China is a major contender when considering offshore production with the goals of cost reduction and becoming a global supplier.
Many factors were examined when analyzing China’s potential for business including China’s geography, economy, the healthcare and medical device industry, logistics, and technology. All of these factors were used to evaluate whether or not China would be a strong sutor for offshore production.Geography of ChinaChina is located in East Asia and has a surface area of about 9596960 sq km.1 It is the fourth largest country in the world by surface area and the largest in terms of population.2 China is bordered by 14 nations including Afghanistan, Pakistan, Russia, and Vietnam.
China has plateaus, basins, mountains, hills, and plains which offer a wide variety of topographic features which all together make up 69% of China’s landmass.3 In terms of climate, the county’s large size lends it to experience varying climate across the scope of the nation. Since the country is located in the northern hemisphere means that it has seasons similar to those experienced within the United States and Europe. It also has 14500 kilometers of coastline with coasts on the East China Sea, Korea Bay, Yellow Sea, and South China Sea. The wide array of coastal options in China allows for offshore outsourcing opportunity where cost is often the most common consideration and allows for competitiveness.4 Chinese EconomyThe economy of China showed a certain degree of deceleration due to its cooling housing market, the government’s tighter environmental regulations and moderating external demand.
As the deceleration will be part of the government’s plan to reach a more balanced economic model, renewed tension with the U.S. over trade disputes could disrupt the economy. However, while resilient private consumption and service activities will continue to be the main driver, economists are still forecasting a 6.5% of growth in 2018.
China has a much more restrictive foreign investment climate than its major trading partners, including the U.S. China encourages foreign investment in many sectors while restricting it in others. Its investment approval regime shields from competition inefficient and monopolistic chinese enterprises.
Foreign investors are hindered by discriminatory practices, selective regulatory enforcement, licensing barriers and the lack of an independent judiciary. Other obstacles also include poor intellectual property rights enforcement, forced technology transfer, and a systemic lack of rule of law. Furthermore, many of China’s industrial policy goals including the 13th Five Year Plan and Made in China 2025 inherently discriminate against foreign companies and brands by factoring local products in advanced manufacturing sectors.5In 2017, the United States and China signed a trade agreement after the United States backed out of the Trans Pacific Partnership (TTP) trade agreement.
After withdrawing from the TTP, the United States and China decided on a trade agreement that will increase access for an array of U.S. financial services and biotech products. The benefits for finance and biotech are dependent on China’s regulatory agencies, however there is worry regarding whether or not investment commitments will be implemented.
6Healthcare and Medical Device IndustryThe healthcare and medical device industry in China is growing rapidly with a market size at about $58.63 billion.7 In China the medical device industry is only 14% of the pharmaceutical industry compared to the 42% globally; thus meaning there is substantial growth potential in China 7 With a growth rate of 20% annually over the past decade, the China medical device industry has gone from over $38 billion in 2014 to an estimated $45 billion in 2015. A significant amount comes from US medical device manufacturers.The industry is broken up into two sectors, 80% of the domestic manufacturers and then foreign sourced manufacturers.
The domestic manufacturers produce low quality products while the foreign sourced manufacturers, made up of companies such as General Electric (GE), Johnson & Johnson (J&J), Philips, and Siemens, produce higher end products.7 Manufacturing in China opens a world of possibility to create a wide range of products and innovations. In addition, bringing product manufacturing to China allows one to create a higher volume of product for reasonable cost. China, the world’s second largest economy, is experiencing constant demand even though it accounts for one-fifth of the global manufacturing. China’s rapidly aging population, increasing urbanization, and associated emergence of lifestyle-related illnesses are driving consumer demand for medical devices which has not only increased in previous years but is forecast to achieve compound annual growth rate of over 10% through 2018. China views United States made medical devices to be of higher technology and superior to others products. In the past years, nearly one-quarter of the US industry growth to China has been driven by China’s high demand for three types of devices: stents, MRI and ultrasound devices (view Appendix 1).
Due to the fact that GE and Siemens, who are our current customers, are already established manufacturers in China our product would be closer to the market we are trying to enter.8 Therefore, the logistical landscape for WorcesMed to produce in China makes sense because it can bring production closer to Asian and European markets. By this the overseas production opportunity reduces the cost of production as well as increases the market share and maintains or increases the profit margin of the sensor of a 3D ultrasound scanner.Logistics and DistributionLogistics pressures are only increasing as manufacturing operations move to lower-cost locations in the western part of China. In 2011, China beat the United States to become the world’s largest producer of manufactured goods due to the sheer volume of manufacturing facilities in Asia. Low wages, however, have been the determinative factor that almost 2 million US manufacturing jobs were offshored to China between 2001 and 2011.
12China’s distribution market is massive and still on the rise. In recent years, the PRC government has invested a great deal in the country’s logistics infrastructure. In 2009, China built or upgraded 156,000 rural stores and 1,100 distribution centers all over the country. Over the last, decade, China has invested in improving infrastructure in interior cities and establishing logistics and distribution hubs.
For example, the city of Wuhan, Hubei, which is one of China’s largest inland ports, and it is handling up to 40 million tons of cargo annually. National highways and railway lines also line Wuhan to other major cities in China. In May 2010, the construction of Wuhan Tianhe international government was announced and it is expected to expand the its cargo capacity to 400,000 tons per year. 13Technology Due to the high-technical support and smart life concept, mobile pay is growing so rapidly in China.
Mobile pay is taking China by storm and changing daily commerce. According to the statistics, mobile payment volume is more than doubled to five trillion in China, in 2016. And it is still growing every day. Since the mobile pay is very convenient, Chinese people can pay using their phones when eating out or shopping with friends. According to the data cited by Beijing Daily News report, in the second quarter of 2017, Alipay, one of the major mobile payment methods, has 57 percent of the market and Wechat Pay take 39 percent.
Mobile pay also influences other place outside the China, Apple start the Apple Pay in 2016. Mobile pay is the new trend in Chinese market. Therefore, if companies want to expand Chinese market, the mobile payment method is one of the important role they need to concern. It is hard not to consider China a leading contender to move WorceMed, Inc.’s production.