Go East? – How do the new entrants to the EU shape up?
Author: Rachael Lewington
EU enlargement will increase potential users of medical devices in the EU by approximately 75 million people (from around 375 million). This increase in market potential raises significant opportunities for companies that have established strong market positions within the EU as it currently stands. It is likely that the loosening of trade barriers with new member states (Poland, the Czech Republic and Hungary) in 2004 will increase opportunities for expansion into the relatively less developed medical device markets of central and eastern Europe.
However, expansion may work in both directions, leading to increased competition from Eastern European products. Within the debutante countries, opinion on the benefits offered by the EU is divided. This article seeks to outline some of the significant features of these Central and Eastern European markets. A fuller analysis of this subject will be available from HBS Consulting next year.
Czech Republic – a strong performer
Trade with the EU has become an increasingly dominant factor in the Czech economy. During the 1990’s, the Czech health care sector underwent a period of development in line with economic reforms affecting the whole country. The Czech health care system has been devolved from central government to a certain extent through privatisation and rationalisation. Although economic reforms have resulted in funding shortages for the health care sector, the medical device market has continued to grow.
The Czech medical devices market was valued in the region of $400 million in 2001, with approximately 65% of medical devices being imported and 35% being produced internally. Having been dominated by Russian suppliers of medical devices and equipment for a long time, Western European and US companies are now well represented in the market. Germany accounts for the largest share of imports of medical devices (about 25%).
Domestic production capacity, based on approximately 40 medium sized medical device companies, is considered to be competitive with EU based companies and the US in some areas, including; sterilising equipment, dental equipment, surgical instruments, orthopaedic implants and catheters, infusion and transfusion sets.
The following table summarises key aspects of the Czech medical device market based on available, published figures.
Czech Republic – Key Figures
Hungary – the early bird
Hungary is described as a relatively robust economy. Hungary was the first of the post-communist countries to privatise state owned industries and the economy has developed as a rapidly growing, open market that has been attractive to foreign investment in the past. Hungary was the first country in central and eastern Europe to implement the EU Medical Device Directives. However, Hungary’s neighbours have narrowed the gap in economic development significantly and rising wage costs have made the region a less attractive proposition to investors.
The Hungarian medical device and equipment market consists almost entirely of imports, which account for 80% of the market. Of EU regions, Germany and Italy are considered to be Hungary’s principal suppliers of medical devices. Capital purchases and other large investments are funded by health care facilities (owned by local government, the Ministry of health and churches and charities) or may be co-financed by the Ministry of Health with central government funds.
At present, most purchases of medical devices and equipment are made by publicly owned facilities and institutions. The drive to create more semi- private health care facilities may increase private purchases. The introduction of reforms in health care funding, which have aimed to increase private health care provision and encourage new source of income for health care facilities may expand the Hungarian medical device market beyond current projections of 5% annual growth. The following table summarises key aspects of the Hungarian medical device market based on available, published figures.
Hungary – Key Figures
Poland – largest potential?
Poland, with a population of 38.6 million, comprises approximately half the total enlargement expected for 2004. Poland represents the largest economy in Central Europe and has undergone a period of impressive economic growth, with average GDP increasing by 4.5% during the last 10 years. Domestic production accounts for approximately 20% of the Polish medical device and equipment market. Polish manufacturers are able to produce simple and reusable equipment at a lower cost than Western European competitors.
Health care reforms in Poland have significantly altered the way that health services are financed. Health care is funded through mandatory health insurance administered by sixteen regional Sick Funds. This has replaced the older, public system, which suffered from under funding and provided little choice. It was hoped that reforms in health care funding would stimulate increased efficiency and improved service provision through competition and better allocation of resources through funding following patients. However, reforms have generated confusion about where patients can go to receive services and funding for Sick Funds has been insufficient and slow to arrive.
Health care purchasing in Poland has been uneven and poorly coordinated, resulting in a minority of well equipped hospitals and a majority of hospitals that are unable to perform routine diagnostic and testing procedures. Under the belief that public funding would be adequate following health care reforms, many hospitals placed large orders for medical devices. A lack of funds following the introduction of health funding reforms has resulted in many hospitals owing a large debt to suppliers (approximately $1.75 billion). A number of hospitals now have very limited purchasing resources for basic supplies, and capital purchases of advanced equipment such as MRI scanners, EEG equipment etc are a pipe dream for many.
In an attempt to resolve these problems, the Ministry of Health in Poland is again reforming the organisation and funding of health care services. Sick Funds will be replaced by the national Health Care Fund, a publicly funded body, which will have 16 regional branches and will be affiliated to the Ministry of Health. The following table summarises key aspects of the Polish medical device market based on available, published figures.
Poland – Key Figures
Strategies for success · Purchaser relationships: The difficulty involved in making sales under existing regulations means that Polish purchasers like to establish a long-term relationship with suppliers. Companies that are able to establish relationships with potential purchasers early on may benefit from greater trust and improved communication with purchasers. · Price: Limitations on available funding mean that cost is the key issue affecting sales decisions for many purchasers. · Local provision of service and repair: Purchasers tend to favour companies that are able to provide service and instrument repair at a local level. · Relationship with end users: In Poland, physicians play a key role in recommending products. It is vital to establish strong relationships with end users, through rep visits, training, presence at conferences, seminars etc. The Czech Republic, Hungary and Poland have undergone extensive reforms to prepare for entry into the EU, and now represent significant opportunities to European and US medical device companies. However, each region poses specific challenges and opportunities. Estimates of market size indicate that the Czech Republic may offer the best opportunities for Western European and US medical device companies in the short term. This region has shown reasonable market growth and has already established strong trading relationships with Western Europe. In the longer term, as the largest potential market, Poland is likely to offer the greatest opportunities. All data compiled from uktradeinfo.com and the Central and Eastern European Business Information Center.