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As China becomes one of the world’s fastest growing healthcare markets， investors and foreign companies are flocking to the promising sector. Medtronic， one of the world’s largest medical device makers， is no exception.
Founded in 1949， the Minneapolis-headquartered company operates businesses in over 120 countries， with 40，000 employees around the globe. The company raked in $16.18 billion in global revenues for the fiscal year ending April 30， 2012， and was ranked 164th among U.S. companies on the Fortune magazine’s 500 list.
The company focuses on three distinguished areas in healthcare： cardiology， diabetes and therapies including orthopedics， neurology as well as other surgical tools.
At a time when governments in the developed world are tightening their purse strings amid tough economic times， Medtronic has done what other businesses have done over the past three decades： look to China. At the end of 2012， it completed one investment and one acquisition of a Chinese company， with the two deals worth nearly $900 million.
The company established its presence in China in 1989， when it opened an office on the Chinese mainland. In 1996， the company opened a cardiac pacemaker production line in Shanghai’s Zhangjiang Hi-tech Park.
The proportion of sales revenue from emerging markets， including China， India， Latin America， Southeast Asia and Middle East， surged to 10 percent in 2012 from 9 percent in 2011. The Greater China Region accounts for less than 5 percent of the total. Although the percentage seems low， Medtronic believes in the prospects and trusts that its efforts in the market will finally pay off.
“Our goals for China in 2013， 2014， 2015， you name it， are to grow at 20 percent or better， in every quarter and every year. And we want to be around that number all the time in China. As we get bigger， we see the opportunities in China so big that growth will only increase over time， not decrease. We will see this go on for a very long time，”Omar Ishrak， Board Chairman and CEO of Medtronic， told Beijing Review.
A huge market to tap
Medtronic’s determination comes amid the Chinese Government’s intensified efforts to increase spending to improve the country’s less-than-perfect healthcare system. A poor healthcare system at home is one reason why many better-off Chinese immigrate to foreign countries.
In the 2013 budget report， the Central Government pledged to allocate 260.25 billion yuan （$41.87 billion） to healthcare， up 27.1 percent from last year， the highest increase among all sectors. “One of the biggest advantages of operating in China is that the government has very clear policies. The government has a very sys- tematic approach to providing better healthcare to the population and makes it very clear what it is. So at least we know what we need to do to partner with the government and to partner with the healthcare system to provide better healthcare in China，” said Ishrak.
China’s medical device sector， a vital segment of the healthcare market， has shown remarkable growth over the last 10 years. In 2012， the sector’s value was estimated at roughly 150 billion yuan （$24.13 billion）， a growth of 21.3 percent from 10 years ago， much higher than in developed countries， according to data from the second Medical Device Industry Development and Investment CEO Summit held in Shanghai in March. The medical device segment accounts for a mere 14 percent of the total healthcare market in China， much less than the 42-percent world average. The market value of China’s medical equipment sector will eventually amount to $53.7 billion， according to industry players at the summit.
“As an important consumption market for the global medical device industry， China has a huge potential. Foreign companies have raised their stakes in the Chinese market，” said Tian Siyu， an analyst with the Zero2IPO Research Center， a domestic research firm.
Locally tailored
In light of the huge potential， Medtronic has invested aggressively in China and opened up research centers to create products to suit the Chinese physique.
In 2008， Medtronic paid $221 million for a 15-percent stake in Chinese medical device maker Shandong Weigao Group Medical Polymer Co. Ltd.， which has a broad orthopedic and trauma product line that complements Medtronic’s offerings and， most importantly， brings the benefits of local market experience and consumer recognition. The two companies formed a joint venture in September 2008 to market spinal and orthopedic therapy.
In November 2012， Medtronic completed its $755 million acquisition of Jiangsu-based China Kanghui Holdings， which specializes in implants to treat orthopedic conditions.
“An area of customization for Chinese patients is that certain clinical features can be different. Like in orthopedics， we find that certain structures are differently sized amongst Chinese patients. Products are now not customized to Chinese patients. That’s an area I think we can differentiate ourselves in the Chinese market，” said Ishrak. “Through the Kanghui acquisition， we got access to over 100 engineers who spent decades understanding the unique needs of Chinese patients，” said Ishrak.
