Three reasons to offshore medical manufacturing: Are you choosing the right one?

The medical device industry is a bit late to the offshoring party, but it seems to be making up for lost time. The landscape is somewhat different from the plastics processing sector and manufacturing in general, where there has been anecdotal evidence of a domestic production renaissance, says Ryan Douglas, co-founder and President of Nextern Inc. (St. Paul, MN), a contract design and manufacturing company with operations in the United States and China. "Reshoring may well be real in the plastics space," says Douglas. "Resin prices don't change much from one part of the world to the next and the sector lends itself to automation. But medtech is the exact opposite," he adds, noting that a number of factors are driving medical manufacturers to offshore operations.

There are essentially three reasons to consider offshoring production, says Douglas:

  • Cost controls, which may come in the form of direct cost savings, tax relief or reduced regulatory burdens;
  • proximity to the technology, innovation and/or talent needed for a particular project;
  • and proximity to the customer.

Outsourcing"Medical has been the industry that is least-driven to relocate manufacturing because of cost controls," says Douglas. But the new economic realities for medical manufacturing—the need for investment capital, shifting reimbursement policies, globalization of the market and regulatory hurdles in the United States—are changing that equation, says Douglas. "Regulatory and reimbursement issues are eating into companies' margins, so they are looking at offshoring where it makes sense," he adds. An important part of that process, stresses Douglas, is matching up the strengths of the region with the objectives of your company.

If the goal is purely to control costs, manufacturers have a number of options, some with a well-developed infrastructure, others where that is still a work in progress. In the former category, China, Mexico and Ireland should be on the shortlist.

"Manufacturing is mature in China; you can find people with 10, 15 and 20 years of experience, and good manufacturing practices and international quality standards are well understood," says Douglas. In Europe, Ireland's medtech hub in the Galway region offers attractive cost controls and a regulatory system that is less burdensome and more predictable than FDA's pathway to market. Closer to home, Mexico has developed a significant medtech manufacturing cluster, as previously reported in PlasticsToday.

Manufacturers willing to brave a cost-control environment where the infrastructure is still developing would do well to look at India, Turkey and parts of Africa. "South Africa, for example, has a medical device regulatory system coming into place," says Douglas. "These are countries with an attractive cost-control profile that are worth considering if you are dealing with a Class I [low-risk] product."


Ryan Douglas will discuss offshoring issues related to the medical device industry in his presentation, Offshoring Versus Manufacturing in the United States: What's Right for You, at the co-located MD&M West and PLASTEC West events coming to Anaheim, CA, from Feb. 9 to 11, 2016.


If innovation inputs trump cost controls, the countries to consider are Taiwan, Israel and Singapore, according to Douglas.

Taiwan has been developing into an innovation hub since roughly 2008, says Douglas. "It still has some cost advantages, too, but not as much as in the past." Medtech innovation in Israel has been well-documented (partly as a result of its "existential need for innovation in the military"), but, notes Douglas, "it is challenged when it comes to commercializing the technologies." As for Singapore, government support has turned the city-state into an innovation hotbed, with leading-edge research on medtech-related sensor and digital technologies. Just don't expect a cost benefit—manufacturing often is more expensive than it would be in the United States, says Douglas.

If the primary motivation to offshore is to establish operations near a customer, the calculus may not be as simple as it appears. Manufacturing in China for China is a well-known concept at this point, but, depending on your supply chain and related factors, you may want to think about a China-for-Japan or China-for-Europe model, says Douglas.

Given those parameters, it's important to ask yourself which of those three drivers—cost controls, innovation or proximity to customers—is motivating your offshoring strategy, says Douglas. "Very often, people will choose a location for the wrong reason. A manufacturer might decide to go to Ireland expecting to find higher levels of innovation, for example, when the landscape is focused on manufacturing."

Douglas advises consulting a U.S.-based subject matter expert to avoid making an offshoring decision you might live to regret. "If you're going to localize a design, you need to ask yourself what it will look like in China versus Ireland," says Douglas. "Will the specified materials be readily available? You might encounter some difficulties finding that German steel if you've decided to manufacture in China. Do you have a supplier quality plan in place? How will you verify and validate the supplier and ensure he matches your needs? How will quality and regulatory systems be managed?"

Questions, questions. You will find some, if not all, of the answers at the co-located MD&M West and PLASTEC West trade show and conference in Anaheim, CA, on Feb. 9 to 11, 2016. Douglas will explore the decision-making dynamics of offshoring versus manufacturing in the United States during a session devoted to early stage and scale-up strategies on Feb. 10.

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