The post-pandemic environment could very well mark the start of sustained growth period across Thailand in certain key markets, such as Medical Devices.
THAILAND ACCELERATING TRENDS THAT WILL SHAPE THE POST-PANDEMIC WORLD OF WORKING, BUYING, SOCIALIZING, TECHNOLOGY AND HAVING ACCESS TO HEALTHCARE.
1. DIGITIZATION
Online transactions, eCommerce and on-demand entertainment will keep growing after recording a big jump throughout the pandemic. As physical stores struggle to return to normal operations, online shopping will continue to dominate in terms of revenue, preference and offerings.
The use of virtual doctors has been on the rise even before the pandemic. More so now, telemedicine will become a catalyst for the whole digital healthcare and telemedicine industry as self-isolating medical practitioners and patients are already using mobile and online apps to serve patients.
The ASEAN markets have the biggest potential for telemedicine growth due to present low access to medical services. However, this shift will require new ways of working for a broad set of providers, improvements in information exchange and broadening access and integration of technology. The impact will be clear: improved convenience, better access to healthcare care and improved patient outcomes.
2. INCREASING INEQUALITY
The pandemic has amplified existing socioeconomic inequalities in healthcare access to certain segments of the society. The United Nations has estimated that global human development, as a combined measure of the world’s education, health and living standards, is on course to decline in 2020 for the first time since the concept was developed in 1990.
According to Krungsri Research, the Office of the National Economic and Social Development Council estimates that the number of people in Thailand aged over 60 will exceed 13 million by 2021; hence, the number of illnesses is projected to grow as well.
3. AGING SOCIETY
An aging society, particularly in Asia, would mean a higher risks of deaths from COVID-19. The COVID-19 fatality rate for older people is higher than for younger age groups and reaches five times the global average for those aged 80 and over.
The virus has thrust most markets into economic recessions and past evidence suggests that this will lead people to have fewer children. A study by the London School of Economics indicated that the pandemic and subsequent economic crisis has had a predominantly negative effect on the fertility plans of those aged 18 to 34 living in Europe.
This period also saw a substantial decline in childcare-related businesses as childcare services are suspended due to business lockdowns. Service providers are instead looking at how they can support older people, their families and their caregivers. During times of isolation and quarantine, older people need safe access to nutritious food, basic supplies, money, medicine and social care.
HOW THAILAND COMPARES WITH ITS NEIGHBORS
As an emerging economy with modern manufacturing infrastructure, Thailand provides an excellent balance between cost and capability. Yet businesses will need to contend with certain limitations.
Among these is the country’s labor force, whose workers are relatively unskilled yet are paid more highly than in some neighboring countries. Moreover, the working population itself is decreasing, as Thailand begins to take on the demographics of an aging society.
The Thai government has begun investing in upgrades to the country’s education system, hoping to better prepare younger generations for careers in a thoroughly modern economy. However, the fruits of these efforts will not be accessible for some time, meaning that companies will need to pay a premium to bring in highly skilled talent.
These challenges, however, overlap nicely with the types of benefits provided for eligible companies through the BOI. Until Thailand can definitively improve the talent level in its labor pool, businesses can make do with foreign employees in specialized positions. Tax breaks can then soften the financial blow of these expenses, to preserve the added value of doing business in Thailand.
NEW OPPORTUNITIES ARISING
As the pandemic of the COVID-19 virus rapidly increased the global use of medical devices, the Thai government is stepping up its efforts to attract foreign investors looking at expanding their manufacturing base in this promising industry.
The continuous growth of Thailand’s healthcare services from the population, medical tourists and expatriates has driven the growth of the medical device supply chain.
According to Thailand’s Food and Drug Administration, the country is home to around 500 medical device manufacturers and 2,500 medical device importers operating at present.
Ranging from small and medium-sized enterprises to international giants, the companies are catering to the demand for a variety of products, ranging from disposable rubber gloves and medical textiles to highly complex surgical robots for domestic use to distribution to nearby countries of Cambodia, Lao PDR, Myanmar and Vietnam (CLMV) and worldwide.
Official figures from Thailand’s Office of Industrial Economics show that the value of Thailand’s medical device market rose to US$6 billion (176 billion baht) in 2019, a 70% increase over the decade.
Among the ten ASEAN countries, Thailand has the highest total value of imports and exports of medical devices. Seventy percent of the medical devices manufactured in Thailand are exported and the remaining 30% distributed for domestic uses.
The trend highlights Thailand’s vibrant medical device industry and the country’s growing significance as a manufacturing and assembly hub in ASEAN.
Most of the international shipments were disposable products (84%), followed by durable items (15%) and reagents and test kits (1%). Notably, reagents and test kits grew over twofold, disposable devices 5%, and hardware 3% in 2018 from 2017.
The pandemic of the COVID-19 virus significantly increases the use for wearable medical devices such as face masks, face shields, goggles, protective gowns, and gloves as well as respirators and ventilators.
