1. Oregon Business
Consulting Group
The Medical Instrument and Supply Manufacturing Industry
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17.4 19.2
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45.5
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17.2
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Average Costs of all Industries in
Sector
Industry Costs
Other Rent & Utilities Marketing Depreciation
Purchases Wages Profit
Healthcare Sector vs. Medical Instrument
and Supply Manufacturing Industry Costs
Industry Overview
The Medical Instrument and Supply Manufacturing
Industry researches, develops, and manufactures
surgical, medical, dental, and veterinary products.
With over 15,429 businesses in this industry, it is
considered quite large. The company with the largest
market share in this is Johnson & Johnson, with a
7.1% market share, followed by Stryker Corporation
and Becton, Dickinson, and Company with market
shares of 4.6% and 3.3%, respectively.4
Companies in this industry have moderate fixed
capital expenses. A large variety of products are
made in this industry for highly specialized
applications, so not all products can be made on an
automated manufacturing line. Skilled employees are
needed to make many of these products, and these
companies usually receive salaries that are above the
average for the manufacturing sector. For every $1
spent on capital, approximately $0.17 is spent on
wages for employees. 4
Larger companies in this industry have a few
advantages, one being economies of scale. They are
able to significantly reduce the costs of the
production of goods. Not only this, but their greater
revenues allow them to spend more on research and
development, which is critical in this industry.
Larger companies are also able to use their large
financial resources to acquire the smaller companies.
The smaller companies are usually more innovative,
so these acquisitions greatly benefit companies such
as Johnson & Johnson and Becton, Dickinson & Co.
If current trends continue, the industry will
consolidate and the market shares of larger
companies will grow.
Growth potential for this industry is moderate. While
the industry is mature and has many large,
established companies, the possibilities of growth for
companies, even the largest ones, are great due to the
availability of small, innovative companies that can
be acquired. Also, with the rate at which medical
technology is advancing there is great potential for
growth. Not only this, but there are many favorable
macroeconomic factors that will assist in the growth
of this industry.
Macroeconomic Factors
Aging Adult Population
In the past few years, the percentage of the adult
population aged 65 and older has increased
significantly. This is mostly due to baby boomers
(adults born between the years 1945 and 1964). The
growth rate of this population over the last 5 years
has been about 3.1%, compared to a growth rate of
0.8% between the years of 1995 and 2000.3
This
growth rate is expected to increase to 3.3% between
2014 and 2019. This is due to the majority of baby
boomers that still remain that have not crossed the 65
year threshold.
In the US in 2019, senior adults (age 65 or over) are
expected to make up approximately 16.4% of the
population, compared to 14.5% currently. 4
In most
cases, as people age they require more medical care.
This increase in medical care will lead to an increase
in demand for medical supplies. An increase in
healthcare expenditure is one indicator of healthcare
industry performance.
Percentage
% Change of Adults Over the Age of 65
%Change
Student Consultant: Charles Pontrelli
Email: cpp@uoregon.edu
0
1
2
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1991 1996 2001 2006 2011 2016

2. Oregon Business
Consulting Group
The Medical Instrument and Supply Manufacturing Industry
2
Patient Protection and Affordable Care Act
The passing of Patient Protection and Affordable
Care act by President Obama and his administration
has changed the US healthcare market. The goal of
the PPACA is to increase the quality and
affordability of health insurance by expanding private
and public health insurance coverage. It requires all
insurance companies to cover all people who apply
for insurance within new standards. Not only this,
but it requires insurance companies to offer the same
rates regardless of pre-existing conditions or sex.
One adverse effect that comes from the PPACA is the
enactment of a 2.3% medical excise tax on sales of
certain medical products within the US. 4
This tax
could arguably stifle innovation and cut into research
and development. Another adverse effect of the
PPACA is that it reduces Medicaid and Medicare
payments to hospitals, clinical laboratories, and
pharmaceutical companies. This could reduce the
amount of medical procedures performed, which, in
turn, would reduce the demand for medical supplies.
Finally, the PPACA could lower the reimbursement
rates for many companies’ products, therefore
reducing sales.
However, the PPACA will at the same time affect
many companies favorably through the expansion of
healthcare. Healthcare expenditures will
undoubtedly increase substantially, with an estimated
32 million people gaining healthcare by 2019. 4
Even
though there are possible adverse effects, as listed
above, it can be expected that there will be a net
benefit from the PPACA.
Product Regulation
The Medical Instrument and Supply Manufacturing
industry is extremely regulated by the Food and Drug
Administration (FDA) and other agencies. The
approval of the sale of a product by the FDA takes at
least 90 days, with the majority taking much longer
than that. Any change to a device that has already
been cleared must be refiled with the FDA. Even
after a device is cleared, there is extensive product
testing that occurs. There are many regulatory
requirements, such as medical device reporting
(MDR), Quality System Regulation (QSR), and
labelling regulations. 4
All of these are time-intensive
and, if not passed, can result in a long delay of the
product or a serious fine. While these regulations are
substantial, they also lead to the securing of patents,
because of how long it takes to get approved. Small
firms with these patents are seen as lucrative
acquisitions by larger companies because of the new
and innovative products they can acquire.
Globalization
Expansion into international markets, especially
emerging markets like China and South America,
pose promising opportunities for companies in the
healthcare industry. China, for example, is having an
enormous boost in population and healthcare
expansion. Companies such as Johnson & Johnson
and Becton Dickinson will be competing to obtain
market shares in these emerging markets because of
their opportunities for growth. However, with
expansion into global markets comes foreign
currency exchange risk. Many of the largest
companies conduct a large portion of their business
operations outside the United States, and are
therefore subject to this foreign currency exchange
risk.