In October 2012， Medtronic paid $46.6 million for a 19-percent stake in Shenzhenbased LifeTech Scientific Corp.， which makes minimally invasive devices for cardiovascular and peripheral vascular diseases and disorders. Medtronic also bought a $19.6 million convertible note that amounts to another 7.4 percent equity stake. In exchange， Medtronic will obtain the right to sell Lifetech’s current and future products.
“The investment and acquisition gave us an opportunity to participate in orthopedics and cardiology. We think that these types of products will address the majority of needs in China over time. So the growth prospects of these businesses are unquestionable，” said Ishrak.
Besides intensive investment， mergers and acquisitions， Medtronic is trying to boost its local foothold by opening up research centers.
On August 8， 2010， the U.S. company launched a patient care center in Beijing. The center shares chronic disease and treatment knowledge with clients and is the first of its kind in the world.
In August 2012， the Medtronic Shanghai Innovation Center opened which is the company’s first research and development facility outside the United States and Europe.
To serve the fast-growing Chinese healthcare sector， Medtronic will hire and train an additional 1，000 skilled workers over the next five years， hundreds of which will work toward the development of new medical technologies at the Shanghai Innovation Center.
“The objective of that innovation center is to create a facility and hire local engineers—or bring in engineers from other countries—to provide products that are geared to the Chinese market. It will be used as a platform to provide unique products for Chinese patients，” said Ishrak.
Despite the alluring growth prospects， a few challenges loom over the horizon of Medtronic’s Chinese foray， particular when it comes to investment or M&A options in the country.
“First， identify companies which truly have unique technologies. Second， identify a management team focused on the same mission that we are， on finding ways to provide better care to more people，” said Ishrak.
Another issue is to convince its Chinese counterparts that Medtronic is committed to bringing change to healthcare in China.
“The biggest challenge is to convince our partners in China that we indeed want to partner with the government to provide better healthcare， and not simply sell our products and then go away，” says Ishrak. “We’re here for the long term.”
Founded in 1949， the Minneapolis-headquartered company operates businesses in over 120 countries， with 40，000 employees around the globe. The company raked in $16.18 billion in global revenues for the fiscal year ending April 30， 2012， and was ranked 164th among U.S. companies on the Fortune magazine’s 500 list.
The company focuses on three distinguished areas in healthcare： cardiology， diabetes and therapies including orthopedics， neurology as well as other surgical tools.
At a time when governments in the developed world are tightening their purse strings amid tough economic times， Medtronic has done what other businesses have done over the past three decades： look to China. At the end of 2012， it completed one investment and one acquisition of a Chinese company， with the two deals worth nearly $900 million.
The company established its presence in China in 1989， when it opened an office on the Chinese mainland. In 1996， the company opened a cardiac pacemaker production line in Shanghai’s Zhangjiang Hi-tech Park.
The proportion of sales revenue from emerging markets， including China， India， Latin America， Southeast Asia and Middle East， surged to 10 percent in 2012 from 9 percent in 2011. The Greater China Region accounts for less than 5 percent of the total. Although the percentage seems low， Medtronic believes in the prospects and trusts that its efforts in the market will finally pay off.
“Our goals for China in 2013， 2014， 2015， you name it， are to grow at 20 percent or better， in every quarter and every year. And we want to be around that number all the time in China. As we get bigger， we see the opportunities in China so big that growth will only increase over time， not decrease. We will see this go on for a very long time，”Omar Ishrak， Board Chairman and CEO of Medtronic， told Beijing Review.
A huge market to tap
Medtronic’s determination comes amid the Chinese Government’s intensified efforts to increase spending to improve the country’s less-than-perfect healthcare system. A poor healthcare system at home is one reason why many better-off Chinese immigrate to foreign countries.
