Reconsider Outsourcing Strategies in China

In the last couple of decades, China has attracted manufacturers from all over the world because of low labor costs and excellent export infrastructure. By outsourcing their production, China was a way to cut costs when producing big quantities. The medical device sector was no different than that.

However, this trend may be about to change. Chinese wages and the value of Chinese currency are rising. The government mandate to raise the minimum wage, so it could bring labor cost increases of 15–20% per year in Chinese factories. Meanwhile, freight and other costs associated with offshore manufacturing are continuing to rise. There are other risks when outsourcing in China, such as intellectual property protection and quality control.

So manufacturers are rethinking their strategies of outsourcing in China. Some US-based are returning their production back to the United States. This is particularly good when the product is meant for the American market. This reduces shipping costs and challenges, gives OEMs a higher quality control and allows them to take advantages of improving efficiencies in U.S.-based manufacturing.

References: http://www.mddionline.com/article/could-onshoring-be-next-medtech-outsourcing-trend

Outsourcing and Innovation: Medtech OEMs

Outsourcing seems to be an increasing trend in the medical device industry and it’s expected to grow by 40%, reaching US$ 12 billion by 2018. Due to the pressure companies are under to develop devices that offer real value and not just incremental benefit, OEMs are focusing on innovation and core capabilities.

As a result, medical devices companies are asking more of their contract partners, responsibilities from front-end design to back-end services including warehousing, distribution, and regulatory assistance. According to the Millennium Research Group report, “overall trends in the medical device outsourcing space indicate that [contract manufacturers] are broadening their range of services, growing organically or through acquisition to become one-stop-shop manufacturers.”

     Another trend of OEM strategy is no longer to manufacture devices in China or Mexico for distribution in the United States and Europe. Instead, these companies are making products in emerging countries for regional and local distribution.

“To line up with our global customers, who are manufacturing in Asia for Asia, Europe for Europe, and the Americas for the Americas, we need to have capabilities in each of those geographies.”

Phillips-Medisize president and CEO Matt Jennings

References: http://www.mddionline.com/article/medtech-oems-focus-innovation-suppliers-step-their-services