In vitro diagnostic (IVD) device original equipment manufacturers (OEMs), like any commercial organization, measure commercial success by the ability to increase operating margin and revenue year after year. Increasing margin is critical to maintaining business sustainability to provide funds for investment in research and development, core growth and/or mergers and acquisitions. Achieving healthy operating margins can also strengthen the company’s market valuation through a premium on its share price.
IVD OEMs, however, differ from other industry sectors in one important respect: the diagnostics industry has changed dramatically in recent years as healthcare reform in Western countries triggered, and then accelerated, a reduction in test reimbursement and the price paid for these products. As pressure on prices gradually intensified, IVD manufacturers faced the challenge of how to continue to maintain their margins. Many IVD OEMs have turned to their supply chain to maintain their profits. One such strategy focused on the potential for manufacturing in low-cost regions (LCRs) such as Singapore, Malaysia and China.
Since the mid-1990s, many industries have sourced their products from LCRs. The IVD industry was perhaps one of the most recent industries to embark on this route. This article looks at the roadblocks that are encountered, and how successful players have been able to navigate the risks and exploit the opportunities.