Name: xxxxxxxxxxxxxxxCourse: Business Management
Institution: xxxxxxxxxxxxxxx
Tutor: xxxxxxxxxxxxxxx
© 2012
Research Topic:
A critical analysis between the Class II Medical Device Markets in Germany and Canada
Declaration
I hereby declare that this dissertation proposal is as a result of my personal effort and has never been handed in before by any person, group of persons or organization for any assessment.
Name ……………………………………………………………………………………………..
Sign …………………………………………………… Date ………………………………….
Acknowledgement
I hereby wish to thank the following persons for their assistance and input towards the completion of this work: Many thanks go to those individuals and organizations that in one way or another made my research a success. Many thanks to go to my supervisor for the invaluable support and consultations he accorded me. My family members can’t go unmentioned for the material and moral support they accorded me during the entire period I was working on this proposal. My fellow college mates and work mates also did recommendable job with the important ideas, advice and information shared across the divide thus making my research easier and of good content, many happy returns to all of you.
I have to acknowledge all the authors, researchers and even practioneers in the medical device markets field for all their efforts in adding more value to this important practice not only in business circles but also in our daily lives. It is due to their valuable efforts that assisted me to get a foundation of this project proposal especially in the literature review section. Finally my sincere thanks go to the whole college fraternity including the library staff who accorded me that environment and access to the books in the library to gain the information regarding my research.
God bless all of you abundantly.
Abstract
A medical device is an instrument which is intended to be used in human beings to achieve certain desired objectives. PulseMedTech is an organization that specializes in manufacturing such products and is relatively young and small player in the market. It is for this reason that I am conducting this research so as to establish the possibility of establishing a market for its products in Canada and Germany.
The dissertation starts with a detailed definition of the term medical device, their classification and their applicability in the Health cycles. The chapter goes further o elaborate on the business prospects of medical device in general. The second chapter is very broad and covers all the relevant literature available as far as medical devices are concerned. This is in relation to registration requirements, market prospects and the potential future market trends. The results and discussion section outlines in brief the findings of the research. Finally I conclude the dissertation by tabling summary of my findings and recommendations for PulseMedTech. It is my hope that if these recommendations are implemented, it will go along way in adding value to the operations, organization culture and management of this organization. This will ultimately catapult this company into profitability and success.
Table of contents
Declaration ………………………………………………………………………………3
Acknowledgment ……………………………………………………………………….. 4
Abstract …………………………………………………………………………….…… 5
Introduction
About the business ………………………………………….………………. 7
About the product ……………………………………………….…………… 9
Literature review
Canada
Background information ……………………………….………… 10
Marketing strategy and structure ………………….…..………….. 13
Marketing plan ……………………………………………………. 14
Successes ………………………………………….….…………… 14
Failures ………………………………..………..…………………. 15
Germany
Background information ………………………………….………. 16
Marketing strategy and structure ………………………………….. 22
Marketing plan ………………………………………..…………… 25
Successes …………………………………………………………… 29
Failures ……………………………………………….………….… 30
Results and Discussion …………………………………………………………………. 31
Summary, Conclusions and Recommendations ………………………………………. 32
References …………………………………………………………………………….……. 33
Introduction
About the business
Background information
PulseMedTech is a small and relatively young company based in the UK. It specializes in manufacturing class II medical devices. Currently the management of the company wanted to launch its product in the UK market but failed. This is simply because of the additional legislation requirements which they had to abide by. Being a young company they were unable to meet some of those requirements and have sorted to launch its product in Canada and Germany. This may be partly attributed to the market liberalization of these two countries. It is against this background that I have been asked to research the medical device markets in Germany and Canada as potential markets where they could invest in.
Research objectives
The major objective of this dissertation is to determine as to what requirements are required by PulseMedTech to successful launch its class II medical devices in Canada and Germany. Another supportive objective is to determine how viable these two markets for PulseMedTech to invest in are. This is because this is a very expensive venture, whereby lack of proper research will lead to huge losses. This will be the centre piece of this dissertation proposal that all the other aspects will be revolving around
Problem discussion
Medical devices are gaining importance in the health care industry. An issue of great importance among medical devices manufacturing firms is exposure and implementation of regulatory requirements. This is the reason why medical devices manufactures have gained a lot of market for their products in the recent past. However like all other commodities, medical devices are expected to experience growth slowdown due to recession, exchange rate fluctuation and differences in regulations governing their usage in various countries.
