INTERNATIONAL BUSINESS

SECTION-A
TERM PROJECT REPORT

In this report, we have studied and

presented our findings on the industrial
structures prevalent in the medical
devises industry, especially in North
America. The business environment
study intends to present the reason for
formation of various clusters inside this
domain and the competitive landscape.

Medical
Devises in
North
America
Analysis of Clusters and
competitive Landscape

PGP/18/017
PGP/18/035
PGP/18/054
PGP/18/113
PGP/17-R/042

DEEPAK AGRAWAL
NIKHILA A V
SOURABH BHAMBRI
UPADHI
SANJEET KUMAR

CONTENTS
Introduction ..................................................................................................................................... 2
Global Medical Device Sector .................................................................................................... 2
US Medical Device Market ............................................................................................................ 4
Major US Players In Medical Device Industry ........................................................................... 4
SWOT Analysis Of US Medical Devices Market .......................................................................... 5
Strengths: ..................................................................................................................................... 5
Weaknesses: ................................................................................................................................ 5
Opportunities: .............................................................................................................................. 6
Threats: ........................................................................................................................................ 7
Industry Characteristics .................................................................................................................. 7
PESTEL Analysis Of US Medical Devices Market ..................................................................... 10
Political And Legal Factors ....................................................................................................... 10
Economic Factors ...................................................................................................................... 10
Social Factors ............................................................................................................................ 11
Technological Factors ............................................................................................................... 11
Environmental Factors .............................................................................................................. 12
Competitive Position Medical Devices Sector USA ................................................................. 12
Trends ........................................................................................................................................ 14
Comparative Analysis Of The Medical Devices Clusters In The US ....................................... 14
References ..................................................................................................................................... 16

INTRODUCTION
The continent of North America can be divided into three physical dimensions: the Western
Cordilleras or mountain ranges, the Central Plains and the Eastern Highlands. North America is
the third largest continent among the seven continents. Atlantic Ocean borders it to the east and
the Pacific Ocean to the west. North America is majorly dominated by its three largest countries:
Canada, Mexico, and the United States. It has an area of about 9,540,198 square miles. It is the
fourth most populous continent. The major countries in North America are Bermuda, Canada,
Greenland, Mexico and the United States of America. Canada is slightly larger than the United
States in area making it the second largest country by area in the world (after Russia). The most
populous country in North America is the United States.
United States is the leading industrial power in the world, a highly diversified and
technologically advanced country. Major industries include petroleum, steel, aerospace, motor
vehicles, telecommunications, chemicals, food processing, electronics, consumer goods and
mining. The medical devices and diagnostics industry is United States is undergoing quite a
significant change.

Global Medical Device Sector

The global medical device manufacturing industry comprises of around 27,000 firms worldwide
employing almost one million people. The global industry doesnt have a high level of industry
concentration, with no one firm dominating but a few firms do form clusters in a specific region.
The small companies in the industry are involved in developing niche technology, while larger
players exploit economies of scale and frequently acquire smaller firms to expand their product
range and gain access to new technologies and markets. However, in the last five years, the
industry has witnessed huge consolidation with the number of companies decreasing.
Meanwhile, emerging markets such as China, India and Brazil are attracting more and more
medical device manufacturers.
In 2011, the key business segments of the global medical device market were consumables
(15%), diagnostic apparatus (e.g., MRI and CT-scan) (27%), patient aids such as hearing aids
and pacemakers (12%), orthopedic products (11%), dental products (7%), and other medical
equipment (28%).
Medical device companies will have to realign their business models and strategies to compete in
the changing global environment. The changing environment has witnessed growth of emerging

markets, health care reform and cost containment across the world. Anticipated changes may
include changing the company structure and accelerating the reliance on strategic alliances and
outsourcing for marketing, distribution, research and manufacturing activities.
The revenues of the global medical device industry are projected to grow by 6.6 percent annually
between 2012 and 2017. Factors that may contribute to this growth can include the growing
number of seniors, who are more likely to develop chronic diseases like diabetes, and the
expansion of coverage by the Patient Protection and Affordable Care Act (PPACA). Because
more Americans will have insurance due to the PPACA, a greater number of individuals will
seek out physicians for their illnesses, leading to a greater demand for medical devices. Also,
healthcare growth in countries like India has boosted the exports from US device industry to a
large extent.

