The US medical items and devices making industry includes about 11, 000 companies with mixed total annual income of $75 billion. Major companies include Johnson & Johnson, GE Medical, Siemens Medical Systems and Medtronic. The industry is highly concentrated with the 50 greatest companies accounting for about 75 percent of revenue. The scope of the following analysis requires medical resource and device manufacturers that produce ophthalmic, operative and dental devices and supplies found in the medical field. This examination will not include companies that produce and manufacture x-ray or electro-medical devices and equipment.
This market has seen significant results due to federal engagement and legal responsibility concerns that can offer an ultimate effect on an organization's bottom line. Professional medical costs are continuing to experience an exponential increase causing private insurance providers and government programs such as Medicare to limit repayments for several medical treatments that require medical products or devices. In light of this, the market is seeing a larger level of resistance from doctors and private hospitals when it tries to increase prices on medical devices, which in turn, is the reason why the industry has only seen around a five percent increase in surgical and medical instruments within the last 10 years. In addition to these constraints, the dependence on regulators has feature a high cost to companies. Increased administration rules has increased overall conformity costs, thus minimizing overall revenues. To add to these costs, new medical devices released in america also require authorization from insurers, and when the insurers deem the devices to be too expensive, despite acceptance by the FDA, they can be unsuccessful and cost organizations a good deal. To offset these high costs, USA lawmakers are urging the federal government Accountability Office to research why medical manufacturers do not get incentives to build up products to take care of rare diseases, similar to the incentives that drug companies receive. Overseas, products marketed in Europe require a CE mark of authorization under europe Medical Device Directive to help maintenance quality excellence. Also, products often require an ISO 9000 recognition of quality. As authorities policies continue steadily to provide strict legislation on this market, organizations will continue steadily to have to weigh the costs of doing business.
In addition to governmental insurance policies, the market also experiences a high degree of legal liability. Companies are at high risk of being held responsible for incidents to be allegedly triggered by their products. Due to the lawsuits, investigations and recalls, the costs and option of responsibility insurance are a significant concern, despite the company's questionable liability. Other legal costs are caused by litigations over patents, licenses and intellectual property (IP) privileges due to the rapidly innovating medical industry technology. One review shows that medical devices are the reason behind child visits to the ER, citing that around 70, 000 children go to the ER every year as a consequence to medical device accidental injuries. Recent research has talked about concerns that most medical device products are designed for adults, thus, there is certainly security risk among children. This risk has induced the FDA to get started reviewing the prospect of device warnings on products, creating added expenditure for manufacturers.
It has been seen where many industries and marketplaces have been influenced by the global monetary downturn; however, the development of the medical devices and products industry has continued to be untouched due largely to its essential mother nature. Even those markets that are slowing in america are seeing development far away that are continuing to develop. THE, specifically, imports an equal amount of what it exports, with 45 percent of the imports being sent from just three countries; Mexico, Ireland and China. Also, there are three claims alone that account for thirty percent of the total US industry. This limited import and export market could create issues with the industry if just one express or country were to have issues. THE UNITED STATES industry is also experiencing a move of several manufacturers to lessen cost countries because of the small production works that require a higher level of labor-intensive development.
Increased international standardization and shortened specialized medical testing has also led to much shorter development cycles for medical devices in comparison to pharmaceutical and drug development. Through industry consolidation and movements to major conglomerates in the industry you can find increasing homogeneity between companies and products. This fast product life routine drives continuous advancements and requires a higher ratio toward R&D to gain/retain market share. For many products there has been further blurring of industry sectors credited to a move toward pharmaceutically layered implants and devices. Many new product innovations are centered on quality of life enhancement alternatively than health maintenance and life saving products due to an increased return on investment for the products. Technology development can be stifled by medical ethics and spiritual debate (stem cell research, in-vitro fertilization, cloning, and devices and procedures to otherwise artificially prolong life, for example).
