Surgical and Medical Equipment
SIC 3841
NAICS 339112
The world's surgical and medical equipment industry manufactures medical, surgical, ophthalmic, and veterinary instruments and apparatus. Representative products include syringes, clamps, hypodermic and suture needles, stethoscopes, laparoscopic devices, catheters and drains, and blood pressure monitoring devices. The industry also includes more high-tech instruments, such as implantable devices, remote monitoring and dosing products, and micro-sized biomonitors and drug-delivery systems.
In the early years of the twenty-first century, aging populations, the trend toward home healthcare, and a growing interest in delivering products and services over the Internet contributed to a steadily growing market for surgical and medical instruments and apparatus. Growth was expected to rise steadily at around 4.6 percent per year through 2010. Valued at US$57.6 billion in the early 2000s, the U.S. medical and surgical device market alone was expected to grow at a compound annual rate of about 8 percent through 2005, driven largely by devices for non-invasive surgical procedures, especially in the realm of interventional cardiology, according to research from Frost & Sullivan. Giant leaps in technology encouraged the growth of the medical manufacturing market, particularly in the orthopedic segment, which was valued at around $20 billion worldwide, more than half of which was earned in the United States. Growth rates were 13 to 15 percent annually from 2003 to 2005.
Other high growth segments included patient monitoring equipment, retail diagnostics, blood pressure monitoring equipment, and minimally invasive surgical equipment. Laparoscopic handheld instruments alone were expected to generate more than $235 million of revenue by 2009, as reported in Medical Device Technology in mid-2004.
Surgical and medical instrument manufacture was fiercely competitive in the mid-2000s. The fact that highly-specialized surgical tools could be invented, produced, and distributed by small high-technology firms allowed manufacturers with relatively small gross sales to have significant impact on certain segments of markets belonging to industry giants. Toward the close of the twentieth century, a way to meet this competition was to grow, amalgamate, and diversify. As high technology assumed a greater place in medicine and various living organisms were incorporated into treatment formats, the concept of biotechnology as an industry segment grew in importance (see also Biotechnology).
By the turn of the twenty-first century, fewer major manufacturers concentrated specifically on certain types of equipment, or on pharmaceuticals, or on treatment of a certain disease. Instead they diversified, sometimes through acquisition, to broaden their presence in the biotechnical industry. By embracing biotechnology, companies like Baxter, long dominant as an international supplier of medical and surgical devices, suddenly were in competition with megaliths like Johnson & Johnson and Roche, four times Baxter's size. Medtronic's 2001 acquisition of insulin pump leader MiniMed and Medical Research Group furthered its entry into the chronic disease management market. Tyco International, a conglomerate of high-technology instrumentation businesses, expanded into the healthcare market, swallowing high-profile firms United States Surgical in 1999 and C.R. Bard in late 2001.
The advent of managed care—with attendant pressures to hold down the cost of medical treatment—added further incentive to innovators in the industry, while in some cases limiting their profits. Less invasive surgeries such as laparoscopy, cardiac balloon angioplasty, and laser surgery, while posing manufacturing challenges, permitted less invasive surgical techniques and subsequent cost savings in actual patient care (i.e., shorter hospital stays implying lower labor costs, fewer patient complications, quicker recuperations).
The explosive growth of the Internet, and in particular, e-commerce, found most major medical device manufacturers scrambling to enhance their online presence with streamlined electronic business transactions, supply chain management, and even remote monitoring of implanted devices through dedicated Internet channels.
Inspired in part by increasing emphasis on ISO 9000 standards in all segments of industry, regulatory bodies of several countries set and restructured guidelines for medical manufacture. The use of quality marks, as well as European (CE) certification marks on medical devices continued to be a stumbling block as regulatory officials, device manufacturers, and private certification and testing firms strove to find consensus on what value quality marks add to a product, and whether consumers can be misled by a mark that merely indicates a base requirement for marketing in a particular country, rather than value-added testing. Various government promotion of standardization of safety and quality regulations helped to stabilize the industry, and the same regulations served to ease trade barriers.
The European Community Council formally adopted the Medical Device Directive as a regulatory initiative on June 14, 1993, with implementation beginning January 1, 1995. The European Free Trade Association (EFTA) followed suit, actively enforcing the directive. Any products imported or manufactured in affected European countries were required to be tested and certified at the direction of European Union-accredited "Notified Bodies." Now it was necessary to meet just a single set of standards. This eliminated the unpleasant marketing/manufacturing decisions of the past, when manufacturers either could limit their exports, manufacture variations on a single product in an attempt to satisfy each member nation, or create equipment that could match twelve separate standards simultaneously.
A variety of trade agreements devised in the last decade of the century had effect, direct and indirect, on the global market for surgical and medical equipment. The North American Free Trade Agreement (NAFTA)—passed in 1994 by the United States, Mexico, and Canada—eliminated tariffs between the three nations. Prior to NAFTA, Canada and Mexico already were the second- and fourth-largest importers of U.S. surgical and medical instruments, and the United States received its third-largest supply of medical and surgical instrument imports from Mexico. With the implementation of NAFTA, the three countries were in ideal positions to increase their respective export market positions with their North American neighbors, especially since imports into North America from other countries were still subject to tariffs that, in some instances, were as high as 50 percent. The effect of NAFTA was still being felt in 2002, as the export market for medical laboratory equipment alone in Canada reached US$2.75 billion and was confidently expected to continue slow, steady growth (5 percent per annum) through the mid-2000s. The U.S. territory of Puerto Rico benefited even more directly from NAFTA, due to the Section 936 preferences of the U.S. Internal Revenue Code. This section of the Code exempted Puerto Rican investments from corporate taxation, and therefore allowed substantial tax breaks for U.S. companies that located operations in Puerto Rico.
The Uruguay Round of the General Agreement on Trade and Tariffs (GATT)—signed in 1994—included an agreement to remove inter-country tariffs on medical equipment and drugs among the world's leading seven market economies, better known as the G-7: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. Removal of these tariffs was expected to save manufacturers of medical devices and equipment millions of dollars per year. In late 1994, this initiative was supplemented by the Medical Technologies Agreement, a segment of the overall U.S.-Japan Economic Framework, a structure that facilitated U.S.-Japan bilateral trade negotiations. This agreement was intended to ease U.S. manufacturer penetration of the Japanese public-sector market for medical services and equipment, and it saw fruition almost immediately upon adoption. The agreement called for periodic reviews of related commerce, and the initial review, conducted less than a year after implementation, showed U.S. manufacturers holding 43 percent of foreign market share and 18 percent of the total Japanese market for medical equipment. As promising as these figures were, by the end of the decade the Health Industry Manufactures Association reported that, when all medically related products were included in the assessment, Japan's total expenditure for foreign-produced equipment was approximately 3 percent of its national health care budget.
Lowering of tariffs to speed the acquisition of vital health care products had practical implementation worldwide. In 1998, India expedited the modernization and expansion of national health facilities by instituting government directives permitting state-run hospitals and related public institutions to import approximately US$250 million worth of medical equipment duty free. In spite of the Asian financial crisis of the late 1990s, during the mid-2000s the Indian medical equipment and supplies market was growing at a rate of 10-15 percent annually.
Needs to pool medical knowledge and supplies were addressed by the Global Harmonization Task...
To continue reading
Request your trial