PulseMedTech is a medical device manufacturing company that is based in UK. The company specializes in manufacturing class II medical devices. Due to the stringent regulation challenges in the UK, PulseMedTech has been unable to launch their products in the UK and instead is considering marketing their brand elsewhere in Germany and Canada. The major reasoning behind this is the liberalization of medical equipment markets and ageing populations that require more medical attention in these countries. Besides this, it is also an undisputed fact that 3 out of 5 of the largest medical device markets globally are in Europe; these are Germany, Britain and France.
Delimitations
In each and every research that is being carried out, limitations are inevitable and this particular research is no exception. Limitations compromise the validity and quality of the research outcome and thus any researcher who wants to come up with a good report should try to minimize them as much as possible. However it is good to note that some limitations can not be avoided, we can only learn to deal with them. The following are some of the limitations that were identified in this particular research:
Difficulty in measuring some aspects of the research e.g. customer’s attitude
Unreliability of secondary data sources.
Limited resources e.g. time, funds, manpower etc
About the product
In general terms, a medical device is an apparatus, article, instrument or equipment which can be applied alone and or combined with others (even software) on human beings for medicinal purposes. It can be intended to cure, monitor, diagnose, prevent, treat, monitor or alleviate a disease, suffering, or an injury. A medical device can also be used to control conception. It is vital to note that a medical device doesn’t achieve its major intended action on or in the human body through immunological, metabolic, or pharmacological means, but it can be aided in its function through such means. Examples of medical devices include x-ray machines, plasters, hip implants, lenses, crutches, beds and in vitro diagnostic devices. Each and every country has its own way of classifying their medical equipments. The USA for example classifies their medical devices as class I, II, and III. Here class I is for general controls, class II is for special controls whereas class III is for pre-market approval. In this case, class I devices are the least risky whereas class III is the most risky. On the other hand most countries in Europe classify their medical devices as class I, class I sterile, class I measuring, class IIa, class IIb or class III where class III devices are considered to be the most risky.
Literature Review
Canada
Background information
Canada is a very promising country for PulseMedTech to market their products for various reasons that would be outlined shortly. To start with Canada is a neighbour to the USA who is the major market for medical devices. Secondly Canada is a wealthy and technologically advanced country with about 400 medical equipments manufacturers. The manufacturing plants are mostly located in Ontario, British Columbia and Quebec. In addition, Canada has been ranked first out of all the G7 countries as a good market for medical devices. This is a clear indication that PulseMedTech is entering a very ripe market which needs to be studied and then exploited fully. Canada is a member of (NAFTA) i.e. North American Free Trade Agreement. It has also signed Mutual Recognition Agreements (MRAs) for medical devices with other nations like: Norway, Switzerland, Iceland, Liechtenstein and EU (Invest in Canada, 2007 website).
Regulation of medical devices in Canada
The body that is manifested with the responsibility of regulating medical devices in Canada is Health Canada. It has two major divisions i.e. Therapeutic Products Directorate and Health Products. The authority which gives it power is the Food and Drugs Act. The medical devices in this country are subjected to the Medical Devices Regulations which is under the Food and Drugs Act. The Regulations clearly spell out the requirements governing the importation, sale and marketing of these devices in Canada (Health Canada, 2007).
Classification of medical devices in Canada
The classification of medical devices in Canada is more or less the same with that of the neighbouring country USA. The classification has been harmonized with that of EU. The classification divides these medical devices into class I, II, III and IV. Class IV devices represent the highest risk while class I devices the lowest risk. This classification that is risk-based is synchronized to the classification systems of the EU and USA. This is basically to say class I, II, III and IV corresponds to the European class of I, IIa, IIb and III.
Product registration in Canada
To register a medical device in Canada, it must be classified as either class I, II, III or IV product. Quality management systems have to be applied to all products except those belonging to class I devices. Canada has also adopted ISO 13485:2003 as its national standard by labeling it CAN/CSA-ISO 13485:2003. For class II medical devices the quality system has to satisfy these requirements i.e. CAN/CSA-ISO 13485:2003. This however excludes the design. For those medical devices in class III and IV; the quality system ensures that they satisfy the necessary requirements for CAN/CSA-ISO 13485:2003. This one includes design. Furthermore, the manufacturer is supposed to identify the perils that are inherent in the product. In the product License Application of class IV medical devices, there should be assessment of potential risks. The authorities recommend that it should work in accordance to ISO 14971 standards (MDB, 2003).