In the 2013 budget report， the Central Government pledged to allocate 260.25 billion yuan （$41.87 billion） to healthcare， up 27.1 percent from last year， the highest increase among all sectors. “One of the biggest advantages of operating in China is that the government has very clear policies. The government has a very sys- tematic approach to providing better healthcare to the population and makes it very clear what it is. So at least we know what we need to do to partner with the government and to partner with the healthcare system to provide better healthcare in China，” said Ishrak.
China’s medical device sector， a vital segment of the healthcare market， has shown remarkable growth over the last 10 years. In 2012， the sector’s value was estimated at roughly 150 billion yuan （$24.13 billion）， a growth of 21.3 percent from 10 years ago， much higher than in developed countries， according to data from the second Medical Device Industry Development and Investment CEO Summit held in Shanghai in March. The medical device segment accounts for a mere 14 percent of the total healthcare market in China， much less than the 42-percent world average. The market value of China’s medical equipment sector will eventually amount to $53.7 billion， according to industry players at the summit.
“As an important consumption market for the global medical device industry， China has a huge potential. Foreign companies have raised their stakes in the Chinese market，” said Tian Siyu， an analyst with the Zero2IPO Research Center， a domestic research firm.
Locally tailored
In light of the huge potential， Medtronic has invested aggressively in China and opened up research centers to create products to suit the Chinese physique.
In 2008， Medtronic paid $221 million for a 15-percent stake in Chinese medical device maker Shandong Weigao Group Medical Polymer Co. Ltd.， which has a broad orthopedic and trauma product line that complements Medtronic’s offerings and， most importantly， brings the benefits of local market experience and consumer recognition. The two companies formed a joint venture in September 2008 to market spinal and orthopedic therapy.
In November 2012， Medtronic completed its $755 million acquisition of Jiangsu-based China Kanghui Holdings， which specializes in implants to treat orthopedic conditions.
“An area of customization for Chinese patients is that certain clinical features can be different. Like in orthopedics， we find that certain structures are differently sized amongst Chinese patients. Products are now not customized to Chinese patients. That’s an area I think we can differentiate ourselves in the Chinese market，” said Ishrak. “Through the Kanghui acquisition， we got access to over 100 engineers who spent decades understanding the unique needs of Chinese patients，” said Ishrak.
In October 2012， Medtronic paid $46.6 million for a 19-percent stake in Shenzhenbased LifeTech Scientific Corp.， which makes minimally invasive devices for cardiovascular and peripheral vascular diseases and disorders. Medtronic also bought a $19.6 million convertible note that amounts to another 7.4 percent equity stake. In exchange， Medtronic will obtain the right to sell Lifetech’s current and future products.
“The investment and acquisition gave us an opportunity to participate in orthopedics and cardiology. We think that these types of products will address the majority of needs in China over time. So the growth prospects of these businesses are unquestionable，” said Ishrak.
Besides intensive investment， mergers and acquisitions， Medtronic is trying to boost its local foothold by opening up research centers.
On August 8， 2010， the U.S. company launched a patient care center in Beijing. The center shares chronic disease and treatment knowledge with clients and is the first of its kind in the world.
In August 2012， the Medtronic Shanghai Innovation Center opened which is the company’s first research and development facility outside the United States and Europe.
To serve the fast-growing Chinese healthcare sector， Medtronic will hire and train an additional 1，000 skilled workers over the next five years， hundreds of which will work toward the development of new medical technologies at the Shanghai Innovation Center.
“The objective of that innovation center is to create a facility and hire local engineers—or bring in engineers from other countries—to provide products that are geared to the Chinese market. It will be used as a platform to provide unique products for Chinese patients，” said Ishrak.
Despite the alluring growth prospects， a few challenges loom over the horizon of Medtronic’s Chinese foray， particular when it comes to investment or M&A options in the country.
“First， identify companies which truly have unique technologies. Second， identify a management team focused on the same mission that we are， on finding ways to provide better care to more people，” said Ishrak.
Another issue is to convince its Chinese counterparts that Medtronic is committed to bringing change to healthcare in China.
“The biggest challenge is to convince our partners in China that we indeed want to partner with the government to provide better healthcare， and not simply sell our products and then go away，” says Ishrak. “We’re here for the long term.”