In India, device companies will succeed by going local

Beyond China, everyone heralds India as the next big place ripe for a medical device industry explosion. But a new PricewaterhouseCoopers report (reg. req.) suggests that companies aren't innovating fast enough to keep up with the country's rapid evolution into a broader and more sophisticated market.

They need to be more nimble, the report concludes, noting that the medtech industry in India generated $3 billion in revenue in 2011, propelled by more than 15% annual growth. Twenty-three of the world's largest medtech firms have sales and marketing offices in India, according to the report, though they face bigger challenges now as domestic competition heats up with local companies developing better products, a healthcare infrastructure modernizes and regulatory reform takes hold.

Put in a different way, the rules are changing from when major medtech companies first entered the Indian market and could rely on importing the same devices and diagnostics sold in the U.S. and Europe, and they need to take note, lead report author Tim Durst tells FierceMedicalDevices.

"The biggest finding of this report is that to be successful going forward is different than what it has taken to this point for medical device and diagnostic companies," says Durst, a principal at PwC. "How we can innovate for that market cannot just be an importing strategy."

Right now, Durst explains, companies are bringing products like stents or imaging devices into the Indian market that they also sell to U.S. and European hospitals, but India is becoming a savvy-enough market that products will do better uniquely geared to India's healthcare and cost needs. About 80% of the medtech market involves imports, he said, without a lot of customization, but that localized customization is what will be getting them the sales going forward, particularly outside of India's tier 1 markets in major cities.

Device and diagnostics companies have plenty to consider in making more India-specific products. The Indian middle class will grow from 50 million people in 2007 to 580 million by 2025, according to the report. Private insurance will continue robust growth, and healthcare infrastructure improvements, largely in the private sector, continue apace. Cardiac device companies should also take particular note: The PwC report predicts that India could have 60% of the world's heart patients by 2020, with 75% under age 70.

Durst and his colleagues credit GE Healthcare ($GE) and B. Brown with developing diagnostic imaging systems and a dialysis service offering unique to the Indian market, with a focus on affordable, low-cost development. But many more companies must follow suit, he said, because they'll compete with increasingly sophisticated local rivals who create low-cost devices and diagnostics tailored to India's unique market needs. They will gain, PwC notes, by shifting more R&D and manufacturing to the country, and by also using India as a source for manufacturing materials. And if they can make a that costs the same as an Indian competitor's, but is of better quality, then all the better.

The report's title hits on these themes, not surprisingly: "Taking advantage of the Medtech market potential in India: Success will hinge on operating model innovation." It's based on online surveys conducted in mid-2011 of executives from 18 major global and domestic medtech companies, representing about 40% of India's $3 billion (and growing) market. --Mark Hollmer (email | Twitter)