Importers and distributors of medical devices have to obtain a license allowing them to establish their business in Canada. However if you are importing or distributing custom made and special access devices, you are exempt from this regulation. Establishment license is also required for class I products. For you to advertise or sell a class II, III or IV medical device in Canada, you only need a device license. Establishment license is not necessary, even though importers and distributors do. PulseMedTech will also require a declaration of conformity to Canada’s standards in order to advertise or sell in Canada. Class III and IV custom-made products require authorization from the Ministry of Health before importation into Canada (MDB, 2003).
According to the New Medical Devices License, the following lists all the information that PulseMedTech will be required to gain in order to be given a license for their class II Medical Device in Canada:
Device name
Device classification
Device application history
Name and Address of PulseMedTech as it appears on the product label
Physical address for Regulatory Correspondence
License Application Type
Device Preferred Name Code (Optional)
Device Usage Category
If the device contains a drug
Purpose of the device
Device details
List of Standards Complied with in the Manufacture of the Device
Evidence of Safety and Effectiveness
Attestation of labeling
Signature
Further information on each section mentioned above and also what differs between various classes can be obtained from “Guidance on How to Complete the Application for a New Medical Device License” website (2003). Additional details can be obtained from the Regulations, Part I, section 32. The products shall contain proper directions as far as storage, conditions of administration and usage is concerned. The above information shall (at the minimum) be in English or French. The Mandatory Problem Reporting part of the regulations spell out the rules as to what kind of incidents need to be reported, content of the reports and time frames for reporting. These rules have been harmonized with the European Union vigilance reporting needs.
Marketing strategy and structure
As far as market structure of class II medical devices in Canada is concerned, it can be said to be monopolistic. This is to say that there are many other firms in the market offering the same type of goods like PulseMedTech (Case et al, 1999). Therefore it is likely PulseMedTech will operate in a highly competitive environment. As already pointed out there are about 400 registered medical devices manufactures in Canada, and will call for a proper marketing strategy from PulseMedTech. Without a suitable strategy PulseMedTech may not be able to capture a sizeable market in this country. Even if there are lengthy procedures to enter into this market, it does not in any way exclude potential of other new players entering the market. This combined with the many firms already in the market makes for intense competition. PulseMedTech must work intelligently to seek ways of capturing a sizeable market and then concentrate in serving it well to put off any potential new entrants (Case et al, 1999).
Using Michael Porter’s generic marketing strategies (Porter, 2008), the strategies employed by many competitors are: market segmentation, cost leadership and market differentiation. The current market strategy of competitors is diversified owing to their large number. However, the majority use cost leadership and market segmentation. This has helped them acquire a reasonable market share based on these strategies. Cost leadership is a type of market strategy where a company positions itself as the most affordable in the market. The benefits arise from a number of factors such as; economies of scale, low quality product, exclusive undue advantage etc. About 30% of the firms use this method to market their products. Further research has shown that these companies also target markets in Africa and Asia where need for affordability is the overriding criteria. Otherwise, Canada is a wealthy country where cost issues are not likely to be a huge problem (Porter, 2008).
A further 35% of the medical device manufactures in Canada were found to be using market segmentation as their preferred mode of marketing strategy. Segmentation is a marketing strategy method that classifies markets according to their income levels. They targeted the wealthy class and the mid-level households who constitute the majority of citizens in Canada. Others also target markets outside of Canada where demand is high e.g. USA. The remaining medical device firms either used product differentiation alone or in combination with the other methods. This is equally effective depending on desired results of a particular firm (Baker & Michael, 2008).
Marketing plan
Marketing plan is a general term referring to all those actions a business concern undertakes in order to market its products. The plan is wide and varied, but the choice of one or more methods is determined by a number of factors. This includes regulations, competition level, and the type of product; available funds (Baker & Michael, 2008).
It is difficult to highlight the exact marketing plan used by potential competitors as they differ a lot between companies. In order to find this out, it may be required to arrange a special marketing study for PulseMedTech. However the general rules or guidelines apply equally irrespective of company under consideration.
Successes
Generally speaking the success rate of medical equipment manufacturers in Canada has been good. Provided that you identify a particular market niche and focus on serving it satisfactory and efficiently, you are bound to succeed. Being a sensitive product, strict adherence to regulations is paramount otherwise you risk being deregistered. Successful companies in the medical device industry have made a fortune for themselves, and are some of the most sought after corporations in the stock exchange markets. PulseMedTech can be a success story if they use the right approach to market their product (Invest in Canada, 2007). Below is a list of some of the medical device manufactures in Canada.
