APPENDIX B                                                                                                                       

Industry Overviews                                                                                     

Medical Devices and Instruments

Definition

The Medical Device industry is a broad category that we have split into two main areas: medical equipment and instruments.

Further definition by SIC Code follows:

3821          Laboratory Apparatus And Furniture

3826          Analytical Instruments

3827          Optical Instruments and Lenses

3841          Surgical and Medical Instruments

3842          Surgical Appliances and Supplies

3843          Dental Equipment and Supplies

3844          X-Ray Apparatus and Tubes

3845          Electromedical Equipment

3851          Ophthalmic Goods

NAICS Equivalents

3345          Medical Instrument

3391          Medical Equipment and Supplies

42145        Medical, Dental, and Hospital Equipment and

                  Supplies

Industry Overview and Current Trends

The major trend impacting the cluster is that the aging population is driving demand for products and services.  The tight labor market, especially in nursing and technician positions, is driving medical device and equipment firms to design products that reduce labor needs.  Taking a closer look at each sector within the industry, we see there are specific industry modes of operation and trends that will help in understanding this diverse and dynamic industry. 

Medical Devices.  The United States is the global leader in medical devices accounting for close to half of the world’s medical equipment market.  Medical devices can include a wide range of products. The most profitable product areas comprise innovative high-technology products such as implantable and external cardiac defibrillators, orthopedic devices, and sophisticated diagnostic imaging systems designed for highly specific markets.  Cardiac devices and orthopedics are dominated by a small number of players like Medtronic, Guidant, and Stryker.  However, many small and midsize companies design and manufacture specialty equipment and devices across many disciplines.  New products are the engine that drives growth in the medical device industry.  The companies in this sector must be robust financially to weather research and development, clinical trials, and FDA approvals.   Managed care’s influence continues to bring strong pressure to medical device companies to cut costs.  There is strong demand by hospitals for equipment that can reduce labor expense, improve labor productivity, and reduce patient stays. Outpatient procedures will also continue to grow and replace lengthy hospital stays.  Dramatic growth is predicted for the medical device sector led by expected new product launches in cardiology.  The aging population is probably the most prominent factor in driving this growth.

Medical Appliances and Supplies.  Unlike value-added medical devices, medical appliances and supplies are comprised of commodity-type items such as kits, trays, gloves, gowns, syringes, and other disposable medical supplies.  The medical supply market is a mature business dominated by a relatively small number of big manufacturers such as Tyco International and Johnson & Johnson.  The medical appliances and supplies sector is characterized by low margins, high volume, and long-term contracts with hospital management chains and large customers.  As with medical devices, there is significant pressure on medical and hospital suppliers to cut costs.  The improvement of existing products, technical support of products, and compliance with governmental regulations for the protection of consumers are key factors for success in this highly competitive environment.  However, the demand for supplies is predicted to remain strong due to the favorable demographics as the population ages.

Eyewear.  Eyewear is included in medical products and services to address the continued changes in the eyewear and care industries.  This sector includes eyeglasses and contact lenses.  Eyeglasses account for the lion’s share of the market, but the fastest growing segment is disposable soft contact lenses.  The U.S. eyeglasses market is highly fragmented.  The contact lens market is dominated by a few small players including Bausch & Lomb and Johnson & Johnson.  The demand for eyewear is rooted in the growth of consumer demographics as baby boomers started to need reading glasses.  While eyewear does and continues to grow, increased industry competition and the increasing popularity of laser corrective surgery are threatening that growth. 

Industry Importance Factors

What factors do medical device companies rate the highest in business concerns and location considerations?  Understanding the industry, how it works, and the current business environment will guide us to the answer.  Below is a table of site location factors as related to the different sectors of the biotech services industry and a discussion of the most important factors.

Site Location Factors

Source: Applied Economics, Scottsdale, AZ

The site location factors that are most important to the biotech industry have been identified.  The analysis is based upon 51 key site location factors in seven major categories including access to markets, access to resources, workforce, real estate, financial capital, public sector impacts, and quality of life.

