Chinese IVD Companies Go Global: A Golden Opportunity or a Perilous Journey?

In 2020, Chinese IVD companies reaped the benefits of overseas markets.

The seller’s market that emerged under the impact of the COVID-19 pandemic not only opened up overseas channels for domestic IVD companies, but also expanded their imagination of the overseas market. In the second half of 2020, overseas orders became the main growth driver for the performance of domestic IVD listed companies.

How Lucrative Is the Overseas Market? In April 2020, BGI Genomics signed a $265 million contract for COVID-19 testing with a company under Saudi Arabia’s sovereign wealth fund. This mega-deal alone accounted for 67.05% of BGI Genomics’ total revenue in 2019.

Post-pandemic, global supply chains are being reshaped, and attention to the overseas market for in vitro diagnostics (IVD) is gradually increasing. VCBeat (WeChat ID: vcbeat) reviewed the annual reports of more than 20 listed IVD companies in China, most of which highlighted strategies to accelerate their global market presence and aggressively expand into international markets.

Of course, even though the export of COVID-19 test kits has brought some gains to domestic IVD companies, there is still a significant gap compared with overseas enterprises.

According to an industry insider, Sansure Biotech’s overseas revenue in 2020 reached RMB 2.425 billion, accounting for more than 50% of its total revenue. BGI Genomics’ overseas revenue accounted for over 60% of its total in 2020, exceeding RMB 5.5 billion. However, neither company has established a dominant position in the overseas market, which is largely dominated by products from South Korean companies in the COVID-19 testing kit sector.A South Korean private enterprise generated over tens of billions of U.S. dollars in overseas revenue from COVID-19 test kits alone, a feat that no domestic Chinese company has achieved., this figure even surpasses the total revenue of most domestic companies. This also underscores the immense market potential that overseas markets hold for Chinese IVD enterprises.

Going global has long been the aspiration of domestic IVD companies. Currently, attention to the international expansion of China’s IVD industry is rising rapidly, driven not only by the impact of the COVID-19 pandemic but also by endogenous factors within the sector.

On one hand, with the capacity expansion in the IVD industry, overseas markets will serve as a crucial channel for absorbing this increased output.

Following the surge in performance driven by the COVID-19 pandemic, confidence across the entire in vitro diagnostics (IVD) industry has been significantly boosted. At the recent CACLP conference, a major event for the IVD sector held in Chongqing, the atmosphere was exceptionally vibrant. According to an investor, one IVD company they had previously invested in struggled before 2020. However, the explosive growth in demand triggered by the pandemic brought it greater government attention, and since 2020, the company has begun constructing new buildings and factories locally. As overall industry confidence rises, companies are increasingly announcing plans to expand production capacity.

Amid the industry’s fervor, it is also important to recognize that as the COVID-19 pandemic gradually subsides and vaccines are rolled out, market demand will return to normal, necessitating the absorption of excess capacity generated during the pandemic. In this context, the overseas distribution channels established through COVID-19 testing kits have become increasingly significant.

On the other hand, the domestic IVD industry is characterized by intense competition, making involution an inevitable reality. Expanding into overseas markets holds significant importance for promoting the upgrading of China’s industrial structure and enhancing the competitiveness and influence of its IVD sector.

In the domestic market, cost containment within the medical insurance system has become an overarching trend. Volume-based procurement (VBP) has already swept through the pharmaceutical and high-value consumables industries, and VBP for in vitro diagnostic (IVD) reagents is also widely expected to be implemented eventually. Once centralized procurement is introduced, profit margins for mature products will be squeezed. Currently, Sichuan Province has explicitly included all IVD reagents from public medical institutions across the province (including military healthcare institutions participating in provincial centralized procurement), designated private medical institutions under the medical insurance scheme, and other pharmaceutical and medical institutions within the scope of centralized procurement for medical consumables in Sichuan.

Domestic growth pressures have surged, while overseas markets yet to be tapped still present significant opportunities.

According to data from a MarketsandMarkets report, the global in vitro diagnostics market size is projected to grow from USD 84.5 billion in 2020 to USD 96.0 billion in 2025, at a compound annual growth rate (CAGR) of 2.6%.

According to data from the “Research Report on the Development Prospects and Investment Opportunities of China’s In Vitro Diagnostics Industry (2018–2023)” by China Business Industry Research Institute, the global in vitro diagnostics (IVD) market is unevenly distributed, with developed economies such as the United States, Western Europe, and Japan accounting for the majority of the market share. The United States holds 44.00% of the global IVD market, Western Europe accounts for 21.08%, and Japan represents 9.00%, collectively comprising 74.08% of the global market. However, as markets in developed countries have entered a relatively stable and mature phase, their growth has begun to slow. In contrast, the IVD sector in developing countries, as an emerging industry, is characterized by a small base but high growth rates. It is projected that the IVD market in emerging markets, represented by India and Latin America, will maintain a growth rate of approximately 15%–20%.

