Medical Device Link.

Originally Published MX November/December 2005

BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT

Medtech companies looking to establish a domestic home base and still meet worldwide demand must consider their options carefully.

Lori Luechtefeld

Medical technology is frequently described as one of the most rapidly growing industries in today's business climate. One result of such favorable assessment is that economic development agencies in the United States fall into one of two categories: those that have already established their regions as hubs for medical device companies and those that want to establish their regions as hubs.

These days, a medical device manufacturer looking to put down domestic roots can expect fierce competition among states when circulating its initial request for proposal (RFP). And where a company decides to settle down will often depend on the factors it values most, be they tax breaks, direct financial assistance, business incubators, access to intellectual support and a skilled workforce, or quality-of-life considerations.

But among the myriad factors that go into the domestic site selection of a medtech company, there is arguably one trump card: logistics. Will a company be able to move its product where it needs to go for what it can afford to pay in the time it needs to do it? In an ever-shrinking world, this issue grows increasingly complex as domestic companies face growing pressure to reach international marketplaces.

Seeman

"A lot of these companies are dealing with most fragile, most sensitive, most high-grade components," says Jerrold S. Seeman, president of Luxcore Ltd. (New York City), a marketing firm whose clients include economic development agencies. "The whole supply chain for sending those products to another country is critical. You've got to maintain control. We're not shipping tires here."

Device companies searching for a site from which they can grow internationally might instinctively turn to well-established medtech hubs where they feel confident that an infrastructure is in place to support their logistics needs, both at home and abroad. However, with medtech becoming a more attractive industry to economic development agencies nationwide, executives should take care not to overlook lesser-publicized regions that might also have the incentives and support necessary for a device company to set up home base.

An Experience Base

When a company initiates its site selection process, questions related to a region's experience with the medtech industry should be prominently featured in its RFP. For a company looking to grow internationally, this experience base should extend to the region's ability to move medical products overseas, Seeman says. Questions designed to gauge this ability can be written into the RFP.

"You have to say, look, if I want to ship internationally, what is your infrastructure? Are you a hub or a spoke? If I have to go from one place to another just to get to a third place, that's an added expense," he says.

Holt

Most domestic companies tend to design their operations around their U.S. customer base, and then look at how to service international marketplaces, says Chris Holt, vice president of consulting for the healthcare practice of UPS Supply Chain Solutions (Alpharetta, GA).

"There's not just one distribution hot spot for medical device companies. Each business has very company-specific reasons for wanting to be in a particular location," says Holt. However, companies that outsource their transportation and distribution functions can gain certain logistical advantages, domestically and internationally, if they set up their manufacturing operations near a hub of their logistics provider, he says.

"These days you wouldn't think logistics would be much of a problem, but there are economies of scale," Seeman says. Companies have to decide what the most cost-effective way is to get a product to its market. "Some products can sit on a tanker for 20 days. Others had better be on an international flight," he says. "Every company has a different timeline for getting its products to market. And every time you add an extra data point, there's a cost involved."

Although some regions have been supporting device companies' supply chains for decades, most states that don't already have those capabilities are now examining ways to get them, Seeman says. "You want to make sure a site is a good fit for your company. You want to fit the round peg into the round hole," he says. "The good news is, there are a lot of round holes right now."

Big and Getting Bigger

To some extent, the numbers don't lie. Certain states and regions have more experience meeting the needs of medtech manufacturers than others. California, by far, houses the most, with almost 2000 medical device companies within its borders, according to MDRWeb (www.MDR Web.com), an online database of medical product manufacturers. Behind California are New York, Massachusetts, New Jersey, and Pennsylvania, each of which harbors between 650 and 800 medical device companies.

Both Texas and Florida are already strong medical device manufacturing states, and according to officials within the states' economic development agencies, both regions are ready to make the most of their growing reputations.

Texas. While Texas already has a significant medtech presence with more than 400 companies, a great deal of opportunity still exists for further establishment of the industry within the state, and the Dallas–Fort Worth area, though landlocked, provides significant logistical support for international trade.

Williams

"The North Texas region is advantaged by having DFW Airport, which serves as one of the two U.S. gateways to Latin America, with Miami being the other," says Nancy A. Williams, president of the Health Industry Council (Irving, TX). "The airport also provides direct service to Europe and Asia-Pacific cities. DFW Airport is also a major airfreight center with global reach."

The Fort Worth area is also home to the Alliance business development, an 11,600-acre international trade and logistics center featuring the world's first industrial airport.

"Both DFW Airport and Alliance Airport have foreign-trade zones that benefit the user by reducing, deferring, or eliminating duty and reducing inventory tax," Williams says.

The Health Industry Council was established in 1988 to develop Northern Texas's health industry, and since then has increasingly turned its attention to the medical device arena. One of its projects is the Medical Device Action Alliance, which coordinates regular industry roundtables and an annual medical device industry educational program.

Kelley

Florida. Another well-established medtech region with more than 600 device manufacturers in its borders, Florida offers a variety of incentives to companies, including easy access to Latin American markets.

"Like any sector in Florida, medical device manufacturing has an edge in international trade and business development," says Darrell Kelley, president and CEO of Enterprise Florida Inc. (Orlando). "In addition, Florida has identified the medical device industry as part of its high-impact life sciences sector, which qualifies medical device companies for a variety of business incentives."

Steinocher

The Tampa Bay area, home to the Florida Medical Manufacturers Consortium, is one of the top 20 medical technology clusters nationwide, according to Chris Steinocher, vice president of marketing and strategic planning for the Tampa Bay Partnership. And although the area has a history with the industry with almost 250 medical device companies, Steinocher says new companies are increasingly making use of the area's location for international expansion.