Alcon laboratories Inc
Arrow international limited
BioMedical Life Systems
Bristol-Myers Squibb Company
Cytc Corporation
Dymedix Corporation
FzioMed Inc
Hayes medical Inc
Failures
Going by the recent statistics in Canada, medical devices sector is one of the fastest growing in the Canadian economy. This is due to the fact that Canada is a wealthy country, the population is ageing, and the economy is good. In addition, its proximity to a major world consumer – the USA, has also immensely contributed to this success. It is not surprising therefore that in the last 5 years, very few medical device manufactures have failed. Nevertheless, a few corporations have closed due to various reasons. They include; stiff competition, inability to comply with the safety requirements and incidences of failure with their products. This led some of them to close shop totally, merge or face penalties from the regulating authorities. PulseMedTech can only be a failure story if it does not comply with the regulating authorities requirements. Otherwise on business ground, it is very promising (Invest in Canada, 2007). In the last 5 years about 3 companies went down majorly because of safety issues of their products. They were:
Kensey Nash Corporation
Newport medical instruments company
SpineMedica Inc
2.2 Germany
2.2.1 Background information
Germany is ranked the 3rd largest medical device market behind the USA and Japan. In 2011, the German medical devices market was valued $19.5 billion. Germany’s population (83.3 million) is estimated to be about 20% of the total population of Western Europe in 2011. Healthcare expenditure is high and stands at over 11% of GDP. However, the government is increasing methods to constrain this expenditure. This program of reducing healthcare expenditure has made the local market to remain tight with continued downward pressure on prices. In recent years the government funding for hospitals has stagnated, forcing the public sector hospitals to maintain their existing equipment instead of investing in new appliances. This has made domestic producers of medical devices to be reliant on export markets (invest in Germany, 2009).
Germany is generally known as a country which produces high quality medical equipment, especially dental related products, diagnostic imaging and optical technologies. But, despite a strong domestic manufacturing industry, imports amounted to $13.8 in 2009 and supplied about 70% of the medical market. The healthcare reform program which is being initiated by the first ever coalition government, is aimed at increasing healthcare expenditure, whilst also increasing financial resources through higher health care insurance contributions. Between January 2004 and July 2007 major health care reforms were introduced and were mainly aimed at increasing the competition between health insurance providers. This, in turn gave rise to a stiff competitive environment for healthcare goods and services suppliers (invest in Germany, 2009).
Demographic data
Germany has a total geographical area of 356,854 square kilometers with a population of about 83.3 million people. Of the 83.3 million people, 13.7% are children age between 0-14 years, 66.1% are youth and middle age ranging from 15-64 years, and 20.2 % are the aged 65 years and above. Health care expenditure per capita in 2007 was $3,515. There are 2,083 hospitals in Germany with 1,446 public and 637 private hospitals as per 2008 data. In Germany hospitals are financed in a dual system where the inpatient services are based on the DRG system and outpatient fee-for-service program. Thus in a nutshell going by these demographic findings, I can say that PulseMedTech is destined for greater things. It only needs good strategy.
Medical devices industry
The German medical device market is one of the biggest in Europe. In 2006 alone, €21 billion were spent on medical devices, €15.9 billion in domestic sales, and €10.2 billion in export sales. In 2008, the market in Germany was estimated to be worth well over $12.4 billion. About 86% of domestic medical products are exported. The medical market in Germany is more favorable for reusable medical devices than disposables because of high environmental awareness. The medical device market is featured with 50 multinational corporations and many other SMEs. Some of the major global players in Germany include; Fresenius, B. Braun Melsungen, Otto Bock, Dragger medical, and Siemens Medical solutions. The above manufactures deal mostly with imaging and surgical instruments. In entering Germany medical market, PulseMedTech should understand that there is a lot of competition from locally produced products. Also, considering that the market size is wide, one may need to have more than one distributor. But if PulseMedTech decides to use a single distributor, then it is advisable to find out how reliable is their country wide distribution network so as to be able to reach all the potential customers (FDA, 2007).
As previously mentioned, Germany is the 3rd largest market for medical devices in Europe. However, economic analysts argue that like other sectors, the medical device market might be impacted negatively by the economic recession in the short run. This is potentially disconcerting for domestic manufacturing industries, which risk loosing a lot of money due to their dependence on demand for export of their products. The economic downturn will as well lead to a strain on medical health spending. Despite the downturn, Germany is expected to return to growth with medical device markets leading by about 3.4 % by 2016.
Factors affecting medical device markets growth
Medical device market growth in Germany is affected by a number of factors. To begin with, Germany manufactures high value and mature medical devices for better standards of health care. However, as technology keeps on changing this brings the dilemma of trying to contain sky rocketing health costs and desire to remain leaders in technological innovation. Therefore, hospitals have no other choice but to invest in the provision of new medical equipment and technology to maintain high standard of medical care (Malueg, 2008).