The data is clearly positive; meanwhile, these market estimates may not accurately reflect the post-pandemic market size for in vitro diagnostics (IVD). Following the pandemic, countries worldwide have significantly enhanced their understanding of molecular testing, and the corresponding infrastructure has been established. The domestic and international markets are expected to experience leapfrog growth in the near future.

Whether in mature developed-country markets or emerging markets with huge potential, domestic IVD companies have the opportunity to capture a share. Consequently, within the IVD industry, both industry leaders and startups are beginning to focus on overseas markets.

Bioer Technology, a leading domestic PCR enterprise and a pioneer in global expansion, began exporting IVD products as early as 2003. He Xianhan, Chairman of Bioer Technology, also serves as the CEO of Ferrotec, a publicly listed company in Japan. Ferrotec, whose core business is semiconductors, manufactures thermoelectric coolers (Peltier devices), which are key components for temperature control in thermal cyclers. As early as 1997, Ferrotec supplied these components to an overseas medical instrument company. Upon recognizing that thermal cyclers were completely absent from the Chinese market, Ferrotec independently developed its own thermal cycler. Subsequently, the two founders acquired and spun off this technology from Ferrotec to establish Bioer Technology. However, since there was no domestic market for thermal cyclers at that time, Bioer Technology focused primarily on overseas markets during its initial years. Overseas sales continue to account for a significant proportion of its revenue, although the domestic share has gradually increased in recent years with the continuous development of molecular diagnostics in China.

Drawing on years of overseas experience, Yu Hai, General Manager of Bioer Technology, told VCBeat that the overseas market is sufficiently large. Currently, North America and Europe are Bioer Technology’s primary export markets, with additional coverage in Africa, Southeast Asia, the Middle East, and other regions.

Undoubtedly, expanding into overseas markets is more challenging than operating in the domestic market. This is because international markets are extremely complex, with vastly different regulatory approval systems, sales channels, and application scenarios across countries and regions on different continents. For IVD companies taking their first step into global markets, selecting an initial entry point is crucial. But which overseas market should be chosen? According to VCBeat’s research, there is no one-size-fits-all answer; each market has its unique characteristics and barriers, requiring companies to align their strategies with their own positioning.

The European and American markets are the largest global markets for medical devices, accounting for approximately 40% of the global market share. They also represent the most developed markets for the global in vitro diagnostics (IVD) industry, where local companies possess strong capabilities in production, research and development, and service.

However, this does not mean that Chinese companies cannot establish a foothold in the European and American markets. In fact, these regions constitute the primary export destinations for Chinese enterprises.

Currently, the United States represents the largest existing market, while emerging markets such as Africa and the Middle East also warrant attention. According to customs data, in the first half of 2020, China’s exports of medical device products to countries along the “Belt and Road” reached US$3.841 billion, a year-on-year increase of 33.31%, highlighting the significant potential of these emerging markets.

In BGI Genomics’ 2020 revenue data, Asia (including Hong Kong, Macao, and Taiwan of China) and Oceania accounted for 44.97%, Africa and Europe contributed 11.79%, and the Americas represented 9.91%. In Ethiopia, BGI Genomics invested in and constructed a production facility for COVID-19 test kits, thereby completing its “three-step strategy” of exporting test kits, delivering comprehensive solutions, and establishing overseas manufacturing facilities through foreign investment.

Why Focus on Emerging Markets? Li Ning, Vice President of BGI Genomics in charge of overseas operations, stated at a conference that the core criterion for selecting overseas markets is whether pricing power can be secured. Developed countries possess strong local production, R&D, and service capabilities, granting them significant pricing power. Consequently, Chinese products typically enter developed markets through OEM arrangements or trade channels, without holding core pricing power. In contrast, regions where pricing power can be established indicate that IVD products from Chinese companies hold an absolute advantage in those markets.

In addition to pricing power, Li Ning believes that companies expanding into overseas markets should also pay attention to local security issues and the overall political environment. Healthcare is a unique industry; its inherent characteristics mean that payers are largely government-linked. Therefore, whether the political environment is stable and aligned with China’s significantly influences the ability of Chinese brands to gain local acceptance.

When entering different markets, it is necessary to implement differentiated channel strategies tailored to the specific characteristics of each market. The primary models for Chinese IVD companies expanding overseas are ODM and OBM. The ODM model refers to a arrangement where manufacturers independently design, develop, and produce products according to the specifications of brand owners, who then sell these products under their own brands. In contrast, the OBM model involves manufacturers handling all aspects of design, R&D, and production, and selling the products directly to customers under their own proprietary brands.