Top ten medical device markets by sales revenue, 2012

Rank

Country

Estimated sales revenue

Market

(US$ billion)

share
(%)

United States

118.9

36.3

Japan

32.4

9.9

Germany

23.1

7.0

China

14.1

4.3

France

13.5

4.1

United Kingdom

9.9

3.0

Italy

8.6

2.6

Russia

6.8

2.1

Canada

6.8

2.1

10

Brazil

5.3

1.6

World total (67countries)

327.7

100

US MEDICAL DEVICE MARKET

At the onset of year 2015, the United States still remains the world leader by market size, with
total revenue of around $120 billionaround one-third of the $350 billion global pie. But at the
same time U.S. medical device industry has been facing multifaceted challenges that are largely
hampering its growth. In recent years, growth of the U.S. MedTech industry has slowed.
Through 2020, the U.S. MedTech market is expected to expand by only 5%, according to
Evaluate. It has significantly come down from its 15% growth rate a decade ago, according to
Accenture. The health reforms by U.S. government have mandated 2.3% excise tax on a wide
range of products which has eventually created an increased pressure on margins, and has been
continuously raising concern among Medical equipment manufacturers about its impact on
future R&D spend. Though at the same time, this step taken towards delivering a value-based
care has created more new and complex influencer landscapes. The traditional model of having
sales representative-to-surgeon relationship is not able to ensure commercial success anymore.
To improve its prospects, the US industry will have to capitalize on its strengths, overcome its
weaknesses, capture the opportunities for growth, and promptly address threats that could
hamper its progress.
Major US Players In Medical Device Industry
1) Medtronic
2) GE Healthcare Technologies
3) Johnson & Johnson
4) Boston Scientific
5) Baxter
6) Beckman Coulter
7) Abbott Lab
8) Stryker Corporation

SWOT ANALYSIS OF US MEDICAL DEVICES MARKET

Strengths:
1) R&D Investment: United States is expected to continue playing leading role in medical
device research and development (R&D) for future. After declining in 2009, R&D
spending across all U.S. industries has rebounded. The capital influx to R&D is huge,
which still remains a problem with most of the developing countries. Till 2020, large
corporations in the industry with projected spend of $1 billion or more are expected to
grow their R&D budgets by approximately 3%, while the rest of the industry is expected
to increase R&D spending by more than 5%, according to Evaluate.
2) Market Position and Size: The United States continues to command a leadership role in
the global medical device space. As of October 2014, U.S. companies held four of the top
five rankings for medical device companies with the highest revenue and represent a total
of 22 out of the top 40 spots. Overall, U.S. companies account for almost two-thirds of
the total revenue for the top 40 medical device companies. An aging population and
increased availability of healthcare as a result of the Affordable Care Act (ACA) will
continue to keep the United States well positioned in the MedTech space.
3) Strong Finance Metrics: Investors confidence in the MedTech sector can be easily seen
in strong improvement in market capitalizations, which has been continuously increasing.
More than 70% of U.S. MedTech companies are witnessing their market cap increase,
and nearly a quarter saw their share prices grow 100% or more, according to Ernst &
Young.
4) Academic Institutions: Around 141 accredited medical schools and approximately 400
major teaching hospitals and health systems are already existing in the United States
many of which have consistently ranked among the best in the worldaccording to the
Association of American Medical Colleges. Good partnerships prevail between these
institutions and medical device companies to collaborate on research and development of
newer technologies.
Weaknesses:
1) Innovation Plateau: The growth has been slowing in the MedTech industry as there
has been a gradual shift from risky blue-sky research to more evolutionary research.
Large, established corporations now involve themselves in more predictable research

with a more easily measured return on investment. While smaller companies outside
the United States are ready to accept a larger magnitude of risk due to their more
nimble nature and less burdensome regulatory environment, being more conducive
for innovation.
2) Medical Device Tax: The US industry has been negatively impacted by a 2.3%
excise tax on sales of medical devices in United States that was implemented in 2013.
The February 2014 status report from AdvaMed mentions that nearly one-third of
respondents to a survey by the trade group indicated reduction in R&D investment
because of this tax.
The device tax also increases the effective tax rate for US companies.
3) Regulatory Environment: Increased regulatory scrutiny by FDA has also led to
increased costs for development of new products. This eventually add to the growing
cost of compliance for companies meaning to do business in the United States.
4) Inferior Government Subsidies for R&D: The U.S. R&D tax credit is also inferior
to others around the globe. The United States currently ranks 22nd in the world for
federal R&D tax subsidies, with countries in Europe, Asia, and South America hence
giving more incentives for businesses to move into other geographies.
Opportunities:
1) Demographics: It can extend coverage to people with preexisting conditions and
low incomes, groups that tend to need more health treatments that require medical
devices.
2) Service and Business Model Innovations: Companies can enhance their
products with service offerings that offer additional value for their customers,
such as increasing operating room efficiency or reducing hospital visits.
3) Innovation in Product Development: One way medical device companies can
combat higher development and commercialization costs is through use of data
technologies to increase productivity at each stage of product development.
4) Application of New Technologies: Some segments of medical device
manufacturing are being transformed by the use of 3-D printing, similarly more
such technologies can be employed to reduce costs and bring in efficiencies.

