In "Spotlight" we will be discussing the opportunities and challenges that our clients face in various sectors, in conversation with CXOs. This month, we speak to the President & CEO of Phoenix Innovative Healthcare Manufacturers Pvt. Ltd., Mr. Mike Mehta. PIHM is a manufacturer of medical devices and OTC products such as pulse oximeters, nebulisers, BP monitors, as well as alcohol prep pads, canister wipes, etc., with a strong focus on the export market. It is a subsidiary of a US-based parent company and has seen very rapid growth in the last 3-4 years. We caught up with him to discuss the pre- and post-pandemic India story, for both PIHM and himself.
Mr. Mike Mehta, CEO
Phoenix Innovative Healthcare Manufacturers (PIHM) was incorporated in India in 2013 and has grown its product portfolio as well as turnover rapidly, to cross INR 1 billion in sales in the last financial year – and most of this growth has taken place in 2017-2020. What have been your key growth drivers?
The gradual addition of new products since 2017, expanding our already global footprint into the vibrant Indian marketplace, and diversifying our client base to account for 30% of our revenue being generated from India are the three key drivers of growth for Phoenix. We currently export our products to over 25 countries of the world.
High demand and high growth can often bring their own challenges in terms of scaling to meet demand, maintaining quality controls and creating sustainable profit margins. What are some challenges that PIHM has faced as a result of its rapid growth? How were they addressed?
In order to meet growth and demand expectations, we have had to rapidly increase our capital expenditure to add new machinery, infrastructure, and optimal workforce. Effectively managing raw material and other costs, especially during the COVID-19 pandemic, remains the key in staying competitive. As our business grows, our strategy continues to evolve. However, we remain ever-vigilant to new challenges and opportunities.
PIHM's product offerings initially included medical disposables only (alcohol prep pads, blood lancets, etc.) but were recently expanded to include medical devices as well (thermometers, nebulisers, vaporisers, etc.) What are the differences in the two product sets in terms of demand and margins?
The Alcohol Prep pads, Towelettes & Canister Wipes are OTC products, while Nebulizers, Pulse Oximeters, Blood Pressure Monitors are medical devices. The diversification into medical devices has helped us build a complement to our existing product range that provides our clients with additional convenience and establishes us as their trusted OEM manufacturer.
How easy or difficult was it to set up a manufacturing facility in India?
Without an established playbook for businesses relocating to India, we faced specific challenges such as selecting and upgrading an unfinished place of business to meet US FDA GMP standards, obtaining regulatory approvals, and sourcing skilled labour.
What do you think is the impact of R&D spending in a sector like yours?
We continue to ramp up our R & D spending as we look into the future towards making innovative medical products. We are looking to release new products in the respiratory, diagnostic, and single use disposable hygiene related products.
PIHM has had some US-FDA inspections for its manufacturing site in Navi Mumbai, India, which concluded without any adverse findings. What effort and challenges did this entail?
It was certainly very gratifying to go through our last USFDA inspection without any adverse findings. It was a validation of the hard work our team has put in over the years to ensure we adhere to the quality control system as well as have all necessary procedures and processes in place. It is an continuous and ongoing process, and our endeavour is to never let our guard down.
Many multinational groups choose to set up their manufacturing facilities in China for economic reasons. What, in your opinion, are the advantages and disadvantages of manufacturing in India as compared to manufacturing in China?
In case of labour intensive manufacturing, India is certainly today a much more cost effective alternative than China. China's labour costs have soared in recent years, often growing by 10-15% annually. Companies that choose to remain in China view India's many challenges, undeveloped supply chain & logistical infrastructure challenges, skills & gender gap, contract enforcement, as main hurdles to relocating to India. There is also a wide gap between ease of doing business in India vis-à-vis China.
What percentage of your raw materials currently are imported? Has the Government's Make in India initiative led to a greater availability of good quality raw materials locally?
We currently import 40% of our raw materials. Slowly but surely, we are seeing greater availability of raw materials & components in India, but still a long way to go.
Healthcare is one of the few sectors to escape Covid-19 lockdowns and slowdowns, relatively unscathed. How did the business rise to meet the operational challenges in this period? Were any new opportunities identified and exploited?
The healthcare sector faced several challenges as well as an opportunity to rise to this unprecedented occasion to help humanity. Managing daily logistics such as transportation for a 900 person workforce, obtaining approvals for conducting operations, managing the sky-rocketing cost of raw materials, and the inability to transport or ship raw materials as well as finished products for our medical device products proved to be extremely challenging. However, with great perseverance, strength, and teamwork, we were able to continue providing our essential services and products to our clients as well as local municipalities, national health services, law enforcement services, etc.
People are now moving towards home healthcare products, and this gives us an opportunity to product good quality home healthcare products at competitive pricing for the Indian marketplace.
What is the degree of Government control over medical device manufacturing currently? Do you expect this to change?
The Government has recently segregated medical devices from drugs, and is in the process of finalizing the Medical Device Regulation Bill for comprehensive regulation of the medical devices in India which is very much needed. Over 70% of the medical devices are imported currently from China and this regulation should go a long way to levelling the playing field for Indian medical device manufacturers. Currently, very few medical device manufacturing units are regulated today for quality control and other such parameters, and the new regulation should help build trust in domestically manufactured medical devices.
As someone who has spent a significant amount of time in the US as well as India, what differences do you see between the work cultures, regulatory environment, level of skills, management practices and the like?
Having worked in the US for 35 years, below are some observations:
Work Life Balance and the concept of "Fun at Work" is much more prevalent in the US vis-à-vis India, and the workforce in India works long hours. While in the US there is respect for co-workers and leaders, it is still acceptable to present your point of view even if different from your superior's view on business matters, engage in informal conversations regarding family vacations, sports teams, etc. However, conversation about politics, personal matters, or religion is completely unacceptable. On the other hand, India maintains a more rigid hierarchical structure where seniors and bosses are almost never addressed by their first names, and a junior colleague would never initiate conversation about sports or vacations, etc. with their manager or superior at work.
In the US, one has to stick to their commitment on deliverables, agreed upon timeline and milestones for the completion of tasks or projects. India has more acceptance of fluid time commitments. Business in general, as well as the Regulatory and Banking sectors are far easier to navigate and have very clear, easy to understand procedures and expectations.
What do you think are the key measures that can be undertaken both at the Government level and the industry level, to encourage manufacturing in India for medical devices and disposables?
Healthcare sector needs to be one of the Government's main focus going forward. As of December 31st, 2020, we do not have an MEIS and now with RoDTEP the incentives are not enough. This needs to be addressed. The government also needs to remove the inverted duty structure on import duties, custom duties, GST, etc. This will help push "Made in India" and will help Indian companies scale up manufacturing. Also, the Free Trade Agreements needs to be closely looked at since many countries are misusing them to put products in the Indian local market that cause damage to local Indian manufacturers.
Indian MSMEs and other companies have often faced unfair competition from foreign countries. Therefore, a recent announcement that global tenders will be disallowed in government procurement up to Rs 200 crore is a step in the right direction.
Do you expect most countries to possibly increase healthcare spending over the next few years? If so, what effect will it have for manufacturers such as PIHM?
Yes, I certainly expect most governments, including India, to increase their expenditure on healthcare, as most countries will need to go through the vaccination drives due to COVID 19. This should see a spike in demand for medical devices & OTC products, Phoenix has won a major contract for its alcohol wipes to be used by the National Health Service to be used for the administration of Covid-19 vaccines.
To read more on this topic from Asit Mehta & Associates, please click here
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