In mature markets such as the United States, ODM (Original Design Manufacturer) contract manufacturing is the predominant model. An industry insider stated, “The U.S. imposes high entry barriers on foreign companies; adopting the ODM model can help Chinese enterprises enter mature markets more rapidly.” To address the challenge of high barriers in mature markets, domestic IVD (In Vitro Diagnostics) companies have also pursued market entry through mergers and acquisitions of local firms.

Orient Gene, listed on the STAR Market, still derives the majority of its revenue from the U.S. market. Shortly after its establishment, Orient Gene set up a wholly-owned subsidiary in Houston, Texas, named USA Healthgene. In 2020, Orient Gene’s operating revenue reached RMB 3.2 billion, representing a year-on-year increase of 787.92%, compared to just RMB 300 million in 2019.

In the U.S. market, Oriental Biotech primarily employs a combined sales model of ODM and OBM. Specifically, its COVID-19 testing products are mainly sold under the OBM model using its own brands, “Oriental Gene” and “Hengjian USA.” Other testing products, such as those for infectious diseases, drug abuse, and eugenics and healthy childbirth, are primarily distributed through the ODM model.

Similar to Orient Gene, Anxu Biotech, whose revenue is primarily derived from overseas markets, also relies mainly on the ODM model for its international sales.

Some companies also adopt a combination of strategies to expand overseas. As a leading pharmaceutical company in China, Fosun Pharma has chosen to establish subsidiaries in mature markets such as the United States and Europe. In addition to cultivating operational capabilities, Fosun Pharma has developed market presence and production capacity in emerging markets such as Africa and India through self-built facilities and mergers and acquisitions.

In the first half of 2020, Fosun Pharma’s Medical Devices and Diagnostics segment generated RMB 1.311 billion in overseas operating revenue, nearly on par with its RMB 1.327 billion in sales revenue from China. Among Fosun Pharma’s marketing team of 5,800 employees, nearly 1,000 are dedicated to the overseas marketing of pharmaceuticals and medical devices, representing a year-on-year increase of 47.18%.

To cater to the demands of overseas markets, Chinese IVD companies cannot simply replicate their domestic product portfolios. Countries and regions around the world are at different stages of development, leading to vastly different demands for in vitro diagnostics.

In Africa and Southeast Asia, infectious diseases are the predominant health burden. Among infectious diseases such as HIV/AIDS, malaria, and cholera, malaria—already eliminated in China—has the highest demand for diagnostic services. According to the World Health Organization’s latest World Malaria Report, more than 409,000 people died from malaria globally in 2019, the majority of whom were infants in the poorest regions of Africa.

In Africa, the primary payers for malaria diagnostic products are the World Health Organization (WHO) and various foundations. To access the vast African market, Chinese manufacturers must obtain WHO prequalification, thereby securing a place on the WHO’s list of international procurement suppliers. This status enables them to become preferred suppliers for international public health organizations such as the Global Fund and the United Nations Population Fund (UNFPA).

In the North American market, rapid drug testing represents a significant sector. According to WHO data, the United States is the world’s largest consumer of illicit drugs, with more than 60% of globally produced drugs destined for the U.S. market. In 2019, drug testing accounted for 9.2% of the global point-of-care testing (POCT) market, driven primarily by increased cannabis consumption and rising illicit drug use among adolescents.

Given the wide variety of drugs and the continuous emergence of new psychoactive substances, overseas customers typically require simultaneous detection of multiple drugs in a single test. Therefore, the comprehensiveness of the drug testing product portfolio and the speed of response to new drugs are among the core competencies of manufacturers producing point-of-care testing (POCT) devices for drug detection.

According to Oriental Bio's annual report, its drug testing business accounted for over 80% of its main business revenue in 2019, with POCT drug testing products generating RMB 92.8965 million in revenue in the first half of 2019.

Anxu Biotech, which has also entered the North American market, primarily focuses on point-of-care testing (POCT) for drugs of abuse in its overseas operations. In 2019, Anxu Biotech’s overseas sales of drug POCT products reached RMB 150 million, accounting for 71.13% of its total revenue. The company’s overseas revenue constituted 93.09% of its total revenue in 2019, amounting to RMB 190 million. The growth in drug testing sales directly drove Anxu Biotech’s overall performance improvement.

In the emerging markets of the Belt and Road Initiative, most countries experience slower economic development. In nations such as Kyrgyzstan, in vitro diagnostic (IVD) equipment remains at 1990s levels, with heavy reliance on optical microscopy for sample observation. Due to their lower cost, biochemical analysis technologies occupy both emerging and mainstream positions. Consequently, Chinese medical device companies still hold significant market potential in these regions.