Threats:
1) Cybersecurity: Cybersecurity threats are becoming a major concern, with
numerous hacking attempts targeted at medical device companies.
2) Competition from Consumer Tech: With traditional MedTech players being
slow to adopting mobile, analytics, and cloud solutions, consumer technology
firms have quickly sensed an opportunity and are starting to enter the
MedTech space. Giants of the likes of Google, AT&T are entering this
segment and posing a huge threat.
3) Foreign Markets: As already discussed, the regulatory environment if more
conducive abroad as compared to US, so its a growing concern.
4) Product Commoditization: As the medical devices are becoming more
portable and prevalent, it is becoming easier for offshore competitors to bring
these products to market faster and at lower prices.
INDUSTRY CHARACTERISTICS
There were approximately 5,300 medical device companies in the U.S. in 2007. They were
classified in to two categories.
1) Small Sized Enterprises
2) Medium Sized Enterprises
In 2007 based upon the data available which is related to the number of employees working for a
company the below statistics have been drawn:
a) Fewer than 20 employees 73% of Medical Device Companies
b) 100 Employees 15% of Medical Device Companies
At all parts of USA, medical device companies are located, however, concentrated in areas with
excessive micro technology or biotechnology institutes, in other words where high technology
industries prevail.
Demographically States with highest number of medical device companies have been recognized
and the following are those states which have highest number of medical companies are
California, Florida, New York, Pennsylvania, Michigan, Massachusetts, Illinois, Minnesota and
Georgia.

Median state Medical technology jobs paid 15% more than the average U.S manufacturing job.
The country has its competitive advantage of having several complementary industries in the
same place. Thus having a backbone support system for it.
Some of the Major US medical companies include Medtronic, GE Healthcare Technologies,
Johnson & Johnson, St. Jude, Boston Scientific, Baxter, Becton Dickinson, Beckman Coulter,
Abbott Labs and Stryker Corporation. In addition, the following trade associations closely follow
the medical device industry: Advanced Medical Technology Association (AdvaMed), Medical
Device Manufacturers Association (MDMA), Medical Imaging Technology Association
(MITA), Dental Trade Alliance (DTA) and the International Association of Medical Equipment
Remarketers & Servicers (IAMERS).
Industry is again classified based up on the specializations that they deal with. A few of them are
1. Neurology
2. Cardiology
3. Health IT
4. Minimal Invasive Surgery
Collaborations have led to advances in biomarkers, robotic assistance, implantable electronic
devices, liquid bandages/wound dressings and ingestible diagnostic devices.
Depending on the Industry shipments the medical technology Industry got certain values (in
billions) by NAICS Code, 2007. This might help us to form cluster of Industries.

1) Vitro Diagnostic Substances 11.3 Billions

2) Electro-medical/therapeutic 22 Billions
3) Irradiation apparatus 9.2 Billions
4) Surgical supplies 33.2 Billions
5) Dental Equipments 4.3 Billions
6) Ophthalmic goods 5.7 Billions
USAs innovation and highly technical products have been regarded worldwide. Since 1990, the
R&D investments have become twice. New generation materials, Micro electromechanical

system technology, manufacturing processes, nano technology etc, have always benefitted the
US medical device industry.

Taking example of California, as per report by Baybio trade group, we observe that 280 thousand
workers around two thousand medical devices were in the scope of the medical device and
biotech companies in 2009, despite the fact that it was a year of economic downturn. However,
for the years to come, it was expected that the industry would see continued gains from the
improved economy.
Also, the value of imported goods has improved over the past decade for example the gloves,
low tech instruments etc. which are basically sourced from emerging economies such as China.
The largest Trade category for the medical devices is Surgical and medical instruments. A need
for High technology products is there in the market, however this is being dominated by the
several price sensitive low technology products.

