Analytical Instrument Makers Flock To China

Enthusiasm for China remains high among global providers of analytical instruments. The largest firms are ramping up their capabilities in the country, while at smaller ones, managers are investing more of their time to understand this complex and evolving market. That was the message from exhibitors at Analytica China, the country’s largest analytical trade show, which took place late last month in Shanghai.

Although China is at an earlier stage of scientific development than the U.S., Europe, or Japan, it is a key market for analytical instrumentation. For small and medium-sized German instrument makers, China is the second-largest export market after the U.S., said Martin Leibing, project manager for foreign trade and export promotion at Spectaris, a German high-tech industry association. And with annual market growth of 20%, China may soon eclipse the U.S. as an outlet.

A casual stroll through the vast, crowded hallways of Analytica China provided a window on the dominance of foreign analytical instrument makers in the country. By and large, Chinese firms make low-end products such as simple lab robots or run-of-the-mill gas chromatographs. Foreign firms appear to monopolize the high end of the business.

Spectaris’s Leibing noted that Chinese firms are improving the quality of their instruments. But Levi Han, China marketing manager for Hamilton, a U.S. maker of lab instruments and robots, said Chinese companies still face hurdles in making many advanced products. For instance, the liquid-handling systems Hamilton offers feature extremely accurate pumps and syringes that aren’t yet made in China, she said.

Yet, the near absence of local competition should not suggest that China is an easy market, Han insisted. Instrument makers face complex regulations when trying to sell instruments to hospitals and clinics, a major business segment.

For instance, China only recently authorized the sale of DNA sequencers. Regulators, Han explained, were concerned that the technology would be unethically harnessed by some doctors to convince patients to undertake unnecessary and costly procedures. Eventually, the view prevailed that “the misuse, if it takes place, is not caused by the sequencers,” she observed.

But regulations have done little to deflate the enthusiasm of foreign instrument makers toward China. PerkinElmer has vastly expanded in the country to the point that it now provides sales and service in every province. Since 2011, the company’s workforce in the country has doubled to 1,000, according to Nam-Hoon Kim, the company’s president for China and Taiwan.

The perception that instrument makers are so concerned about intellectual property violations that they don’t manufacture in the country is false, Kim insisted. Major instrument makers are keen to expand their Chinese production. “The government provides incentives to companies that not only manufacture but also design products in China,” he said, adding that legal protections against intellectual property violations have improved in recent years.

Smaller instrument producers that aren’t able to establish a presence in China have to rely on distributors. For these smaller companies, selecting a competent local partner is critical, according to Spectaris’s Leibing. “Many of the German managers who came to Analytica are there to find a new distributor or strengthen their relationship with their existing one,” he said.

A good distributor is able to solve most technical issues without having to involve the manufacturer, said Hairong Zhang, analytical instrument director at Hong Kong-based Techcomp, a distributor of instruments made by Hitachi and several other smaller firms.

A strong distributor can also be a source of financing for overseas firms, she said. In cases when instrument makers want to be paid earlier than Chinese clients are willing, the distributor will often step in. Good distributors, she added, will also maintain Chinese stocks of pricey instruments at their own expense.

Another important function performed by distributors, according to Zhang, is helping with the red tape that surrounds instrument procurement in China. For example, government agencies and public research institutes are under administrative pressure to “buy Chinese” and must complete copious amounts of paperwork when purchasing foreign-made wares.

But Techcomp also helps its customers buy Chinese instruments, including ones it makes itself. The firm’s manufacturing subsidiary offers a modest range of gas chromatographs and other products that have performance and durability comparable with that of foreign brands, claimed Lu Chenkang, a Techcomp marketing manager. “The software in foreign products might be better, but our main handicap is the perception that our instruments aren’t as good,” he said. Most of Techcomp’s chromatographs are sold in China, he said.

Although big Western firms dominated Analytica China, Techcomp’s advance as a local manufacturer may be an early warning that this dominance is not guaranteed forever.