AMERICA’S LIFELINE

Mexico 2017 | HEALTH & EDUCATION | FOCUS: MEDICAL DEVICE MANUFACTURING

Mexico is the largest supplier of medical devices to the US, but recent statements from the new US administration have those in Mexico's powerhouse industry worrying what the future holds for this well-performing sector.

Mexico is the ninth-largest exporter of medical devices worldwide, second in Latin America, and the main supplier of such products to the US. It is a booming sector with an annual growth of 15%, in contrast to the pharmaceutical industry, which has grown by 4% on average in the last 10 years. Currently, the medical device industry employs about 132,880 people in the country, 7.7% more than in 2015. By the end of 2016, medical device production amounted to USD15 billion, of which USD8.2 billion came from exports.

Factors such as a highly skilled workforce, access to the one of the world's largest consumer markets for medical devices, and competitive wages make Mexico's medical device manufacturing sector a key player, and these elements will continue to foster growth in the industry
When the NAFTA entered into force, the agreement helped transform Mexico's border factories, known as maquiladoras, into epicenters of industry—most notably in Tijuana. Manufacturers of medical devices and equipment in Tijuana began attracting skilled Mexican workers such as engineers and technicians. Because of NAFTA, Mexican manufacturers enjoy essentially tax-free raw materials supplied from the US and, in turn, supply the US with lower cost, life-saving medical devices and equipment. But recent political tensions and looming potential changes to legislation may knock trade within this sector out of equilibrium.
Despite the impending revision of NAFTA, which will stipulate new conditions and restrictions for exports to the US, expectations for 2017 are high. The sector is expected to close the year with a total production of USD17.7 billion. The country produces medical equipment, prostheses and functional aids, diagnostic agents, supplies for dental use, surgical and healing materials, as well as hygiene products.
According to ProMéxico, purchases of medical devices by the public sector have been one of the largest drivers of growth in the sector. In the last decade, the medical devices sector in Mexico has shown dynamic and sustained growth, based on the development of manufacturing capacities by the main companies in the sector, which have found in the country a key partner for their investment and business strategies. The industry is mainly made up of SMEs with great potential for development, as there is still a lot of room for improvement in terms of more advanced equipment and a higher level of technology.
Regarding the geographic distribution of the industry in Mexico, three important regions for the innovation and development of medical devices stand out. In the northern areas of Baja California and Nuevo León hosts one of the most important groups of medical device manufacturing in Latin America; also Jalisco, in the western area, and the center with the Federal District, State of Mexico, Morelos, and Puebla include important players in the sector. Of these areas, Baja California is the most important cluster in the country because companies in this state make 33% of total exports from the sector.
Regarding the key strengths of the sector that will help it face the new scenario presented by the new US government, the latest report by KPMG assures that Mexico offers 18.9% savings in manufacturing costs for the industry of medical devices and 7.8% savings in manufacturing costs of precision components, compared to the US. Mexico's location is also key—allowing savings in logistics, facilitating the inspection of plants by the health authorities, and responding quickly to sudden changes.
Growth for this industry is expected to continue over the next few years, and by 2020, the production of medical devices will reach a total of USD25.6 million with an average annual growth rate of 6.4%, which is higher than in the NAFTA region (5.1%) and countries such as Germany (4.3%), Japan (4.4%), and Switzerland (2.5%). ✖