The nation facilitates its competitiveness by bringing ew and upgraded technologies to the
market. Several multinational firms based out of US are in search of approvals worldwide and
they are focusing on Mergers and acquisitions, Joint ventures and enhancing the global sales.

China and India show double digit growth rate which is much higher than the developed
countries. To add to it their huge population makes them even more lucrative markets to be
captured. On the other had the US, European union , Canada , japan etc are mature and stable
markets with low annual growth rates despite being the large and lucrative device markets.

To focus on the emerging economies, standards and criteria for regulatory approval, risk
management, and quality must be improved
Above these factors, most importantly harmonized to meet global international best practices
based upon Global Harmonization Task Force (GHTF) guidance documents.

PESTEL ANALYSIS OF US MEDICAL DEVICES MARKET

Political And Legal Factors
Medical devices industry is a highly regulated. In US it is Food and Drug Administration (FDA)
which regulates the industry. The US regulatory system uses a combination of processes before a
product is made available to patients and after a product has been approved for market to ensure
patient safety and product effectiveness. Unpredictable, inefficient, and expensive regulatory
processes put the US at risk of losing its global leadership position in med-tech innovation. Over
the past, representatives from the med-tech industry have reported that the FDA is becoming less
predictable, transparent and reasonable while at the same time, its requirements for
demonstrating the safety and effectiveness of new devices continue to increase. According to
device companies, these regulations have created barriers to med-tech innovation in the US, with
no off-setting public health benefit. The current regulatory environment is particularly
challenging for start-up companies, which have played a key role in driving innovation in the
past, because of their limited financial resources. As a result, regulatory submissions for
innovative new medical devices have been declining in the US over the last several years.
Approvals are also trending downward.
US medical device manufacturers should also be concerned about foreign regulations,
particularly in China, which is pursuing policies that favour domestic manufacturers. This may
force US medical device companies who want to sell in China to manufacture there. This creates
a predicament because firms will need to rely on Chinas intellectual property laws and
enforcement, which have been major concerns till now. In addition, companies will have to
carefully scrutinize and evaluate new Chinese business partners.
Economic Factors
Since 2008, total annual venture investment in the med-tech industry has declined by $1 billion.
One reason for this dramatic decrease is the global economic downturn, which began in 2008 and
intensified in 2009. However, innovators and med-tech investors report that there are other
factors contributing to this decline, including the changes that have occurred in the US regulatory
environment over the last few years. Less transparent and predictable regulatory processes
discourage investors from putting their money into med-tech companies. This effect is amplified
during an economic downturn when less overall capital is available to med-tech venture
capitalists and the start-ups they fund. Multiple investors feel that the escalating cost of bringing

medical devices to market is causing funds to flow out of the med-tech sector and into other
industries where regulation potentially does not exist. The average cost of taking a product
through clearance is $31 million, and the average cost of getting a product through PMA
approval is $94 million. Historically, investment returns in the device industry are relatively
small compared to those in the biotech and pharmaceutical industries.
Despite the increased innovation and the high-quality in medical devices industry, high-salary
jobs associated with it is moving offshore. Every direct med-tech job is indirectly responsible for
4.47 jobs in the national economy; the effect on US employment could be sizable. With
companies moving most of its business offshore, US economy is likely to take a hit.
Social Factors
Social factors include the demographic and cultural aspects of the external macro environment.
These factors affect customer needs and the size of potential markets. Some social factors
include health consciousness of the people, population growth rate, and distribution of age,
career attitudes and emphasis on safety. Economic growth, urbanization, and westernization of
lifestyles in developing economies are expected to increase the demand for healthcare products
and services abroad. Outpatient and home-based care is expected to increase in the future and
present significant opportunities for medical devices companies.
Technological Factors
Some segments of medical device manufacturing are being transformed by the use of 3-D
printing. Relatively small medical devices, such as hearing aids or dental retainer moulds, are
currently best suited for additive manufacturing, but future medical applications include grafting
skin onto burn victims, printing blood vessels and heart tissue, studying cancer with printed cells
and creating replacement organs for the human body.
Another technology with niche applications in medical device manufacturing is flexible
automation. The robotics incorporated into the systems can provide the capability to process
different products through the same system and are reconfigurable for new products, thereby
bringing down costs, improving production flexibility and shortening product development life
cycles. As a result, robots are being used increasingly in different areas of medical device
manufacturing like assembly, dispensing, quality control and packaging.
In addition to this, software development will continue to play a major role in med-tech
innovation as the shift to mobile platforms allows personal electronic devices to transmit patient

data to doctors, manage documentation and provide identification and traceability of medical
devices.
Environmental Factors
Medical device manufacturing companies are aware of the need to be environmental responsible
to survive in this industry. This includes how the products are designed, manufactured, used and
discarded after use. Environmental friendly materials and process technology is used by the
firms to reduce carbon emissions, reduce energy usage and shift to clean energy.
COMPETITIVE POSITION MEDICAL DEVICES SECTOR USA

