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

Another challenge to the market is the price cap that was enforced by the government, which threatened the potential profit margins for the manufactures. This is due to the shift in the medical service practice from a dispensing system to a prescribing system. With the implementation of the prescribing system, the physicians’ prerogative to dispense medicine is eliminated. This resulted in decreased incomes for the physicians, as drug mark-up is a source of income. The physicians then demanded an increase in the consultation fee, and the government relented.

With the increase in the doctors’ consultation fees, healthcare expenditure is also likely to increase. The government has considered some options to control spending in the healthcare sector. One of the alternatives was to review the reimbursement of medical device purchases. A "Medical Devices Specialists Committee" (MDSC) was formed at the Healthcare Insurance Review Agency (HIRA) to review and make decisions on the reimbursement price. As a result, approximately 25,000 products out of the 36,000 products listed in the reimbursement roster were assigned ceiling prices.

There are a few prerequisites to entering this intense market. First and foremost, market clearance must be obtained. Any manufacturer intending to sell products in South Korea must ensure that the product is classified under the medical devices category in the country. Although a product may not be classified as a medical device in other countries, it may be so in South Korea or vice versa. For example, all laboratory testing equipment are considered medical devices in South Korea, but this may not be so in other countries.

Another requirement is that the product should have certification from the FDA of the manufacturers’ country. In addition, if a product is classified as Class II or Class III, the manufacturer can expect KFDA to test the product. Tests are also conducted after the approval of a product for quality assurance.

Another pertinent issue is the need for a local distributor. Although foreign manufacturers can set up their own distribution arm in the country, it is advisable to work with a local distributor, unless the company is well established or is willing to invest to learn about the market. South Korea’s complex distribution system and the local distributors’ strong grip of the market makes it much more economical to have a local partner.

Overcoming the market entry barrier is just the beginning. As in any other market, the manufacturer must compete with the existing players and also adhere to the regulations of the HIRA. Extensive marketing efforts must be done and pricing strategy is crucial. Although South Korea is considerably more developed than many of the other nations in the Asia Pacific, it is still in the process of economic recovery. Hence, most of the time end-users need economic justification for their purchasing decisions as price is still one of the vital considerations.

Persistent manufacturers with good marketing strategies are likely to be rewarded with the size of the market. There are approximately 800 hospitals in the country. These hospitals would need to refurbish their equipment or expand their services, thus providing the potential demand for manufacturers.

In addition, an announcement made in August 2001 stated that South Korea planned to invest approximately $780 million until the year 2010 in health related industries to achieve its goal of becoming one of the healthcare industry leaders in the world. The Ministry of Health and Welfare also announced that the government planned to allocate about $452 million to develop the bio-health technologies and $187 million for bioengineering. Moreover, $124 million will be allocated to developing nano-health technologies, and $1.6 million to invest in health information. The government’s plan would present opportunities for local and foreign medical device manufacturers.

Some of the opportunities in South Korea lie in the orthopedic implants and the digital imaging markets.

The hip and knee implant market segments were valued at $73.3 million in 2001. It is still in the growth stage, with a CAGR of 8.2 percent during the period 2001 to 2008. The increasing aging population and the availability of reimbursements for orthopedic implants created an attractive market with a growing demand. Revenues by foreign manufacturers made up the bulk of the market, although the local manufacturers are beginning to compete.

In 2001, the MRI market was estimated at $39 million. Local companies hold approximately 4 percent of the market, while foreign manufacturers hold the remaining market share. Despite the slow down in the MRI market since the financial crisis in 1997, this market is still attractive. Since only 30 percent of the hospitals in South Korea have MRI equipment, there is room for growth.

Frost and Sullivan has published several reports on the South Korean healthcare scene. The South Korea chapter of the Healthcare in Pan Asia (report #4192), published in 2000, provides a background of the South Korean healthcare market, including measurements and strategies of the pharmaceutical and medical device industries. Market Engineering Research for the South Korean Orthopedic Implants Market, 1998 – 2008 (report #4017-58) and Market Engineering Research for the South Korean MRI Equipment Market, 1998 – 2008 (report # 4018-50), both published in 2001, provide measurements of the markets, including market size and growth, market drivers and restraints, market and technological trends, and competitive analysis.

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