Often referred to as the bridge between East and West, Hong Kong's densely populated urban expanse is the business portal to mainland China. For medical device manufacturers, Hong Kong offers an opportunity to reach a population of growing affluence, within the arena of a bilingual English-speaking culture that values high quality and technical excellence.
David Wong, president of business development for MediConcepts, explains the complexities of doing business within the region and discusses how understanding the Chinese market can open huge opportunities for future growth.
"It is important to understand Hong Kong itself," explains Wong. "Hong Kong was not very long ago under the British Empire. So, a lot of things have been instilled here like the legal and finance systems. Therefore, transparency is very high and the workforce is highly qualified and professional. The education and quality of personnel compare favourably to any major city in the world." Since there is transparency within the legal and finance systems, people can feel comfortable about the way business is done. There is a marked difference in Hong Kong's transparency compared with mainland China.
"On the manufacturing side, most well-established companies in Hong Kong have more than 30–40 years of experience," Wong continues. "This is the culmination of very hard work, understanding quality issues, understanding clients and good communication. For example, English is the second language here in Hong Kong. So, people who want to use English to communicate will not find the misunderstandings which can be a significant problem when dealing with other areas of the Far East."
Though Hong Kong does very little manufacturing within its own borders, a treaty with mainland China allows its businesses to base operations on the Pearl River Delta, a region that covers nine prefectures including Guangdong, Guangzhou, Shenzhen, Zhuhai, Zhongshan, Foshan, Huizhou, Jiangmen and Zhaoqing. According to Wong, this strategic advantage was responsible for the recent boom enjoyed by companies in Hong Kong.
"Once based there, these manufacturers could grow quickly through low-cost, available labour and an abundance of available land," says Wong. "Raw material purchased within the region was less expensive as well. So, the support, network and logistics were in place."
Although costs are certainly lower, Wong is keen to make a distinction between stereotypical ideas of cheap Chinese manufacturing and Hong Kong competitive pricing. "You have to be very careful with the word cheap," explains Wong. "The impression being that you go to China to get something cheap.
"At MediConcepts, for example, we are competitive but the highest issue on the agenda is quality because we are dealing with medical devices. This is not something you can place a dollar value against. Our partners are looking for good management, efficiency and people who are willing to work very hard. People here work longer hours and put in the effort which may not be possible in other countries."
In terms of overall pricing, Hong Kong manufacturers do not excel in areas of mass production. Their forte lies more in specialised product creation, assembly and engineering. "You cannot get away from manual labour, fitting, inspection and checking," says Wong. "Hong Kong manufacturers tend to use local people to oversee the operations, so we tend to be more efficient. We know how to have lower stock rates, turnaround and high efficiencies. So that's where our competitiveness really comes in.
"Since most of our clients are overseas, our products are RoHS compliant. It is always driven from the client side. The standards set in the EU, for example, drive the material suppliers. So, even if we wanted to buy non-RoHS materials, it is highly unlikely that we could. Most materials, particularly medical-grade raw materials, are purchased from leading international companies."
Hong Kong is continuing to evolve in terms of manufacturing techniques and is highly regarded for its electronic engineering, surface mount, metal and plastic technologies. "We have the knowledge and skill set, and we buy German machines to use as well," Wong explains. Because of that, we are into more complex devices. "Where most people are dealing with class I devices, we are dealing more and more with class II devices. As the business moves on, we will be looking more towards class III devices.
"I see the biggest opportunity for most of our clients in the establishment of medical devices in China through partnerships with Hong Kong companies. A lot of people want to outsource to China but don't know how to get into the market. The way forward is to partner with a local company, understand the market by the continuance of products and realise where the opportunities are in China. Then, tailor the product for the particular market with your partner."
In order to do this, you must be willing to open yourself up as a company and build trust with the partner. "It is difficult because there is a lot of negative PR about copyright issues and IP," says Wong. "But you will notice that none of these are an issue with Hong Kong companies because of the integrity of our established laws. Obviously it is the perception that you go to China to buy a copy. It does happen; there's no stopping that. I think it is a matter of understanding which manufacturer you are working with and do your due diligence to find out about them and their history.
"Most Hong Kong manufacturers have that history," he continues. "They have years of experience and are not going to ruin their reputation over a single project. For example, our company has in-house tooling. Most of our clients feel that is a very strong and unique differentiator, so there is less outsourcing. Therefore most IP is controlled in-house. If you can find a manufacturer who has confidence and integrity, that will make the trust-building part easier."
Registrations and listings of medical devices through the Medical Device Administrative Control System (MDACS) of the Department of Health Hong Kong are currently voluntary. The government is planning to make registration a regulatory requirement in the near future. Registration demonstrates that products meet internationally recognised standards of conformity. Hong Kong's registration standards will be based on the Global Harmonisation Task Force model which was founded by Australia, Canada, the EU, Japan and the US.
According to Wong, Hong Kong is moving towards more government regulation of medical devices which he feels is a necessary step forward. "Partly because I think there is a need and partly because there is a rising influx of non-regulated health products," explains Wong. "Chinese people are just as knowledgeable about their health and just as conscious about it as their Western counterparts. Some of the things you see on the market here you may not consider using overseas but locally people do have a need for these devices. For example, there are a lot of slimming devices and pain relief devices that enter the market.
"Where Hong Kong and China bridge is that a lot of companies establish themselves in Hong Kong," he continues. "It doesn't matter if you are from mainland China, the UK or the US; you find that people in this region believe in Hong Kong products. Chinese people prefer to purchase a product that is established in Hong Kong before they will take on board the same product from another country.
"They feel that we set a high standard, whether that is a device or a surgical operation. So, if you get an endorsement through Hong Kong, it will be easier to get to the Chinese market. It is much more difficult the other way around."
Just as Western societies have opened their markets to some forms of Chinese medicines such as acupuncture and Chinese herbals, Chinese culture is embracing Western medical technology. Chinese consumers are more likely to demand cutting-edge products than their Western counterparts and are educated in knowing the difference.
"If you look at the Chinese market itself, you have some people who are very rich and they will pay whatever it takes to maintain their health," explains Wong. "If they cannot leave China, they will go to the top hospital in China. If they can leave, they will come to Hong Kong. What is interesting is that people in China do know about MRI scanners. They know the quality differences and they know about 3D ultrasound. The Chinese are quickly educated about what technology is available. So if you are selling a device to China, they don't want yesterday's technology. They actually want tomorrow's technology, as far as is possible."
From a manufacturing perspective, China is a market that companies want to explore, given its size, its GDP growth and its future potential.
"Manufacturers will certainly benefit from a presence here as it gives them the proximity to local culture and information," says Wong. "It takes a while to understand the business culture and environments within each region. For example, the style of work and culture in the north is very different from those in the south." But Wong believes the long-term benefits for companies willing to delve into these differences could be enormous.
"Medical devices are conservative and traditional yet innovative. There are many products that have yet to be explored. Hong Kong, as a user market, is not very large but its medical care standard is world class. Our surgeons and medical professionals are world renowned. If your products can sell in Hong Kong, we don't see why they could not be sold anywhere.