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Chinese medical imaging giant United Imaging has announced it has received a contract from US-based group purchasing organisation, Vizient. The deal expands the number of modalities United Imaging offers through Vizient, adding its entire digital radiography and MRI systems to the agreement for its CT portfolio made last year.
As the largest member-driven group purchasing organisation in the US, Vizient says it represents more than $100bn in annual purchasing volume to its members, which include academic medical centres, paediatric facilities, community hospitals, integrated health delivery networks and nonacute providers. In entering into an agreement with Vizient, United Imaging expects to be able to better compete in the US market.
The Signify View
As far as ambitions go, becoming a superpower in the global medical imaging market is a big one. For United Imaging, though, it is an ambition that is not only desirable, but essential. The Chinese vendor has enjoyed staggering growth. Since being founded in 2011, the vendor brought in around $900m in revenue in 2020 and is still growing, displacing other companies to gain significant market share in its domestic market. This may have been achieved with favourable government support, as well as policies, and state subsidies, but there is no denying how impressive the rise has been.
However, it’s not enough. Unlike almost all of its Chinese peers, United Imaging has decided not to focus on the value end of the market. Instead of offering lower cost alternatives to systems from the ‘big three’: GE Healthcare, Siemens Healthineers and Philips to gain traction in its domestic, and other developing markets, United Imaging envisions itself a technology leader. A purveyor of top tier hardware and software solutions to compete directly with the world’s leading vendors, on an equal footing. This ambition, is, however, reliant on scale and penetration of new markets.
The Chinese market alone is not big enough to support the high cost of developing top tier medical imaging systems. With its total revenue little over a twentieth of its established rivals, United Imaging just doesn’t have the same comparable resource to invest into technological development, a fact that no percentage advantage in R&D spend will address. While United’s R&D spend to revenue ratio of 14.76% in 2020 is at first sight impressive, this equates to around $132 million which is a fraction of the $1.4 billion invested by Siemens Healthineers in its FY20. If the vendor is to continue growing, and improve upon its first ever profit of $14.5m in 2020, it needs to expand globally, with the US market key to that push. Breaking into the US market is also critical as the vendor grows, with the scale it brings also enabling United Imaging to keep manufacturing costs low from a higher volume of sales. This explains importance of the Vizient partnership.
The Tool for the Job
Setting, and achieving, growth ambitions are two very different things. To tackle the US market as it needs too, United Imaging essentially has three tools at its disposal. The first is the price it charges providers. It could undercut established rivals, even using the funding from its recently approved IPO to operate at a loss in a bid to displace the entrenched competition. This would be a poor strategy. United Imaging is unlikely to be able to compete on price right away given its lack of manufacturing scale and the sales activities it must invest in to target new markets. Moreover, it needs to continue to show improvements in its bottom line to justify its lofty $15 billion valuation and retain the confidence of its new investors, post IPO.
Another strategy to differentiate itself is through its technology. United Imaging has made some headway in this regard. Unlike some of its competitors, the vendor offers advanced whole body PET CT scanners. It also offers technically progressive systems in other advanced modalities such as MRI and CT, although it still lags behind its major competitors at the very pinnacle of the market. United Imaging’s capabilities also extend beyond hardware, with the vendor boasting several Chinese NMPT Class III-cleared AI algorithms in its portfolio. These products are impressive, and in some cases give United Imaging an edge over its longer established peers. However, these advantages are, in many cases, slight and specific to certain products rather than across its portfolio, and therefore unlikely to persuade a provider to switch its allegiance and break ties with its current vendor. This is especially true given the fact that any technical edge is likely to be short lived, with GE Healthcare, Philips and Siemens Healthineers poised to quickly eliminate any advantage that is costing them sales.