The medical products sector has moderate need for technical professionals and a high need for a skilled precision production and repair labor force as well as available operators and assemblers.  The cost of labor is a major expense and, therefore, a priority for medical products companies.  Additionally, an available quality education program is an important factor for the medical products industry.  For the most part, the medical products sector does not necessarily have the same need to locate near research universities or hospital environments. The needed workforce for the medical products sector includes scientists, technicians, machine operators, and managerial/administrative occupations.

Geographic proximity to a supplier and customer base and transportation costs of goods are central factors while the availability of air services holds moderate importance.  Energy dependability is ranked high in all areas of medical products since they undertake very precise, high-tech production, or operations in many cases.  Access to production inputs, specifically intermediate manufacturing products, is also ranked high across the board.  Real estate costs and availability shows importance primarily in built space and an incubator environment.  Regulatory policies as well as taxes, worker compensation costs, and unemployment insurance costs are of moderate importance to the industry.  The medical industry is a sector steeped in regulation, and those regulations continue to have major influence.  Quality of life factors, as with healthcare services, are becoming more and more key to location and expansion decisions.  Attracting the skilled labor needed for the medical industry is linked to the available quality of life.  Overall operating costs for medical products industries will be a factor in the location decision given that cost pressures are evident in every sector.

Light Manufacturing

Definition

The light manufacturing industry is a broad category covering many types including wood products, plastics, electrical equipment, and metal.

Further definition by SIC Code follows

24        Lumber and Wood Products

308      Miscellaneous Plastics Products

34        Fabricated Structural Metal Products

36        Electronic & other Electrical Equipment

NAICS Equivalents

      3321          Forging and Stamping

      3323          Architectural and Structural Metals Manufacturing

      3324          Boiler, Tank and Shipping Container Manufacturing

      3328          Coating, Engraving, Heat Treating and Other Activity

      3329          Miscellaneous Fabricated Metal Product Mfg.

      3334          HVAC & Commercial Refrigeration Equipment Mfg

      3339          Other General Purpose Machinery Manufacturing

      3399          Other Miscellaneous Manufacturing

      326113      Unsupported Plastics Film and Sheet

      326121      Unsupported Plastics Profile Shape

      32613        Laminated Plastics Plate, Sheet and Shapes

      326122      Plastics Pipe and Pipe Fittings

      32616        Plastics Bottles

      32615        Urethane and Other Foam Products

      32614        Polystyrene Foam Products

      325991      Custom Compounding of Purchased Resins

      326191      Plastics Plumbing Fixtures

      326199      All Other Plastics Products      

      3342          Communications Equipment Manufacturing

      3344          Semiconductor & Other Electronic Component Manufacturing

Industry Overview and Current Trends

The state of the economy has had an impact on the performance and livelihood of all manufacturing industries.  The last couple of years have led to excess capacity and slow or non-existent expansion plans.  The overall economy is rebounding slowly and still has a large impact on capital goods expenditures. 

However, manufacturing industries continue to be driven by innovation with research and the application of that research. It is in the research, innovation, and engineering areas that the United States will continue to realize opportunities given the globalization of industries.  Labor intensive industries are likely to locate in countries such as China where labor rates are low.  The United States needs to take advantage of those manufacturing operations that apply emerging technologies and a highly skilled, knowledgeable workforce.  This can be applied to Metal Fabrication, for example, by offering customized services and products as well as researching newer and more efficient ways to produce products.

Fabricated Structural Metal Products

Approximately 1.5 million people are employed in the U.S. fabricated metals industry, producing everything from nuts and bolts, and cutlery, to the most complicated aerospace components. Metal fabricators have enjoyed expanding orders in recent years. Much of the industry’s expansion can be attributed to overall growth in the domestic economy. Most industry sectors have expanded, housing developments have improved, and consumer spending has increased during the current expansion allowing growth within the industry.

A majority of metal fabricators are found where there is a high population; this gives rise to significant demands for housing. For instance, fabricated structures (e.g., metal doors, window and door frames, gutters and downspouts, fences and posts, prefabricated metal buildings, and sheet metal) and plumbing and heating equipment (e.g., plumbing fixtures, heating equipment) are inextricably tied to the performance of the construction industry. Other sectors, like cutlery, hand tools and hardware, are tied to consumer expenditures; whereas, component parts and services (e.g., plating, polishing and coating; screw machine parts; and metal forgings and stampings; and valves and pipe fittings) are likely to be located close to the final manufacturers.

