By Mark R. Smith, Contributing Writer
For medical device manufacturers, deciding where to locate may be relatively easy. Or it may be require an especially deep dive into the worlds of workforce, access, suppliers and tax breaks.
Or it could be somewhere in between; generally speaking, they might locate just about anywhere. They could mean nestling nicely within a sparsely populated rural county with interstate or port access; or perhaps settling within a dynamic cluster in a region where the companies and other entities feed off of each other.
For a lower tech operation, that can simply mean locating where it can easily obtain basic materials, like wood or plastic, for low cost; another firm may make acutely refined high tech devices and need to locate near the company’s research and development facility or a major medical center. Then comes the angle of what state tax advantages may be available.
In the end, figuring out why exactly where in the U.S. one of the 6,500 medical device manufacturers sets up shop in a $380 billion industry (both figures according to www.lifechanginginnovation.org) can be a fascinating aspect of a complicated yet, sometimes not sector of the manufacturing industry.
Where It’s At
When offering an overview of the medical device sector of the manufacturing industry, Bruce Hoch, managing director of DCG Corplan Consulting, West Orange, N.J., discussed the most recent Bureau of Labor Statistics data (from the second quarter of 2019): The numbers reveal its five leading states, by employment, are California, with nearly 56,000 workers in the industry; Florida, at 21,800; followed by Indiana, at 21,000; Minnesota with 17,600; and Pennsylvania, with 14,000. All told, these states are home to 40 percent of all medical device companies.
If one measures by number of companies per state via the same data, California is first with 1,828; followed by Florida, 1,117; Texas, 781; New York, 674; and Illinois, 661. Together, they represent 39 percent of the industry’s companies.
“It’s no great surprise that headquarters are often in the Midwest and the East, even though California has the bulk of the manufacturing business,” said Hoch. “Facility sites have to be close to their markets, near cutting-edge medical universities, big pharma and R&D, and perhaps most importantly, have access to labor.”
That’s key, because the labor market is tight, he said. “That can be a good thing. It has always been the no. 1 priority, but now highly-skilled labor, which is what many medical device manufacturers need, is harder to find. So, it makes it easier to locate in an area with a large population.
“Cost for manufacturing facilities is everything,” Hoch said, “so a market must be sophisticated enough to handle turnover in skilled and semi-skilled occupations, with a solid pool of college graduates and access to mass transit. But the R&D offices tend to be closer to universities and big pharma.”
Medical device manufacturers “are focusing on the workforce skills that they need as the primary selection factor,” said Michelle Comerford, industrial and supply chain practice leader for Princeton, N.J.-based Biggins, Lacy, Shapiro & Co. (BLS). She added that regional pockets have grown in such areas as Washington State, California, Indiana, North Carolina and New Jersey, which has been known for its vast pharma and biotech communities, not so much for devices.
“Talent is a big deal and Indiana has a benefit there, [as well as] a less demanding tax situation and a central location,” she said.
Service in Clusters
Based on the demands of companies in certain niches of medical device manufacturing, “There tend to be numerous clusters,” said Didi Caldwell, president and founder of Global Location Strategies (GLS), Greenville, S.C.
“For example, knee replacement manufacturing is prominent in northern Indiana, since it’s highly specialized. Those manufacturers need plastics, metals, etc., and that part of the process is not part of all manufacturing,” Caldwell said, adding that the manufacturing sector of the medical device industry falls “between pharma/biotech, as well as traditional [components] like electronics, machining and plastics.”
She called manufacturing “a growing sector, particularly because the general population is getting older, and since that type of medical care is becoming increasingly available in countries with a growing middle class, like China. The demographic we have growing in the U.S. is the aging population, which is also the case in China, as well as in Europe.”
Echoing Hoch’s point that medical device manufacturers are driven by their workforce is GLS Vice President, Strategic Development Susan Donkers. “Creating a medical device requires extremely high quality,” she said. “Manufacturers require a workforce that is experienced, with quality standards and with processes such as precision machining, grinding, polishing, packaging and sterilization.
