How Huitong Dachang CFO Yang Xiaohua Navigates the Post-Volume-Based Procurement Era to Unlock China's Medical Device 'Central Nervous System'

On May 7, 2023, at the Top 100 Summit, the main forum of the 7th Future Healthcare 100 Conference in 2023, the “Pengcheng Award · Innovative Company of the Year”Yang Xiaohua, Chief Financial Officer of Hualitang DachangMr.“How to Connect the ‘Central Nervous System’ of Medical Devices in the Post-Procurement Era”“Titled ‘How Hua Tang Da Chang Stood Out in the Highly Competitive Distribution Market and Became the No. 1 Private Enterprise by Market Share’”

Yang Xiaohua provided a detailed interpretation of how Huatang Dachang is structuring its commercialization platform for high-value medical devices, pointing out that the importance of the Chinese market, as the world’s second-largest, continues to rise, with global high-value medical device brands leading the high-end medical device sector. However, for these global brands, selling products in the Chinese market is a complex process; challenges such as language barriers, local regulatory and legal restrictions, regional and cultural differences, local preferences, and the need for in-depth distribution channel and supply chain infrastructure deployment are just a few of the many obstacles they face. Therefore,Huatang Dachang leverages its extensive experience in serving global brands with cross-border operations to help clients reduce complexity and costs while seeking business growth in new markets, making it a key partner in the value chain for market entry and penetration in the global high-value medical device sector.

In February 2023, Roland Berger Management Consulting released the "Report on the Current Status and Trends of China's Medical Device Industry in 2023," which pointed out that the market size of China's medical device industry was expected to reach RMB 958.2 billion in 2022, with a compound annual growth rate of approximately 17.5% over the past seven years, making it the second-largest market globally after the United States. However, from the perspective of the pharmaceutical-to-medical-device ratio, China's current ratio stands at only 2.9, compared to the global average of 1.4, indicating that the growth potential of China's medical device market remains to be fully realized.

China’s high-value medical device industry has been developing for only about two decades and remains in its early stages. The market as a whole exhibits three major characteristics: high entry barriers, low market concentration, and an overall modest level of technological sophistication. In particular, foreign-made devices still account for 80–90% of the market share in categories with relatively high technical thresholds, such as imaging diagnostics, dialysis, endoscopy, and minimally invasive surgical instruments.

As demand for high-value medical devices continues to grow in China, overseas brands are increasingly eager to enter the Chinese market; however, achieving commercialization in this market is no easy feat.

First, overseas medical device brands are unfamiliar with Chinese regulations and policies, lack in-depth understanding of local conditions and extensive local resources, and are unable to select high-quality and compliant service providers, including supply chain warehousing and transportation service providers, as well as local sales distributors.

Secondly, there are stringent requirements for highly specialized handling and care. Medical devices constitute a unique product category. As products critical to patient safety, they are subject to rigorous regulatory oversight and are sensitive to storage and transportation conditions, such as temperature, humidity, and cleanliness. Uneven demand and the imperative of ensuring timely delivery represent significant challenges and pain points in the medical device supply chain. Medical devices are typically sold by SKU to accommodate varying patient conditions, physician preferences, and procedural requirements, and are often offered in kits or sets with multiple configurations. Consequently, medical devices require highly specialized handling, meticulous monitoring, and expert management throughout the entire supply chain.

Furthermore, internal commercial operations suffer from low efficiency and poor cost-effectiveness. Overseas medical device brands lack regional personnel with a thorough understanding of the domestic market. Building an in-house commercial operations team with both medical expertise and commercial operational experience is time-consuming. Meanwhile, the need to engage, coordinate, and supervise multiple suppliers in daily operations places significant coordination and management pressure on overseas medical device brands.

High-value medical consumables primarily refer to disposable medical devices that are critical to safety, require strict control during production and use, are limited to specific specialties, and have relatively high prices. According to statistics, the market size of high-value medical consumables in China was approximately RMB 177.9 billion in 2022, with a compound annual growth rate (CAGR) of about 20% over the past six years. Vascular intervention and orthopedic implant consumables hold the dominant market positions.

Fields with relatively mature technologies, high clinical demand, and strong competition among domestic brands—such as intraocular lenses, orthopedic products, and coronary interventions—will face significant pressure from volume-based procurement (VBP) in the short term. The National Healthcare Security Administration has stated that it will further expand the scope of VBP and guide all provinces to conduct provincial-level or participate in inter-provincial alliance-based VBP for medical consumables. Meanwhile, the gradual inclusion of products such as dental implants into VBP signals a policy shift toward extending centralized procurement to more non-reimbursed areas related to public livelihood. With the overall acceleration of volume-based procurement, innovative medical devices will have greater room for price negotiation in the future. In response to the wave of VBP, comprehensive product portfolio layout, systematic product innovation, and rapid iteration capabilities will help medical device companies build core competitive advantages and represent key development directions for the industry going forward.

Multiple factors are driving the localization of global high-value medical device brands, necessitating greater innovation, enhanced resource integration, cost reduction and efficiency improvement, and customized services.

Huatang Dachang is one of the few platforms in China capable of providing end-to-end commercial solutions, primarily offering specialized end-to-end commercial solutions for high-value medical devices. Its services cover product registration, import and export, warehousing and distribution, commercial channel management, inventory management, and after-sales management.

According to the Frost & Sullivan report, in terms of GMV in 2020, Huatang Dachang was the second-largest commercial solutions platform (with a market share of 12.3%) and the largest private commercial solutions platform in China within the global high-value medical devices segment (including in vitro diagnostic equipment). In terms of high-value medical devices, among the top five commercial solutions providers, Huatang Dachang offers the most comprehensive range of solutions.

Align the strategic objectives of manufacturers, private healthcare groups, and the operational needs of subsidiary hospitals; flexibly allocate resources based on standardized management to assist manufacturers in rapidly expanding their business within private healthcare groups; provide high-quality, end-to-end supply chain services to private healthcare groups and their subsidiary hospitals, thereby achieving multi-party business synergy.

The implementation of centralized procurement for orthopedic products has had a profound impact on the entire industry. Leading enterprises have welcomed this development, recognizing that partnering with platform-type collaborators such as Huatang Dachang can significantly enhance their market penetration.

●Huatang Dachang has developed and customized an IT service system tailored to the unique needs of orthopedic operations, assisting manufacturers in instrument management. It provides manufacturers with precise data on production and marketing, enhances distribution channel efficiency, and mitigates risks associated with the circulation of critical surgical instruments.

● Huatang Dachang has developed diversified business models for manufacturers’ channel strategies, including wholesale operations, two-way logistics, consignment services, and short-term lending platforms, connecting with nearly 400 distributors.

● At the service level, we provide high-quality business services to downstream clients in alignment with manufacturers’ operational needs, including secondary disclosure, coordination of orders and shipments (particularly for urgent orders), consolidation and execution of regional authorization agreements, as well as the signing and management of tool leasing agreements.

Leveraging specialized, customized, and one-stop comprehensive commercial solutions, Huatang Dachang is committed to becoming the leading partner for global healthcare brands entering the Chinese market and expanding their business in China. We will leverage the strength of our commercialization platform to help your products rapidly seize first-mover advantage, achieve efficient coverage of nationwide distribution networks, and accelerate product commercialization through streamlined processes and informatization services.

We will continue to work hand in hand with our brand partners to expand the highly promising Chinese healthcare market, empowering manufacturers to enhance market expansion efficiency and reduce distribution costs, while fully advancing the accessibility of medical innovations.