In an effort to attract high-value investment to the manufacturing sector, Malaysia has identified medical devices as a segment with significant potential. With a steady increase in investments and targeted incentives, the government's efforts to boost the country's profile as a manufacturing and research base look set for success.
In 2007, Malaysia's medical devices industry registered over RM5bn ($1.5bn) in revenue and year-on-year growth of 8%; a rate which is expected to continue for the next five years, according to the Association of Malaysia Medical Industries.
While medical gloves might seem on the low end of the value spectrum, Malaysia's leadership position in the sub-sector is none the less demonstrative of the country's moving downstream and adding value to raw commodities.
Malaysia is only the world's third largest producer of natural rubber, ranking behind Thailand and Indonesia, yet it has cornered 70% of the world's surgical gloves market. The country is home to the three largest rubber and medical glove manufacturers and exporters in the world, namely Top Glove, Supermax and Kossan Rubber Industries. In 2006, the US imported 18.4bn pairs of surgical gloves worth $1.2bn, with 9.2bn pairs coming from Malaysia.
Overall, global demand for surgical gloves is estimated at 135bn pairs per annum, and is forecast to grow 10% to 12% each year due to higher healthcare and hygiene standards in emerging countries in Eastern Europe, the Middle East, Latin America and East Asia. Surgical gloves are seen as a stable industry, as they are considered a necessity and not subject to cyclical market conditions.
Domestically, there are some 180 companies involved in medical device manufacturing in Malaysia. The majority develop examination and surgical gloves, while the rest produce catheters, hospital support equipment and other devices such as procedural kits, medical tubes, needles, syringes, condoms and contact lenses.
Malaysia's Third Industrial Master Plan (2006-2020) is focused on moving the entire manufacturing sector up the value chain as a pre-requisite to attaining developed nation status by 2020. Malaysia is now seeking international investment in non-rubber based medical device research and manufacturing such as electro-medical, cardiovascular, orthopaedic and in vitro devices.
R Karunakaran, director general of the Malaysian Industrial Development Authority, told OBG, "We cannot compete with labour-abundant, low-cost countries and need to target manufacturing industries that are of both high growth and high value. Medical devices is a growing industry and it is at the high end of the value chain, so it is an industry where we see strong potential for FDI moving forward."
While labour cost is an important consideration for investors, the medical devices industry, more than other manufactured products, requires advanced human capital and sound infrastructure; two areas where Malaysian officials say the country has a competitive advantage over less developed nations in the region.
Intellectual property (IP) protection is also of high importance as investors will want to ensure that their patents can be protected through a solid and transparent IP regime. In May 2007, the government launched a $1.4bn fund dedicated to the enforcement and protection of IP and later established a special court to strengthen the legal framework for IP as well as hear and resolve cases of infringement.
Medical devices has been labelled by the government as a 'quality' investment, and as such, investors into the sector can apply to the recently established cabinet committee on investment for high impact projects, which offers instant approval.
In another effort to increase Malaysia's profile on the international market, the ministry of health is currently drafting regulations on the medical devices industry that will see full mandatory registration and enforcement for related companies by the end of 2008.