By Marissa Fayer, President, Fayer Consulting
When deciding your outsourcing and offshoring strategy, timing and technology have everything to do with choosing the right location for your business. The factors that were prevalent 10 years ago, such as dramatic cost savings and entry into newly opened markets (like China), have become less applicable deciding factors for location in today’s cost-conscious — but highly innovative — market, and are almost counterintuitive to what will occur within the next 10 years. Due to significantly decreasing cost differentials, heightened importance to protect highly innovative products as intellectual property, and a need to minimize cost and timing of logistic chains, the traditional outsourcing and offshoring locations are no longer as relevant.
The initial article in this series discussed the differences between outsourcing and offshoring, factors to consider, and guidelines to ensure a smooth transition. Here, we will delve into the current and emerging areas for both outsourcing and offshoring and discuss the specialties within each region, especially those applicable for the medtech industry. But first, let’s review several key background factors that will aid in your location decisions.
Factors To Consider When Choosing A Location
The worldwide medical device market is estimated to reach $400 billion in 2017, with the U.S. supporting $140 billion of the market. When deciding on a location for your outsourced or offshore operation, factors that we often take for granted in the U.S. become significant potential obstacles. Each of these factors is singularly important, but when grouped together, they have a substantial impact on your business success:
Emerging Offshore Markets And Their Value
Offshore emerging markets, for the context of this discussion, can be grouped into two distinctions: Countries that are ready now, with education and quality/regulatory practices in place, and will continue to reap benefits for the next 7 to 10 years; and countries that will be ready in 3 to 5 years and will grow into the late 2020s.
When To Relocate Into Offshore Emerging Markets
The countries considered ready for medtech have been working in the industry for 10+ years, have the infrastructure in place to support growth, have robust quality cultures and regulatory systems, and are actively looking to maximize their investments. Any business that is looking to offshore for the first time, partner with an outsourcing partner abroad, or pull back operations from out-of-date offshore locations should consider moving their operations to these countries now.
Businesses that like to be adventurous, ahead-of-the-curve, and are willing to work with the developing countries to aid in infrastructure, regulatory, and technical training — or have technology that is not completely developed yet, with a significant ramp-up period — are better suited to work with the 3-to-5-year growth countries. These businesses will have longer-term cost effectiveness and a growth ramp-up period, while helping the countries develop the culture and systems required to create a long-term medtech future.
There is a strong expectation from many leading advisory firms that a shift toward personalized medicine and therapy will fuel the market from 2018 onward. Standard care of practice will be challenged by innovative and restorative medical care, and medical device manufacturers will continue to be challenged to create more cost-effective and innovative devices for this demanding market. But this challenge also opens the opportunity to create a flexible and robust environment for the manufacture of such technologies while being close to their development centers, especially for the near-future offshoring locations.
Additionally, the dramatic growth of emerging markets, coupled with the reimbursement pressures in the U.S. and European steady markets, will create a demand for cost-reduced medical devices and more cost effective products and technology. This pressure drives the opportunity for medtech companies to offshore and outsource their operations into the areas that already are developed, in order to take advantage of cost reductions and the ability to create more flexible infrastructure for their businesses, before the cost demand increases further.
The timing to outsource or offshore should be based around the category of your products, the market each medtech innovation serves, the ability to scale engineering and support teams in each offshore location, and the ability to transfer knowledge and quality focus to your teams. In medtech, quality is the overarching element that governs our decisions, and without each location maintaining quality standards, the offshoring discussion is moot and timeliness becomes irrelevant.
Choosing a correct location for your outsourcing or offshoring operation is critical to the success of your company’s future. If you are able to read the market trends, have decided on your own internal strategy for growth, and have trust in your partners, then outsourcing or offshoring is a great growth strategy. Without knowing where you want your company to go, you cannot be ready to make the decisions that will take it there.
The best decision for your organization is a combination of all of the factors mentioned above, and also what feels strategically and culturally right for your organization. Knowing the heartbeat of the company and the future destination will determine the best location and the right time for your business. The timing depends management’s comfort level with the risk-versus-reward, affected by the location and timing of the offshore operation (the earlier, the more reward).
While outsourcing and offshoring set-up is not an overnight process, continuing to follow the market trends towards a globalized world is the key for future success and growth in a world economy where demand for innovative and cost-effective medical device products is driving the market for the foreseeable future.
The next article in this series will discuss the areas to retain and relinquish when you are offshoring and outsourcing your operations. Further articles will discuss how to choose the best contract manufacturer for your business, managing your relationships with your partners, and how to scale up your offshore facility for more effective and engaged employees.
About The Author
Marissa Fayer is president of Fayer Consulting, a global consulting business helping small to midsize medical device companies reduce their costs and increase their profits. The firm specializes in manufacturing relocations, project management, high performing team development, and optimization of operations. Marissa Fayer has been working in the medical device industry for over 15 years with a focus on offshore operations and project management for complex multistage integration and implementation projects. Reach her at firstname.lastname@example.org and on Twitter @MKFayer.