"Since most folks want to go to heaven, but no one is preparing to go now, they will make choices using their money to buy whatever they have to stretch life for a later date. It's a unique benefit of the medical device market. "
Dr. Ronald L. Hollis, Leader & CEO, Quickparts. com, Inc
The medical device industry has a very competitive landscape which has been driven by population demographics and advances in medical knowledge and technology. Much attention must be given to company size in terms of financial capability to finance manufacturing and R&D as well as field of expertise ability -including specialized innovation and market portion. The financial cost of products, operations, technology and bringing the medical device product to advertise can prove to be expensive. For example, the Medical Device End user Price and Modernization Action (MDUFMA), that was implemented on Oct 4, 2004, brought up the fees for Premarket Approval Applications (PMAs) and PMA supplements rose over 34 percent. Original PMA fees increased from $154, 000 to $206, 811.
The medical device industry is this industry which has a high hurdle which denotes that it will have fewer firms going into it. A couple of stringent medical device rules for product acceptance by the FDA, such as establishment sign up, medical device listing, PMA (501) K or premarket approval, investigational device exemption (IDE) for medical studies, quality system (QS) regulation, labeling requirements and medical device reporting (MDR). Couple this with the need for copyrights and patents and the barrier increases even higher to enter this industry.
Another task posed to new entrants deals with the incentive program for device producers. In the 3rd quarter of the year, US lawmakers asked the government to investigate the reasons why medical device creators don't have the same motivation to make products for unusual diseases directed at drug companies. Furthermore, because of the large size of the competitors in this market, there's a barrier to entry for small companies as these large companies can utilize their economies of scale. Gleam significant increase in the number of mergers and acquisitions within the medical device industry which has already proven to change the composition of businesses and the delivery of medical technology to patients. (See )
Due to the strict guidelines for alternative medical device products with the FDA it poses a particular challenge to those entering the marketplace. You will discover no substitutes to healthcare products; therefore, the risk of substitutes is correspondingly low.
There are many business troubles also associated with substitute products. For example, there is your competition from option products. Many device manufacturers are concerned that advancements in biotechnology can make certain devices obsolete. These would include biotech treatments such as bone, organ and tissues replacements which might be more restorative than devices implanted into patients.
There are two major areas of competition in this field - conventional devices (low technology, low differentiation) and high-technology equipment which is very cutting-edge technology centered. As the market for the conventional devices appears to be very solid which is a low-profit market where producers depend upon quantity for revenue, we will concentrate our examination on the high-technology world. A list of the devices in each category can be found in.
The market show for the most notable companies is shown in. Because of the nature of the marketplace, there is a unique opportunity for smaller companies to build up a niche and enter the market in that manner. Most of the competition is a US-based global company and tend to be structured in the same way. The main competition in the high-technology portion is to be the first rival to show the usefulness and need of a machine or test prior to the next competitor enters the market. This enables the first company to develop a bit of equipment the capability to function within an area with little competition and a high profit before competition is ready to compete. Therefore, development is the key to the rivalries in this business.
The high-end technology facet of the unit makes price almost irrelevant as the efficiency is most significant. In addition, this is a market where the customers are very much mixed up in development of the device and will be willing to use the devices. The other part in this industry is the fact that smaller companies be capable of become the innovator on the market and the bigger companies have become by mergers and acquisition.
Most companies in the high-technology are of the industry are spending 9 - 13% in R&D compared to virtually nothing at all for those in the other areas of the field. Because of this expense, there exists a large barrier to exit the forex market once a company gets into due to continuing investment. Finally, as the professional medical invoice becomes effective in the US, the prospect of growth in this market is strong and giving the market does not seem sensible.
