The influx of foreign companies following China's accession to the WTO late last year has highlighted the importance of domestic research and development in increasing the global competitiveness of Chinese enterprises. Lately, the government has been pushing Zhangjiang High-Tech Park, located on the eastern edge of Shanghai's Pudong Development Zone, as one of its boldest answers to this challenge. Although there is a degree of hype involved, Zhangjiang has made astonishing progress in the past two years, bolstered by generous government support.
The park's total foreign investment over this period stands at around US$4.5bn, according to a recent report in Jiefang Daily, nearly four times the investment recorded for the eight years up to 2000. Beginning operations in July 1992, Zhangjiang has attracted more than 230 manufacturing and R&D projects in the last two years alone, including famous companies such as Motorola, Roche Pharmaceuticals and Sun Microsystems. Just last month it made headlines when US-based General Electric announced plans to set up a global research and development centre there.
But Zhangjiang's most exciting stories do not actually involve big investments – they concern small Chinese start-up companies doing their own R&D and competing in markets traditionally dominated by multinationals.
One such company is MicroPort Medical, a medical supply start-up founded by Maxwell Chang in 1997 with a modest initial investment of US$300,000. The company is one of just a handful of global manufacturers of medical systems used in minimum invasive heart surgeries, known as percutaneous transluminal coronary angioplasty (PTCA). This process achieves much the same result as traditional bypass surgery, but without surgically opening the chest cavity.
The worldwide market for PTCA devices is currently dominated by multinational companies such as Johnson & Johnson, Medtronic, Guidant and Boston Scientific. But at its brand-new Zhangjiang facility, completed in August of last year, MicroPort is designing and manufacturing PTCA devices using the latest technologies and competing with the major suppliers.
At present, business looks good, says Philip Wang, the company's marketing manager and a veteran of the industry (he was formerly Guidant's supervisor for the Asia- Pacific region and marketing director for Medtronic). "We are in the very early stages: we began manufacturing at this facility in August 2001. In our first three months we were already profitable," he says.
The company's revenues are growing at a fast pace – up to 100 percent month-on-month, from a small base – and it expects cashflow to be positive before the end of this year, with growth rates of 20-30 percent a quarter for at least the next two years.
At present, China is MicroPort's biggest market, and there is good potential for growth. Heart disease is the country's third biggest cause of death. The PTCA procedure was first available in China in 1984, but only about 1,000 procedures were performed up to 1993. In 1994, as the medical establishment began to accelerate the development of new technologies, more emphasis was put on PTCA. By 2001 more than 20,000 procedures were performed annually. That number is expected to grow to 100,000 in 2005. Today, more than 100 medical establishments in 29 provinces and regions can administer the procedure.
In 2003 MicroPort plans to move into the Japanese market, the world's second largest for stents (the devices used to prop open clotted arteries) and balloon catheters, with the highest margins. The company is making preparations for registration there. "Next year we could draw US$5m-10m in revenue from Japan," says Wang. "It's huge. We forecast total revenue of US$16m-18m for 2003."
What will give this small start-up its competitive edge in tough markets like Japan and the EU? Innovation, says chief engineer Michael Zhang, who recently returned to China after earning his PhD at the University of Toledo's Polymer Institute. Like Wang, he also previously worked for Medtronic and Guidant.
MicroPort's competitive edge comes from its application of new technologies, which is one reason for the choice of Zhangjiang as a research base. This is despite the lack of local availability of key materials such as highquality polymer and stainless steel, all of which must be imported.
The top priority for Zhang and his researchers is now the development of PTCA procedures using stents that are coated with drugs to prevent a condition called restinosis – the reclosing of the arteries – which occurs in about 20-30 percent of cases. Drug-coated stents are expected to largely replace traditional ones over the next few years and the worldwide market for them is expected to be worth US$3bn.
In this industry, according to Wang, there is no fancy marketing. Stents are sold to the top physicians who perform the specialised procedures, and devices are selected on the basis of their flexibility and their restinosis rates. In short, technology sells.
The company sees Zhangjiang as an important draw. "It's very exciting here," says Wang. "It is the closest I've seen to the US – and Shanghai is the easiest place to do business in China. Being a biotech company, the park is the best place for us to be. All of the big companies are here."
This is on top of the other benefits offered by the park, which include special income tax breaks (three years tax-free and two years at 50 percent the normal rate), reduced red tape and strong technical support.
MicroPort is currently applying for patents in China and the US for its coated stent technology, putting it neck and neck with the multinationals. This has excited the Chinese government – so much so that it has put MicroPort on its shortlist of candidates for the country's 12 'national priority' projects. Each year, the 12 projects chosen for this honour each receives about Yn10m, which they must repay within 15 years, interest-free.
Traditionally, recipients have been large government infrastructure projects, and the selection of a small high-tech start-up like MicroPort as a candidate points to a major shift in priorities towards innovation.
Winning the funding would be a milestone for MicroPort and would allow it to move towards its next goal: listing on Nasdaq. Philip Wang believes a listing is possible if the company can maintain three years of profitability and reach its revenue goal of US$16m for 2003. "Nasdaq is reachable – but you have to reach high," he says.
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