“Therefore, when medical device manufacturers are looking for a site,” she said, “they often start with existing location clusters, because existing clusters have the experienced workforce” they need.
While circumstances vary wildly within the industry, many medical device companies have a corporate office partnered with at least one of its manufacturing plants, so design and engineering are close to manufacturing to facilitate research and development, prototyping and test runs of new products.
Donkers offered the example of a Midwestern firm, again in Indiana, in the city of Warsaw. “For example, Zimmer Biomet has been based in Warsaw since it was founded in 1927. Its corporate office is in Warsaw and co-located near manufacturing facilities, but they also have operations in more than 25 countries around the world.”
For another example of what can be required by a medical device manufacturer, in Hennepin County, Minn., Donkers pointed out linkages in the following disciplines: automation engineering technology, computer numerically controlled (CNC) machinist technology, hydraulics and fluid power technology, manufacturing engineering technology, plastics and polymer engineering technology, quality control technology, bioengineering and biomedical engineering, industrial engineering and mechanical engineering.
Comerford reiterated the point concerning how some manufacturers value having close proximity to other company operations. “It depends on the company’s strategy and philosophy. Some like having manufacturing facilities close to its R&D offices,” said Comerford.
“Still, it depends on what types of products they’re making,” she said. “For less-expensive, mass-produced devices, that might mean locating in lower-cost areas of the country, like the south, especially if a given company caters to a global market. In that vein, it’s similar to what general manufacturers are doing; whereas, in higher-cost areas, medical device manufacturing might be closer to R&D and engineering, as can be the case in New Jersey.”
The AI Angle
Noting vast needs of the medical device manufacturing industry, Bob Hess, vice chairman, consulting, for Newmark Knight Frank, of New York, pointed out that some facets of the manufacturing process have been offshored from the continental U.S. to locations such as Puerto Rico, “mainly for money reasons, when next day delivery is not a concern and there are no regulatory issues.”
What’s wanted on the domestic front, said Hess, is a good ecosystem that is often found in a cluster. “For example, Abbott Laboratories just opened a 120,000-square-foot manufacturing facility in Westfield, Ind., which was one of the first major announcements of an operation of that size in recent years.”
Another facet of the decision making is what will be called for in the way of high-precision (think artificial intelligence, or AI, and robotics) machinery that can solve major issues, yet does not require a highly-skilled workforce. “There are lots of regions of the U.S. that are rich in this type of semi-skilled labor that is needed to operate such tools,” he said.
Also, not many medical devices are heavy, as many are implanted into the body, which allows the company “to optimize labor and energy costs,” Hess said.
“There are plenty of states that compete for this business,” he said. “There is also a strong correlation between states in the middle of the country that have a strong general manufacturing base, like Indiana and Texas, as well as southeast states, like Georgia and Tennessee.”
One of the other wrinkles in this most varied mix is “that there might be micro suppliers involved in building a product that have to be near large high-profile institutions, like the Mayo Clinic, in Minneapolis, and the University of Texas MD Anderson Cancer Center, in Houston, due to demand. But also know,” said Hess, “that bigger manufacturers will always go to the pro-business states where they can manage costs and their sustainability.”
With medical devices, like most any product, “the first questions” often concern the variables that impact the company’s short-and intermediate-term financial goals, said Rick Weddle, president and CEO of the Site Selector’s Guild. “There may be 20-30 factors in play when it comes to location decisions factors.”
Some are quantitative and some are qualitative, Weddle said. “For instance, if you think of a four-square grid comparing both costs and quality, as long as you understand principle drivers, you should find an appropriate location for your business.”
As well noted above, medical device manufacturing “is often a labor-sensitive business,” he said, “and labor has three variables: cost, quantity and quality. That could equate to 25%-30% of the relative weight for the decision. Access to market and distribution channels are always key, as well. You have to ask yourself, ‘Where are the company’s buyers?’”
Like Hoch, Weddle pointed to Minneapolis, “which has historically been a hotspot. It has great proximity to medical technology, medical research, health organizations and hospitals. Still,” he said, it’s “not always what’s needed by Company XYZ, which may have a very specific need for capital, as well as operating costs, production, access,” etc. “It also depends on the company’s growth cycle and if they have subsidiaries.
