Capital's entry into the medical device after-sales service market: a blessing or a curse?

The after-sale service market for medical equipment has reached tens of billions, with good development potential, unique customer stickiness, and increasingly close ties with hospital clinics, making it very attractive to capital markets seeking to enter the medical industry.

However, the unique nature of this industry makes the practices of capital parties somewhat out of place. The purpose of capital entry is to expand scale, seek listing, and ultimately profit and cash out. It can ignore short-term profits in order to rapidly expand its scale, occupy the market, and form an industry unicorn. Its advantages are its capital scale and some government and industry relationships. But they clearly underestimated the uniqueness of the industry.

Firstly, there are many types of industry products, involving complex technical and accessory and consumable resource requirements, requiring very meticulous professional management, and high demands on the professional knowledge and industry experience of management personnel. For most low- and mid-range medical equipment, the technical threshold is low and the profit margin is thin. The most valuable large-scale medical equipment, however, has its after-sales business basically monopolized by foreign companies, which control core technologies, spare parts, consumables, and pricing power.

From the perspective of monopoly enterprises, hospital clients and third-party service institutions are both sources of profit. It is unrealistic for third-party service institutions to attempt to obtain long-term benefits through cooperation with monopoly enterprises; it is akin to a sheep trying to negotiate cooperation with a wolf to obtain benefits. What about using a numerical advantage? It's like a group of sheep negotiating cooperation with a wolf, possibly gaining a small benefit temporarily, but ultimately, from an overall perspective, only more will be lost.

For third-party after-sales service institutions, only by breaking the monopoly of foreign enterprises, achieving technological breakthroughs, and obtaining equal market status can there be the possibility of long-term higher profits. However, technological breakthroughs based on original product technology inevitably involve intellectual property protection, which is difficult to grasp in the current market environment.

Second, after-sales service is an industry with personalized needs, unlike products with clear parameters and performance indicators; it reflects more customer perception and makes it difficult to quickly replicate a successful model. At the same time, the entire industry lacks standards, making it unrealistic to use funds to quickly expand scale. In fact, most third-party service institutions are small companies that provide good localized services and do not lack money but lack technical and accessory resources.

Third, after-sales service is a human-technology industry, not a capital-intensive industry. Its basic competitiveness lies in technical capabilities, customer relationships, and spare parts guarantees, the former two of which are in the hands of frontline employees. Even in well-paid foreign companies, job hopping and resignations of technicians and sales personnel have been common in recent years, and the departure of an engineer or salesperson in a region will take away a considerable number of local customers. Ensuring the stability of these employees is very challenging. As for spare parts guarantees, in the current market environment, it is difficult for a large-scale third-party service institution to achieve a balance between the legality and Price advantages of spare parts.

Fourth, as far as medical devices are concerned, it is a strictly regulated and relatively closed market, and the main purchasers in this market are still public hospitals. Although the state vigorously encourages the development of private hospitals, for a considerable period of time, public hospitals will still dominate in terms of medical level, policy needs, personnel quality, scale and strength, and patient trust. The customer needs facing public hospitals often involve various complex interests and personnel disputes.

Due to the relatively late start of the domestic medical device industry and insufficient R&D investment, most high-end medical devices are monopolized by foreign companies, while low- and mid-range medical devices have low technical thresholds and serious homogeneity, facing extremely fierce competition. In the absence of unique product and service characteristics, personalized customer relationships can play a more decisive role. The capital support and network resources provided by capital parties are difficult to have strong competitiveness in the market in the short to medium term.  

Technical capabilities, customer relationships, and legal and low-Price spare parts channels cannot be quickly established through funding in a short period of time. This determines that capital entering the after-sales service market for medical equipment must have the determination to fight a protracted war.

It is easy for small-scale third-party service institutions to make profits, but it is difficult to become bigger and stronger. This is the reason why the vast majority of third-party service institutions are small companies. Regrettably, under fierce competition, some third-party service institutions try to integrate this industry by introducing capital. They have overstated the industry prospects and ignored the industry's particularity, attracting some capital to enter. Due to lack of technical strength and customer relationships, under the pressure of capital, they can only use the most crude and primitive low Price to quickly expand their scale and gain market share.
 

After-sales service is a very traditional industry, its profit model and operational content are difficult to change significantly, and ultimately reflect customer perception. Unlike products, products can be sold at reduced Prices by introducing new products to improve or maintain Prices.

However, once services are reduced in Price, it is difficult to improve or maintain the Price through other methods. If a product has a quality problem, it can be remedied by recall, replacement, or upgrade, but if a service has a quality problem and the customer experience is poor, what is lost is trust in your entire service team, which cannot be recovered. Low-Price, low-quality services leave only a mess, causing serious damage to the reputation of the entire third-party service institution.

Therefore, both third-party service institutions and capital markets need to carefully consider long-term planning and profitability before capital enters. With the improvement of market supervision, we must ultimately return to the essence of industry development.

Some capital-invested third-party service institutions have launched a new business of hospital equipment trusteeship, considering market demand and their own development, which has aroused considerable repercussions in the industry.