05 Aug 15 Healthcare equipment – reaching rural markets in India
In order to tap opportunities beyond the metros and tier I cities in India, healthcare devices suppliers need to do much more than enhance their distribution networks and sales reach in smaller cities and towns.
Most medical device suppliers are primarily focussed on the metro and tier I markets in India. The tier II & III cities which constitute around half the total market remain largely under penetrated.
Suppliers are finding that markets in semi urban and rural areas behave quite differently from the large cities. The hospitals in tier II and III cities are generally smaller and operate at lower price points than the ones in large cities. Their remote locations also throw up logistical challenges for distribution as well as after sales service.
The industry is dealing with these challenges in multiple ways.
Rural hospitals are the key buyers of refurbished equipment as it is around 40% cheaper than new equipment. Expensive equipment such as ventilators, defibrillators, CT scanners, MRIs and the X-Rays are most commonly refurbished. The refurbished market was estimated at as much as 20% of the overall equipment sold and almost 30% of the sales in the private sector in 2013. Going forward this is likely to grow.
There are several local third party providers of refurbished equipment such as Sanrad, Biomex, Zigma Meditech, Masters Medical Systems and Soma Tech. In recent years, OEM manufacturers are themselves getting into the refurbishment business, as a badly refurbished machines damage their brand reputation. GE, for instance, sells refurbished equipment under the Goldseal brand. Others like Siemens Healthcare and Philips Healthcare also supply refurbished systems.
Financing the purchase of large medical equipment is a challenge for hospitals that operate at low price points.
Some hospitals have tried public private partnerships for overcoming this. The government run SMS Hospital in Jaipur, for instance, has collaborated with a private contractor to operate their machine in the hospital premises with special concessions for the poor. Leasing, renting and pay-per use are the other models being tried.
Financing healthcare equipment requires the lender to understand the equipment’s usage, life, technology, etc. to calculate the costs. Some banks and NBFCs like SBI, HDFC Bank, Srei BNP Paribas and KFI offer healthcare equipment loans. Large manufacturers like GE and Siemens themselves provide financing through GE Capital and Siemens Financial Services respectively.
Several local manufacturers have entered the market to offer affordable alternatives to expensive imported equipment manufactured by large multinationals. There are an estimated 700 companies such companies in India, and they have made a significant dent in the share of multinationals. One estimate pegs the share of MNCs at 75%, down from 95% a few years ago. Examples of startups include Skanray Technologies that has brought down the cost per ECG to Rs15 per test and Embrace Innovations that sells baby warmers for only Rs15,000- a tenth of the imported alternative.
Many of the local players are focussing on the small towns in India. MNCs can expect serious competition from them.
New product development and localisation
MNCs are responding to the demand for affordable alternatives in two ways. First, local manufacture of the equipment, or parts of it to reduce cost. Philips for instance is gradually increasing the local content in its X-ray machines made at the Healthcare Innovation Center by developing suppliers.
Secondly, the MNCs are investing in R&D to focus on innovation for the Indian and other emerging markets. GE, Stryker, Philips and Johnson & Johnson, among others have set up R&D labs in India. The focus is on developing equipment that is rugged, portable, easy to use, and suited to the rural conditions.
There is a huge unmet demand for healthcare in India. As the market in large cities gets saturated and the industry turns its attention to the semi urban and rural markets, we are likely to see a lot more innovation in the design, manufacture, financing, distribution and servicing of medical devices.