Poised to become the world’s largest IVD market, China is a tremendous business opportunity for foreign companies, as long as they choose their partners wisely.

China used to be called the sleeping giant. Anyone who follows the IVD space knows that the giant has awoken and is climbing down the beanstalk, hungry for market share. China is gradually becoming a competitive force and evolving into the world’s fastest growing market for both domestic and foreign IVD products. China’s total IVD market, which is valued at more than $4.5 billion, doubles every three years, and it will surpass the United States to become the world’s largest IVD market within the next 10 to 15 years. The large multinationals are devising ways to partner with local Chinese companies to take advantage of this business environment, while local companies are looking to multinationals for help in penetrating developed markets. This presents opportunities and challenges for IVD manufacturers on both sides of the divide.

Let’s take a look at two factors—market growth and quality improvement—that have contributed to this situation.

China’s IVD Market Posts 30% Annual Growth

In 2007, Whitney Research visited healthcare facilities at all levels for a Gates Foundation project called Diagnostic Cost Analysis for the Developing World. In a country-by-country ranking of healthcare equality, China was fourth from the bottom. Our travels in 2007 confirmed that poor farmers and city dwellers were denied care unless they could pay. Even middle class families drained their life savings and equity and often ended in bankruptcy to care for a seriously ill family member. Healthcare was essentially limited to people who worked for the government or were employed by a registered city company that contributed to the local health insurance program, and to individuals who could pay for it out of pocket.

In response to these inequalities and growing unrest, Chinese Healthcare Reform was born. In late 2008, the government announced a $125 billion healthcare stimulus to fund the building of a more modern healthcare infrastructure augmenting the overburdened but highly profitable Class 3 hospitals and the expansion of health insurance programs that would provide more breadth and depth of coverage to a larger segment of the population.

As a result, IVD sales have grown more than 30% per year for the past four to five years and now stand at more than $4.5 billion. Many market researchers, who concentrate on large city hospitals, have missed this phenomenon. While large multinationals have grown at almost this rate, local manufacturers have benefitted most from the spending directed at lower level hospitals.

Quality, Made in China

Despite the impression of many foreign observers that the Chinese regulatory process favors local manufacturers, we have found that stringent requirements placed on both multinationals and local companies are weeding out low-cost, poor-quality producers.

All Chinese manufacturers now must comply with ISO 13485 In addition, ISO 15189 is being implemented by clinical laboratories. This standard requires internal and external quality control and documented evidence of proof of performance when installing new equipment or changing suppliers of reagents.
For many years, the national and provincial centers for clinical laboratory management have been bringing blind survey samples to the labs and reporting comparative results. This has given labs the ability to judge value, not just price.

If you have any doubts that Chinese quality is ready for prime time, consider this: last year we brought 74 Chinese IVD companies (97 from all of Asia) to the AACC annual meeting in Los Angeles, and we expect to bring even more to Houston in 2013. China was second only to the United States in the total number of exhibitors.

Choose Your Partners Well

The time is right for multinationals to partner with Chinese IVD manufacturers or to establish a wider footprint in China by investing in R&D and manufacturing directly in China. However, reliance on established wisdom from the investment community and major international auditing firms is not enough to guarantee reputable partnerships.