Latin America: Strong Healthcare Potential

Latin American hospitals and medical device imports have strong potential.

BY GUILLAUME CORPART

Global medical device manufacturers have long relied on their core home markets for revenue and profits. The United States and European markets, with approximately 5,700 and 8,000 hospitals respectively, have been the traditional focus of the world’s leading medical device manufacturers. These advanced markets are highly competitive and well served; future growth will either be organic or rely on technological advancement. Both of these factors make it difficult to quickly boost sales or profit margins.

The potential of international markets is often overlooked. While it is true that hospital spending and healthcare expenditures in emerging markets lag behind those of the U.S. and Europe, the size of the opportunity warrants a closer look.

Latin America is home to over 16,000 hospitals. Brazil has over 40 percent of the region’s establishments and has more institutions than the US. Meanwhile, Mexico is the world’s 7th largest hospital market with over 3,900 hospitals, 60 percent of which are private.

Analyzing hospital demographics can uncover a wealth of opportunities. Factors such as geographic concentration, size of institutions and degree of specialization are key to developing a successful growth strategy.

For example, half of all Brazilian hospitals are located in just six states, and one-in-five hospitals have more than 100 beds. In other words, companies selling sophisticated medical devices, hospital services, and technology solutions can learn to target hospitals that fall within their typical client base with a smart and focused regional in-country strategy. Specifically, recent data on hospital infrastructure in Brazil suggests there is room for growth in outsourced medical services, notably in managing hospitals’ pharmacy, medical and patient records, sterilization of materials and laundry services.

Similarly, over one quarter of Mexican hospitals are located in just three states, and 10 percent of hospital physicians are pediatricians. This means that companies introducing a treatment or device aimed at the pediatric market have a potential audience of nearly 20,000 doctors with a targeted approach.

Despite the opportunities, few global medical device manufacturers have taken the lead on making Latin America a priority. As such, the market is generally highly concentrated with a few players holding a cornerstone to the industry. Local R&D is weak and manufacturing is generally limited to second-generation products, by fear of piracy or intellectual property infringement.

Consequently, the region remains largely dependent on imports for more sophisticated products.

Making the right investment is the first step in establishing a market presence with long-term growth prospects in the region. A fast mover wanting to disrupt the current state of affairs could do so with a few thoughtful bets on concentrated markets such as Brazil, Mexico, Colombia, Chile or Peru.

IMPORTED MEDICAL DEVICES

In 2014, exports of medical devices to Latin America were expected to top $10 billion. Mexico, Brazil, Argentina and Colombia together accounted for more than 75 percent of imported devices. Mexico is the largest importer of the region with over $2.5 billion in 2014; spurred primarily by its proximity to the U.S., the North American Free Trade Agreement (NAFTA) and relatively low degree of local manufacturing. Brazil and Argentina are also large import countries, with ~$2 billion each.

Medical devices stand out because demand for innovative, high-tech solutions is largely driven by the private sector — in contrast to other types of healthcare expenditures, which are more evenly balanced between the private and public sector. With over 16,000 hospitals in the region, Latin America is an attractive market for many foreign manufacturers.

The weakening of currencies across the region will result in an overall drop in demand for imported, dollar-denominated devices and technologies; favoring locally manufactured equipment which may be less exposed to currency fluctuations. Foreign manufacturers and their local distributors will have to promote creative financing options in order to stay on top of the market and not lose share to less expensive products.

IMPORTS TRUMP LOCAL PRODUCTION

With the exception of Brazil, most countries in Latin America have little-to-no local manufacturing of medical devices or medical technology. Relatively small domestic markets have kept local players at bay, while weak intellectual property rights, questionable regulatory frameworks and a dearth of trained talent have held back foreign manufacturers from investing in the region. As a result, most countries rely almost exclusively on imports, especially for high-end, complex devices.

A smart regional strategy will account for differences and clusters among local markets:

• Brazil is the region’s largest market for medical devices: the country accounts for 50 percent of the U.S. exports of medical devices to Latin America and has a strong domestic manufacturing industry of its own. It has evolved into a mature market for medical devices, complete with a more developed regulatory system than in neighboring countries. While Brazil represents a vast opportunity, importing into Brazil and local regulation are complex and costly to manage. Local competition should not be underestimated. A proper market assessment can help navigate some of these challenges, helping make the right decisions.

• Though Mexico’s market is second to Brazil in term of local demand for medical devices, it is in fact the region’s largest importer. Its proximity to the U.S., highly developed road systems, integration into the NAFTA, and robust export manufacturing (“maquila”) industry make Mexico a natural expansion when looking outside the US. Additionally, the state of Jalisco (Guadalajara region) has developed important capabilities in the healthcare space, primarily pharma and to a lesser degree devices.

• Beyond the top four markets — Brazil, Mexico, Argentina and Colombia — a second tier stands out, including Chile, Peru and Costa Rica. Each of these markets benefit from the right conditions to make them attractive to medical device suppliers and manufacturers, including respect for the rule of law, favorable customs and import regulations and higher levels of per capita spending on healthcare compared to regional standards. These can become lucrative, albeit niche export markets alongside the bigger regional players.

Guillaume Corpart is the Managing Director of Global Health Intelligence and a veteran of market intelligence and strategy consulting in emerging markets.  gc@globalhealthintelligence.com | www.globalhealthintelligence.com