A comparison of the various forces in China's medical device industry

There are more than 15,000 medical device manufacturing enterprises and 40,000 medical device agents in China, operating 44 major categories and hundreds of thousands of product specifications. Certain varieties have formed a regional centralized and industrialized pattern, such as Tonglu, Zhejiang; Touqiao Town, Yangzhou, Jiangsu; and Changheng, Henan.

Tonglu, Zhejiang has become a distribution center for endoscopes in China. There are more than 30 formally registered manufacturing companies and more than 90 operating companies. Among the larger ones are Tiansong (formerly Jianduan), Kangji, Guangdian, and Sanhe. On May 8, 2012, Shenzhen Mindray announced the acquisition of a controlling stake in Hangzhou Guangdian Medical Devices Co., Ltd. Zhejiang Tonglu endoscope companies recruit relatives and friends and locals as large package managers to develop the national market. There are cases where large package managers have worked abroad for more than ten years, accumulating funds to acquire factories.

Xiaogan, Hubei is a national concentration area for the production and manufacturing of pathology equipment. Nearly 30 enterprises, represented by Xiaogan Yaguang, also adopt a large package manager system to develop the market.

Jiangsu Xuzhou medical device enterprises mainly focus on conventional and low-end medical devices, such as microwave therapy instruments, anorectal therapy instruments, prostate therapy instruments, dermatology instruments, colposcopes, ultrasound instruments, electrosurgical knives, etc. The market scale of these enterprises is relatively small. There are 53 registered medical device manufacturing enterprises and 434 medical device distribution companies.

Wuhan possesses half of the medical laser equipment market in China and is a leader in the domestic market for some high-end, sophisticated, and cutting-edge products. There are currently dozens of medical laser manufacturing enterprises. Among them, Qizhi Laser has become a leading brand in Chinese medical lasers, along with Huagong Laser, Wuhan Yage, Jinlaite, and Wuhan Love Technology. In June 2014, the first national laser industry association with industrialization as its goal—the "China Laser Industry Alliance"—was established in Wuhan, along with a 5 billion yuan laser industry fund, forming a complete laser industry chain.

"China's hometown of disposable medical consumables"---Touqiao Town, Yangzhou: Touqiao Town currently has 96 manufacturing enterprises, 52 operating enterprises, nearly 200 products, 6,200 employees, and nearly 5,000 marketing personnel. However, only one enterprise has taxable sales exceeding 100 million yuan; most others hover between tens of millions of yuan and even millions of yuan. In 2012, the total output value reached 4.56 billion yuan. Touqiao products mainly concentrate on the lower-end disposable medical consumables of the industrial chain. The main products are anesthesia packs, puncture packs, analgesia pumps, and infusion sets. In June 2012, Yangpu officially acquired a 50% stake in Yangzhou medical consumables company Kanglilai.

Changyuan Weicai has created the myth of "Changyuan's production suspension, nationwide shortage" in the medical device industry. Dingluan Town, Changyuan County, Henan Province, is known as China's "Hometown of Hygiene Materials." It is one of the main distribution centers for hygiene materials (bleached gauze, absorbent cotton, disposable non-woven fabrics, biomaterials, medical polymer materials, latex products, etc.) in China. The coverage of medical devices and hygiene materials accounts for 80% of the national market, and the market share reaches 60%. It is the largest distribution center for medical devices and hygiene materials in China. Representative enterprises include Piaoan, Yu'an, Tuoren, and Huaxi. Tuoren Group has become the number one Brand of anesthesia consumables in China.

On September 30, 2012, Medtronic, a global medical device giant, officially announced the acquisition of Changzhou Kanghui Holding (China) Co., Ltd. for US\$816 million. On January 17, 2013, Stryker Corporation acquired Chuangsheng Holdings for a total consideration of HK\$5.9 billion. China's top two orthopedic medical device companies have been acquired by foreign companies. Changzhou, Jiangsu has become the largest orthopedic production base in China. In addition to Medtronic, Stryker, Huasen Medical, Aicon, and Aisman, it also involves five characteristic sub-industrial clusters represented by in-vitro diagnostic reagents, surgical instruments, hygiene materials, and rehabilitation equipment. There are 400 related medical and health industrial enterprises.