Thailand-based medical device manufacturers will have growth prospects from aging Thai and ASEAN populations which will continue to increase the use of medical devices to treat chronic diseases and support lifestyles of the elderly. Thailand is forecast to have more than 20% of the population aged over 60 years old by 2031.
The government’s continued support for Thailand to become one of the world’s significant medical hubs, and improved confidence in the Thai medical system at global level, will increase the number of medical tourists to Thailand once travelling restrictions in many countries are eased.
Thailand’s reliance on medical devices imports, such as some raw materials for disposable devices and sophisticated medical devices such as electromechanical devices and hospital hardware, represent a great opportunity for multinational manufacturers of medical devices to substitute the imports with local manufacturing.
Thailand Board of Investment (BOI) is aiming to attract foreign investors to set up new bases or form joint ventures with local sub-contractors to manufacture medical devices, through several programs and incentives. It is also assisting foreign assemblers and manufacturers with sourcing high-quality parts and components from local small and medium-sized enterprises.
MEDICAL DEVICE MARKET
The total value of the domestic medical devices market is forecast to grow more slowly in 2020, projected at 3% compared to 5.5% in 2019, although sales of single-use devices will be supported by new demand triggered by the Covid-19 pandemic. However, in 2021 and 2022, annual growth is expected to accelerate to 6.5% driven by the following: (i) rising domestic incidences of heart disease, stroke, cancers and diabetes, and an aging population, will raise demand for modern, hi-tech diagnostic equipment; (ii) ongoing investment by private hospitals to expand existing operations and open new sites, which will require outfitting with medical equipment; and (iii) government policy to support the development of the industry by offering tax breaks to investors.
OVERVIEW
The medical devices sector includes both medical devices and medical equipment[1]. Considered a high-value industry, accounting for 1.0% of GDP[2] in 2018. The sector has continued to grow in tandem with the rising number of patients and and aging population. Because the products are considered life essentials, the sector is also resilient to changes in economic conditions.
Medical devices and medical equipment can be divided into three categories according to use.
(1) Single-use devices are used in general medical treatments and normally not high-tech. The items are meant to be disposed after use. Examples include syringes, hypodermic needles, tubes, catheters, cannulas, disposable gloves and some items used in dentistry or ophthalmology.
(2) Durable medical devices normally have a life-span of at least one year. Examples include first aid kits, wheelchairs, medical beds, technical equipment used in medicine, surgery and dentistry, electrical diagnostic tools, and x-ray machines.
(3) Reagents and test kits include equipment used to diagnose illnesses and conditions and chemical kits used to test samples drawn from patients. For example, to test for blood type before dialysis, pregnancy tests, and to detect HIV infection.
SITUATION IN 2020
- Thailand is the leader in the medical devices market in ASEAN. The bulk of the industry’s exports are single-use devices, although most exporters are foreign operations that use Thailand as a production base to export back to their home country (e.g., Japan, the US and France). In 2020, the value of goods distributed domestically is estimated to grow by 3.0%, down from 5.5% in 2019. Exports contracted by 1.3% in 2019, but are projected to jump 35-40% in 2020 because COVID-19 has triggered higher demand for disposable medical supplies.
- In 9M20, exports jumped 40.1% YoY to THB112bn led by rapid growth especially in Japan and China markets. There was stronger demand for all product categories, with sales growing 42.6% YoY for single-use devices (89.9% of exports by value), 15.5% YoY for durable medical devices (8.5% of exports), and 69.1% YoY for reagents & test kits (1.6% of exports).
- 9M20 imports also rose, by 17.1% YoY to THB61bn. Again, this was seen across all products. Imports grew 16.2% YoY for durable medical devices (42.2% of imports by value), 38.1% for single-use devices (38.1% of imports), and 40.6% YoY for reagents & test kits (19.7% of imports).
The industry’s Manufacturing Production Index (MPI) fell 17.4% YoY in 9M20. This reflected the impact of the lockdown in April and May which had hurt output, especially high-value durable goods. However, production of disposable goods (e.g., facemasks, surgical gloves and diagnostic sets) surged to meet much stronger demand from domestic and international markets. Manufacturers also benefitted from short-term investment support introduced to address the COVID-19 crisis.
2021-2023 Outlook
The medical devices market will see steady growth, and the value of domestic sales and exports will grow by 7.5% and 4.2% per year, respectively. This outlook is supported by: (i) rising number of people with ill-health, especially heart disease, stroke, cancer, and diabetes, and an aging society, which will increase demand for modern diagnostic equipment and more advanced technology; (ii) investment by private-sector hospitals to expand existing facilities and open new branches, which means they need to buy more medical equipment; and (iii) incentives to encourage companies to invest in the manufacture of medical equipment.
Investments will continue to flow into the industry from overseas players, supported by the BOI investment promotion schemes and waiving of customs duties on imports of parts and materials for R&D. In addition to feeding the continued growth of the industry, rising investment will also stoke competition, especially for SMEs, which comprise the majority of players in the sector. In 1H20, the BOI received 18 applications for investment support from foreign players, with a combined value of THB1.45bn.
SOURCE: BOI, Krungsri Research, DKSH, Industry Team
