International Report – Germany

The Export Genius
State & private sector cooperation
fuels innovation, market leadership

Germany is the largest economy in Europe and relies heavily on revenue from its export market. This is particularly the case in the medical sector, where it is a powerful global player. Shaun Benton looks at the current state of the German medical export market and its connection with the Middle East.

Germany, like the rest of Europe, is seeing rising spending on health care because of the combination of an ageing population – with the concomitant rise in demand for health services that this entails – and progress in medical science and technology that is allowing people to live longer than ever before, helped by earlier diagnosis and more effective treatments.

This drives the need for increased revenues and one early measure taken by the state is the 2010 Act for Sustainable and Socially Balanced Financing of Statutory Health Insurance, which is a reform aimed at re-organising the financing of the German health system.

Another strategy is doing more of what Germany is really good at it: export. It is already, according to a government report, the third biggest producer of medical technology products and provider of medical services in the world.

The German medical device market is worth about US$19.5 billion, according to some estimates. This is a considerable stake of the world market for medical technologies that currently totals more than €200 billion (about $247bn) a year and is increasing all the time, says German Trade and Invest, the foreign trade and inward investment arm of the Federal Republic of Germany, which advises German companies on entering foreign markets as well as companies wanting to enter the German market.

Placing these figures in some perspective, the overall worldwide healthcare market is valued at around $5.7 trillion, according to figures provided by Roland Berger, a consultancy company hired by the German government. And globally, the healthcare market is expected to grow by 6% a year, to $20 trillion, by 2030, when the world population is expected to reach about 8.3 billion.

Reasons for the increased healthcare-related spending per capita – especially in newer, vibrant markets like Russia and China but also in places like Vietnam – are the same as for Germany: ageing populations and technological progress. An added factor here is the increasing purchasing power of these important emerging markets.

Market share

Bearing all this in mind, it might surprise readers in the Middle East what a small share of Germany’s export market the region occupies: only about 4% – the same as South America. Exports everywhere slowed down in 2009 largely due to the international financial crisis, and picked up from about September 2010. But export growth to the Middle East has been slow – 9%, for instance, compared with 26% growth in Asia.

In any case, consultants to the German government think that the country could do far better, pointing out that German medical exports in 2008 accounted for only 6.3% of total German exports.

So the focus is turning increasingly to the Middle East and the interest in the region is evidenced by the opening of offices in the region by companies as well as regional German information offices.

Traditionally, Saudi Arabia has been the centre of attention for German medical companies. In 2011, German medical exports – equipment and pharmaceutical products – to the kingdom reached SR2.4billion (about $640 million), according to numbers provided by the Saudi Gazette.

This increase in exports was rapidly followed up at the MEDEXPO 2012 held in June in Jeddah, Saudi Arabia, where the German Healthcare Export Group presented itself to Saudis for the first time, with an information booth showcasing its healthcare, dentistry and ophthalmology industry sectors.

Seven companies represented Germany at the expo, which the Germans say is well above the average for a European country, and a sizeable fraction of the 140 exhibitors from around the world. More German companies are expected to pitch up to the next MEDEXPO, scheduled for April 2013.

Saudi Arabia is seen as a key market for expansion, according to Michael Morgenstern, counsellor and head of the economic section at the German Embassy in Riyadh. Saudi Arabia is currently Germany’s second-largest export market for medical technology after the United States. Russia and Poland follow closely.

German companies are now exploring the deepening of investment possibilities in the kingdom through joint-venture projects in the construction of hospitals, recovery centres, hi-tech procurement, the training of doctors and the health insurance market, as overall bilateral cooperation in the medical field intensifies, the embassy official told the Saudi Gazette.

All this said, historically the relationship between Germany and Saudi Arabia in the field of medicine has not been without its hiccups with reports by business magazine Zenith indicating a litany of unpaid bills by the Saudi embassy in Germany for medical treatment in German hospitals provided to Saudi nationals.

Arab visitors spend an average of €1,000 a day in Germany – excluding the actual medical costs – with upmarket hotels and boutique shops cashing in on the visits from family members of patients receiving treatment in nearby hospitals.

About 8,000 Arabs from the Gulf states receive treatment in Germany each year, with hospitals vying for a slice of this business which runs into many millions of euros.

The richest of these “customers” come from Saudi Arabia, which has led to a gold rush among German hospitals who view Arab patients as easy money. Since 2008, there have been accusations of scandalous overcharging by German hospitals along with unpaid bills by the Saudi embassy, which picks up the tab for treatment of its nationals abroad. The Saudi government has been known to regularly fly out patients – private citizens and military staff – if their illnesses, especially neurological conditions and cancer, cannot be adequately treated in the big hospitals in Jeddah or Riyadh, according to a report written by German reporters Christoph Dinkelaker and Nils Metzger and published in Zenith magazine.