Competition and Barriers to Entry
The Medical Instrument and Supply Manufacturing
industry is considered moderately competitive.
Because of the amount of government regulation on
products and companies within the industry,
competition can be limited. As stated before, the
regulation by organizations like the FDA can be a
significant barrier to entry.
-4
-3
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-1
0
1
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%Change
% Change of People with Health Insurance
Barriers to Entry Checklist Level
Competition Medium
Concentration Low
Life Cycle Stage Mature
Capital Intensity Medium
Technology Change High
Regulation & Policy Heavy
Industry Assistance Medium
Industry Barriers to Entry

3. Oregon Business
Consulting Group
The Medical Instrument and Supply Manufacturing Industry
3
However, the industry is fueled by innovation, so
every company is looking for how to improve and
add to their line of products. Specialization is very
important in the medical industry, so this allows
smaller companies to compete. Since the 1990’s,
R&D investment in this industry has more than
doubled, and is currently twice the average for all US
manufacturers overall.3
As stated before, these small
companies are attractive targets of larger companies
for buyouts. While this rapid technological
innovation has its benefits, it also has some
drawbacks. The constant change in technology
means that any one company is at risk at becoming
obsolete.
Pricing power will become more important in the
coming years, due to the price concessions that
healthcare providers and governments are pushing
for. Companies will need to cut costs and achieve
economies of scale to be competitive. As stated
earlier in the report, highly skilled workers are
necessary in this industry due to the high amount of
specialization. According to US Bureau of Labor
Statistics, the median hourly wage is $18.96, with the
mean hourly wage being $25.17. 2
This is quite high,
and is only expected to get higher with current trends
in the United States calling for higher wages. These
companies will therefore most likely turn to
outsourcing, increasing spending on acquisitions, and
increasing research and development costs to develop
proprietary technology.
While there is a large amount of internal competition
within the Medical Instrument and Supply
Manufacturing industry, there is traditionally little
external competition. The US is the largest producer
of medical devices in the US, and the domestic
market in 2008 was valued at more than $100 billion.
3
However, this is changing due to the advancements
of the biotechnology industry. Treatments from the
biotech industry, such as synthetic bone, organ, and
tissue replacements can make some medical
instruments and supplies obsolete. Technology
advancements in this industry are therefore critical to
the survival of a firm.
The Industry in Oregon
The Medical Instrument and Supply Manufacturing
Industry is relatively small in the state of Oregon.
While some of the companies in this industry are
scattered across the state, most operate in the
Portland metro area, specifically the Washington and
Multnomah counties. The industry accounted for
approximately 1% of total statewide employment in
2012.1
While the industry comprises only a small percentage
of the Oregon’s total exports (a little more than 1% in
2012), total exports in the industry has been growing
rapidly. From 2002 to 2012 exports from the
Medical Instrument and Supply Manufacturing
Industry has grown approximately 300%, while
Oregon’s total exports only grew approximately 82%
in the same time. 1
With the introduction of the PPACA, there will be
greater demand for products from this industry. The
key to being successful in this industry as a smaller
company is by maintaining innovation. If these
Oregon manufacturing companies do not maintain
rapid technological advancements, they can be
pushed out by one of the larger companies.
However, if they are successful at creating and
manufacturing new products, there is a possibility of
them being acquired by a larger manufacturing
company.
While there is a lot of possibility for growth in this
industry in Oregon, pushes for higher wages will put
some downward pressure on companies. This
industry has traditionally been able to have a lower
average wage for its workers than the entire
manufacturing industry. In 2012, the average annual
wage for 3,671 workers in the industry in Oregon
was $48,305, which was much lower than the total
manufacturing industry average annual wage of
$62,161. 1
Conclusions
Even with possible downward pressures from wages,
the Medical Instrument and Supply Manufacturing
Industry is poised for growth. With the introduction
of the PPACA nationwide and in Oregon, as well as
an aging population, demand for medical products
should increase in the coming years. The key to
success for Oregon businesses is maintain innovation
in the industry to combat larger companies, as well as
maintaining low costs.
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4. Oregon Business
Consulting Group
The Medical Instrument and Supply Manufacturing Industry
4
Works Cited
1. Kraal, Martin. "A Small but Growing Industry: Oregon's Medical Equipment and Supplies Manufacturing."
Qualityinfo.org (2013): Web. 31 May 2015. <https://www.qualityinfo.org/article-display/-
/asset_publisher/ob5AVoEZjWoy/content/a-small-but-growing-industry-oregon-s-medical-equipment-and-
supplies-manufacturing/pop_up?_101_INSTANCE_ob5AVoEZjWoy_viewMode=print>.
2. "May 2014 National Industry-Specific Occupational Employment and Wage Estimates." Bureau of Labor
Statistics. United States Department of Labor, May 2015. Web. 31 May 2015. <http://www.bls.gov/>.
3. "Medical Devices Industry Assessment." International Trade Administration, n.d. Web. 31 May 2015.
<http://ita.doc.gov/td/health/medical%20device%20industry%20assessment%20final%20ii%203-24-10.pdf>.
4. Phillips, Jocelyn. "Medical Instrument & Supply Manufacturing in the US." 2015 ed. IBISWorld. Web. 31 May
2015. <http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=881>.