Asia will continue to be a sought-out location for medical device and component manufacturing. As is the case with any outsourcing venture, quality is always a concern and should be a top priority. To avoid significant issues when doing business with companies in Asia, there are a variety of factors that manufacturers need to consider. In a Q&A with MedTech lntelligence, Pacific Bridge Medical President and Founder Ames Gross offers insight on the steps companies should take to ensure that they “partner with the right supplier from the start”.
MedTech Intelligence: What trends are you seeing related to Western companies sourcing medical products or components from Asia? Are there particular hot regions?
Ames Gross: It is well known that Asia has become a powerhouse for sourcing and manufacturing medical products and components, with a key reason being that the labor and manufacturing costs in certain Asian countries are significantly cheaper than the costs in Western countries.
Other than the cost savings, there are two trends that make Asia an attractive location for medtech manufacturing and sourcing. Firstly, the quality of manufactured products is steadily improving throughout the region. Secondly, the demand for medical devices is rapidly growing across Asia due to aging populations and expanding middle classes that desire better quality healthcare. In response, Asian governments are working quickly to improve healthcare systems and practices. This is attracting device companies to manufacture their products within Asia in order to be close to the Asian markets and allow them to easily tailor the products for Asian consumers. In addition, making medtech products locally in Asia will help to reduce supply chain issues when serving the Asian markets.
China is obviously a hot region for manufacturing and sourcing medtech products. Nowadays, product quality has vastly improved, and the country is full of companies that have experience making a wide variety of products. Chinese companies are also able to produce a very high volume of certain products, particularly disposable devices. With the huge customer base and high demand, making the products close to the Chinese consumers can be important to increase market penetration there.
Vietnam and India are also popular manufacturing and sourcing locations, as well as other low-cost Asian markets like Indonesia, the Philippines and Thailand. Each of these countries can make different types of medical products. Vietnam is a good place to source low-tech disposable products, such as surgical gowns. The country offers a strong labor force with relatively low labor costs. India offers medtech suppliers that often meet the basic requirements, such as being ISO 13485 certified and having in-house clean rooms, EtO sterilization units, and quality testing laboratories. More and more medtech products are being made in India despite quality concerns.
If you are looking to source or manufacture more sophisticated, complicated products and are less price-sensitive, Singapore, Korea or Taiwan are good options. However, in these countries, labor and manufacturing costs will likely be only slightly less than in Western countries.
Is China Preparing to Dominate Its Medtech Space?MTI: Are there common challenges that medtech companies are facing in doing business with manufacturers in Asia?
Gross: In the low cost Asian markets, medtech companies still commonly face issues related to poor quality control, limited manufacturing capabilities, and language and business culture barriers. For example, in Vietnam, it can be a challenge to find a supplier who is able to communicate in English, and the quality of the manufactured products is often a problem. In addition, Vietnamese companies generally do not have the ability to produce the large quantities of disposable medical supplies that can be made in China.
In India, mold making is a costly affair, which is a major concern for many Indian medtech manufacturers. We have found that some Indian manufacturers expect some sort of financial support upfront, as project startup costs. Oftentimes, we have also seen Indian manufacturers that cannot make the entire medical device product in-house, so they need to procure or source components from other Indian companies.
These problems are becoming less and less of a concern in China, but at the same time, China’s manufacturing costs have increased dramatically over the last 10 years, especially around the major Chinese cities. Chinese medtech innovation is still behind the West. Today, it is often cheaper for commidity devices and components to be made in other low cost Asian markets rather than in China.
A big problem in the Asian markets is intellectual property (IP) infringement. This is a risk in all of the Asian countries, but particularly in China, and somewhat in Korea and Taiwan. China and Korea are both developing their own large domestic medtech industries, and without an enforceable patent in each of these markets, you may find local companies that are interested in copying your sophisticated or innovative medical device. If you have an innovative product, you need to be careful in Japan as well, and that is why we always advise innovative device manufacturers to obtain a patent in Japan early on [in the product development process].
Given these challenges, it may not make sense to source manufacturing in Asia if you want to sell your product exclusively in the American or European markets, or if reducing supply chain risks or freight costs is a priority for you.
MTI: Discuss product and component quality. Are there any issues here?
Gross: As mentioned previously, production quality for medtech products and components is improving across the Asian region. Compared to 10 years ago, there are many more factories in Asia now that follow the standards of the FDA and ISO. The highest quality products come from Japan and Singapore, generally followed by Korea, Taiwan and China, with some Chinese manufacturers now being capable of making good quality Class II and III products and sophisticated components.
Despite the improvements, product quality is still a big concern in Asia, especially in the low-cost markets. It is necessary to perform extensive due diligence and regular audits at the Asian facilities to ensure that the manufactured products meet your quality standards.
