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A growing number of local companies are plugged into the global medical technology (medtech) supply chain.
The Association of Malaysian Medical Industries (AMMI) Economic Impact Survey 2023/24 found that among its members, a total of RM4.1 billion was spent on the local sourcing of materials and RM2.5 billion on services. In addition, RM1.4 billion worth of contracts were awarded to local suppliers, with 95% directed at finished products.
This brings the total to roughly RM8 billion, double the amount noted in the 2021 survey. That year, the survey found that RM1.04 billion was spent on the local sourcing of materials and RM2.88 billion on services, for a total of RM3.92 billion. Back then, the survey did not include the amount of contracts awarded to local suppliers.
“More multinational corporations (MNCs) are opening up business opportunities to local small and medium enterprises (SMEs) these days. When we organise our annual Malaysia Medtech Industry Summit, we are surprised to see that the MNCs that set up booths are looking for suppliers,” AMMI’s executive director Ching Choon Siong tells The Edge in an interview.
“Usually, the suppliers will be the ones that set up booths to promote their capabilities to customers. It’s the other way round now. This is a new trend.”
He adds that local SMEs’ integration into the global medtech supply chain can be partly attributed to the grants given by the government for business matching to encourage MNCs to source from local companies.
“When SMEs want to take on a project from the MNCs, they may need support to invest. We are grateful that the government has provided matching grants so that the MNC and SME can co-invest, so they can localise the sourcing of materials.”
The increasing number of local companies in the medtech supply chain can also be linked to the pandemic and geopolitical tensions. With higher freight costs and disruptions to the supply chain, global companies have turned to more local producers to provide the supplies they need in order to mitigate further delays in production.
There is likely to be more integration of local companies into the medtech global supply chain as Malaysia plans to launch a new investment incentive scheme by mid-2025 that is aimed at introducing stricter rules for foreign investors to meet localisation requirements.
Having said that, being part of the global medtech supply chain is often seen as a “golden ticket” for local players, as suppliers tend to remain unchanged. This sets it apart from the electrical and electronics (E&E) industry.
“In the medical device industry, once an MNC works with a supplier (SME), it’s for the long term because the qualification process takes a long time. The barriers to entry for the SME are very high, so once this SME has passed the qualification process and proved its capability to supply a particular component or material that meets the standard required, the MNC normally doesn’t change suppliers. So once you’re in, you’re in,” says Ching, adding that for exports to certain markets like the US, there will be audits of not just the MNCs’ Malaysian plant but also their suppliers.
He says being part of the global supply chain brings a positive spillover effect, as it enables local companies to upscale their capabilities and provides them with opportunities to gain access to new markets and expand their business.
According to AMMI, the collective efforts of its members in local sourcing have benefited 8,711 domestic suppliers in the ecosystem.
DDI has grown
The medical device sector, recognised as one of the priority sectors under the New Industrial Master Plan 2030, has grown steadily over the last decade, as evident from its trade performance.
Malaysia’s medical device exports grew at a 10-year compound annual growth rate (CAGR) of 9%, reaching RM28.3 billion in 2023.
While a large part of exports can be attributed to glove products, on account of Malaysia being the world’s largest producer of gloves, non-glove exports in this sector have steadily increased over the last five years.
Non-glove medical device exports stood at RM11.2 billion in 2019, and grew to RM19.6 billion in 2023, representing a five-year CAGR of 11.2%.
The top three non-glove products by export value in 2023 were needles, catheters, cannula and the like; orthopaedic and other appliances that are worn, carried or implanted in the body; and instruments and appliances used in medical or veterinary science.
Malaysia is recognised as a global offshore manufacturing hub for medical devices, alongside Puerto Rico, Costa Rica and Ireland.
A large part of the country’s success in this industry is due to the investments made by foreign companies in the 1970s. The first medical device company to invest in Malaysia was German medical and pharmaceutical device firm B Braun.
Today, the country has the highest concentration of medical device MNC manufacturing sites in Southeast Asia, and 10 global leaders in medical device manufacturing in Penang alone.
“Foreign direct investment (FDI) helps with the ‘marketing’ for Malaysia. We are benefiting from the FDI because it spills over into domestic direct investment (DDI),” says Ching.
But has DDI grown in tandem? Based on data from the Malaysia Investment Development Authority, approved DDI over the last 10 years has been choppy, similar to the trend with FDI.
DDI was high in 2020 and 2021, at RM3.9 billion and RM4.7 billion, or 64.1% and 61% of total approved investments in the medical device sector respectively. Note that medical device consumables such as gloves and face masks were in high demand during those pandemic years.
Other than 2020 and 2021, DDI ranged from RM200 million to RM1.5 billion over the last decade. As for FDI, except for 2018 when it amounted to RM600 million, it was RM1 billion or more in the other nine years.
In terms of five-year periods, DDI has grown. Between 2014 and 2018, total approved investments amounted to RM11.1 billion. Of this, RM5.2 billion, or 46%, consisted of DDI. Meanwhile, from 2019 to 2023, total approved investments doubled to RM24.65 billion, with DDI also doubling to RM10.72 billion from 2014-2018, representing 43% of total approved investment in the medical device industry.
“This [DDI in medical devices] is typical of the E&E story we have. Many local companies have founders who were working with the multinationals prior to setting up their own company. So, I see FDI as a catalyst for us. It will take time for the local industry to grow,” says Ching.
Source: https://theedgemalaysia.com/node/733481