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Creation of a growth responsive ecosystem for the electronic medical devices industry and the corresponding tasks

Author Lee Gyeongsuk, Kim Bonggyu Date 2014.12.29 Page 245
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As demand for medical services has shifted from being treatmentoriented to diagnosis and prevention-oriented as a result of income improvement and an increasing elderly population, the importance of the electronic medical devices industry has been growing recently.

The electronic medical devices industry has multidisciplinary properties that requires varies fields such as IT, mechanical engineering, chemistry, medicine, physiology, biotechnology, and statistics. Therefore, it is essential that it be not only supported by related industries, but also linked with hospitals and medical services in order to ensure the competitiveness of the electronic medical devices industry.

Thus, competition at the ecosystem level is more important than at the individual company level in the electronic medical devices industry. Consequently, the formation and activation of a comprehensive ecosystem that encompasses all of the ecosystem participants is required.

The Korean electronic medical devices industry has some problems as follows: Firstly, the value-added rate has continued to decline from 50.6% in 2008 to 44.0% in 2012. Secondly, in the electronic medical device component industry it is difficult to achieve economy of scale and to find new customers (electronic medical device manufacturers) due to the small size of the domestic market. Thirdly, software and system companies prefer to settle for the domestic market rather than to exploit the global market because of technology deficiency. Moreover,
application of the medical information system standard is insufficient and acts as a crucial constraint to the development of the software and system industry. Fourthly, it is difficult to reflect well the needs of doctors and patients on the electronic medical device development
process due to lack of coordination with the relevant hospitals (doctors). Lastly, large scale hospitals, which are very important customers and providers of development ideas, do not have a cooperation channel with medical devices companies. In addition, many hospitals prefer imported medical devices to domestic produced medical devices.

We analyzed the competence capabilities of Korea’s electronic medical devices industry ecosystem in terms of productivity, robustness and innovation.

In the field of productivity, the operating profit margin of Korean electronic medical devices companies is lower than that of global companies. We find the main factors affecting operating profit margin to be as follows: on the demand side, they are hospitals’ behaviors of requiring device price cuts and inducing competition between companies, and a small sized domestic market on the supply side, many companies do not have enongh marketing personnel and their brand awareness is very weak compared to global competitors.

The industrial capabilities of the Korean electronic medical devices industry showed inferiorities to the US in all fields. Competitiveness of manufacturing, SW, finished goods, and convergence products of IT and BT are only at a 85% level compared to the US. Also, the
competitiveness of material, components and source technology remain only at a 65% level of the US.

In the field of innovation capabilities, the competitiveness of technological innovation elements in the Korean electronic medical devicess industry is only at an average of 63% level compared to the US. In particular, the competitiveness of R&D human resources and R&D funding, which is ranked the highest in priority of importance among the eight elements, showed the lowest ranking of 7th and 8th.

Furthermore, the competitiveness of the infrastructure in electronic medical devices industry remains at a low level as a whole. In particular, the source technology development policy by governmentled, SME technology/ human resource protection scheme and skilled human resources training program remains at a very low level. In addition, concerning institutions and regulations, complicated procedures and redundant administrative processing, as well as the official’s lack of knowledge related to regulations emerged as serious problems that constrain the innovation ecosystem.

The following policy tasks are recommended for the creation of growth oriented ecosystems in the Korean electronic medical devices industry.

First, it is necessary to make the R&D program more efficient and to improve the R&D system. In order to achieve this goal, It is needed to establish R&D departments dedicated to electronic medical devices, to set up R&D planning from the mid to long-term perspective, to introduce a new R&D program that can connect source technology with commercialization technology, to expand R&D support in the field of commercialization-related core technology development, to reform the selection process of R&D projects, and to introduce an innovative path system that can deal with regulation quickly.

Second, it is necessary to select R&D projects with regard to reflecting demand potential and changes in technology trends. The government should enlarge R&D support relating to the areas of big demand potential, the development of an electronic medical devices system, the development of electronic medical devices converged with ICT, and the design of electronic medical devices.

Third, there is a need to strengthen the electronic medical devicesrelated infrastructure, through methods such as a systematic training system of skilled human resources, overseas certification experts, medical devices designers, standardization support, specialization of
testing agency by device, and the building of a clinical database and feedback channel.

Fourth, there is a need support program for SMEs to secure the domestic market and to expand exports. To do this, the government should build up a support system for SMEs in order to gain overseas certification and strengthen the professional trade consulting program of the electronic medical devices field.

The contribution of this study is as follows :
First, this study deals with the definition and scope of the electronic medical devices industry in a variety of ways by analyzing the definition of relevant institutions associated with the electronic medical devices industry including the Ministry of Food and Drug Safety, various research institutions and the Korea Statistics Office. Therefore, those researching the electronic medical devices industry ecosystem can use our classification appropriately in accordance with their research purposes.

Second, this study tries to conduct quantitative and qualitative analysis of the electronic medical devices ecosystem in three directions. In the first. we classify the electronic medical devices ecosystem into 4 layers, namely components layer, devices layer, SW/system layer, and hospitals layer. In the second direction, we develop new evaluation indicators of response capabilities and then analyze quantitatively the level of response capabilities for the Korean electronic medical devices ecosystem. In the third direction, we analyze qualitatively the current situation of the Korean electronic medical devices companies by growth stages using the company-level data collected through interviews.

Third, this study suggests necessary policy tasks for building growth oriented ecosystem conditions for the Korean electronic medical devices industry by analyzing the strengths and weaknesses of the Korean electronic medical devices industry.