Additionally, efficient healthcare services are needed to deal with the increasing financial constraints and the needs of ageing population. As a result, there is increased demand for efficiencies such as medical devices that allow minimal invasive surgery, increase the number of operations conducted in a day and to heal patients faster. Despite the pressure of the recession, the market growth rate over the next few years is promising.
Furthermore, Germany is among Western Europe countries which have recorded a strong growth in the import market in the recent years. The import market enjoys a high share of about 80% of the market. Of importance is that, trade among EU countries revolves around import markets and organizations who want to exploit the full potential in Germany need to ensure that they have an effective distribution and marketing network (Malueg, 2008).
Finally, medical device market growth potential is affected by changes in the regulatory environment or government measures like spending controls on medical devices. High numbers of migratory population and the increasing numbers of elderly people will all see demand for medical devices and equipment grow tremendously. Of course this is good news to PulseMedTech. In the mean time these are the major challenges, however this does not rule out development of new challenges with the advancement of time. Business environment are known too be continuously changing.
Classification of medical devices in Germany
In Germany market, medical devices are classified as class I sterile, class I measuring, class IIa, class IIb or class III with class III devices considered to have the highest risk. In-vitro diagnostic devices have there own classification systems. Information concerning European classification system is found in MEDDEV2.4/1. And classification rules can be found in Annex ix of directive 93/42/EEC. However, Global Harmonization Task Force (GHTF) has discovered that there are some difficulties encountered due to the numerous classifications in different countries. So they have developed recommendations on a global classification system where all medical devices are classified into class A, B, C and D. Under this method class D represents those medical devices with the highest risk. These recommendations are meant for regulatory authorities and not for companies. Medical devices are given nomenclature during classification. There are two types of nomenclature namely; Emergency Care Research Institute (ECRI) nomenclature whose classification is harmonized with USA, and the Global Medical Device Nomenclature (GMDN) codes which are harmonized with EU classification terms. For any company to register a medical device in the EU it needs the GMDN system. This is because the nomenclature system details the terms that describe groups of products that have similar features (Medical Products Agency, 2006).
Quality management systems for medical devices in Germany
German governments are renowned to regard health care highly and thus require quality services. Manufacturers are under no obligation to manufacture suitable quality medical devices for such a market. Good manufacturing practice is the most common requirement for quality. Any company wanting to launch a medical device in Germany must put forward quality so as to win the market. Also it must comply or adjust to the regulatory frame work in Germany. The GHTF is a body of regulatory authority that works to harmonize the regulations for medical devices so as to improve on quality, safety and effectiveness of devices. It has provided guidelines for pre-market evaluation, market performance, post market surveillance, auditing, quality conformity and clinical safety/performance (GHTF, 2008).
Doing Business in Germany
In order for PulseMedTech to enter the German market, it must understand the business environment in Germany very well. Germany’s economy is the 4th largest in the world and after the expansion of the European Union, Germany accounts for more than 20% of the EU GDP. Germany is among the greatest trade partners of USA and is the sixth largest market for USA export. The “social market” economy of Germany greatly follows free-market principles but, with a good amount of government regulation and generous social welfare programs. As referenced earlier, Germany is one of the greatest consumer markets in the European Union with a population of about 83,000,000. It is important to note that Germany’s market place goes beyond its borders. Germany’s population, volume of trade, its geographical location and area at the centre of 27 members of European Union makes it a cornerstone around which all international concerns seek to build their market expansion (invest in Germany, 2009).
Market challenges in Germany
Germany has experienced a sharp economic decline in 2009 where the GDP fell by about 5 %. This was mostly due to plummeting exports (about -14.7%) and a sharp fall in capital expenditure (about -8.65%). Despite this fall, Chancellor Merkel’s government agreed to offer a tax relief worth 8.5 billion Euros to improve economic recovery. In 2010, the economy grew whereby GDP recorded a growth of about 3.6% and exports improved by 14.2%. Germany has few formal barriers to external markets. However, the regulations have been lessened by the pro-market free Democratic Party (FDP) which has pressed for the reduction of bureaucratic costs, due to complex German procedures of marketing and selling medical devices. The German government offers protection to established local suppliers, making it hard for the new suppliers who are not protected. PulseMedTech must comply with Germany’s standards of products so as to be allowed to operate in Germany market (ITA, 2002).
Market opportunities
Germany provides an excellent investment/marketing destination. This is because of its high levels of productivity, skilled labor force, quality engineering, a first-class infrastructure and its location i