In one instance the hospital bill for a single patient ran into thousands of euros for a single hour which was haggled down to €5,000, the business magazine reported. It said that a high-ranking representative of the Saudi embassy had indicated that this bill had come down from “several ten thousands of euros which were once billed for one hour of treatment”.

The magazine quoted a separate source who said that there were times when “several times the usual rate for German patients was billed” to the Saudi Embassy. This has led in turn to the Saudi embassy in Germany being slow to pay, leading a press officer at Munich’s Municipal Hospital to diplomatically state that “their [Saudi] payment habits are not what we are used to in Germany”, according to Zenith.

It reached a point about four years ago where the German investigative magazine Der Spiegel reported that the Saudi embassy had cheated German hospitals out of millions of euros. There were also reports hinting that a wellknown private Munich clinic, the Alpha Klinik, was forced to file for insolvency in 2008 as a result of unpaid invoices, while the Saudi embassy protected from legal action by diplomatic immunity.

Things have since started to settle down, however, with senior German government officials – including Ortwin Schulte, Head of Division General European and International Health Policy Planning, Federal Ministry of Health – acknowledging that German clinics have been regarding Arab patients as sources of easy money. He called for a flat rate to apply to all health tourists.

At the same time, reports say that the embassy has since introduced a new accountancy system to settle bills and followed up with rules to ensure treatment plans come with cost estimates.

German-Arab relations

Saudi Arabia’s latest ambassador to Germany, Ossama Shobokshi, is a professor of medicine who has been focusing on increased exports of German medical technology to the kingdom as it goes through a massive healthcare infrastructure development programme which will run into the billions. A single contract between Berlin’s public hospital chain, Vivantes, and the kingdom is said to be worth over €100 million.

Since then there has been an intensified programme of business links to engender more trust between German companies and the 22 Arab countries, most notably through the Ghorfa Arab-German Chamber of Commerce and Industry, which has an equal balance, it says, of German and Arab members on its board of directors.

In April it hosted the fifth German-Arab Health Forum in Munich where around 250 people including health experts and representatives of the health sector discussed the latest developments, business trends and cooperation opportunities. The sixth meeting takes place in the spring.

Exports of medical equipment to the Gulf Cooperation Countries (GCC) were worth €305.8 million in 2010, up by just over €20 million on 2009 figures. These figures include pharmaceuticals, as well as diagnostic equipment and high- and lowtech medical equipment.

According to Rafaela Aguilera Alvarez, the head of marketing at Ghorfa, one of the most active markets for German medical exports is the GCC – Saudi Arabia, Qatar, the United Arab Emirates, Kuwait, Bahrain and Oman.

Saudi Arabia is by far Germany’s largest customer, importing €146.3 million worth of products from January to November 2011, the latest period for which statistics are available. The United Arab Emirates is next, with imports worth €67.8 million, followed by Qatar (€18.1 million), Kuwait (€24.5 million), Oman (€7.1 million) and Bahrain (€9.9 million).

Major investments in health infrastructure by countries in the GCC are providing “excellent business opportunities for German companies”.

“All of these countries are investing heavily in the healthcare sector,” says Aguilera Alvarez, “thus creating huge potential for manufacturers of all kinds of goods. German companies offer a complete spectrum of medical equipment – from pharmaceuticals to hospital beds to hitech diagnostics.”

Germany is bolstering its export strategy by using umbrella groups that link German medical export companies. One of these is the German Healthcare Export Group, which met in June 2012 to focus on a number of projects.

Sectors offering the most potential for German expansion in the Middle East are in hospital management – a German university hospital has been advising the Yemeni government on building and operating a new 400-bed hospital – and emergency services, as well as medical training, according to the German Federal Ministry of Economics and Technology, in a 2011 report titled The Export Initiative for the German Healthcare Industry.

Medical devices

German medical device companies have several advantages: they are usually fairly small and thus flexible, and German products are perceived to have superior quality – an attractive criterion for buyers who can afford to pay top dollar for their medical devices.

There are about 87,000 employees within the medical technology industry in Germany, but companies typically have only about 78 employees – many of them based in southern Germany, in the federal states of Baden-Württemberg and Bavaria. Their small size allows them to respond quickly to new demands and to more efficiently target specific markets. They can do this to a point where they can easily tailor products specifically for the various specialised needs of different foreign markets.

