At first glance, the German MedTech industry seems to be doing well. It appears resilient in crises, innovative, strong in exports, and optimistic. However, on a global scale, its business growth seems to have slowed. What’s troubling the MedTech industry? How is its innovative strength holding up? And what about its future?
enomyc, in collaboration with the German industry association SPECTARIS, which focuses on optics, photonics, analytical, and medical technology, surveyed over 40 companies in the industry. In this expert interview with Christian Zeller, we explore the sentiment, strengths, and levers of the German MedTech industry.
Mr. Zeller, medical technology is often grouped with the pharmaceutical industry. Can you clarify why that’s incorrect? What exactly is MedTech?
Medical technology is more of a traditional manufacturing industry that integrates innovative technologies and digital solutions. It’s often referred to as "discrete manufacturing"—meaning it involves the production of distinct, tangible products. The industry spans procurement, production, assembly, and of course, related logistics. These products can range from technologically simple, like a rolling cart placed next to a hospital bed, to highly complex devices like diagnostic and analytical machines, such as MRI scanners.
And how does that compare to pharma?
Pharma is a process industry when it comes to production logic. It operates under a different model of innovation, requiring significant investments in research and development over many years, alongside complex approval procedures. Stringent regulations govern the entire process from product development to application. Expensive preclinical and clinical trials are also part of the equation, often involving investments in the billions. In this sense, MedTech is more comparable to other manufacturing industries than to pharmaceuticals.
You hold degrees in business and mechanical engineering and have worked on numerous projects in manufacturing, including in the automotive and supplier industries. What kinds of products have your MedTech clients produced?
I’ve worked with manufacturers and suppliers who produce entire clinical devices or the necessary components, including ventilators. There were manufacturers of dental products and technologies, prosthetics companies working with metals and advanced polymers, such as for artificial hip and knee joints. Another example is a company that provides products for post-clinical care and support, such as for respiratory therapy and ventilation, tracheotomy, enteral and parenteral nutrition, incontinence, wound, or stoma care. It’s fascinating to gain insight into these diverse areas of medical care.
What challenges do your clients mainly face?
They report difficulties with sales, production, and procurement planning. Coordinating the entire value chain along the material flow is a challenge. One issue leads to another. Managing the entire chain—from global sourcing, procurement logistics, and supply chains to production and assembly facilities—is a complex task. And this extends to efficient distribution logistics. In addition, there are operational challenges, such as optimizing working capital management. Capital is a huge topic, particularly for smaller companies, both for financing innovations and modern production and logistics facilities.
You mentioned production and assembly facilities. What are the key issues there?
Fluctuating capacity demands are a significant burden. Unstable sales mean unstable production—sometimes requiring two or three shifts per day, but then only five per week. This affects material disposition and the supply chain. When material is constantly fed in but consumed inconsistently, inventory builds up. Companies, for obvious reasons, don’t want to tie up too much capital in excess inventory. There’s often a lack of sufficient storage capacity—plus, some products can’t be stored indefinitely. Depending on the location, process-related issues like quality problems and rejections can also arise, leading to rework and always adding to costs.
These challenges sound familiar. It’s as if companies specializing in medium- to high-complexity medical devices are facing the same issues as those in mechanical and plant engineering.
There are indeed some similarities. Sometimes, it’s about the need for electronic and semiconductor components for control systems, which are used both in CNC milling machines and in MRI or ventilator devices. The well-known supply chain challenges can therefore arise in ensuring component availability.
Hospitals and clinics in Germany make up the largest customer segment for the MedTech industry. The pandemic caused revenue peaks in the industry, with the production of ventilators and oxygen therapy devices rising by 33.4% in Q3 2020 to 426 million units, and exports of these devices increasing by 88%.
Yes, during the pandemic, there was massive demand for medical technology products for prevention, diagnostics, treatment, and rehabilitation. Manufacturers reported record sales through 2021.
What happened after that?
By mid-2021, demand dropped—the needs had been met. The order volume fell even below pre-pandemic levels. Suppliers also sold fewer components. Market fluctuations in this area were huge, along with the challenges I’ve already mentioned.
