Borderless Business

No, I’m not writing about PEEK (though that might not be a bad intro, if I were). The quote is from the 1967 film “The Graduate.” In it, a recent college graduate struggles to find some direction in his life and career path (and in the process is seduced by a much older married woman, though that’s not the reason for the quote). At a cocktail party, a friend of one of the protagonist’s parents suggests “plastics” as an industry that would provide a lucrative future.

If the movie were to be reshot today (as classic movies often are), the advice might be more along the lines of, “International markets, my boy. International markets.”

The pursuit of markets and manufacturing centers in cost-effective and non-traditional areas isn’t a new idea, of course. For the orthopedics sector, however, manufacturing across borders continues to evolve. Driven by the growing middle class in places such as Brazil, Russia, India and China (yes, the BRIC countries), medical device companies clearly don’t want to miss out on a new avenue to increase sales. In addition, if they can find manufacturing sites in those countries, or close by, the cost calculus improves.

The trick becomes finding the right mix—and where to manufacture. And what about suppliers and contract manufacturers serving orthopedic OEMs? Outsourcing, when it is done next door here at home seldom raises eyebrows. When it takes place overseas, however, it often becomes a dirty word (not to mention misunderstood).

For most companies today, a global manufacturing strategy—whether they selectively set up shop themselves or search for international partners—is part of a broader recipe for success. I’m not suggesting that companies fly off to open a facility or contract with a manufacturing partner half way across the world based on potential cost savings alone. There are numerous supply chain, quality and regulatory factors that must be considered before making such a leap. Making a move based solely on cost is shortsighted and doomed to long-term failure. But in today’s increasingly global environment, companies must pursue a growth strategy that includes international markets.

For example, current regulatory uncertainty in the United States has led to three out of four medical technology companies debuting their new products abroad before introducing them to the U.S. market, according to a study funded by the Institute for Health Technology Studies in Washington, D.C.The study found that 76 percent of companies have gone overseas with their new products during the last three years. Firms’ motivation for this exodus fell into three main categories: the cost of conducting clinical trials (cited by more than one in five, or 22 percent of respondents), quicker and easier regulatory processes outside the United States (cited by another 14 percent of companies) and unpredictable premarket approval 510(k) requirements (cited by the majority of participants, 64 percent). The study surveyed more than 350 professionals from device development companies closely involved in a recent 510(k) submission. The anonymous, 90-question electronic survey was completed by entrepreneurs, academic physician-inventors, product developers and regulatory affairs experts.

Yet another recent report, this one released by PRTMManagement Consulting, a division of PwC, found that though nearly three quarters of the medical technology market in India is composed of products imported from developed areas, the next wave of growth likely will come from new innovation, developed specifically for the unique needs of the Indian population and manufactured in Asia. That means growth of indigenous firms, but also an increase in international orthopedic firms expanding in the area to serve the growing Indian market.

We examine this trend in more detail in this issue’s feature story on page 54.

As one industry expert interviewed observed: “You can’tignore the population growth and the wealth accumulation that is occurring in the [emerging] regions of the world. They will be a source of growth for the orthopedic industry in years to come.”

Maybe the quote should be: “I just want to say one word to you. Just one word … BRICs.”