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8/10/2019 Gereffi Medical Devices GVC in Costa Rica 2013!03!20
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Medical Devices Global Value Chain:Opportunit ies and Challenges for Upgrading
Gary Gereffi
March 20, 2013
Life Sciences Forum
San Jose, Costa Rica
Duke University
Based on Bamber, Penny and Gary Gereffi . (2013). Costa Rica in the Medical DevicesGlobal Value Chain: Opportunities for Upgrading. Durham, N.C.: Duke CGGC.
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1. Medical Devices
Global Value Chain
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Medical Devices Industry: Key Trends
Mix of low- and high-value items (from disposable
catheters to home test kits to MRIs)
Growing global demand: developed countries still
strongest, but emerging markets strengthening
Production is highly concentrated geographically &
among top firms in med devices GVC
BUT increased offshoring creating opportunities forother countries lower costs, leverage human
capital & target new markets
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Medical Devices Global Value Chain
Components
Manufacturing
Plastics Extrusion& Molding
Precision Metal
Works
Electronics/Electrical
Components
Software
Development
Weaving/Knittin
g Textiles
Assembly
Packaging
Sterilization
Assembly
Wholesale
distributors
Individual
Patients
Doctors & Nurses
Hospitals
(Public/Private)
Cardiovascular
Orthopedics
Infusion
Systems
Others
Marketing & Sales
Resin Metals
Chemicals Textiles
Input Suppliers
Disposables
Surgical & Medical
instruments
Capital Medical
Equipment
TherapeuticDevices
Final Products
Distribution
Market Segments
Post-Sales
Services
Consulting
Maintenance,
Repair
Training
Buyers
Research & Product
Development
RegulatoryApproval
Process
Development
Sustaining
Engineering
Prototype
Process
Development
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2. Costa Rica in the Medical
Devices Global Value Chain
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Key Trends in Costa Ricas Medical Devices GVC
Product upgrading: General increase in complexity of products Growing confidence in ability to meet regulatory requirements.
Market segment diversification: DisposablesInstrumentsTherapeutics. (Shift toward higher-value products)
Forward and backward linkages: In 2009-12, upstream (inputs) anddownstream (sterilization) firms established in country; increase in
country-capabilities & domestic value-added
Disposables, Instruments & Therapeutics categories are highlyconcentrated despite large number of entrants:
Disposables: Baxter & Hospira
Instruments: Arthrocare & Boston Scientific
Therapeutics: Allergan & St. Jude Medical
These six firms together exported 85% of the medical devices from
Costa Rica.
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ComponentsManufacturing
Plastics extrusion
& molding
Precision metalworks
Electronicsdevelopment
Software
Development
Weaving/Knittin
g Textiles
Assembly
Packaging
Sterilization
Assembly /Production Distribution &Marketing
Resin Metals
Chemicals Textiles
Input Suppliers
DisposablesUS$575.5 million
Instruments
US$270.5 million
Capital Equip.US$32.5 million
TherapeuticsUS$301 million
Main Segments: Exports
Post-SalesServices
Consulting
Maintenance,Repair
Training
Research &
ProductDevelopment
RegulatoryApproval
ProcessDevelopment
Sustaining
Engineering
Prototype
Local firms are mainly in packaging & support services (12 of 19) versus 4 in limitedrole in plastics molding & metal finish ing and 1 OEM with exports under $2 million.
Number of Firms
0 - 5
6 - 10
11 - 15
16 - 20
Costa Ricas Position in the Medical Devices GVC
Wholesale
distributors
Individual Patients
Doctors & Nurses
Hospitals(Public/Private)
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0
200
400
600
800
1,000
1,200
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ExportVa
lues($US
Million)
Year
Costa Rica's Exports by Product Category: 1998-2011
Disposables Therapeutics Instruments Capital Equipment
Evolution of Costa Rican Medical Device Exports
Disposablesstill the largest product category exported, but no longer astrong growth area.
Exports in surgical instruments have grown steadily since 2005. Therapeuticshas become 2ndlargest category since 2008; likely to increase
as newly established firms complete transfer of new product lines.
Limited export of highest value capital equipment
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2010
Initial plant reopens
after restructuring
2004: Manufacturing functions
2012: Engineering for process improvementsFocused on
cardiology segment; strategy to alleviate R&D costs in the US.
Functional Upgrading
Biopsy forcepsLabor intensive, basic metal works & extrusion.
Urethral stentThermoforming, laser marking, coating capabilities.
Guide WiresSophisticated Laser cutting & welding.
Today CR facilities cover 42 manufacturing processes.
