The South Korean Medical Device Industry: Getting a Piece of the Cake

By Rae Sita Massie – Industry Analyst, Healthcare (Asia Pacific) FROST & SULLIVAN

Having survived the economic downturn in 1997, South Korea is recovering and continuing its development in the medical device market. In 2001, the South Korean medical device market was estimated to be a little over $1 billion. It is the fourth largest medical device market in the Asia Pacific, after Japan, China, and Australia. The compounded annual growth rate (CAGR) from 2001 to 2006 is projected at 10.5 percent, making South Korea one of the more attractive markets for medical devices in the region.

Imported equipment dominates the market, comprising approximately 70 percent of the total market size. However, the local players are not to be undermined as they can often offer similar products at a lower price. In addition, some are world-class companies, such as Samsung and Medison.

Figure 1 – South Korean Medical Device Market, 2001 - 2006

Source: Frost & Sullivan

There are several reasons for the medical device market’s healthy growth, the most important being the National Health Insurance Act, which was implemented on July 1, 2000. The regulation provided improved quality and coverage of healthcare insurance for South Korean citizens, thereby increasing the demand for quality medical services. Accordingly, the medical facilities have geared up to enhance and expand their range of medical services.

The government also has a list of medical devices, comprising 36,655 types of medical equipment that can be reimbursed when purchased by medical facilities. This policy has provided the manufacturers with greater access to the market, driving the sales of selected products.

Another important market driver is South Korea’s aging population. In 2005, approximately 11 percent of the country’s population is estimated to be above 55 years of age. Naturally, this section of the population will demand more medical attention, spurring the demand for medical devices, such as orthopedic implants, heart valves, stents, catheters, and imaging devices.

In addition to the above drivers, South Korea’s developed infrastructure, for instance its private hospital networks, is an attractive feature for foreign manufacturers that intend to expand their market in the Asia Pacific region. It is an indication that there are potential buyers in the country, that are often small, but rapidly expanding.

Despite the robust growth and the dominance of imported equipment, South Korea is a challenging market for both the local and international manufacturers. The dominance of foreign products poses difficulties for local manufacturers, despite their ability to provide similar products at cheaper rates. The foreign products’ main advantages are their brand name, technology, and perceived quality. On the other hand, the South Korean Government seemed to be advocating a closed market system for foreign manufacturers. Although the government has made attempts to "open" the market, many foreign manufacturers feel that the efforts were inadequate.

As all medical devices that are sold in the country need pre-market approval from the Korean Food and Drug Administration (KFDA), one of the main challenges in the South Korean market is the complex and time consuming product registration process. First, the devices must be approved for sale in the country where they were manufactured and secondly, they must be registered with the KFDA. Obtaining registration for Class II or Class III devices is more cumbersome as it involves extensive document reviews, such as examination of the products’ approval status in the country of manufacture, review of the products’ certification, and the manufacturers’ testing methodology. In addition, review of clinical data or local clinical trials may be required. Also, the distributors of the products must be registered as the legal holders of medical device registration for imported medical devices.

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