The U.S. is the worlds largest economy with a nominal GDP of $14.6 trillion in 20101 and Total
Factor Productivity growth which has exceeded Germany and Japan over the past three years.
However, the U.S. is gradually losing competitiveness. It is ranked No. 4 in the Global
Competitiveness Index in 2010, after Switzerland, Sweden and Singapore, signaling a downward
trend from its previous ranking (GCR, 2010). It has been hit significantly by the 2008 financial
crisis, with real GDP shrinking by 3% in 2009, and only a moderate rebound to a positive growth
rate in 2010. The unemployment rate peaked at 10% in early 2010 and has yet to fall back to its

10-year average of 6%. Moreover, the countrys budget deficit, which reached 9% of GDP in
2010, implies the need for government spending cuts. The U.S. public debt has reached 62% of
GDP in 2010, its highest level over the past three decades. Furthermore, at the cluster level, most
major export clusters in the U.S. are losing share in the global market (Figure 1). There are
several factors that are causing the decline of the competitive position of U.S., which are shown
in Figure 2 below.

In terms of strengths, the U.S. is a premier innovation engine (GCR, 2010), fueled by company
R&D spending and research institutions. The U.S. also has arguably the worlds best talent in
science, engineering and management. In addition, the nation ranks high in terms of general
infrastructure and has the worlds largest market, with sophisticated buyers as a result of
stringent regulations. However, the analysis in Figure 2 surfaced several weaknesses that have
eroded the nations competitiveness. Despite the strong higher education system, the quality of
primary education is only ranked 34th globally (GCR, 2010). The sophisticated capital markets
are now at a crossroads with many banking assets wiped out in the financial crisis. Although
R&D spending has been high, R&D as a share of national income is stagnating, whereas in
Western Europe and China it is increasing7 (Porter, 2008). Furthermore, protectionism has

regained popularity after the 2008 crisis (Porter, 2008), with the U.S. ranking only 67th on the
prevalence of trade barriers (GCR, 2010). In addition, the U.S. is only ranked 71st on the extent
and effectiveness of taxation (GCR, 2010), which may limit incentives to work or invest. Public
policies and regulations have often needlessly driven up the complexity and costs of doing
business, especially for smaller companies (Porter, 2008). Finally, the federal government is
lacking a national strategy and a coherent set of policies to combat the aforementioned problems
and it is also failing to support the regional cluster development that drives the economy (Porter,
2008).
Trends
Going forward, the industry is facing cost, quality and service delivery pressures from multiple
stakeholders. The ability of companies and clusters to respond to these trends will help to
determine if they will be able to sustain their current competitive position. First, there is
increased physician and regulatory emphasis on cost-effectiveness. This implies that in physician
relationships there will be lower emphasis on premium branding and more emphasis on
economic evidence. On the regulatory side, capabilities in delivering strong health economics
that result in launching new, high-value products will be critical. Second, there is an increasing
importance of the patient as a customer. This implies that the medical devices industry needs to
increase transparency of quality, outcomes, and cost. Finally, the source of competitive
advantage is shifting away from a pure device play. Going forward, non-product offerings (e.g.,
services) will be important in differentiation. In addition, drug-device combinations are gaining
importance due to their increased efficacy (e.g. drugeluding stents), requiring pharmaceutical
expertise.
Comparative Analysis Of The Medical Devices Clusters In The US
Four clusters have dominated the medical devices industry in the US. Figure shows an in depth
analysis of the strengths and weaknesses from the perspective of the diamond framework.
Massachusetts and California have a clear advantage in RSI, with a combination of strong 78
Ibid 79 Interview with Medical Devices Professor, University of Minnesota, April 2011 28
supplier networks and presence of world class electronics and biotechnology companies. While
Minnesota has a strong legacy, it has been unable to build comparable strengths in electronics
and biotechnology. Massachusetts also has a distinct advantage in demand conditions, with the

2nd highest per capita spending on healthcare in the country and a multitude of pioneering
medical institutions.

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