Expanding overseas is not without its challenges. The medical device industry is characterized by complex supply chains, high channel barriers, stringent market access requirements, and lengthy service chains. In overseas markets, domestic IVD companies have encountered issues such as unfamiliarity with the local business environment, discrepancies between overseas and domestic market demands, and trade protectionism implemented by certain countries.

Expanding into overseas markets places high demands on a company’s production and operations, marketing, quality control, compliance management, refined operational capabilities, and digital operational capabilities. These challenges were fully exposed during the global export of COVID-19 test kits this year.

Market access barriers represent the first major hurdle. Although many companies successfully tapped into overseas markets in 2020, more than 90% failed to secure a foothold due to factors such as delayed decision-making or insufficient clinical resources. Many enterprises were shut out of international markets because they failed to obtain necessary certifications in a timely manner.

Overseas markets also test the stability of IVD companies’ supply chains.

Yu Hai, General Manager of Borui Technology, stated, “A significant portion of our components are imported. During this year’s pandemic, we suffered substantial setbacks in our supply chain, as most overseas suppliers either halted deliveries or raised prices—by nearly tenfold in some cases. Therefore, establishing a secure and stable domestic supply chain is critically important. Whether for raw materials, chips, or electronic components, we need to gradually build a reliable China-made supply chain.”

What is the biggest challenge in overseas markets? Yu Hai stated,The greatest challenge stems from cultural differences. The international recognition of Chinese in vitro diagnostic (IVD) products relies not solely on the efforts of individual companies, but largely on the national strength of China. The various barriers encountered by Chinese products and enterprises overseas are, at their core, rooted in distrust arising from cultural differences.

In the aftermath of the COVID-19 pandemic, the global medical device industry has undergone profound transformations, under which Chinese in vitro diagnostics (IVD) companies have achieved significant new breakthroughs in their overseas expansion.

In the past, Chinese companies expanding overseas primarily focused on trade and ODM contract manufacturing. Today, VCBeat has observed that an increasing number of leading IVD enterprises are beginning to ramp up their investments in overseas markets and deeply integrate into them.

BGI Genomics has attempted to establish its own brand overseas, a model that enables a more diversified and in-depth layout of the global market. During the COVID-19 pandemic in 2020, BGI Genomics not only exported its products but also delivered services in overseas markets. By adopting a dual strategy of “test kit sales and Fire Eye Laboratories,” it gained a strong competitive advantage in efficiently conducting large-scale population testing, further enhancing the awareness and utilization of BGI Genomics’ products and services in international markets.

In overseas markets, BGI Genomics places greater emphasis on the export of intangible assets such as technology and standards. BGI aims to vigorously promote Chinese technologies and standards through a locally rooted model.

Establishing overseas subsidiaries has also become a preferred choice for more IVD companies.

An industry insider stated, “Overseas markets account for at least 30% of our revenue and represent a key market for us. In recent years, however, we have been working to break through the growth bottleneck in these markets. Next year, we plan to establish overseas subsidiaries and deploy sales personnel on the ground to engage more deeply in international markets.”

The second major change in the global expansion of IVD companies stems from inter-company dynamics, with “collaboration” emerging as a key strategic focus for IVD firms going overseas.

An industry insider stated that in the domestic market, competition is extremely fierce; as long as a product is profitable and has high sales volume, companies will enter the market and drive down prices, leading to disorderly price wars. However, this model does not work in the vast overseas markets.

Li Ning, Vice President of BGI Group, hopes that leading enterprises will join forces to expand into overseas markets, delivering comprehensive solutions to different countries and regions. Only in this way can Chinese companies truly gain pricing power, rather than falling into disorderly price competition.

Domestic IVD companies are forming alliances not only at the product integration level, but also at the technological and channel levels.

There remains a significant gap between Chinese and foreign IVD companies in terms of R&D and manufacturing capabilities. Bridging this gap requires collaboration among domestic enterprises. In terms of distribution channels, it is impossible for Chinese IVD companies to cover all overseas markets on their own; only through cooperation can they maximize value.

For Chinese medical device companies, going global is nothing new. These companies recognized opportunities in overseas markets relatively early and began their international expansion well ahead of many peers. However, for most, early entry did not translate into early gains; the overseas market has remained a tough nut to crack. Nevertheless, there are success stories among Chinese medical device firms in international markets. Mindray Medical, with a market capitalization approaching RMB 500 billion, derived more than 50% of its revenue from overseas in 2020, achieving a year-on-year growth rate of 46.82%.

Moreover, as competition in the domestic market intensifies and an increasing number of companies list on the STAR Market, the degree of internationalization has become a key benchmark for assessing corporate growth potential and a significant driver of market capitalization. Consequently, overseas markets will emerge as a critical battleground for medical device companies, a trend that holds true for both the IVD sector and other fields.