Another business challenge stems from structural changes: hospitals and clinics in Germany are consolidating through closures, mergers, and relocations. What additional effect does this have?
On one hand, it reduces the customer base for the MedTech industry in Germany. On the other hand, mergers often change the service portfolio of clinics, which alters their need for medical technology equipment. This creates new market dynamics. For the MedTech industry, this means they need to be very flexible in responding to these evolving customer structures and demands. This increases the pressure for innovation and competition. Often, this leads to restructuring within the companies themselves.
enomyc, in collaboration with SPECTARIS, surveyed over 40 companies last fall. Looking at the results, one might think that the MedTech industry is still doing relatively well—certainly better than other sectors. It appears comparatively resilient and innovative. Is that true?
In general, if you compare it to other export-dependent industries, like the German automotive industry, MedTech does seem to be doing relatively well, especially regarding its innovative capabilities.
But?
But to remain competitive globally, smaller companies need to focus on a clear niche—specialization—and in a broader context, they need financial strength. Innovation costs money. And while the innovation rate among German MedTech companies is still very high compared to other industries, it also requires continuous refinancing.
The German MedTech industry invests 9% of its revenue in research and development (R&D), but these investments are currently declining or shifting abroad.
Yes, and these developments are concerning. They weaken the innovative capabilities of the German MedTech sector. Like other industries, MedTech is grappling with rising logistics, raw material, and energy costs. Inflation is driving up personnel costs. In 2023, the sector generated around €40 billion, a nominal increase of 5%, but producer prices rose by 5.9%. Many companies also see the bureaucratic burden of meeting regulatory requirements as a significant strain. The issue is that only companies of a certain critical size will be able to serve the global market. The "hidden champions"—I would consider large mid-sized companies with revenues starting at around €1 billion—have the capital strength to penetrate global markets, serve them in a structured way, and continue to invest in R&D. There are certainly significant opportunities here, and "Made in Germany" or "Innovated in Germany" has a strong reputation. However, breaking into these markets takes many years, which must also be financed.
The hidden champions can thrive. But what about smaller companies?
From my experience, the typical small to medium-sized company rarely has a sales organization that effectively covers the truly relevant regions of the global market. Different competitors appear in these markets. In addition to critical size, another dimension to differentiate is the product itself. Is it highly technological, or is it perhaps standard equipment for hospital rooms, such as beds and bedside tables? Here, the basic rule applies: with simpler products, the opportunities for smaller regional competitors are better, and the market entry barriers are lower – which in turn intensifies competition.
With 93 percent, the German MedTech industry is strongly dominated by SMEs. Doesn’t the SME sector, often praised as the backbone of the German economy, also have a clear weakness when it comes to investing in R&D? A look at the USA or China paints a clear picture: the larger the company, the higher the investments in R&D. More manpower, more brainpower, consequently more innovation and more success?
That’s a valid question because the framework conditions are crucial. Small and medium-sized companies in Germany are very often owner-managed, sometimes family-run businesses. Their advantages are certainly that they can decide and act relatively quickly. On the other hand, issues such as succession planning, financial resources, and resource allocation can be problematic. As a result, their ability to innovate is somewhat limited. And yes, it makes a difference whether 100 companies each generate 50 million in revenue or two large medium-sized companies generate revenues in the billions and are more effective through bundling their strengths. Looking at Asia: I also expect that competence in the fields of advanced medical technology and high-tech, especially in China, but also in South Korea, will continue to increase.
However, when it comes to jobs, the German MedTech industry continues to grow. It currently employs 265,000 people – and the trend is upward. Surprisingly, the shortage of skilled workers is still considered uncritical in the SPECTARIS x enomyc survey. How do you explain that?
