This report originally appeared in the July 2011 issue of DOTmed Business News

At the end of last month, a 500-bed specialty hospital welcomed a state-of-the-art robot to help perform prostate cancer surgeries. The Da Vinci robot, made by Intuitive Surgical, is expensive, with total costs around $2.2 million, according to the hospital. But the health care center has been promoting the new technology, hoping to attract patients.

One selling point might be that the system is, the hospital says, one of the first of its kind in the area – that is, it’s one of the first surgical robots in all of southern India. The hospital, Krishna Institute of Medical Sciences, can be found in a bustling city just north of Hyderabad.

The arrival of the robot shows how times are changing in India: with a rising middle class, a booming device market and its new role as a medical tourism hub, India is attracting many international medical equipment companies – eager to come to the world’s second most populous country to sell their wares.

Although analysts say the market should experience torrid growth over the next decade, they warn that companies heading to India had better do their homework first. Challenges to sellers, such as low price points and longer replacement cycles, could prove tricky to businesses trying to turn a profit.

Doubling by 2015
Estimates vary, but the Indian medical device market is believed to be worth about $3 billion, making it the fourth largest in Asia, behind only Japan, China and South Korea. And it’s expected to double in the next few years, reaching $6 billion by 2015, according to a report written by a United States International Trade Commission officer last year.

While much of the demand for health care services is domestic (the country has 1.2 billion people), foreigners are also playing a part: India has increasingly become a destination for visitors from developed countries seeking savings on treatments.

According to a 2007 Medical Tourism Magazine report, 150,000 Western medical tourists come every year, drawn by medical care of comparable quality but at much lower costs. For instance, in June, Bloomberg said a heart bypass surgery that cost $130,000 dollars in the United States would only run $10,000 in India. And on its website, KLM, the hospital that got the surgical robot, offers PET-CT scans for about $335. In the United States, these can cost up to 10 times that amount.

OEMS dig in
The high-speed growth of the Indian market is borne out by the financial reports from the big OEMs.

GE Healthcare, for instance, boasts a compound annual growth rate of 30 percent from its Indian division. And according to a recent interview with that group’s president, GE expects to keep in line with market projections, and more than double its sales over the next few years, going from $400 million now to $1 billion by 2015.

GE’s rivals tell similar stories. Royal Philips Electronics said its health care business grew 43 percent in India last year. And Siemens Healthcare’ most recent quarterly report, in May, found health care grew 47 percent over the same period last year.

Many of these companies have turned to partnerships – or outright acquisitions – of local companies to produce “no-frills” products specifically designed for the Indian market. For instance, in 2008, Philips bought Alpha X-Ray Technologies, an Indian manufacturer of cardiac X-ray scanners. A Philips spokesman told DOTmed News the Dutch giant intends to use Alpha’s industrial footprint to make middle-range scanners that will cater to buyers in India and elsewhere in the developing world.

For imaging, imports lead the way
For now, the bulk of India’s imaging equipment comes from abroad, with refurbished and used equipment accounting for a sizable bit of sales, analysts say.

According to market analysts with Millennium Research Group, imports account for nearly 80 percent of new and used imaging systems. Foreign-made goods are especially dominant for high-end equipment, such as 3-Tesla MRI scanners and CT scanners with more than 64 slices, where the prestige of U.S. and international brands helps drive sales.

“Presently, the majority of India’s medical devices are based on foreign-made products; there is a tendency to view foreign-made products as more superior to locally manufactured devices,” Cindy Yip and Prabjot Bal, analysts with MRG, told DOTmed News by e-mail.

Indian dealers frequently trade in refurbished equipment manufactured abroad, and the country is relatively open to used and repaired goods. In fact, the U.S. Department of Commerce classifies it as one of several countries that allow the import of used products on the same terms as new ones.
Also, customs duties are typically lower for refurbished than for new equipment, Yip and Bal said, further increasing their appeal to thrifty buyers.

Low prices, big challenges
Still, the attraction of refurbished equipment points to one of the main challenges for foreign companies doing business in India: low price points and slow turnover. In fact, Yip and Bal said many Chinese companies have struggled to make a profit in India, because of the preference for low-cost goods.
“It is important for U.S. companies to be cognizant of the fact that the Indian consumer, whether hospital or physician, values cost and practicality the most (fancy add-ons or features are deemed as extra costs that are unnecessary),” they said.

There are also important cultural differences with the rest of Asia. Unlike in, say, China, where consumers want the newest thing and imaging equipment is replaced very few years, the analysts said in India buyers expect capital equipment to last eight to 10 years.

“This leads to low replacement rate of capital equipment in India and limited [year-over-year] market growth,” they said.

Advice for doing business
Still, India’s health care sector is doing gangbusters, and many device companies are making a bet on its continued success. If you’re going to do business in India, Yip and Bal have some pointers:

• Partner with locals: Yip and Bal said pursuing a joint-venture agreement with a local distributor is the easiest market-entry strategy, although once you get some experience on the ground, you might find it better to go off on your own.

• Pick the right model: Indian businesses prefer capital purchase to leasing or subscription models, so keep that in mind when developing proposals.

• Skip the IT: Weak information technology infrastructure and the high costs of implementing health care IT mean the demand for these products is often lower in India.

• Watch out, colleagues can become competitors: Compared to China, India has had fewer radiology brands become global forces, but Yip and Bal warn that won’t be so forever. Government moves to lower duties on raw material imports and the knowledge gained from multinational partnerships are inspiring many local entrepreneurs to launch their own equipment startups. “In the next 10 years, we may witness a local Indian player become a global player, primarily through expansion in regional and emerging markets,” they said.

Finally, you should be aware of regulations. Currently, India has a rather accessible market, but the government is trying to move its regulations more in line with those from the Global Harmonization Task Force. In fact, some experts believe India could decide on new regulations – better clarifying what’s a device, and what’s a drug – as early as this summer.