The complexity of developing high-value-added products while keeping costs affordable for customers is a global conundrum, and one that South Korea’s evolving healthcare industry is attempting to resolve. While the country has been at the forefront of new forms of research and development in the healthcare industry, leading to South Korea becoming a key hub of operations for global companies such as US-based life sciences giant GE Healthcare, those in the industry are having to work hard to develop new products to suit the country's consumers’ increasingly frugal spending needs.
Laurent Rotival, the CEO of GE Healthcare’s operations in South Korea, says that this frugality has been partly driven by the global economic recession, which has led consumer spending in South Korea to fall despite the country making a modest economic recovery earlier this year, yet he remains optimistic about the healthcare industry’s outlook.
While South Korea’s ageing population, and its knock-on effects in decreasing its workforce productivity, have been generally perceived as a source of concern by the country's policymakers, this demographic change been a boon for healthcare providers.
“South Korea’s ageing society is not unique, as other countries’ populations are also ageing,” says Mr Rotival. “What is unique is that it is ageing rapidly. This is a positive trend for the healthcare industry. There will be an increase in demand for care, so the prospects for hospitals, clinics and the medical industry at large are positive.”
South Korea hosts Asia’s most rapidly ageing population, and although its population expanded at a compound annual growth rate of 0.4% between 2005 and 2010, roughly 16% of the total population is above the age of 65, according to analyst Business Monitor International. As a result, a significant rise in the demand for chronic and long-term disease treatments, coupled with the country’s advanced technological acumen in highly specialised medical treatments, has led the healthcare market to become highly dynamic. According to Business Monitor International, South Korea's pharmaceutical market alone, which is worth $9.93bn, will grow by 7.7% annually between 2008 and 2014.
GE: a happy customer
The decision to establish and expand GE Healthcare’s operations in South Korea was influenced by the country’s robust healthcare market growth. Although the company’s involvement in South Korea dates back to 1913, when it began operating as part of the radiology department in Yonsei University in Seoul, its role has evolved significantly over the years, aided by the government’s support and the university’s research and development operations. Today, GE Healthcare’s operations span ultrasound, radiography, life sciences and surgical imagining.
“South Korea has been interesting for us because it hosts some of the leading clinical institutions in Asia,” says Mr Rotival. “We have a centre in the Incheon Free Economic Zone called GE Korea Technology Centre, where we develop advanced technology for healthcare. We also have our largest ultrasound engineering and manufacturing centre in the town of Seongnam, and we are currently investing in order to expand it. We have a thriving bio-tech and life sciences business, and we have medical devices, healthcare IT and life sciences businesses, which are critical elements when it comes to healthcare.”
A sector on the fringes
Although South Korea’s GDP recently increased to 2.3% in the second quarter of 2013, according to the Bank of Korea, this growth appears lacklustre at best when compared with regional neighbours such as China, which has been experiencing growth in excess of 7%. Indeed, South Korea's relatively slow GDP growth has significantly dented the demand for healthcare services, and although its healthcare industry has been earmarked by the government as a key driver for future growth, its performance lags behind the country’s traditionally strong FDI performers.
According to greenfield investment monitor fDi Markets, between 2003 and 2013 software and IT services captured the lion’s share of FDI coming into South Korea, attracting 139 projects worth $1.7bn. Meanwhile, the pharmaceuticals and medical devices sectors ranked a respective 18th and 19th for FDI attraction among the country's sectors, bringing in just 17 and 15 greenfield projects, respectively.
Although South Korea is a leading global producer in many technological fields, the commercialisation of technologically advanced forms of healthcare has played a relatively small role in the country’s overall growth. Yet the commissioner for the Korea Trade-Investment Promotion Agency, Ki Won Han, maintains that although this industry is still a relatively niche sector, significant gains made in pioneering healthcare products through successful clinical trials have led South Korea to become an appealing destination for medical tourists. Pointing to a growing influx of visitors from Japan, China and Russia, Mr Han says that as the country’s healthcare industry develops, another key source of revenue will lie in South Korea’s ability to provide world-class healthcare facilities for emerging market consumers at a low cost.
“The number of clinical trials conducted in Korea for drug development rose by 33% between 2011 and 2012, with 48% of them being multinational clinical trials,” says Mr Han. “Korea is considered as an ideal place for global clinical trials, as it hosts research-oriented hospitals. Our excellent management systems mean that the number of visitors from other countries entering Korea for medical purposes – including health check-ups, plastic surgery and dental care – has jumped from 60,201 visitors in 2009 to 200,000 this year. The government has taken concrete steps to lay a solid foundation that promotes medical tourism, and I expect to see more growth.”