By Todd Fagley
The past several months have proven to be a confounding period for businesses big and small, in the medical device industry and the broader American economy. Dating back to our beginning in 2002, Medsource Labs has always had a simple vision: quality medical products don’t have to be expensive. This is the foundation for our approach to serving our valued customers – building close relationships with overseas partners combined with targeting investments in domestic manufacturing facilities in Chaska, Minnesota and Bloomington, Indiana.
In this current topsy-turvy economic environment, however, businesses cannot confidently plan for tomorrow – much less make strategic investments for the long term given the heightened uncertainty and significant disruptions to global supply chains caused by escalating trade wars.
If trade agreements and established polices can be undermined by a tweet, what value do they have? How can a business proceed boldly, moving a medical product from conception to production and then to market, when punitive import duties can be imposed virtually-overnight and with little warning?
“We are here to help other companies confidently navigate this stormy moment — this is where Medsource Lab’s EMERGE process comes in. We are able to offer tariff-free medical products immediately and, through EMERGE’s product development process, we are well-positioned to help our customers develop and bring innovative products to market without the looming specter of tariffs.”
There is an African proverb, “When elephants fight, it is the grass that suffers.” Market pressures have heightened due to prolonged and escalating hostilities between the U.S. and China, coupled with renewed tensions with Mexico. Most economists agree that this, combined with the potential opening of new fronts in the trade war with the European Union, Japan and perhaps India, are damaging business confidence and present a major downside risk for U.S. economic growth.
Most Wall Street analysts are also warning that a full-blown trade war between the U.S. and China could trigger a substantial global stock market correction and global profits downturn that would choke global growth.
Companies already face a myriad of challenges when it comes to developing new products; such as trying to constantly innovate, managing the budget to support R&D, and getting the timing right to capitalize on market conditions. Now we can add supply chain havoc into the mix.
To avoid paying higher tariffs, many manufacturers are taking measures to shift production to, or seek new suppliers in, other Southeast Asian countries. Leaving aside the immense difficulty and complexity that comes with setting up shop in a new location, or the long road towards establishing the same level of trust with a new partner, many of these countries’ production capabilities lag behind China’s well-established manufacturing base. A New York Federal Reserve Bank study has warned of the increased costs to businesses, and their customers, from switching to less-efficient supply chains.
Our own industry has not been left unscathed. Some medical device products have been targeted in the latest set of tariffs, and others will be in the firing line should the tit-for-tat retaliatory measures continue. The enacted and proposed customs duties already affect a subset of medical devices, including imaging equipment, diagnostic reagents, blankets and linens, surgical gloves and contact lenses.
Given that China presents the most significant growth opportunity for the medical device industry, now and going forward, the future is clouded by a high degree of uncertainty.
While much of the impact of the Trump administration’s tariffs have been somewhat limited in scope – placing import duties on component parts made in China – less-diversified U.S. companies are far more exposed than their counterparts.
For any company, moving a product from the idea stage, to factory production, and then to market has become even more of an immense undertaking in the current environment.
Medsource Lab’s global network of strong relationships allows our company to respond to unforeseen challenges – mitigating potential risks and turning them into opportunities instead. Prior to the increase in protectionist trade policies, we made a strategic decision to diversify and expand its global footprint with strategic partners across Asia, Latin America, the Middle East, and here at home.
We are here to help other companies confidently navigate this stormy moment – this is where Medsource Lab’s EMERGE process comes in. We are able to offer tariff-free medical products immediately and, through EMERGE’s product development process, we are well-positioned to help our customers develop and bring innovative products to market without the looming specter of tariffs.
EMERGE is our unique approach for working with partners to transform their ideas for exclusive Class I and II medical devices into market-ready products – rapidly and efficiently. With EMERGE, we become an extension of our partners in the way they conceive, design and manufacture innovative products.
We partner with companies that have an innovative medical device idea, but now face supply chain issues and other barriers to bringing a cost-effective product to market. We will plan, design, validate, and optimize to bring their product idea to life, tapping our extensive network of design, manufacturing and quality experts to quickly deliver a cost-efficient, high-caliber product.
This is a significant departure from the usual approach to product development. Most companies tend to focus on one or a few of these elements at a time, resulting in a final product that is not optimized to the level desired by end-users. By addressing all these parts concurrently, EMERGE ensures the end result is a better designed and lower cost product that is developed in a shorter time than usual.
As the U.S. wages a trade war on multiple fronts, many medical device manufacturers and distributors will be forced to raise prices and re-evaluate supply chains to mitigate risks. Our ultimate goal is to ensure we – and our partners – continue to deliver high quality, affordable medical products to all our customers without causing business disruptions or incurring significant pricing adjustments from the tariffs.
Todd Fagley is Chief Executive Officer of MedSource Labs, a medical device company headquarted in Chaska, Minnesota, a suburb of the Twin Cities.