“You can generalize site selection for the industry,” said Weddle, “but usually not for a specific company.”
Speaking of the Midwest, the Cleveland area “has a rich history of manufacturing medical devices,” said Tyler Allchin, director, expansion and attraction, for Team NEO at the Cleveland Clinic, noting that its cardiac patents go back for several decades. “That’s the core or what put the Cleveland Clinic on the map.”
Still, there isn’t a large core of manufacturers in Cleveland; rather, those companies have been the foundation for the city’s strong R&D presence. “And Case Western Reserve University, also of Cleveland, is involved in medical device R&D, notably in the disciplines of neurostimulation and neuromodulation,” he said.
In general, “Anywhere where there is an integrated multi-national corporation, you’ll find a hub,” he said, noting that Cleveland has a strong startup presence in terms of corporate design and manufacturing, as well as medical imaging equipment with Canon, Hitachi Healthcare, GE Healthcare, Siemens and Phillips, which all operate parts of the supply chain including manufacturing in the area.
“The number one thing here in Cleveland,” said Allchin, “is our high concentration of medical device firms, many of which of have at least part of their manufacturing division here.”
Planting the Seeds
It sometimes can seem like few medical device manufacturers have similar needs when they examine options for a new home. That’s partially because, as high tech as the devices can be, bed pans and tongue depressors are still very much part of this mix.
“That simplicity [underscores] the diversity of the industry,” said Mark Brager, spokesperson for AdvaMed, a Washington, D.C.-based trade association that promotes medical technology.
“However, much of it still requires special manufacturing and special knowledge. Think of the auto industry in Detroit, and how some of the local manufacturers there spurred an entire cluster and, eventually, an industry.”
With the automotive industry, there was also a high demand for high skill, as well as regulation, and “it’s similar in medical device field. We have certain clusters.”
Brager used the example of Minneapolis-based Medtronic, the industry’s largest pure-play medical device manufacturing company (see list below). “It was founded in a garage when a pacemaker was needed. It was designed and built there, and spurred the greater need,” he said.
“That [kind of demand is the precursor of] a good breeding ground.
“And more business grew around it,” Brager said, “just like it can around a hospital and a medical system.”
Top 10 2019 Medical Device Manufacturers
(from Technavio, based in Elmhurst, Illinois; Toronto and London)
- Medtronic plc, Dublin, Ireland/Minneapolis
- Johnson & Johnson, New Brunswick New Jersey
- Phillips Healthcare, Cambridge, Massachusetts
- GE Healthcare, Chicago
- Siemens Healthineers, Malvern, Pennsylvania
- Fresenius Medical Care, Waltham, Massachusetts
- Abbott Labs, Chicago
- Becton Dickinson & Co. Franklin Lakes, New Jersey
- Cardinal Health, Dublin, Ohio
- Stryker, Kalamazoo, Michigan
Top 10 Hotspots for Medical Device Manufacturers
- Orange County, California
- Hennepin County, Minnesota
- Salt Lake County, Utah
- San Diego County, California
- Kosciusko County, Indiana
- Shelby County, Tennessee
- Los Angeles County, California
- Santa Clara County, California
- Middlesex County, Masschusetts
- Alameda County, California
Susan Donkers, of GLS, offered her take on what makes the counties in the above list attractive, based on information obtained from Clustermapping.us, a tool-based on data from U.S. Census Bureau and U.S. Bureau of Labor Statistics. The list was created by compiling the number of workers employed, by county, in the medical device sector.
“These locations, especially given their wide geographic spread across the U.S., are home to existing manufacturers that have invested into creating the existing and future workforce pipeline through specialty workforce development programs and partnerships with high schools, community colleges and universities,” said Donkers.
“In addition, medical device manufacturers are innovative, they often partner with universities and health care professionals to invent new products,” she said. “There needs to be a strong linkage between the educational community and the industry.”