Product & ProcessUpgrading
Gastroenterology segmentUrologyCardiovascularMarket Diversification
Recent co-location of sterilization vendors will allow the firm to exportdirectly to global distribution centers
Forward Linkages
Upgrading Success: A Leading Medical Devices MNCin Costa Rica
2004
First production plant
opens in Costa Rica
2008
Second plant opens.
First plant begins
restructuring
2005 2011
Exports:US$100 mill ion
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Evolution of Brazilian Medical Device Exports
Disposablesare both the largest product category exported and an area ofgrowing exports.
Medical equipment surpassed dental products as the second largest exportcategory in 2002.
Export statistics hide the sectors of greatest importance, since the main
export items tend to be low-tech. Brazilian government and private sectoractors are working to promote price-competitive, mid-tech exports.
0
100
200
300
400
500
600
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ExportValue(US$Million)
Year
Brazils Medical Device Expor ts by Product Category, 1997-2011
Dental Disposable Equipment Implants Laboratory Radiological
Costa
Rica
2x
Mexico
10x
Ireland
18x
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Components
Manufacturing
Plastics extrusion
& molding
Precision metalworks
Electronics
development
Software
Development
Weaving/Knitting
Textiles
Assembly
Packaging
Sterilization
Assembly /Production
Wholesale
distributors
Individual Patients
Doctors & Nurses
Hospitals(Public/Private)
Resin Metals
Chemicals Textiles
Input Suppliers
Laboratory (22)
Implants (32)
Dental (26)
Disposables (20)
Distribution &Marketing
Post-Sales
Services
Consulting
Maintenance,
Repair
Training
Research &
ProductDevelopment
Regulatory
Approval
ProcessDevelopment
Sustaining
Engineering
Prototype
Number ofNational Firms
0 - 20
21 - 40
> 40
82% of nationalfirms are SMEs
Brazils Position in the Medical Devices GVC
Medical
Equipment (120)
Radiology (10)
Market Segments
MNCConcentration
27
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GE Healthcare in Brazil: Market-Seeking Offshoring
GE seeks to gain access to Brazils rapidly growing healthcare market.
Industrial policy toolscreate further incentives for local production. The Brazilian informatics law: tax incentives for local production and R&D
The Dilma administration approved a 25% preference for the national healthcaresystem to purchase locally manufactured medical devices.
Certification by ANVISA, the regulatory arm of the Ministry of Health, is requiredto distribute medical devices in Brazil. ANVISA certification is very difficult and
time-consuming(1 year on average), so MNCs frequently find it easiest toacquire local companies.
GE is pushing for relaxed ANVISA requirements, but through its controlof the largest public healthcare system in the world, the Braziliangovernment is in a strong bargaining position.
2010
GE Healthcare opens
first plant in Brazil,
manufacturing 3
products
2012 June
GE aquires XPRO, a
local x-ray device
manufacturer
2012 April
GE fails to receive
approval to produce
14 new products in
Brazil
2013
GE plans to open a
multi-disciplinary
research center in Rio
de Janeiro
2012 June
Brazil approves a 25%
preference for locally
produced goods for
public hospitals
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Opportunities for Costa Rica
Product upgradingTherapeutics & capital equipment
Increasing value of products produced in country
Synergies with IT sector
Improve capability of local & foreign suppliers Automation to increase overall supply w/o increasing labor costs
Capture more value from participation in technology- and capital-
intensive production processes
Strengthen backward & forward linkagesin chain Locally available inputslower inventory needs and costs
Sterilizationopens up possibility for direct distribution
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Opportunities for Costa Rica (contd)
Diversification across geographic end-marketsfor
functional upgrading in marketing, distribution &
incremental R&D
e.g., Mexico Growing supply (exports) and demand (domestic)
Cultural & language bridge
Close to the US
Mature industry with training opportunities
Leverage offshore services experience
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Challenges for Costa Ricas Med Devices Sector:Expansion & Upgrading
Expansion of manufacturing segments -- constrained
Shortage of human capital, increased attrition & wage inflation.
All levels: Direct labor, technicians and esp. engineering staff
Sector competes with other priority sectors such as offshore
services firms for engineering talent.
Transportation infrastructure limits continued growth, particularly in
the Central Valley
Functional upgradinginto R&D
Cost and skills driven due to limited CR domestic market & EPZ
incentivesNeed to explore potential regional market
Limited R&D need to build academic strengths in cutting edge
technology
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Challenges for Costa Rica (contd)Building local l inkages
Expand opportunities for local firms
Local firms have limited presence in EPZs due to follow sourcing by
MNC partnersenhance supplier development programs
Sourcing decisions made globally
look for regional expansionopportunities.
Limited scale, access to finance & technological expertise inhibit
local firms from becoming reliable suppliers of critical inputs &
serviceslook for upstream and downstream GVC opportunities.
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Gary Gereffi
THANK YOU!
Questions?
Penny Bamber