Service Secret
The third tool is an innovative approach to service and business models which are likely to be United Imaging’s key to breaking into the North American market. If the Chinese vendor can attain near technical equivalence with its established competition, despite its smaller R&D budget, then its smaller size and lack of established customer base could enable it to be more agile in offering innovative business models. This service innovation could take many forms, but there is evidence that the Chinese vendor is already heading in this direction. One initiative that United Imaging boasts is its ‘All-In’ product purchases. These configurations see medical imaging systems sold fully equipped with all software and functionality for the life of the product included from the outset, a move which United Imaging claims offers clinical flexibility and investment transparency. United Imaging also offers an All-In approach to service, with packages available that, for example, include unlimited CT tube coverage and enhanced training. In a similar vein is the vendors’ ‘Upgrades for Life’ option which aims to ensure that customers’ software and firmware is always up to date. Under the programme all new systems have the same software as in the vendor’s highest end scanners. In addition, all of this software is, at no extra charge, cascaded to United Imaging’s entire range at no further cost.
With initiatives such as these United Imaging is purposefully distancing itself from the affordable transactional sales model that epitomises many of its compatriot vendors. Instead, it is better positioning itself to meet the needs of large Western providers, and using such sales programmes in an attempt to establish itself as a trusted partner of the kind that can compete for large network-wide tenders, rather than simply being a supplier of medical imaging hardware. The funding of this expansion is set to be achieved through the vendor’s upcoming IPO, which will help pay for such sales activities until the vendor is able to derive the revenues it targets.
The Need for New
Such purchasing options are interesting and could bring opportunity to United Imaging. However, penetrating North American healthcare systems and displacing entrenched competition still represents a formidable challenge. After all, continuing to purchase from GE Healthcare, Philips or Siemens represents a safe and risk-free option. Even if the total cost is higher or upgrades and service are less flexible, these established vendors will never be considered a bad option. Therefore, United Imaging cannot settle for just being a competitive alternative, it must differentiate itself, standing head and shoulders above the entrenched competition in some regard. This is necessary to make the risk and disruption of switching worth it to a provider.
There are companies in other industries that have successfully disrupted established oligopolies. Huawei, another prominent Chinese vendor, has risen to a position of dominance in the telecoms equipment market, replacing better established rivals Nokia and Ericsson to claim the top spot. Huawei achieved this by hiring talent from competitors, investing in R&D (with the help of the Chinese government), offering exceptional technology at competitive prices, and being able to complete massive telecom equipment deployments ahead of schedule and under budget.
Tesla is another firm that rose to prominence in a market packed with dominant giants. Despite being founded in 2003, the firm already has a market capitalisation around four times that of its nearest rival, Toyota, despite having revenues of only around a fifth, at $54bn in 2021. It achieved this feat by investing heavily in its own production facilities, developing attention grabbing technologies such as autonomous driving, and taking an innovative approach to car ownership, including a direct-to-customer sales model and the creation of its own electric charging network.
Time to Transform
By signing an agreement with Vizient, United Imaging will be more strongly positioned to increase its presence in the United States, but it will not be transformative. Judging by the examples of Huawei and Tesla, United Imaging still has work to do on that front. At present, its efforts are better described as competitive rather than truly disruptive, as is necessary for it to have the same impact as Huawei and Tesla have had on their respective markets. United Imaging’s service-based initiatives are a solid start on this front, but, on their own at least, are unlikely to be enough to convince a provider to fully switch allegiance. Regardless, these initiatives, along with competent technology across the board, as well as several areas of excellence such as PET CT will increasingly render United Imaging a threat, giving the Chinese challenger the chance to get its foot in the door.
GE Healthcare, Siemens Healthineers and Philips should not rest comfortably, however. Only a decade ago it seemed implausible that a challenger such as Huawei or Tesla would have been able to disrupt their respective markets, but such change can happen quickly. What today is a single deal for United Imaging, could, in ten years, be seen in retrospect as a tipping point. GE Healthcare, Siemens Healthineers and Philips need to be primed, but whether they actually have to act is up to United Imaging.
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This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here