Buyers' Bargaining Power
As customers of medical equipment and products are usually small in size, they can discuss better prices using group purchasing which improves buyer ability. Several large healthcare GPOs (Group Purchasing Organizations) are totally owned by non-profit hospitals and health systems, which in effect pool their sourcing and contracting in a cooperative or other corporate and business form. The bigger scale with their pooled volume appeals to pricing and terms more favorable when compared to a sole buyer can catch the attention of by themselves. Large manufacturers may also sell right to clinic chains or other major end-users. However, typical customers are GPOs who act as medical supply marketers and most large manufacturers sell heavily to GPOs. GPOs become distributors for approximately half the country's nonprofit clinics and use their purchasing vitality as leverage to bargain for price reductions. Often, smaller medical device and offer companies can be shut out of sales to nursing homes when a greater competitor has guaranteed exclusive deals with the purchasing group. Reliance on large customers takes its threat to the industry. The number of potential buyers within the medical equipment and equipment market is relatively low, and the cost-to providers of losing one is significant; as a result, leading incumbents are in competition with each other to assure buys. Consequently buyers carry a certain amount of ability over market players because of their high amount.
Switching costs in this market are extremely low due to the undifferentiated characteristics of products. However, this is partially offset by the fact that buyers have a tendency to seek high quality and consistency which reduces their power to some degree as market players exploit this to increase their prices in exchange of offering high-quality products.
In addition, as a result of the improvement of E-procurement systems, purchasers are more proficient in products and can compare prices; hence they can play off supplying companies against the other person to pressure down prices. This improves competition between market players and assists to increase buyer electric power. The common receivables collection period is typically between 30 and 60 days and nights after sales which is high because of supplier reliance on large potential buyers. The recent economical drop has made customers more requiring for over-the-counter products and more price delicate, elevating the pressure on providers further. Overall, buyer bargaining electricity in the market is modest.
Suppliers' Bargaining Vitality:
The companies of recycleables constitute the key suppliers to the medical equipment and equipment industry. Major equipment for the industry include stainless steel, silicone, latex rubber, plastic, light weight aluminum, polymers and natural fabrics. Electricity and gas typically provide the power for manufacturing. In most cases market players will source inputs from a variety of suppliers; however, sometimes players are centered after one company for his or her specific materials. Such suppliers are usually large in mother nature due to the inherent large-scale procedure involved in development. This means that suppliers are able to exercise their bargaining electric power and work out on price. Recycleables are at the mercy of fluctuations in cost which can adversely impact a company's success. Market players may purchase inputs on the available market, however in doing this they lose any control over prices. Because of this, producers are based mostly upon suppliers for inputs which increase dealer ability further. However, there may be little differentiation in supply materials, so consequently market players will be more willing to change suppliers on basis of price; hence they can bargain cheaper prices with different suppliers. On the other hand, deals with suppliers usually stipulate penalties upon termination of your contract, increasing provider vitality mildly. Overall, distributor bargaining vitality in this market is moderate.
Summary of Nine-Forces Examination & its overall impact on Industry profitability
Magnitude of Force
Magnitude of Force
Compliance/Litigation expenses limit profits
Limited Effect on Industry Profit
Limited Effect on Industry Profit
Limited Effect on Industry Profit
R&D expense restricts profit
Buyer's Bargaining Power
Limited Effect on Industry Profit
Limited Impact on Industry Profit
Seller's Bargaining Power
Limited Impact on Industry Profit
Limited Impact on Industry Profit
Our analysis demonstrates the overall aftereffect of the nine forces on current industry success levels is moderate. In other words, it neither depresses nor boosts profits. This is constant with the saved industry success levels over the time from 1999-2005 which rates it as a medium-profitability industry among U. S business with a media ROE of 17. 2% (see ).
Driving Causes Analysis
Growth in degrees of demand consequently of beneficial demographic changes and maturing population
Most industrialized nations are experiencing the aging with their populations because of falling beginning and loss of life rates and the maturity of the baby-boom era. In america (which currently constitutes 40. 9% of the global professional medical equipment and products market value), changing society demographics prefer the medical device industry, as US society is getting much larger and older than it today. The percentage of US inhabitants over get older sixty-five is expected to surge from 12. 7% this year 2010 to 20. 8% in 2050 (See ). From 2010 to 2020, the number of People in the usa 65 and older is forecasted to increase by more than 35 percent as the total US populace is forecast to increase by 10 %. The US society is projected to increase to 392 million by 2050 --more than a 30% increase from 2009 and American life expectancy is projected to increase from 76. 0 years in 1993 to 82. 6 years in 2050. The demographic amount of baby boomers at the top of the populace pyramid, guaranteed by their great reservoirs of disposable income represents a massive chance for the industry.