Bio: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
DCG CorPlan Consulting, West Orange, N.J., Bruce Hoch, managing director, 862-930-3990, email@example.com, NAICS 3391: Medical Equipment & Supply Manufacturing
Biggins, Lacy, Shapiro & Co., Princeton, N.J., Michelle Comerford, industrial and supply chain practice leader 216-973-8872 cell, firstname.lastname@example.org
Global Location Strategies, Greenville, S.C., Didi Caldwell, president and founder, 864-918-3816, email@example.com, Susan Donkers, vice president, strategic development, 202-957-4291, firstname.lastname@example.org
Site Selector’s Guild, Little Rock, AR, Rick Weddle, president and CEO, 501-904-5228/407-432-2134 cell, email@example.com
Newmark Grubb Knight Frank Global Corporate Services, Bob Hess, executive managing director, consulting 773-957-1439 cell, firstname.lastname@example.org
Cleveland Clinic, Team NEO,Tyler Allchin, director, expansion and attraction, 216-983-9484 cell
AdvaMed, Washington, Mark Brager, VP, communications, 202-434-7244/436-1370 cell, email@example.com
Jon Dobson, AVP, public affairs,202-434-7272, Lifechanginginnovation.org
WDG Consulting, Bridgewater, N.J., Dennis Donovan, 908-864-5580/201-310-2598 cell, firstname.lastname@example.org
Ginovus, Indy, Larry Gigerich, 317-819-0888, Chad Sweeny, 317-819-4415, Lilly Hay
NAM, Washington, Erin Streeter/Jamie Hennigan, 202-637-3000/316-6160 cell, email@example.com, Joe Murphy, PR
Indy Partnership/Bio Crossroads, 317-464-2222, Joe Pellman
Global Location Strategies, Didi Caldwell, 864-918-3816, firstname.lastname@example.org
Austin Consulting, Cleveland, Frank Spano, managing director, 440-544-2687/216-346-3699 cell, email@example.com
J.M. Mullis, Memphis, Mike Mullis, 901-753-0373
The Boyd Company, Princeton NJ, John Boyd, 609-681-5670, firstname.lastname@example.org
T3 Advisors, Austin Barrett, 650-269-9941, email@example.com
IBISWorld, New York/Los Angeles, Nicholas Masters, Lead Industry Analyst, 800-330-3772, firstname.lastname@example.org
U.S. Department of Commerce, Rebecca Glover, director of public affairs, 202-482-4883, email@example.com
Transparency Market Research, Albany, NY, 518-618-1030
Garner Economics, Atlanta, Jay Garner, 770-716-9544, firstname.lastname@example.org
DSG Advisors, Kent, Ohio, Don Schejedahl, principal, 828-772-9374, Don@DonSchjeldahlGroup.com
Deane Foote Consulting, Deane Foote, 480-399-4854, email@example.com
iSelect, St. Louis, Carter Williams, CEO and managing director, 800-963-5099/314-517-7525, firstname.lastname@example.org
Biggins Lacy Shapiro & Co., Andy Shapiro, 925-239-1711, email@example.com
Ady Advantage, Madison, Wisc.,Janet Ady, 608-663-9218, firstname.lastname@example.org
Schneider Consulting, Phil Schneider, 630 841-2953, Schneider.email@example.com
Strategic Development Group, Lancaster, S.C., Mark Williams, president, 803-748-1207, firstname.lastname@example.org
American Hospital Association, Colin Milligan, Senior Associate Director, email@example.com, 202-638-5491, Sean Barry, Senior Associate Director, firstname.lastname@example.org, 202-626-2306, Arika Trim, Associate Director , email@example.com, 202-626-2319
Medical Device Manufacturing Association, Washington, Brendan Benner, Executive Vice President, Public Affairs, 202-354-7171/441-2526 cell, firstname.lastname@example.org
National Association of Development Organizations, D.C., 202-624-7806, Laurie Thompson, Deputy Executive Director, Mirielle Burgoyne, Director of Government, Relations and Legislative AffairsMcGuire Woods Consulting, Chris Lloyd, 804-775-1902