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21st November 2019 – Written by Imogen Fitt – Despite recent whispers that Chinese-US trade relations could soon be moving towards resolution, tensions and the threat of further tariff hikes remains high. The Asia-Pacific Economic Cooperation summit, which was rumoured previously to mark the beginning of negotiations, has now failed to deliver a meeting point for both country’s leaders – and moving into December it’s almost a guarantee that tariffs will not be reduced anytime soon.
Since January 2018, when tariffs first began to be implemented by the US, medical imaging companies have been commenting on the negative impact for the healthcare market. While some appeared to have shouldered the burden admirably, with minimal effects on overall reported sales, the true trends beneath the surface are more complex.
One category of imaging systems was always likely to be harder hit – because it was already experiencing a war of its own. Both the general radiography and flat panel detector markets are saturated with numerous vendors vying for market share, and it’s no industry secret that prices remain highly competitive while market growth is relatively low. The Chinese and the US markets combined account for ~50% of the world digital general radiography market revenue per year, making sure tariffs would have widely felt effects.
Flat panel detectors have been arguably the most affected. This is because competitive pressure from Korean vendors has been increasing over the last few years as these vendors began to drive prices down in order to gain market share. To compound this, a number of Chinese vendors, previously restricted to producing gadolinium oxide panels made of a cheaper material, in recent years began to develop and market lower dose caesium oxide panels. The effect of this was especially pronounced within the US market, where larger vendors like Varex Medical Imaging and Trixell-Thales were previously losing market share as the quality of competing products increased and prices dropped. The introduction of Trump’s tariffs, however, has helped to reverse some of this gain. Because of the increased tariffs on Chinese imported products, Chinese vendors have begun to struggle to reduce already stretched profit margins to absorb the tariffs and retain their price advantage. Despite this, the average price of flat panel detectors continues to experience a steep decline as larger corporations absorb the tax hikes. Chinese flat panel detector vendors are increasingly being put on the back foot and pushed out of the US market.
In China, this increase in tariffs has been felt differently. Larger corporations have the benefit of shifting supply chains in order to circumnavigate the majority of taxes, as evidenced by Varex in their Q4 2019 earnings call. Although Varex experienced a ‚Äòtariff-related revenue reduction’ of about $20 million in radiographic digital detectors sales in FY2019, the company stated that “- In response to the tariffs, we expanded our production footprint into China and Germany.” – thereby working around the import tariffs. Although China’s domestic FPD vendors continue to gain share across China, this is occurring at a much slower pace than previously and is much more influenced by commoditisation than the impact of tariffs on products made in the US.
Similarly, the radiography systems market has also been experiencing increased price pressure over the last few years. Since tariff introduction in both the US and China, medical imaging vendors have been forced to choose whether to absorb costs or pass them onto customers. Larger companies are better positioned to react, as their manufacturing and supply chains typically span the globe and allow room for manoeuvrability. Siemens Healthineers and Philips have reported restructuring their medical imaging production after the instigation of tariffs. While these changes will incur one-off costs, they will position these vendors to compete more effectively in the longer term without the influence of tariffs. Moreover, vendors are striving to increase the relative value of their products by continually innovating and adding capabilities such as AI analysis and tomosynthesis to their portfolios. Another approach has been the introduction of ‚Äòvalue’ systems designed to cater to cost conscious customers.
Overall, the introduction of tariffs appears to have reduced competitive pressure in the US radiography market more significantly than in China. Should any tariff increases occur in the future, effects on either market should be minimal as the competitiveness of the Chinese vendors in the US has already been diminished and in China several of the non-domestic vendors have already shifted production to lessen the impact of tariffs and remain competitive.
Related Market Report
General Radiography and Fluoroscopy Equipment – World – 2020 – This report provides strategic insights and data on the current status of the market and our views on how the market will develop in the coming years. The report analyses the current state of the transition from analogue to digital x-ray at a country level; how the changes in flat panel detector production are affecting the digital radiography market and system price through the coming years; as well as the impact of technology trends, such as cone beam radiography and artificial intelligence.
About Signify Research
Signify Research is an independent supplier of market intelligence and consultancy to the global healthcare technology industry. Our major coverage areas are Healthcare IT, Medical Imaging and Digital Health. Our clients include technology vendors, healthcare providers and payers, management consultants and investors. Signify Research is headquartered in Cranfield, UK.