Medical Device Makers Starting to Look for Overseas Partners

By Marco Bafan, Nerac Analyst

Like companies across many industries, medical device manufacturers are increasingly turning to international partnerships to find ways to exploit the efficiencies that outsourcing offers. These companies are finding that successful and efficient outsourcing allows them to allocate internal resources to projects more strategically and prioritize tasks in their product pipelines.

Outsourcing is nothing new. The term was first heard in business circles in the 1980s. Offshore outsourcing traces its origins to the 1993 North American Free Trade Act (NAFTA). Economics historians will tell you that outsourcing has been around as long as there has been trade.

Interest Increases
Until recently, however, medical device makers have not taken full advantage of offshore outsourcing. Regulatory issues were a major stumbling block, and companies were not confident that offshore workers had the skills to become good partners. That is changing as these nations’ workers develop skills and gain the certifications necessary to meet regulatory requirements.

A survey that Knowledge@Wharton conducted showed that most device companies now see great potential in outsourcing. “While a small number of device manufacturers and vendors have begun outsourcing, there is a large majority that sees potential in it,” Wharton Business School professor Kaikat Chaudhuri said recently. “Over the next few years, we will see almost all companies in this space outsource.”

Means to Save Costs, Reduce Time
With the United States market for medical devices approaching $100 billion, manufacturers constantly need to create improved and innovative products to keep up with the competition. But they also need to reduce costs and time to market. As a result they are beginning to send design, engineering and manufacturing functions offshore.

However, device companies need to be aware of potential risks and obstacles far in advance to avoid costly mistakes. In addition to typical offshoring barriers such as distance, language, and communications, medical device companies should also account for economic and political stability in the countries where their partners reside, factors that can be adversely affected by fluctuating currencies, trade barriers and regulatory and standardization processes.

Key Steps in Effective Outsourcing
To determine the viability of an offshoring model, some key factors should be carefully evaluated: regulations, accountability, cost structure, and resource optimization. Because the medical device industry is heavily regulated, manufacturers need to do their homework on a potential partners’ background. They need to learn whether the companies can comply with specific regulations and what the quality of final products have looked like.

There are different ways to gather this information. Research firms can analyze information about potential offshore companies, including their experience and their track record of success in the device space, as well their ability to comply with regulations. Another approach is simply to talk to medical device companies that already outsource. Once this initial research is done, manufacturers should then conduct a careful analysis of the costs of outsourcing and re-evaluate their options.

What Resources Are Available
Something else to consider is the potential partner’s flexibility, resource optimization, and the value it can offer throughout the process, both short and long term. For instance, can the offshoring partner provide resources during the testing phase and reallocate them once their work is complete?

Like any partnership, establishing clear communication is essential to improving efficiencies. For example, even though speaking English would not appear to be a problem in India, where English is common, different communication styles and other cultural issues can still cause problems. Saying “yes” to a task in United States means that the task is understood and will be completed. In India that means, “Yes, I will do my best, but I do not make any promises.”

Anticipate Potential Conflicts
Potential conflicts need to be resolved in advance. It also is a good idea to arrange an on-site visit and have a face-to-face conversation to establish lines of communication. Resolving common cultural differences and establishing open lines of communication are crucial steps when offshoring, regardless of where the partner resides.

Other key factors include defining expectations, reviewing processes in a timely manner, and identifying contact persons in both companies. Product definitions, functionalities, technology, development costs, staffing, and standards are all issues that need to be worked out throughout the process. Every detail should be mapped out before engaging the offshore partner in the project.

While technical expertise and track records of a company’s success in the device space are all crucial and significant, building the outsourcing relationship based on trust, knowledge, communication, and mutual respect are equally as important and can all contribute to a successful offshoring experience. However, the quality of final product is the ultimate goal and should be the No. 1 priority. Compromising that to reduce costs and time to market can lead to failure.