One example of a young company doing well in the export market, particularly the Middle East, is a Munich-based firm called CIM med, which specialises in manufacturing integrated medical mounting systems. With sales worth three million euros in 2010 – after starting up in 2007 – it bills itself as “the first company in the world to offer a patented cable integrated mounting (CIM) solution that allows separate reconnecting and changing of supply cables”.

Quite simply, it hides the plethora of cables that connect electronic equipment in a surgery, trauma ward or dental practice within their mounting systems. With only 25 employees, CIM med is typical of the small and medium-sized companies that characterise the hi-tech medical device manufacturing sector in Germany.

CIM med makes mounting systems, such as a height adjustable arm, for everything from hospital bed television sets to patient monitors and anaesthesia units and offers customised solutions to hospitals in which it develops tailor-made, “intelligent” mounting systems for medical devices by calibrating the systems to on-site conditions.

Manuela Loibl, the company’s head of marketing and sales, says the Arab region is becoming a key market because of the “steady rise in the standard of living in many Arab countries and that is reflected in the healthcare systems as well”.

She adds that countries like Kuwait, Saudi Arabia and the UAE are beginning to place hygiene and safety in their medical practices “very high on the priority list”, which is one reason why CIM med is doing well in these countries. Integrating cables inside the carrier arms on its mounting systems reduces the areas where bacteria can collect. “Having a few visible surfaces rather than a tangle of cables also makes disinfecting the carriers a lot easier. So the materials we use are especially developed to be resistant to the strongest disinfectants.”

The company insists it can act “very quickly” on special requests and this efficiency is typical of the type of firm behind Germany’s innovation in medical technology development. Market intelligence

Germany’s success as an exporter is reliant on a number of factors – not least is the way the state assists the private sector with the provision of information through a socalled cluster system wherein state support for industry is manifested through a chain of regional organisations in its federal states that link companies to research bases and market intelligence.

This sort of cooperation and has been critical to its export growth and Germany has probably done better at this information converging than many of its European peers.

The linkage between state and industry and private and public research bases has meant that research is market focused and responds to demand, that money is put where effective returns are expected, and that competence is built where there is potential, all the while using market intelligence and informed assessments of domestic capacity. This also enables researchers to move fluidly between private and public sector organisations.

This cooperation and generous spending by the state on Research and Development (R&D) is the cornerstone of German success. In 2009, for example, Germany spent 2.7% of its GDP – €66 billion – on R&D.

However, the average spend on R&D by German companies in the medical technology sector is higher, averaging around 9% of their turnover and employing about 15% of the workforce.

An interdisciplinary approach is another facet of Germany's success. Key skills in engineering and natural sciences – and especially in information technology – are taught during medical technology training, with about 40 German universities offering courses in medical technology.

The state also provides support through the Healthcare Export Initiative, launched by Germany’s economics and health ministries and designed to offer specific support to small and medium-sized German companies.

There is a plethora of organisations dedicated to supporting industry. Spectaris is one: a German industry association for the hi-tech medium-sized business sector and a representative body in the areas of medical technology, optical technologies and analytical, biological, laboratory, and ophthalmic devices. In the medical technologies sector it represents around 150 German capital goods and auxiliary aid companies who mostly produce hi-tech products with a strong export orientation. It uses political activities, public relations and industry marketing to give its members an edge in the marketplace.

Taking all these factors into account it is clear why Germany remains a powerful and innovative force in the global medical sector. And it looks set to maintain its dominance in this field.

Karl Storz – supporting evolution for more than 65 years

The corporate history of the family-owned company Karl Storz is an impressive example of how the company has succeeded over six decades to understand and identify the needs and requirements of physicians and market trends. The leadership was achieved by implementing these in terms of products and services and offering a comprehensive and adaptable range of endoscopic systems. In more than 65 years of resounding market presence, the company has evolved into a manufacturer known and appreciated worldwide for its quality and product innovations. From its headquarters in Tuttlingen (Germany), Karl Storz has developed from a two-man business into a global company. It employs 5,800 people worldwide, with about 2,000 people working at the company’s headquarters and production facility in Tuttlingen. Seven other production sites (in Europe and the USA) and 43 sales and marketing subsidiaries are located worldwide in 39 countries.

The early and promising focus on endoscopy by Karl Storz began at the time when endoscopy was still at a very early stage of development. As early as 1953, the company founder Dr. med. h. c. Karl Storz designed and built his first endoscope, using at that time the conventional optical system, This marked the beginning of endoscopy in his small businesses.