That is indeed interesting, as the industry is affected by demographic developments just like others. It urgently needs skilled workers in development, for example. It needs medical technicians as well as experts in data science, AI, and robotics. I have a suspicion as to why our survey did not confirm fears about the shortage of skilled workers: the MedTech industry is seen as “en vogue” by many university graduates. We are currently dealing with a generation that is looking for ethically correct employers. Those seeking companies that are seen as socially responsible, innovative, and technologically advanced will find them in the MedTech industry. Perhaps this is why the industry feels somewhat able to cope with the skilled labor shortage. It is attractive and has pulling power. And, of course, one can now specifically study medical technology, but within the industry itself, numerous disciplines and qualifications are needed: physicists, computer scientists, electrical engineers, mechanical engineers, industrial engineers, and many other high-level qualifications can be found here.
Exports are also doing well: the export rate is around 67 percent, with a 9.9 percent share of the global market. However, companies in the survey report a growth barrier – which you already mentioned: regulation.
Yes, in our survey, more than half of the companies surveyed saw “regulation and bureaucracy” as one of the biggest obstacles to their business development. This mainly, but not only, refers to the Medical Device Regulation (MDR). In fact, the regulation poses massive challenges for the industry. It is complex, costly to comply with, and ties up many resources. In particular, small and medium-sized companies feel heavily burdened by it. And independent regulations, such as ESG, are also added on top.
But German companies won’t be able to avoid the high bureaucratic burden.
Certainly not. Here, the attitude is “grit your teeth and get through it”: The MDR requires strict product regulations, and MedTech companies will have no choice but to follow it in order to meet the high standards of safety and effectiveness. Again, company size will be key: only from a certain critical size is it possible for companies to provide the resources and cover the costs required.
While the German MedTech industry is largely grappling with regulations, other countries, such as the USA, have more flexible regulatory frameworks. And in China, large sums from government funding programs are flowing into R&D for their MedTech companies.
Yes, and that has far-reaching consequences. The type of regulation, often criticized in Germany – let’s also consider the CSRD reporting obligation under ESG – is indeed a challenge for German MedTech companies, making other countries significantly more attractive markets. The U.S., for example, has centrally managed approval processes, which in some cases allow for faster market launches and more predictable processes. Collaboration is also much more interconnected there. Regarding Chinese subsidies: funding is also flowing in Germany. However, medical associations, such as SPECTARIS – this can be read in numerous position papers – argue that the MedTech industry needs to be significantly relieved and more strongly supported. There are several levers the MedTech industry must necessarily pull to remain competitive. This includes – from my point of view, essentially – digitalization. It will significantly relieve companies and make processes much more efficient and cost-effective. One example is the electronic data exchange between institutions in the healthcare system, but also the expansion of e-health developments, telemedicine, and big data applications. Robotics and AI will undoubtedly increasingly find their place in the medicine of the future.
Recently, it was revealed that a person was operated on by an AI-controlled autonomous robot for the first time in dentistry – quickly and precisely. The developers: the Boston-based company Perceptive. How do you assess further developments?
Robotics and AI are clearly the innovation drivers of future developments. German companies need to prepare for that. For planned standard operations, where material availability is assumed and fulfilled – for example, in prosthetics, knee, and hip surgeries – certain steps in the operation will increasingly be taken over by AI and robotics. Keyword skilled labor shortage: AI and robotics will also be used here to physically protect and relieve skilled personnel. What the German MedTech industry needs for this: budget and brainpower.
So, talent acquisition. The question is: how do we bring this brainpower into German MedTech companies?
Yes, and how can we also retain it in Germany for the long term? So that innovation is not only developed on paper but also “comes off the production line” here? Looking at the past ten years, we can observe that, for example, talents in software development are increasingly migrating from Germany to other countries, such as hubs in the USA or Tel Aviv. Why? Because the working and research opportunities, the pace of innovation, the market situation, and even the earning opportunities for highly talented individuals are better there. How do we get the digital nerds from San Francisco and Palo Alto to, for instance, Tuttlingen, the “world center of medical technology”? How do we make tomorrow’s talents aware of us? To achieve this, we need more investment in R&D and talent acquisition here in Germany. For companies, it will become more important than ever to position themselves as attractive employers and to offer outstanding research and working conditions.
Thank you for the interview, Mr. Zeller.
