What I Learned From Doing Medtech Business in China

Like a siren’s song, the lure of 1.3 billion potential healthcare customers in China has proven irresistible for many Medtech companies searching for new revenues. After all, who hasn’t uttered, heard or thought the words: “If we could just get X% of the Chinese market…?” Sound familiar?

Obviously, China is a massive market. It’s also growing fast and modernizing. This is represents perfect cocktail of opportunity for makers of healthcare technologies. But navigating the Chinese business waters is fraught with risks. Many a Western company’s dream of Chinese riches has come crashing on these rocky shores. The truth is that the Chinese healthcare market is far more challenging and complex than many realize. You need to go in with your eyes – and very likely your wallet - wide open. Even then, success is far from guaranteed.

Meanwhile, Chinese Medtech firms have also come a long way and present significant threats to established players in both emerging AND developed markets. Just ask Philips about its experience with Mindray. China has gone from a country full of potential customers to one that also harbors an increasing number of world-class industry rivals. Although there continues to be many local, low-cost copycat health tech manufacturers, many have also made significant investments in advanced technology, R&D, marketing and overall quality. Some of these are already or are becoming world-class in their own rights. Buoyed by a large and talented pool of engineers, a fast-paced work culture and a keen entrepreneurial spirit (aided in part by some favorable government regulations & initiatives), there are today many new Chinese firms ready to compete head-to-head with Western industry giants.

Having had several opportunities to visit and work in China, I’ve come away with a few lessons and insights. Both in terms of selling there and buying/integrating a local business. Here are a few take-aways:

·     Relationships with the local government and FDA officials are key. Be sure your business partners are well connected or in good standing with the local political and regulatory elites. Good relationships can help get unexpected problems or issues resolved quickly.

·     Communication will be a challenge. Strong accents can be difficult to understand, especially over bad phone or video systems. Invest in technologies which help facilitate and simplify international communications between teams. For example, make sure that the acoustics of the audio/video rooms are good (e.g. avoid large conference rooms with lots of hard surfaces like glass and marble).

·     China is actually many markets. Often broken down by province, region or even city, many Medtech companies rely on smaller local distributors for sales. Sometimes up to 30, 40 or more distributors are required to cover the entire country.

·     Hierarchical organizations are the norm. Strong authoritarian or charismatic leaders like the business owner make all the decisions and everybody under them is supposed to acquiesce. This can sometimes make it hard to get the real picture or hear the truth when only one voice is doing all the talking.

·     Avoid “parachuting-style” management. Staying on top of your newly acquired Chinese business or partner will require more than the odd 2-3 day visits every month or quarter. You need people on the ground, in the trenches, every day. Of course, it costs a lot to have expats in China, but so does seeing your investment fail because of poor communications, misalignments and misunderstandings.

·     Keep a close eye on quality. Chinese Medtech manufacturing companies are amazingly fast and agile. While they have made enormous progress in recent years, many still have quality procedures & manufacturing systems in need of updating. This is usually the result of valuing speed and/or low costs over quality. Before you slap your big brand name on Chinese-made products, make sure that they are thoroughly tested and fully compliant with all norms & labeling requirements.

·     Made Outside China can be a plus. Many Chinese healthcare customers actually prefer medical products made outside their own country. This is especially true for Tier 1 hospitals. There is a branding prestige & superior quality perception for many foreign-made medical devices. However, this is starting to change as Chinese firms improve their quality & services and the government increases pressure to buy local.

·     Made in China doesn’t cut it everywhere. Don’t automatically assume that products made in China can be sold in all markets, especially emerging ones. I’ve seen tenders in certain regions (e.g. North Africa) where Chinese-made products were simply ineligible or not accepted.

·     Pick your location wisely. Whether building or buying a business, do consider its geographic location and whether it has ready access to a qualified talent pool, affordable housing, industry suppliers, and international flight access. Reaching 2nd or 3rd tier cities from abroad can be particularly challenging. So can trying to send expat personnel there.

·     From employees to competitors. It’s not uncommon for engineers (happy or not) to leave their employer to start a competing business. Sometimes they set up shop across the way and then the battle for talent begins. If you buy a Chinese company, make sure to have retention bonuses and non-compete clauses for key leaders and subject matter experts. Don’t make the mistake of buying a company only to discover that all the top talent has left to start a competing business next door. Also, don’t be surprised by high or rapidly rising salaries in China. With so many businesses competing for talent (e.g. engineers), it is not unusual to see employees get lured away and new hires demand higher comp packages.

·     Cross-pollinate. Don’t forget to bring talented Chinese expats to your Business Unit HQ to learn the business and culture. They can help you “decode” what is and isn’t said during calls with your Chinese teams and they will grow to become your future leaders on the ground.

·     Behold the banquet diner! The Chinese are very social and hospitable. Prepare yourself for elaborate  banquet dinners where, as an honored guest, you will be expected to toast (wine, beer, or perhaps something even stronger) 1-on-1 with almost everyone in attendance. 

Conducting business in China can be exciting and immensely rewarding but it can also be confusing and even frustrating at times. Be prepared for many ups and downs. It helps to have a long-term view, to read between the lines and to show a genuine interest in the people who are intensely proud of their country and culture. Lastly, recognize that China is changing from an emerging healthcare market to a highly developed nation with a rising number of advanced medical technology firms capable of rivaling the best of the West.

Andrew Hyncik is an International Strategic Marketing & Product Development veteran with 20 years of experience in the Medtech, Healthcare, CPG and Pharma industries. For more Medtech insights, news and articles, visit MedtechMojo.com

photo credit: <a an, China</a> via <a >photopin</a> <a >(license)</a>