Skyrocketing Healthcare Demand in ASEAN Opens Door to Medtech

By Ames Gross
October 25, 2016


• Categories: Business Analysis, Market Access

The Association of Southeast Asian Nations (ASEAN) is an international organization made up of 10 countries in Southeast Asia, including Indonesia, Singapore, Thailand, Malaysia, Vietnam, the Philippines, Brunei, Laos, Cambodia and Vietnam.

ASEAN has a population of 600 million and is the seventh largest economy in the world if considered as a single unit, with a total GDP of more than $2.6 trillion. Most of its member countries are growing rapidly, and the regional GDP doubled from 2007 to 2014. Future growth in the region is expected to be more than 6% as well. Underpinning this rapid growth is a youthful population. ASEAN countries have an average median age of 28.5 years, which is more than eight years younger than the median age in China and 18 years younger than the median age in Japan. In 2015, foreign investment in Southeast Asia exceeded foreign investment in China.

ASEAN Healthcare Markets

Just as the ASEAN countries are religiously, economically and ethnically diverse, ASEAN’s healthcare markets are very heterogeneous as well. For example, Singapore is one of the wealthiest countries in the world, with a per capita income of $55,000 and a very advanced healthcare system. On the other extreme, Myanmar has a per capita GDP of around $1,000 and one of the least advanced healthcare systems in the region. Annual per capita healthcare spending in Singapore was $2,750 in 2015, while the corresponding figure for Myanmar was $20. In between those two extremes are middle-income and lower-middle income countries like Malaysia, Thailand and Indonesia. ASEAN healthcare spending is growing at about 10% per year, while in the EU growth is only 1% per year.

One common element of these diverse ASEAN countries is a rapidly growing middle class. ASEAN’s middle class is expected to almost triple from 2010 to 2030, which will cause healthcare demand to skyrocket. Some ASEAN countries, such as Singapore, also have aging populations, which in turn will sharply boost healthcare demand. Furthermore, chronic diseases like cancer, obesity, diabetes, and arthritis are becoming more widespread in the region.

Currently, with the exception of Singapore, the local medical device manufacturing markets in the ASEAN countries are considered underdeveloped in comparison to the markets in the United States, EU, and Japan. For example, Vietnam, Indonesia and Thailand all import more than 85% of their medical devices.  In other words, not many medical devices are made by local ASEAN manufacturers.

The heterogeneity of the ASEAN market allows ample room for device segmentation. Foreign device companies that produce higher end devices can focus on richer countries like Singapore and Malaysia. Those looking to sell lower end devices can look to Vietnam, the Philippines and Cambodia. As a result, there are tremendous expansion opportunities for foreign medical device firms.

Country Profiles

Singapore

Within ASEAN, Singapore stands out for a number of reasons. It has the smallest area, spanning 278 square miles, and its population of 5.3 million is the second smallest after that of Brunei. Singapore has the most advanced economy in the region and has a public healthcare system that has won worldwide plaudits. The entire population has a variety of quality healthcare coverage. It spends by far the most on healthcare per capita out of all the ASEAN countries and has an advanced medical technology sector. Unlike many other countries in the region, Singapore also has strong intellectual property protection. This makes it a strong choice for foreign device companies looking to establish a foothold in the region. The medical device market in Singapore is worth about $600 million.

The Singaporean government has worked very hard to attract foreign medical device manufacturers to set up shop in Singapore via incentives ranging from Singapore investment, tax-relief and training grants. Currently, Singapore manufacturers produce around 50% of all thermal cyclers and mass spectrometers in the world and 10% of contact lenses. It has a strong research and development environment thanks to its educated workforce, existing research infrastructure and the aforementioned intellectual property protection.

Malaysia

Malaysia has a population of about 30 million and is very ethnically diverse, with a Malay majority and Chinese, Indian and other minorities. It is a middle-income country with a per capita healthcare spending of $457. Its medical device market is valued at more than $1.9 billion. Domestic healthcare spending has more than doubled in value since 2005.

Malaysia has a rapidly growing healthcare sector and aims to move up the value chain in medical device manufacturing. Malaysia is a major producer of rubber-based medical devices. It produces a significant portion of the world’s surgical gloves, select catheters and many other rubber-based medical devices.

Thailand

In spite of the recent political unrest that has reduced economic growth and diminished investor confidence, Thailand’s medical device market continues to grow rapidly. Current per capita healthcare spending is $360, up from $113 in 2004. Growth of the healthcare sector is forecasted to be 10%, as opposed to GDP growth of less than 2%. The medical device sector is currently worth more than $1.1 billion.

Thailand’s local medical device manufacturers are focused on the production of low-tech basic devices like syringes, test kits and surgical gloves. The Thai government has made some efforts to attract foreign manufacturers by promising corporate tax exemptions for a number of years. Health tourism is a major industry, with Bangkok serving about 30% of health tourists coming to Asia.

Regional Considerations

The ASEAN Medical Device Directive is a formal agreement among the ASEAN countries that aims to set common standards for medical device registration across the region. While it would not create a single market for medical devices, the directive would make it easier for a firm that has registered a device in one ASEAN country to register and enter other ASEAN countries. The Directive lays out a uniform standard for classification of devices with four classes going from A to D. Class A devices are low risk, Class D devices are high risk, and classes B and C are in between. Implementation of the directive, however, has been slow. Most countries in the region continue to use their own classification standards for medical device registration. For example, Thailand uses three different classes, with Class 3 devices being the lowest risk and Class 1 the highest risk, which is the reverse of the classification scheme in other ASEAN countries.

An increasing proportion of the growing demand for healthcare in Southeast Asia has been met by the private sector. There are many highly successful private hospital companies in Southeast Asia, some of which cater to medical tourists and the local upper classes. For example, IHH, the world’s second largest operator of private hospitals, is headquartered in Malaysia. It owns 49 hospitals with almost 10,000 beds around the world, of which 19 hospitals and 3,000 beds are located in ASEAN countries. These hospitals need up-to-date and technologically advanced medical devices. As a result, they provide a good market for foreign medical device manufacturers.

Regardless of whether your medical device firm is small or large, or produces specialized devices or basic equipment, the ASEAN market has many opportunities. It is one of the fastest growing regions in the world, and more and more of its citizens demand quality healthcare and devices.