Working closely in intensive technical dialogue with leading physicians, the following decades saw the company inventing and developing products which decisively shaped and enabled the use of endoscopy in diagnosis and therapy to the extent we know today.

The continuity of the family company underscores this innovative force: After the death of Dr Karl Storz in 1996 his daughter Dr. h. c. mult. Sybill Storz took over the management as chief executive of the Karl Storz group. Since 1996 more than 1500 new patents were registered and global turnover increased by around 15-20% each year.

The management of the family-owned company has set the course for the future. Since 1996 Dr Sybill Storz’s son, Karl- Christian Storz, took over responsibility for various divisions and has been a member of the board since 2005.

The range of endoscopic equipment for human and veterinary medicine and for industrial applications now encompasses more than 8,000 products. Innovative products and concepts have, and continue to be developed through an indepth consultation with leading surgeons, university hospitals and research institutes.

Recent inventions, such as the Karl Storz High Definition endoscopy camera further improved the quality of endoscopic images. The new Karl Storz Endocameleon, for example, combines the familiar tried and tested procedural comfort of a conventional 0° Hopkins rod lens telescope with the advantages and potential of a laparoscope featuring variable viewing direction.

3D concept

The Karl Storz 3D system, launched in 2011, represents a further milestone in endoscopic imaging. Given the growing consumer market for 3D TVs, this technology is becoming increasingly common in the medical sector as well.

The newest 3D concept from Karl Storz is based on the company’s own technological approach and offers excellent imaging with extraordinary depth perception.

Innovative OR

With the development of the integrated operating room concept OR1, Karl Storz has set a new standard. The OR1 is a unique solution which allows the integration of numerous technologies in the operating room. At the heart of the OR1 concept is the direct central control of all surgical and peripheral devices via touch screen or speech control from within the sterile area. During surgery, a second opinion can easily be obtained using modern audiovisual technology or telemedicine can be used for training purposes.

The success of Karl Storz products is founded on high quality optical, mechanical, electronic and software components which are perfectly matched and interlinked as a system. Karl Storz accepts the crucial challenge of always keeping a finger on the pulse of current medical developments. Knowledge and experience, high quality products and technical innovations will further enable the company to be a step ahead and provide their customers with the best product solution.

Furthermore, Karl Storz is dedicated to providing comprehensive after-sale service to physicians and clinics and to support endoscopic training on-site.

Northern Germany opens healthcare office in Dubai

The inauguration of the “Healthcare Industry Service Centre”, which recently opened its doors in Dubai Business Village, not only expands to the field of healthcare the already consolidated historical and economic ties between Northern Germany and the Arabian Gulf countries but it also highlights the increasing interest of both parties for common projects in this area.

The Healthcare Industry Service Centre is a governmental initiative of the Hamburg State Ministry of Health and Consumer Protection, funded by the European Social Fund. The project was realised in cooperation with Norgenta, North German Life Science Agency. Norgenta is the project and service agency of Hamburg and the Federal State of Schleswig-Holstein, established to support life science activities in Northern Germany.

“By realising a service and information centre that guarantees a permanent presence in the region, we are further strengthening the international competitiveness of small and medium-sized enterprises (SME) and clinics in Northern Germany. The centre will facilitate the market entry and the establishment of companies in the region through market expertise, contacts with decision makers within the healthcare sector as well as through solid cultural awareness of the region,” said Senator Cornelia Prüfer-Storcks, Head of Hamburg Ministry of Health and Consumer Protection.

At the celebration in Hamburg´s Town Hall of the opening Healthcare Industry Service Centre in Dubai speakers said the main goal of this new structure is to promote transnational cooperation between SMEs in the medical technology and services sector. A particular emphasis was placed on the intensification of the partnership between public health systems, companies and hospitals from the Hamburg metropolitan region and the GCC countries.

“On the one hand, we have established market leaders from Hamburg and Northern Germany, where science, research and practice are closely connected; here, a solid reputation and economic structure supports continuous research and development in medical technology,” said Kirsten Staab, director of the Hamburg Representative Office in Dubai.

The Healthcare Industry Service Centre is located close to the Hamburg Representative Office in Dubai and operates under its umbrella. The office will act as initial contact for companies and institutions, wishing to set up businesses in Hamburg or the GCC.

As the medical sector has become a pillar of the Arab-German relations, a permanent regional presence aims not only at ensuring stronger contacts locally but it also helps broaden the range of activities of health service providers from Northern Germany. The massive expansion of the local healthcare infrastructure, the high-class technology produced in North Germany, and the renowned know-how and services of the region make Hamburg a leading European life sciences hub.

 Date of upload: 26th Sep 2012


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