Vietnam – A Hot Prospect For The Medical Device Industry

Classified just ten years ago as one of the 20 poorest countries in the world, Vietnam is now widely considered to have the business potential of Singapore, Hong Kong, Taiwan, or South Korea. With a government committed to reform and eager to attract foreign capital, many predict that this country of 74 million people, half of whom are under 20 years old, is likely to be the next Asian economy to excite the world with double-digit growth.

Vietnam is at the heart of “greater China”, a region referred to as an emerging “fourth pole” of global economic power (after Japan, the US and Europe), linking southern China, Hong Kong, Taiwan and Indochina. Despite the US trade embargo and a lack of international monetary aid, Vietnam’s economy has expanded in recent years, particularly in the south. Its real growth rate for 1993 was 7.5% and the expected rate for 1994 is 9%. It is clear that as obstacles to investment continue to be dismantled the economy will improve at an even more promising rate.

With its increase in economic prosperity, Vietnam is already experiencing the same pattern of growth in its healthcare sector as other Asian countries. As incomes increase, so does demand for more sophisticated healthcare. This in turn boosts demand for sophisticated imported medical equipment. The devastation of the Vietnam War coupled with the 19-year US ban on direct communication with the country have resulted in a particularly underdeveloped healthcare system. Many parts of the country have virtually no medical care. Consequently, the potential for growth in imported medical equipment is substantial.

Healthcare System

The state is the primary source of funding for healthcare in Vietnam. For the last few years, the government has taken significant steps to improve the country’s healthcare system, dramatically increasing spending as well as concentrating its efforts on primary care. As of 1993, 10% of the state budget was reserved for medical spending. The government has sought to improve disease control and prevention programs throughout the country with particular attention to establishing appropriate access to treatment in its most underdeveloped villages.

The healthcare issues receiving the greatest government and international attention in Vietnam are similar to those in the rest of Southeast Asia. In 1993, $5.5 million was spent on identifying and controlling the spread of HIV and AIDS. With a population with a median age of 20 years, Vietnam is also concerned with family planning and children’s health. The government is taking significant steps to improve women’s health as well as to prevent and gradually eradicate infectious diseases, such as malaria, tuberculosis, dengue fever and cholera.

Regional differences account for some of the variations in Vietnam’s healthcare system. In the south, particularly the areas around the economically vibrant Ho Chi Minh City (Saigon), physicians have begun establishing private hospitals and practices. With a population of six million, Ho Chi Minh City already has four or five private hospitals (compared with approximately 10 city and 21 district hospitals). In contrast, there are no private hospitals in the northern city of Hanoi, the more conservative seat of Vietnam’s central government.

In general, the southern Vietnamese private facilities offer higher quality and easier access than their public counterparts. Patients have so far been quite willing to assume 100% of the cost of private care. The government, concerned that a private health system will spread already-scarce resources more thinly, has been wary of allowing private hospitals to expand too rapidly. As a result, legislation has been introduced which restricts private hospitals to performing minor surgical procedures — referred to as “first and second-degree” operations — while public hospitals can perform all operations. One major implication of this legislation is that public hospitals are the only purchasers of specialist medical equipment.

Insurance

In 1992, the government terminated the public healthcare subsidy system and began experimenting with a new medical insurance system. Under the new system — available to all, but compulsory for state officials, the armed forces, pensioners and employees in state-owned companies, including enterprises with overseas investment — premiums are capped at 10% of salary. Employers pay two-thirds of the premium and employees contribute the remaining third.

The scheme has been controversial and slow to get off the ground, as many people had grown accustomed to the subsidized programs of the past, while others simply doubt the effectiveness of the new system. It also seems that those who can pay cash continue to get quicker access to higher-quality healthcare, bolstering the preference for patients to take this course, rather than purchase insurance. Nevertheless, the remodeling of the insurance system and the emergence of private doctors and hospitals has begun to expose Vietnamese hospitals to market pressures. Hospitals that were previously guaranteed a certain level of annual revenue must now compete for business, boosting improvements in the quality of facilities and technology.

Vietnam’s Medical Device Market

Hospitals are mainly concerned at present with upgrading and modernizing equipment. Since 1990, Vietnamese hospitals have made significant improvements in their installed equipment, but much progress is still needed. The total market for medical equipment in Vietnam is estimated to be $125 million while the value of devices and supplies donated by international organizations each year is an additional $300 million. Government spending on medical equipment is increasing at 10-15% per year, whereas spending in the private sector is growing at a rate of 20-25% per year. The overall market is expanding at 15% per year.

Although aid organizations have begun pouring money into Vietnam’s hospitals and clinics, progress is slow. Much of the system remains antiquated. The equipment is old and fragile. With spare parts nearly impossible to find, minor breakdowns often render machines permanently inoperable. Equipment considered obsolete by US standards is often state-of-the-art in Vietnam.

Currently, Japanese, German, and French suppliers of medical equipment are the market leaders in Vietnam, while US medical equipment and supplies are not very well represented. However, Vietnamese doctors — who actually make the decisions on medical equipment purchases — tend to prefer US medical technology.

The major constraint to the purchase of medical equipment is a lack of funds. To help alleviate this problem, foreign companies have involved international lending organizations, such as the World Bank and the Bank of Asia, to bring buyers and sellers together.

Surgical Device Market

Vietnamese hospitals do not have many of the supplies that the West takes for granted. Surgical instruments, sterile gloves and sutures, for example, are all in short supply — a problem which is bound to intensify as the demand for surgical and other specialist services grows. At Vietnam’s largest surgical center, for example, physicians operated on 7,000 patients in 1993, a 170% increase over the previous year. Over the same period, emergency operations went up 230%.

US Trade Opportunities

As political tensions began to ease, the medical industry and the US Trade Representative’s Office campaigned to open the Vietnamese market to trade and investment. Within weeks of the ban on direct communications being lifted, the State Department announced the removal of restrictions on US firms selling medical supplies or other humanitarian goods to Vietnam.

The Vietnamese government has no special registration requirements or restrictions on imported medical equipment. Its foreign investment codes (modeled in part on China’s joint-venture legislation) allow for a high degree of flexibility and a number of foreign manufacturers have already been licensed to set up joint ventures.

The best strategy for selling medical equipment in Vietnam is to build relationships with government authorities, including central government, the Ministry of Health and regional agencies in the south. Interested companies are advised to obtain a letter from the Ministry of Public Health to facilitate approval by the Ministry of Trade. Traditional marketing strategies which target leading doctors are also effective once officials links have been established.

Vietnam’s Future

Despite the growing enthusiasm about the emergence of the Vietnamese market, there is no doubt that doing business there has its dangers and pitfalls. Success in Vietnam will depend in large part on whether liberal economic policies can coexist with authoritarian politics — whether the country can tolerate the shock of rapid economic transformation in the absence of equally rapid political reform.

While economic and political reform will facilitate trade and investment, doing business in Vietnam requires an understanding of the labyrinth bureaucracy, which is likely to remain heavily involved in commercial activities for some time to come. Making proper contacts at an early stage is critical as it takes time to establish the relationships that will be necessary for successful business.

Vietnam’s Vital statistics

Source: US Dept of Commerce (reported by HIMA)