Medical device manufacturers are significantly focusing on one area of drugs and sometimes in just one type of treatment. AtriCure, for example, makes only devices that treat atrial fibrillation. The high amount of expertise in a field of rapid advancement allows small companies to contend efficiently, but also greatly increases the risk of technical obsolescence for just about any individual company.
Increased loan consolidation of manufacturers and vendors has been driven partly by customer consolidation: clinics, doctors groups, treatment centers and purchasing communities. To get in bulk at lower costs, customers form large buying teams and sellers are more likely to get deals with these categories if they typically offer a wide product assortment. Other factors driving a car consolidation are shorter product life cycles and the high cost of new technology development. It is no coincidence that the major players in the medical devices sector are made up of large international conglomerates (GE, Siemens, Boston Scientific, Johnson and Abbott Laboratories). These businesses hold the associated R&D and M&A budgets and diverse divisions that can create synergy as well as derivative consumer products.
Growing worldwide healthcare spending per capita
The worldwide healthcare market is inspired by the increasing prospects for improved healthcare in both developed and developing countries. Medical spending per capita has grown significantly around the world. In america, it has increased from $144 per capita in 1960 to almost $4, 400 by 2008. Equipment suppliers recognize that to become successful in the medical market they need to be targeted and successful in america. THE UNITED STATES per capita spending is projected to expand by an average of 6. 1 percent per time over the period (2009-2019). The health care part of GDP was projected to reach 17. 3 percent in '09 2009 and 19. 3 percent by 2019 while Medicare spending was projected to develop 8. 1% in '09 2009 and average 6. 9% per time on the same period. Private spending was projected to develop 3. 0% in 2009 2009 and average 5. 2% per time in the projection period and shelling out for clinic services was projected to increase 5. 9% in 2009 2009 to $761 billion. Average spending expansion of 6. 1% per year is expected for the whole projection period.
Technology advances petrol healthcare productivity
In another 10 years, the medical care market will focus on early medical diagnosis, digitized patient information that may be seen from numerous locations, and "total solution" retailing that plays a part in healthcare productivity profits. Early analysis and elimination is enabled by appearing diagnostic technologies. For example, positron emission tomography (PET) can be used to discover many types of cancer tumor with great accuracy. A "paperless" hospital is another trend. Digital patient information enable doctors to access patients' information wherever the physician is and at whatever time of your day is necessary. The introduction of this in america was an essential component of the united states Healthcare Reform expenses. In the digitized hospital, health care providers do not have to wait days and nights for an x-ray to "keep coming back from the laboratory" because the x-ray machine is digital and the image is instantly available.
Manufacturers of implantable medical devices and diagnostic equipment are rapidly adopting wireless capacities to their designs. With cordless technology, doctors and patients have better access to real-time data from medical devices. For instance, wireless technology in reading aids allows patients and doctors to remotely change level and balance. Technology is supplying climb to new medical therapies, which in turn are addressing more and more medical illnesses and assisting in earlier medical diagnosis and elimination of diseases.
Driving Forces impact on the industry future profitability
While many companies are afflicted by financial downturns, the development of medical technology remains generally undeterred because of its indispensable nature. Industry demand is motivated by population demographics and improvements in medical knowledge and technology. Virtually all of above mentioned changes should raise the level of demand for the industry and hence make an optimistic effect on the industry future profitability. The projected compound annual growth rate of the medical care equipment & supplies global market from 2009-2014 is 4. 4% which reveals a wholesome future development for the industry (See ).
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