"Now we're seeing new companies coming in that are using the area to access both North and South American markets," he says. "Access is a big key. We have access to three international airports and three deep-sea ports."

Turning Spokes into Hubs

While medical device hotbeds are only looking to get hotter, other areas that previously might not have considered device manufacturers as major targets are coming around. Many states and regions are learning how to harness their experience and investment in other industries and use it as leverage in attracting medical product manufacturers. Likewise, areas surrounding well-established medtech hubs are capitalizing on their neighbors' resources and infrastructures, setting themselves up as desirable alternative locations.

North Carolina. With its more than 200 companies, North Carolina is by no means a medtech lightweight. And with a solid foundation of experience, resources, and international trade support in place, the state is looking to grow its base of device manufacturers further.

Denny

Jeff Denny, director of life sciences and technology recruitment for the Greater Raleigh Chamber of Commerce, says that the region's access to leading medical schools, research centers, and one of the largest clusters of life sciences companies in the world provides fertile ground for medical device companies. He also says the state's Research Triangle region boasts the largest concentration of contract research organizations in the United States.

"North Carolina is a brilliant example, in its Research Triangle Park, of a state creating an entire biotech community," Seeman says. "And those companies supported in the Research Triangle do a lot of their business internationally."

Along these lines, the North Carolina Department of Commerce's international trade division provides consulting services to state businesses looking to take advantage of overseas markets.

Mason

Michigan. Already home to more than 200 medical device manufacturers, Michigan is using the infrastructure that sprang up around its massive automotive industry to attract emerging technology companies and support their international efforts.

"Since 2000, we have invested more than $210 million in medical device and other life sciences–related research and development," says Jeff Mason, senior vice president of technology development for the Michigan Economic Development Corp. (Lansing).

"A lot of the regions around the world are trying to become centers for helping companies grow globally. We already have that infrastructure in place and are already helping companies do that," says Oakland County executive L. Brooks Patterson.

Patterson

In the late 1990s, Patterson founded Automation Alley, southeast Michigan's regional technology cluster. "Our companies participate in Automation Alley's export missions, and they all come back with sales orders from these well-executed trade missions around the world," says Patterson.

Mason says the region's international companies also benefit from Michigan's location. "Centrally located between both coasts of the United States, southeast Michigan—the metro Detroit area—has access to the Atlantic Ocean via the Saint Lawrence Seaway," he says. "The Detroit Metropolitan Airport and its recently opened McNamara Terminal offer direct flights to international business hubs."

Washington. Washington State, particularly the Seattle metropolitan area, is widely recognized as a center for biotechnology and medical technology. And, according to the Inland Northwest Economic Alliance, the region's ability to harbor medtech manufacturers and transport their products globally extends further inland as well.

According to the alliance, the inland area's high concentration of major hospitals and healthcare centers can be harnessed by medtech companies for clinical research on new technologies, and the region supports 22 research parks.

Regional economic development organizations, including the International Trade Alliance of the Spokane region, provide direct assistance with moving products to global markets. The region has eight ports of entry into Canada and several foreign-trade zones, including areas surrounding the Spokane International Airport.

Ginn

South Carolina. In South Carolina, the government is placing increasing emphasis on developing the state's bioscience and medtech industries. "We're looking at the whole biotech arena," says Fred Gassaway, executive vice president of marketing for the Palmetto Economic Development Corp. (Columbia, SC). "The state is increasing its spending in the medical research and diagnostic areas, and the state's ability to support those companies is increasing."

Although South Carolina is not currently among the top of the list as far as the presence of medtech companies go, David Ginn, president and CEO of the Charleston Regional Development Alliance, says the state's location and infrastructure put global-thinking manufacturers at an advantage. "Its position on the East Coast allows for easy access to Europe and other global destinations," Ginn says. He adds that the port of Charleston, the busiest container port on the Southern Atlantic and Gulf coasts, is cited as the most productive port in North America.

Longenderfer

Lehigh Valley, PA. The Lehigh Valley region in Pennsylvania is increasingly gaining the attention of medical product manufacturers due in large part to its proximity to other key markets, says Megan J. Longenderfer, vice president of marketing for the Lehigh Valley Economic Development Corp. The region is centered along the biotech corridor running from Boston to Washington, DC, and benefits from the resources and infrastructure that support the New Jersey–New York–Pennsylvania "science triangle," Longenderfer says.

Minnesota/North Dakota. In the North, the reputation of the Twin Cities as an area of potential growth for medtech companies has caught on, and now regions that have never before targeted the industry are looking to catch its eye.

Lucy

"We have only recently begun to pursue medical device manufacturers," says Paul Lucy, senior vice president of the Greater Fargo Moorhead Economic Development Corp. (Fargo, ND).

Lucy says the Fargo-Moorhead area, encompassing parts of North Dakota and Minnesota, will incorporate incentives to support the location of a medical device or life sciences company. And for those looking to move their products internationally, the area has a designated U.S. Customs port that allows for inbound and outbound international shipments to be bonded to and from the Fargo-Moorhead area without requiring clearances to be completed at the water ports. The area also has an intermodal container facility, export trade offices, and a pending foreign-trade zone application being reviewed at the federal level.

Conclusion

Although international markets can be touched from virtually any point within the United States nowadays, not every region features the infrastructure and proximity to resources needed for cost-effective global operations. With the medtech industry providing an increasingly attractive target for the wooing of economic development agencies, device companies looking to put down roots will generate plenty of interest among regions nationwide, in both established medtech hotbeds and areas looking to establish themselves as such. Executives must have a firm grasp of their companies' site priorities and needs well before circulating their initial RFP.

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