Recently, Philips India held the 4th edition of Philips India Innovation Experience in Bengaluru. The healthcare company launched, innovative products like the children’s respiration monitor, Air Purifier Series 3000 and Air Purifier Series 6000, the fetal heart rate monitor, the dream series of sleeping aids, and the e-alert system at the event. M Neelam Kachhap spoke to V Raja, Vice-Chairman and MD, Philips India, to find out how the medical device industry is struggling with profitability against the backdrop of rising incremental costs
How do you see the medical device market in India?
I see that everything is pointing in the right direction. Business is growing and is thriving. Everyday new and enhanced technology is coming into this space.
How has this industry changed in the past few years?
I have come back to the healthcare industry after about five years. What it was a few years back to what I see now, it is pretty much the same. A lot of emphasis is on newer advanced technologies.
Would you say that the Indian market is nearing saturation?
Interestingly, when I look at the growth in this market, it is now moving from bigger to smaller cities. Technology is being embraced there because the markets here are growing with more diagnostic centres and more hospitals are coming in. The other day, I was speaking to a group of hospital guys and they told me that their case load growth was coming down as compared to the disease area growth. For the same disease area, the growth was positive in tier-II cities. So people who were coming from peripheral areas to the main cities are today being treated in the same town. I see that the shift is clearly happening in tier II, III and IV towns. The good news is that in these tier II and tier III towns, I am happy to say hospitals and centres are not going for high-end technology. They are going in for what makes appropriate sense.
So, I really see positive growth in those areas. I’m seeing good growth in the government sector where we have private public partnerships. Many years back what we started while at the helm of another healthcare MNC, I am seeing more and more activity there. It is in the interest of the government, the patients and the providers because in many ways, it is the private players providing healthcare at government costs in government hospitals.
How much of your business comes from government segment?
I would say about 20-25 per cent. This includes PPP, direct selling indirect selling etc.
Tell us about your role at Philips Healthcare.
I head the healthtech business at Philips which consists of both healthcare and consumer health businesses. The idea is to seamlessly look at this whole business as one business and help people live better lives. My mandate is primarily to see that the business grows at a faster rate make it profitable and also build a larger footprint in India. Last but not the least, I would see how I can export talent out of this country.
Is the multimillion euro investment in India by Philips bearing fruit?
Investments made by Philips, whether at its manufacturing base in Pune or at Bengaluru centre or launch of fetal heart monitor etc, I genuinely believe that the company is willing to invest and it is a testimony to the fact that whatever the company has invested is paying rich dividends. Most of the products have something from Philips Innovation Campus (PIC) Bengaluru. We are a strong contingent if you look at the global place for us. We conduct R&D activities for Indian as well as global products at our Chakan facility in Pune, which also happens to be our headquarter for R&D.
India is a growing market but not a high profit market. This is true for most MNCs in healthcare. From the growth point of view, we are doing well. On the profitability front, there are more expectations from where we are today. There are miles to go on what we have invested and what we expect.
Would you say that the medical device industry is struggling with profitability issues?
I think it will still be a struggle for all of us for the simple reason that incremental costs are high. You have to understand that the cost of equipment we sell in the western world and in India is almost similar. But the cascading cost of sale is high (importing from other location, customs duty etc). Therefore, there is a difference in the money we make in the US or Europe and in India. This cascading cost virtually eliminates our profit. Our consumers might say that the cost of a scan in India is 1/10th or 1/20th of the cost of scan in the western world. So, how will I breakeven unless the number of scans go up by 20 times than what is done in the western world. Besides for consumers, the funding cost is also high. So the entire economics is a challenge for us to increase our profitability.
Our profit margins are really low because of cascading costs and will remain through till the entire cost comes down. Duties and freight cost go down; hence, customer profitability has to goes up. So the entire value chain is getting affected because of this and unless that challenge goes, I don’t see any improvement in profitability in the near term.
A few years back when the government had not coined the term ‘Make in India,’ company like yours were already talking about reverse engineering. How has that developed?
It continues till today. I say more for Philips than others, we do make products not just for the local market but also for the global market. The trend will continue especially if we feel that the engineering capability exists; there is a local market that exists and it makes economic sense for us to make the product in this market. But the genesis of this will be more on whether the product has a large local market. I am not talking about a shear transfer of work or cost benefit. That era is gone.
See if ‘X’ product is made in the US and it has a large market potential in India in the next five years and today the cost of making the product is same or marginally lower, then we will say let us start making here for India first then build volume and export it out. Because quality and engineering remains the same. But, the local market needs to be addressed first. Today, people want to make factories closer to the market so that flexibility and ability to deal with the customers locally is much better.
So where will large companies invest in the coming years?
The investment will focus more on disease front. Investments in cardiology, oncology will continue. Besides, we have a huge population and growing number of children (we produce an Australia every year). So, I would say that products like ultrasound will see more investments. As more healthcare institutions come up, say for example hospitals, you will see more ICUs, OTs. I see the business grow for the next several years from India perspective.
What will Philips invest in the next five to 10 years?
The investment will not be product specific but will cater to specific disease landscape which we can address. And a disease can be addressed by different technologies. Similarly, investments will be made in the respiratory segment, mother and child care etc. However, technology will always be the differentiator of clinical products.