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Medtronic Inc plans to bolster its presence in China via mergers and acquisitions of local companies, becoming the first multinational medical equipment provider to announce such a strategy in the world's fastest-growing medical device market.
Simon Li, vice-president of the US-based company and president of Medtronic Greater China, said that the medical device producer already has some candidates and is still looking for others.
He refused to provide names of the potential targets.
Medtronic, the largest producer of heart pacemakers in the world, develops and manufactures devices and therapies for more than 30 chronic diseases, including cardiovascular illnesses, Parkinson's disease, diabetes, chronic pain and osteoarthropathy.
Medtronic is assessing the market potential of the products and technologies of the targeted companies. Li also said that the targeted companies "must have a common vision and business philosophy" with Medtronic.
Medtronic is the first multinational medical device company that has publicly said it will make M&A one of its key strategies in China.
Cai Tianzhi, director of the medical device department under the China Chamber of Commerce for Import & Export of Medicine and Healthcare Products, said the gap between foreign giants and domestic companies in terms of research-and-development capability and consuming groups are rather large, so M&A may face a series of challenges, including branding, quality control and staff training.
On the other hand, this kind of M&A will help foreigners enrich their product portfolio, tailor to local markets and get access to distribution networks and sound government relations set up by local counterparts, Cai said.
Multinational medical equipment providers are adopting various strategies to develop business in China.
St Jude Medical Inc, Medtronic's archrival in development and production of cardiovascular equipment, had said that it will continue organic growth in China. It set up two technology centers to introduce its technologies to the emerging market and provide training for local doctors in a bid to promote its sophisticated products to Chinese hospitals.
GE Healthcare, the medical care arm of General Electric Co, launched an R&D center in Chengdu and doubled its sales staff in 2011 to penetrate China's grassroots market.
Johnson & Johnson Medical China will expand its presence in China by cooperating with government departments and academic institutions.
Medtronic had tested the waters for M&A in China. In 2008, it set up a joint venture with Shandong Weigao Group Co Ltd, one of China's major medical equipment companies. The US company holds a 51 percent stake, and the joint venture has been developing and marketing Medtronic's vertebral and joint products.
In September, Medtronic-Weigao Orthopedic Technological Support Center, using a 20 million yuan ($3.14 million) investment in R&D equipment, was set up in Beijing to focus on the development of orthopedic technologies and devices.
China's medical equipment sales will hit 400 billion yuan this year and is expected to continue to rise more than 20 percent annually through 2015, compared with around 7 percent in developed markets, according to Fan Yubo, chairman of the Chinese Society of Biomedical Engineering.
Li said that Medtronic's annual sales in China increased by 27 percent to 30 percent on average over the last six years, while profits jumped 20 percent a year. "China contributes 40 percent of Medtronic's growing market sector so far, and our global CEO hopes the sector will rise 20 percent annually," said Li.
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