Shandong Region: Grand Pattern, Major Actions, Great Development, Major Breakthrough

Shandong has many large enterprises, which is inseparable from the unique regional culture of Shandong people. In China's medical device industry, there are two large medical device groups: Shandong Wego Group and Xinhuamedical. According to my understanding, Shandong Wego Group achieved sales revenue of 33.6 billion yuan and profit of 3.45 billion yuan in 2016. It currently has nine industrial groups and more than 50 subsidiaries. Its core subsidiaries adopt a direct sales model, with offices in major cities. It has more than 50 series, more than 500 varieties, and more than 80,000 specifications. In 2002, Wego Group and Medtronic established a joint venture. In October 2017, Wego shares invested US\$850 million to acquire US company Alung.

On November 2, 2017, the Weihai Welly Hospital, the first Sino-foreign joint venture hospital established by Wego Group and Thailand's Bumrungrad Hospital Group, officially opened.

Another company is Xinhuamedical. Xinhuamedical is a veteran military enterprise. Its products cover infection control, radiotherapy and imaging, surgical instruments and orthopedics, operating room engineering and equipment, dental equipment and consumables, in-vitro diagnostic reagents and instruments, biomaterials and consumables, dialysis equipment and consumables, medical environmental protection, pharmaceutical equipment sectors and medical services. In 2002, it became a listed company on the Shanghai Stock Exchange. In 2016, Xinhuamedical's operating income reached 8.3 billion yuan. In recent years, it has increased its mergers and acquisitions efforts, successively acquiring Changchun Boxun, Wisda, Yuanyue Pharmaceutical Machinery, and Chengdu Yingde.

Shenzhen has two "West Point" of medical devices

Shenzhen has two "West Point" of medical devices. Anke was the first high-tech enterprise and became the well-deserved "West Point" of the Shenzhen medical device industry. Nearly 200 general managers of medical device companies in Shenzhen came from Anke or have ties with Anke. This includes Shenzhen Mindray, a leading medical device company in China, as well as Libang, Shenzhen Leidou, Borrett, KaiLi, Anjian, Shenzhen Weidian, and Shenzhen Ruifutai. More and more people are leaving Anke. Anke's Tao Du Chun began to be called the "president of the West Point". "At first, I felt very sad, thinking it was sarcasm." Tao Du Chun said, "But later, I no longer cared. I go to many medical device exhibitions and see many former subordinates. I think their existence has made a greater contribution than their work at Anke. Before, I felt guilty, and also felt that young people were too self-interested, which made me very conflicted. Now, I think it's good to go out and try."

BGI is the "West Point" of the gene field. In 2016, its sales reached 1.7 billion yuan. Over the past ten years, many people have left BGI. Among them, Berry Genomics had an operating income of 920 million yuan and a net profit of 158 million yuan in 2016. It ranks second only to BGI in the field of non-invasive prenatal testing. In 2015, BGI's former CEO Wang Jun and others founded Carbon Cloud Intelligence. Li Ruiqiang, former president of BGI Tech, founded Novogene. Luo Longhuai, former vice president of BGI Tech, founded Jianhai Biology. Currently, there are 17 companies in the "BGI system." BGI's management team, including Teacher Wang (Wang Jian), has maintained an open attitude. Many people leave with generous blessings, and a "BGI West Point" reunion is held regularly.

The Rise of Three Rural Forces

Farmers in Dongzhuang, Putian, Fujian: From the 1980s, Chen Deliang, the founder of the Putian system in Fujian, traveled far and wide as a traveling physician with a folk remedy for skin diseases. This has now developed into four major families (Zhan, Chen, Lin, Huang), 59 medical groups, and over 10,000 private hospitals, generating annual sales of 250 billion yuan. Annual procurement of pharmaceuticals and medical devices exceeds 100 billion yuan, with an annual patient volume of approximately 500 million and employing over 2 million people in a massive medical industry. The annual Putian Xiuyu Medical Devices and Pharmaceuticals Fair, held from Chinese New Year's Eve to the fourth day of the New Year, attracts manufacturers from 28 provinces and municipalities across the country, including well-known brands such as Siemens, GE, Philips, Mindray, and Chison. Medical professionals from Putian use this time to hold talks, attend internal medical summits, and discuss development plans.