Oftentimes, if you have a technically sophisticated product, an Asian supplier may not be able to fully understand the product’s design and specifications, and this can easily lead to poor quality or defective products. In this case, you must be sure to explain the product details thoroughly and conduct regular quality inspections to check that the supplier can manufacture the product correctly.
MTI: What are your top three tips for companies when they are sourcing products in Asia?
Gross: As you may be able to guess, my top three tips for sourcing in Asia are largely related to dealing with quality assurance and quality control issues. First of all, I would advise putting in the time and effort necessary to find a qualified and trustworthy Asian manufacturer for your product. While the supplier search process in Asia can be quite challenging and it is tempting to cut corners, too many times I have been contacted to help companies who ran into significant issues with their Chinese supplier but could not easily switch to a new supplier without disrupting production and negatively impacting their business. It is better to make sure you partner with the right supplier from the start.
Nowadays, many Asian companies make it easy to initiate contact with them over the phone or internet, with sites such as Alibaba that connect buyers and manufacturers all over the world. But you cannot rely on forming partnerships with Asian suppliers remotely, as oftentimes they will falsely represent themselves online. It is critical to visit the manufacturers and the production facilities in person and conduct thorough on-site evaluations to confirm that they have the equipment and capabilities to meet your needs.
My second tip is that you must make sure to explicitly stipulate terms related to product quality in any contract you sign with Asian manufacturers. Even if you find a reliable and competent supplier, oftentimes you may still come across occasional quality problems. The terms should state that final payment for the manufactured products is delivered only if the products are tested and confirmed to meet the quality standards outlined in the contract. If the product quality is not satisfactory, the supplier must remake the products at no additional cost.
It is not enough for the supplier to agree to the terms in your regular correspondence. Including precise terms in the contract will prevent ambiguity and misunderstandings down the road. In the business culture in many Asian countries, companies prefer vague contracts and are not used to writing precise stipulations, so it is up to you to make sure a quality guarantee clause is included.
Lastly, I want to emphasize that you can never do enough due diligence with respect to quality issues at Asian medtech factories. Continuous quality audits are a must. Several years ago, we conducted a quality audit at a Chinese factory on behalf of a U.S. medtech company. We found the quality standards to be quite high, so the client moved forward with establishing a partnership with this Chinese factory. Shortly afterwards, new Chinese management took over the company, and their quality standards were not as good as that of the previous management, for the client discovered significant quality issues at the factory a few years later. This shows that quality audits must be done at least yearly at any Chinese or Asian facilities that you are working with.
When working with Asian suppliers, it is critical to have an experienced quality inspector on-site to oversee the manufacturing process and check the quality of the products on a regular basis. Generally, I recommend conducting long-term regular inspections at the manufacturing facility to catch any problems early on in the production process. However, if you establish a trustworthy relationship with the supplier, it may be sufficient to just conduct quality audits at the freight-forwarding center.
MTI: Are there any additional insights that you’d like to share?
Gross: A number of Western medtech companies are starting new Greenfield operations in China. For medtech companies looking to open their own manufacturing facility in China, the following basic regulatory approvals are required:
- Business license
- Medical device manufacturing license
- Product registration certificates (for Class II and III devices) or product notification record (for Class I devices).
The applications for these licenses should be submitted sequentially and cannot be submitted simultaneously. For the manufacturing license, an on-site good manufacturing practice (GMP) inspection is required for Class II and III medical device products before the license can be issued. Besides the above-mentioned licenses, please keep in mind that other local permits will also be required, such as a foreign investment approval, an environmental license, and so on. New Greenfield operations in China normally take about three years to get up and running.
As for India, setting up a medtech manufacturing facility in the country can be very complex since there are so many regulations there, including Indian product standards, the Factories Act, the Companies Act, on-going inspection requirements, and more. A few years ago, we helped a U.S. medical device company set up a manufacturing facility in India for export only. We found a good site in India and a contractor to build the facility, and we assisted the client in meeting device regulations and requirements. Part of the client’s finished device included some fluids that had to be exported from the United States to the Indian manufacturing site. While these fluids were not regulated in the United States, in India they were considered to be drug imports, so the Indian factory layout had to be altered at the last minute to make sure the factory was drug compliant. These strict regulatory details can cause unforeseen delays or problems in building a new production facility in India.
Many people in the medtech community are concerned with how President Trump’s tariffs will affect medtech device and component sourcing from China. Medtech supply chain managers doing business in China have two main issues: 1) Will suppliers absorb any of the tariff costs and 2) Can price increases be passed on to customers? It is difficult to tell what will happen as the trade war gets worse, as it will not be easy to win a trade war with the Chinese.