Market for machines grows in Indonesia's health care sector

Because Indonesia manufactures only a small number of the high-tech medical devices and equipment it uses domestically, the opportunities for foreign manufacturers, suppliers and distributors of medical devices are numerous. Devices and equipment used in clinical laboratories, diagnosis, surgery, cancer treatment, dental services and dermatology are all expected to see high demand as the nation’s Health Care and Social Security Agency (BPJS) is embraced by patients, clinics and hospitals. As the scheme rolls out and more Indonesians use health services, the number of people requiring diagnostic tests and imaging services, among other high-tech tools, will grow. These include CT scanners, X-ray machines, medical and dental implants, and orthopaedic and respiratory equipment. In 2014 Indonesia’s medical device market was valued at $1bn, and forecast to grow up to 15% a year.

New Facilities

Demand for medical devices will also be driven by the construction of new hospitals and clinics, and improvements to existing facilities. In January 2015, Jakarta’s provincial health agency announced plans for a new cancer treatment hospital and the following month, the Ministry of Health (MoH) requested an Rp654bn ($54m) budget allocation to improve health care facilities nationwide. Then, in April, 15 of Jakarta’s community health centres ( puskesmas) were upgraded to hospitals, with more of these upgrades expected to come. All of these initiatives will likely include supplies of new or upgraded medical devices.

Demanding Lifestyles

Another factor behind the expected demand for devices is the rise of non-communicable diseases, such as heart disease, diabetes and cancer – the diagnosing and treatment of which rely heavily on advanced, high-technology equipment. With the exception of a handful of local companies – such as DIKAMED and Andini Sarana, which manufacture and distribute equipment like ECGs, ultrasound and dental machines – domestic manufacture of medical equipment focuses on basic items like bandages, surgical gloves, orthopaedic aids and hospital furniture. Indeed, in 2013, more than 97% of medical device products were imported. A large and reliable of supply of imported medical devices is thus required for Indonesia to reach its health care targets, a requirement that presents a substantial opportunity for foreign distributors and producers of such devices.

An Emerging Market

Indonesia is among the top-15 fastest-growing markets globally, according to Business Monitor International (BMI), which has published projections indicating that the Indonesian medical device market will rise in value from an estimated $673m in 2013 to $1.2bn in 2018. Diagnostic imaging devices, for instance, are expected to see a compound annual growth rate (CAGR) of 20.3%, while other medical devices’ CAGR will reach 5.9%, according to BMI. Other analysts view the country’s market for medical devices as comprising a mix of diagnostic imaging products (35%), medical consumable products (23.8%), auxiliary devices (5.7%), dental equipment (2.2%) orthopaedic implants (2.2%) and other devices (31.2%).

The large, established firms already operating in this segment in Indonesia include GE Healthcare, Pfizer, Siemens and Philips Healthcare Indonesia. According to Forbes, GE has fitted more than 4000 pieces of CT scanning equipment, and Philips Healthcare is expanding with the opening of centres in Makassar and Surabaya to enable the launch of a mobile obstetrical monitoring project. The roll-out of BPJS has driven sales for Philips, which said it experienced strong demand in Indonesia for MRI machines, PET-CT scanners, ultrasonographs and equipment for intensive care units.

A Local Relationship

For the time being, foreign suppliers must be willing and able to navigate local bureaucracy to bring their devices to market in Indonesia. Historically, this has been challenging, but as the country integrates its regulations with those of ASEAN, it is expected that foreign manufacturers’ ability to import medical devices into Indonesia will become faster and less cumbersome. ASEAN’s harmonisation of regulations for medical devices, the ASEAN Medical Device Directive (AMDD), was signed on November 21, 2014, but is subject to ratification by member states. AMDD will delineate an integrated system of rules for four categories of medical devices, ranging from lowrisk devices such as bandages and nasal spray to highrisk devices such as pacemakers and prostheses.

Until the new ASEAN regulations are enacted, foreign suppliers must comply with the government’s guidelines and procedures. Although recent improvements to the system are easing the route to market expansion for foreign medical device firms, partnering with an Indonesian company with a distribution network, a warehouse and skilled technicians is required.

The Registration Guidelines for Medical Devices, Cosmetics and Home Care Products prohibits foreign suppliers from registering to import medical devices. Instead, an Indonesian partner is required to submit the registration application on the foreign supplier’s behalf. In 2014, about 1750 of these local medical device distributors were registered with the MoH. The Indonesian partner can help simplify the process and help the foreign supplier with networking and marketing. However, a cause for concern for some foreign manufacturers is that the local partner holds the medical device licence in its name. This is because Indonesia prohibits the use of an independent third party to hold licences on behalf of foreign manufacturers of medical devices. In addition to creating concerns about intellectual property, the requirement makes it challenging and costly for foreign manufacturers to switch partners in the event of a problematic business relationship.

Registration Requirements

The Indonesian Director-General of Food and Drugs, under the MoH, supervises the registration of medical devices. The registration requirements include a Common Submission Dossier Template, as well as proof of ISO 13485, for quality management, and evidence that the device meets Indonesian and international standards for quality, effectiveness and safety. If the application is successful, the MoH issues a local IPAK distribution licence, which is valid indefinitely, but audited every five years. Imported medical equipment must also receive registration numbers, valid for five years. Import duties on medical equipment can reach 30%, which does not include a 10% value-added tax. The MoH also conducts pre- and post-market controls, like sampling and monitoring, on all imported medical devices. To ease registration and prepare for AMDD, Indonesia has implemented an electronic registration system for medical devices. Called E-Registration for Medical Devices, it is billed as a fast registration system that can be accessed anywhere.

To simplify the procurement process for the health care sector, the MoH launched an online purchasing system for medical devices in 2013 that indexes devices in an e-catalogue. More than 1600 types of medical devices are included in the catalogue, which also details distribution costs. The online system allows Indonesian institutions to purchase products in the e-catalogue without any tender, with the added benefits of fostering transparency and facilitating the transaction process.

Worthy Hurdles

To fast-track settlement for imports and exports, an online portal has been created. The Indonesian Nasional Single Window allows distributors and manufacturers to apply for licences and registration. The combination of mandated increased public spending on health, the roll-out of universal health care and the upgrading of hundreds of public hospitals means that Indonesia’s health care industry should be worth $50bn by 2020. If the industry grows 10-15%, as expected, it will be worth filling out forms and finding a partner expand into this thriving market.

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The Report: Indonesia 2015

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