations in the United States.
"North Carolina is a brilliant example, in its Research Triangle Park, of a state creating an entire biotech community," Seeman says. "And those companies supported in Research Triangle do a lot of their business internationally."
Along these lines, the North Carolina Department of Commerce's international trade division provides consulting services to state businesses looking to take advantage of overseas markets. Although the division doesn't provide direct export subsidies, its consultants work with businesses to identify public and private funding sources.
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| Mason |
Michigan. Already home to more than 200 medical device manufacturers, Michigan is using the infrastructure that sprang up around its massive automotive industry to attract emerging technology companies and support their international efforts.
"Since 2000, we have invested more than $210 million in medical device and other life sciences–related research and development," says Jeff Mason, senior vice president of technology development for the Michigan Economic Development Corp. (Lansing).
"A lot of the regions around the world are trying to become centers for helping companies grow globally. We already have that infrastructure in place and are already helping companies do that," says Oakland County executive L. Brooks Patterson. "We've been helping companies in the automotive sector and their suppliers sell their products globally for decades now. It's easy for us to use those same processes and same infrastructure to help medical device companies, biotech companies, and others sell their products globally."
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| Patterson |
In the late 1990s, Patterson founded Automation Alley, southeast Michigan's regional technology cluster. "Our companies participate in Automation Alley's export missions, and they all come back with sales orders from these well-executed trade missions around the world," says Patterson.
Mason says the region's international companies also benefit from Michigan's location. "Centrally located between both coasts of the United States, southeast Michigan—the metro Detroit area—has access to the Atlantic Ocean via the Saint Lawrence Seaway," he says. "The Detroit Metropolitan Airport and its recently opened McNamara Terminal offer direct flights to international business hubs."
Washington. Washington State, particularly the Seattle metropolitan area, is widely recognized as a center for biotechnology and medical technology. And, according to the Inland Northwest Economic Alliance, the region's ability to harbor medtech manufacturers and transport their products globally extends further inland as well.
According to the alliance, the inland area's high concentration of major hospitals and healthcare centers can be harnessed by medtech companies for clinical research on new technologies, and the region supports 22 research parks.
Regional economic development organizations, including the International Trade Alliance of the Spokane region, provide direct assistance with moving products to global markets. The region has eight ports of entry into Canada and several foreign-trade zones, including areas surrounding the Spokane International Airport. The region's interior ports on the Columbia River are the most-inland seaports on the West Coast, and trucking, rail, and water routes reach major ocean ports in Seattle, Tacoma, and Portland in one to two days, according to the Inland Northwest Economic Alliance. The alliance represents a collaboration of multiple economic development agencies in eastern Washington and northern Idaho.
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| Ginn |
South Carolina. In South Carolina, the government is placing increasing emphasis on developing the state's bioscience and medtech industries. Last year the state passed the Life Sciences Act and Venture Capital Investment Act, which created a new incentives eligibility category for life science companies, including those that manufacture medical and laboratory instruments.
"We're looking at the whole biotech arena," says Fred Gassaway, executive vice president of marketing for the Palmetto Economic Development Corp. (Columbia, SC). "The state is increasing its spending in the medical research and diagnostic areas, and the state's ability to support those companies is increasing."
Although South Carolina is not currently among the top of the list as far as the presence of medtech companies go, David Ginn, president and CEO of the Charleston Regional Development Alliance, says the state's location and infrastructure put global-thinking manufacturers at an advantage. "Its position on the East Coast allows for easy access to Europe and other global destinations," Ginn says. He adds that the port of Charleston, the busiest container port on the Southern Atlantic and Gulf coasts, is cited as the most productive port in North America.
 |
| Longenderfer |
Lehigh Valley, PA. The Lehigh Valley region in Pennsylvania is increasingly gaining the attention of medical product manufacturers due in large part to its proximity to other key markets, says Megan J. Longenderfer, vice president of marketing for the Lehigh Valley Economic Development Corp. The region is centered along the biotech corridor running from Boston to Washington, DC, and benefits from the resources and infrastructure that support the New Jersey–New York–Pennsylvania "science triangle," Longenderfer says.
Companies with medtech operations in the region include B. Braun Medical Inc. (Bethlehem, PA), Fisher Clinical Services (Allentown, PA), and OraSure Technologies Inc. (Bethlehem, PA).
Minnesota/North Dakota. In the North, the reputation of the Twin Cities as an area of potential growth for medtech companies has caught on, and now regions that have never before targeted the industry are looking to catch its eye.
 |
| Lucy |
"We have only recently begun to pursue medical device manufacturers," says Paul Lucy, senior vice president of the Greater Fargo Moorhead Economic Development Corp. (Fargo, ND). "Our efforts have been more targeted toward life science service companies."
Lucy says the Fargo-Moorhead area, encompassing parts of North Dakota and Minnesota, will incorporate incentives to support the location of a medical device or life sciences company. And for those looking to move their products internationally, the area has a designated U.S. Customs port that allows for inbound and outbound international shipments to be bonded to and from the Fargo-Moorhead area without requiring clearances to be completed at the water ports. The area also has an intermodal container facility, export trade offices, and a pending foreign-trade zone application being reviewed at the federal level.
Conclusion
Medical device manufacturers looking to set up shop domestically and still have access to attractive overseas markets must take care to ask the appropriate questions when going through the site selection process. Although international markets can be touched from virtually any point within the United States nowadays, not every region features the infrastructure and proximity to resources needed for cost-effective global operations.
With the medtech industry providing an increasingly attractive target for the wooing of economic development agencies, device companies looking to put down roots will generate plenty of interest among regions nationwide, in both established medtech hotbeds and areas looking to establish themselves as such. Executives must have a firm grasp of their companies' site priorities and needs well before circulating their initial RFP.
Copyright ©2005 MX