China's number one medical device township – Jiangxi Jixian: Jixian County currently has more than 150 medical device manufacturing enterprises and over 300 trading companies. Hongda Group and Yikang Group are among the manufacturing companies with annual revenue exceeding 100 million yuan. The medical device market in Lidu Town, Jixian County, hosts over 300 manufacturers nationwide, and over 4,000 people from Lidu have invested in factories and companies elsewhere. They mainly produce and operate disposable infusion sets, syringes, needles, medical sanitary materials and dressings, with disposable infusion sets and syringes accounting for approximately 31% of the national market share. Jixian County has formed a sales force of more than 60,000 people across the country, with annual sales reaching 100 billion yuan.

The Fujian Putian medical group has formed a group, scale, and industrial structure, including 59 medical groups and their affiliated medical device manufacturing enterprises, Putian Xiuyu Medical Device and Pharmaceutical Exhibition, the China Medical Health Industry Development Strategy Alliance, and hundreds of nationwide medical device agents specializing in private hospitals, represented by Beijing Minzhong and Nanjing Sande. This forms a complete industrial chain of medical production, supply, sales, and hospital management. Based on my analysis of the Putian system and people from Lidu, Jiangxi, the people of Lidu are still focused on earning a living and their organization is loose. Although they have chambers of commerce across the country, they lack true leadership. After earning money as medical device agents elsewhere, people from Lidu return to Lidu to open factories, mostly operating according to the model of Jiangxi Hongda. The scale of these companies is generally small.

Currently, in China's medical device industry, the vast majority of low-value consumables and disposable medical consumables are produced by township enterprises.

Medical or technical experts, township entrepreneurs, agents, professional managers

There are four backgrounds and experiences among the leaders of China's medical device manufacturers: medical or technical experts, township entrepreneurs, agents, and professional managers. These different backgrounds and experiences create different development trajectories for companies and determine their growth rate and scale.

Companies founded by medical or technical experts rarely grow large. This is because many experts are stubborn, selfish, narrow-minded, introverted, and poor at communication. Experts usually start businesses alone, lack marketing skills, and face shortages of funds, talent, networks, management, and resources. They often believe that launching a good product will lead to success, not realizing that without solving marketing problems, even the best products with high investment will only lead to debt.

Most township enterprises in China's medical device industry produce low-value consumables and disposable medical consumables. These enterprises practice imitation and plagiarism. As competition intensifies, they sacrifice product quality to lower prices, resulting in lower profit margins and contentment with modest wealth. However, I believe that in the next two to three years, with increasingly strict industry regulations (e.g., the two-invoice system, increased centralized allocation, tax reform, the third phase of the Golden Tax Project, and on-site inspections), and a more regulated market, medical device distributors and manufacturers with annual sales of less than 30 million yuan will be eliminated. The future medical device industry will see the strong becoming stronger and the weak eliminated.

The agent-king model will continue: High-tech companies such as Huawei and Lenovo started as agents, and the same is true in China's medical device industry. Currently, about 30% of manufacturers with annual sales exceeding 100 million yuan have transitioned from agents. Representative companies include Mindray (Shenzhen), Maik (Sichuan), Kanda Medical, and Nanjing Jushark. The reason why over 85% of companies in the medical device industry cannot grow and even go bankrupt is due to a lack of resources, as well as a lack of thorough understanding of the industry, the ability to predict industry trends, a lack of vision, and a lack of business management, marketing strategy, and marketing management skills. However, when companies like Shenzhen Mindray acted as agents for foreign Brands, they accumulated channels, end hospitals, talent, management, funds, and technology, thus achieving rapid growth and success.

Those who have long followed the current situation and development of the medical device industry may have noticed this phenomenon: In recent years, the leaders of rapidly growing companies have come from senior management at well-known domestic and international medical device manufacturers. Representative examples are United Imaging (Shanghai), whose founding team mainly consists of senior executives from Siemens Healthineers, and Feiyino (Suzhou), whose founder comes from GE.

The Art of War by Sun Tzu states: "War is a matter of vital importance to the State; it is the ground of life and death, and the way to survival or ruin. It is therefore imperative that it should be studied carefully. Hence, the wise general must be thoroughly acquainted with these five factors—the moral law, Heaven, Earth, the Commander and Method—and by means of them succeed. "Those who know the five factors will be victorious, those who do not know them will be defeated."

The future hegemons of the medical device industry will undoubtedly be those companies that master the art of applying these "moral law, Heaven, Earth, the Commander and Method" to perfection.