been broad minded about where we do our manufacturing and who we do it with, it’s actually a more complex equation. Businesses that may have been prepared in the past to offshore production to save 20% – or even 40% – of manufacturing costs through cheaper labour, have come to realise that, while the good times meant high profits and smiles, the tough times meant potentially having to shut down their entire company because they couldn’t get hold of vital parts. Many owners and chief executives will now be asking themselves if they’re prepared to spend the next ten years strapped to a balloon that could go up at any moment if there’s a problem with their supply base. I suspect most wouldn’t. The advantage, in uncertain times, of keeping key assets and functions close to home, or with stable and dependable partners, can’t be overstated. If Covid and the war have taught us anything, it’s that being at the end of a long supply chain is a bad idea, because the longer the supply chain is, the more things can go wrong. Having an economic strategy that depends on manufacturing in the Far East or importing raw materials from Russia leaves our economy at the mercy of people whom, we have come to realise, to our cost, are not as stable as we thought.
SPOILERS OF WAR Covid and the Russian invasion of Ukraine are a reminder of the risks of offshoring production
O
ne of the many dehumanising aspects of war is the way in which access to medical provision becomes weaponised like any other collateral resource. Russian forces, in their incursion in Ukraine, appear determined to break every conceivable humanitarian convention, hence their specific targeting of hospitals and their apparent disregard for the suffering of displaced and severely ill civilians. Vladimir Putin seems oblivious not only to the suffering of sick Ukrainians but to Russians as well. While there is evidence that cancer clinics and other medical facilities in the path of his forces have been bombed and abandoned, Putin’s sanctions-hit countrymen and women also appear to be fair game. Public healthcare provision in Russia and Ukraine continues to carry the legacy of Soviet state planning and so funding for both is sensitive to movement in their respective economies. Russia operates a progressive system of compulsory healthcare insurance that covers the cost of all medical treatment for its citizens. Before the invasion of Ukraine, the cost of some treatments, particularly
oncological services, was outstripping tax receipts and the subsequent collapse of the rouble will have hastened that trend. In Ukraine private and public hospitals and clinics are contracted by a national health service to provide cancer care with drug procurement overseen by a separate agency. Here too public spending was struggling to keep pace with rising care costs before a bullet was fired. The ability of Russian hospitals and clinics to treat patients will inevitably be negatively impacted by the war, as a result of worsening financial sanctions, as most medical devices are imported from the US and Europe. In contrast little impact is expected from the loss of exported Russian medical devices as these account for less than 0.04% by value of all medical devices sold globally, according to GlobalData. The Russian economy is about the size of Spain’s and its med tech market, which is limited to Moscow and St Petersburg, is as important in global trade terms as Iberia. Russia may be an important source of raw materials for certain industries, but it doesn’t make the advanced products, such as computer chips or plastic
mouldings, which are important to the med tech industry. Any company in the UK producing medical devices on an outsourced basis will be doing so in Asia, North
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Public healthcare provision in Russia and Ukraine continues to carry the legacy of Soviet state planning America, or Europe, not in Russia. While members of some industries – principally construction and heavy fabrication – might regard the war as a further damaging setback, threatening future growth following the end of Covid restrictions, UK med tech is unlikely to be affected in any significant way. It’s still the case that all the liquidity we saw being released throughout the Covid pandemic is continuing to pour into the sector. A lot of that money is now maturing into products, that we’re likely to see enter the market during the course of this year. There’s decent investment money in from private equity and
venture capitalists (VCs) who don’t see to have lost their appetite at all. The world now has a much better understanding of rapid diagnostics and it will continue to attract a higher level of investment than it did before. There’s a much more solid footing in terms of funding and people knowing what they are doing and also in terms of companies being stress-tested. A few have fallen by the wayside but others are pushing on, for example a number of consultancies related to design development and transfers to production. Of the diagnostics companies that Snedden Campbell has worked with since the start of the pandemic, around 80% benefitted from Covid in some form. In general, UK companies have been good at working through Covid and returning to business as usual, and it has taught us some valuable lessons about resilience. While we have always