Fabricated Metal Products.  This category includes companies that fabricate, stamp or form iron, steel, or other metals into products such as structured components, auto and aircraft assemblies, tanks and vessels, and other industrial products.  These types of companies will follow most of the same trends seen in industrial machinery and capitals goods.  The health of this industry is largely dependent on capital goods spending and, therefore, the overall economic condition.

Additionally, forecasts for certain sectors within the industry are included below:

Shipments of food cans will show the fastest gains in the metal can industry, 2.3% per year between 2002 and 2007.

Shipments of metal windows and doors are expected to rise 5.5% annually through 2007 to $12.4 billion.

Shipments of sheet metal roofing, flooring, siding and building trim are projected to increase 2.2% per year through 2006 and reach $3.8 billion.

Shipments of sheet metal air conditioning ducts, stove pipe, furnace smoke pipes, elbows, culverts, flumes and irrigation pipes are forecast to increase 2.1% through 206 and reach $2.7 billion.

Source: Freedonia Focus, April 2003, May 2003, June 2003, and September 2003

Miscellaneous Plastic Products

Protective Packaging.  The U.S. protective packaging industry, although dominated by large multinational corporations such as Sealed Air, primarily consists of small, privately held firms with annual sales of less than $40 million.  Price, performance (i.e., functional properties) and quality are the primary marketing factors in the highly competitive protective packaging industry. Protective packaging demand in the U.S. reached $2.5 billion in 2002 after increasing four percent annually during the 1997-2002 period. Protective packaging encompasses a variety of plastic, paperboard and other materials used to safeguard, support and cushion products during shipping, handling and retail display.

Protective packaging demand is impacted by a number of factors including personal disposable income levels, population size, activity within various packaging end-use markets, retail sales, environmental considerations and the overall health of the economy. Retail sales are a significant prognosticator of protective packaging demand in that many durable goods such as appliances, electronics, automotive parts and furniture are packaged in paperboard corner edge protectors, molded expanded polystyrene end caps, and molded polyolefins and polyolefin rolls to protect the items from shock, vibration and scratches. Catalog and Internet sales also have a profound impact on protective packaging demand requirements. U.S. protective packaging demand will increase 5.3 percent annually through 2007 to reach $3.2 billion supported by the introduction of new, value-added products. Additionally, as the U.S. economy recovers from the recession that started in March 2001, durable goods shipments are projected for record healthy gains through 2007, which will boost demand for protective packaging products. Further advances will be limited by general saturation in most packaging sectors linking opportunities to market size gains attributable to the quantity of packaged goods being sold.

Plastics Pipe. The U.S. pipe industry can be characterized as highly competitive with a large number of producers, diverse applications and intense materials competition. The wide array of industry participants results from the need for producers to possess both expertise in the technology of the pipe materials involved as well as a knowledge of the required product development and manufacturing techniques. US demand for plastic pipe grew 2.9 percent per year between 1997 and 2002 to reach 8.3 billion pounds in 2002 valued at $3.8 billion. When measured in pounds, plastic pipe represented 13 percent of the total US pipe market. In footage terms, plastic pipe totaled 5.3 billion feet and accounted for 39 percent of the total pipe market in 2002.  Plastic pipe experienced rapid gains throughout the 1990s, with annual growth of 7.8 percent between 1992 and 1999. Plastic pipe remains one of the most widely used types of pipe due to its lower installed cost and performance advantages over other materials.

Plastic pipe demand is influenced primarily by construction activity, which is highly dependent upon the outlook for economic growth and general business activity. Funding for public infrastructure projects such as highways and sewers is dependent upon government subsidies. Other factors that influence pipe demand include the physical condition and network capacity of existing pipes. Plastic pipe demand in the U.S. is expected to advance 3.5 percent annually through 2007 to 9.8 billion pounds, valued at $5 billion including resins, additives, processing and other costs. Growth in plastic pipe demand will continue to outpace growth for other pipe materials due to plastic’s advantages such as light weight, corrosion resistance, long service life, and lower installed costs.

Caps and Closures.  Cap and closure demand in the U.S. totaled $4.6 billion in 2002 after increasing 5.7 percent per