The medical device segment is proving to be a lifesaver for plastic manufacturers in Penang in the face of the slowdown in the semiconductor and F&B sectors. DAVID TAN talks to two SMEs that are moving into this new growth area.
THE GROWING medical device industry has become an attractive sector for plastic-based consumer product manufacturers to source for fresh business opportunities.
According to a Euromonitor International report released early this year, the global medical device production value will record strong growth of almost 6% in 2016, reaching US$315bil.
Although the Asia Pacific region is difficult to access, the region may provide medical device producers the opportunities to grow and gain new markets over 2016, the report says.
One Penang-based manufacturer that is looking to tap the plastic-based medical device business is Rapid Growth Technology, which is leveraging its vast experience in making plastic-based hygiene care products. Group managing director Ng Choon Keat says the company will be investing more than RM1mil in a production line to manufacture disposable medical device used for treating external injuries for a customer in the US.
“The US customer has spent seven years to design the product,” he reveals.
“We are now in discussion with the customer on how to add value to the product. We plan to start production at the end of this year, tapping into the state-of-art production line we’ve imported from Japan and Germany to make plastic-based products.
“The company also already has the ISO-13485 certification, which enhances the our eligibility to bid for major overseas contracts,” Ng says.
“Our plan is to focus on the US market, which accounts for 26% of the global market, making it the largest producer and consumer of medical devices in the world,” he stresses.
Moving forward, Rapid Growth is also looking to tap into the medical device market in South-East Asia.
“The medical device market in the Asean region is projected to double from US$4.6bil in 2013 to US$9bil in 2019, according to the data from Medical Manufacturing Asia 2016. Three Asean countries — Malaysia, Indonesia, and Thailand — account for approximately 65% of the current medical device market among the 10 member countries,” Ng adds.
Currently, Rapid Growth is involved in the manufacturing of hygiene care products used in residential and commercial premises, washrooms and automotive.
“We produce about five million sets of hygiene care products per annum, of which the bulk are air hygiene products. Rapid Growth manufactures for a US-based multinational corporation, which supplies the worldwide market.
“This means hygiene care products made by Rapid Growth are widely used in the world,” Ng points out.
He says the company is targeting to generate about RM80mil in revenue this year, up from about RM60mil a year ago.
“We are able to maintain consistently a reasonable net margin per annum because of the cost-saving technology used in the production process.
“In this competitive market, it is not possible to raise selling price to cover for higher salaries and higher importation costs.
“The company spends about 30% of its production costs on US dollars and euros to import raw materials such as plastic resin from overseas,” he says.
Rapid Growth also does value-added design work on to the products to make them more attractive and appealing to the market.
“The company allocates about RM500,000 per annum for design and development activities. Nowadays being an original equipment manufacturer (OEM) is different from about 10 years ago, where most OEM companies didn’t have the opportunity to take part in designing work.
“To save cost and to better position themselves for global competition, many of our customers now are outsourcing designing work for their products to us.
“Moving forward, Rapid Growth is in the process of transforming itself into an original design manufacturer. We plan to achieve this objective in three years,” Ng confides.
Rapid Growth operates in a 180,000 sq ft manufacturing facility on a four-acre site in Bukit Minyak on the Penang mainland, engaging some 280 workers, comprising mainly skilled workers such as engineers and technicians.
Another Penang SME that has cottoned on to this segment is Cepco Trading. The Prai-based company is targeting its sales of customised high-impact polystyrene sheets at the medical sector, aiming to make it contribute about 30% to the company’s revenue in three years’ time.
The customised high-impact polystyrene sheets are for making rigid thermo-forming tray packaging materials used in the medical industry.
“Due to the slowdown in the semiconductor and food and beverage segments three years ago, we decided to tap into the medical device industry, as the demand from the medical device market is more consistent,” says Cepco director Jansen Lim.
“Both the demands from the semiconductor and food and beverage segments have declined by about 10% to 12% per annum for the past two years,” he reveals.
The group’s total revenue from the manufacturing and trading divisions is expected to stay flat at around RM60mil this year.
Lim says the group has since last year also started tapping into the stainless steel trading business.
Cepco is now distributing stainless steel under the Ulbrich brandname for the manufacturers in the medical, automotive, and aerospace industries.
“But because of the global slowdown, sales from the stainless steel trading segment is expected to decline to RM1mil from RM1.5mil in 2015.
“According to Outokumpu, a leading Finnish stainless steel producer, the global stainless steel demand is set to reach 38 million metric tonnes in 2016 and 39.2 million MT in 2017, with global consumption expected to increase at an annual average growth rate of around 3% from 2016 through 2019,” Lim adds.
Cepco spends about 30-50% of its production cost in US dollars and euros to import raw materials such as plastic resin from overseas, depending on the product mix.
In its annual report, Outokumpu says the deceleration of growth is most pronounced in the Asia Pacific region and the Americas, where the growth slowed markedly below the average rates of previous years, Outokumpu reports.
“Slowing economies in emerging markets, notably China, broad-based weakness in global manufacturing and deteriorating nickel prices resulted in weaker demand growth in 2015 compared with previous years,” the report adds.
Lim says growth for 2016-19 is likely to be driven mainly by increased consumption of around 3% per annum in Asia Pacific, while demand in Europe, Middle East and Africa (EMEA) and the Americas is estimated to increase by around 1% a year.
Lim says that this is the reason why the medical device sector will serve as the most consistent driver of growth over the next three years.
Cepco ventured into supplying the medical device segment three years ago. Presently, its trading business contributes about 60% of the group’s RM60mil revenue.
“The other 40% comes from manufacturing, which is spearheaded by sales of customised engineering plastic sheets for the semiconductor and food and beverage sectors,” says Lim.