Founded in 1995, Shenzhen-based Edan specializes in the design and production of medical devices, including electrocardiogram (ECG) machines, fetal monitors, ultrasound scanners, patient monitors and Doppler devices. The company offers more than 20 product models, in five product families, and has posted 40 to 50 percent annual growth for the past three years.

Edan may be in the forefront, but it's just one of several dozen Chinese manufacturers that have targeted the highly competitive but lucrative global medical-equipment sector, estimated at more than $160 billion a year. Others include Chison Medical Imaging Co., a maker of ultrasound gear, and Shenzhen Mindray Bio-Medical Electronics Co. Ltd., a maker of patient-monitoring and ultrasound equipment.

"Chinese medical-electronic-device manufacturers have had an average annual growth rate of 30 percent since 2000," said Youdong Zu, Edan's deputy general manger in charge of export services. "We [Edan] are about 15 percent higher, because our overseas business has doubled in the last three years."

In 2005, Edan's exports grew by more than 70 percent, accounting for more than half of its overall sales. Currently, it has 40 distributors in more than 60 countries. The company expects to post 100 percent growth in overseas orders this year. That projection translates into total top-line growth of 50 percent. To accommodate the increase, Edan plans to double its manufacturing capabilities in 2006. The company believes its projected growth rate is sustainable for at least five more years, Zu said.

Seals of approval
Why so sanguine? For one, Edan has received coveted seals of approval from both the European Union and the United States — specifically, CE marking for the EU market and Federal Drug Administration certification for sales in the States. Edan won the CE and FDA certifications based on the strict product-development, sourcing and manufacturing-quality systems that it has implemented over the past few years, said Zu.

CE certification typically takes about 18 months. In 2004, Edan's single-channel electrocardiogram unit — the Smart ECG-1 — was the first Chinese ECG product to receive the CE mark. Since then, the company's fetal Doppler, patient monitor and ECG SE have also received the CE mark. Edan has plans to apply for CE status for all of its products, according to Zu.

FDA certification is a somewhat longer process, usually taking about two years. But Edan's fetal Doppler and another Edan fetal monitor received FDA approval in 2004, marking the first FDA recognition for such products manufactured in China.

Edan is not alone in its quest for formalized acceptance in international markets. To date, some 20 Chinese medical-device manufacturers have received the CE mark and/or FDA certification for one or more of their products. Those vendors include Shenzhen Mindray, one of the largest manufacturers of patient-monitoring products in China, which operates as both an OEM and an ODM.

Edan is in direct competition with many global EMS providers that have targeted the medical-equipment sector. According to one estimate, EMS providers expect growth in the medical-equipment business on the order of 17.5 percent a year for the next five years. (See "Diagnosis: Chronic Growth" in the May 2005 issue of ESM at www.my-esm.com.)

China is in the vanguard of that growth, thanks in large part to the country's rising standards in recent years for design, test and supply chain management processes. Indeed, market researcher iSuppli Corp. forecasts that medical electronics will be China's fourth-largest electronics sector, after the three C's (computers, communications and consumer electronics), by 2010.

For Edan, the first step on the road to CE and FDA approval was the implementation of ISO9001/13485 quality management procedures. ISO13485 is an international quality control system initiated by the European Union, and compliance is required of all medical device manufacturers selling into EU member countries. Edan received its certification in 2001.

It took Edan one year and about $70,000 to get certification to ISO9001/13485, according to Xicheng Xie, deputy general manager of technology at the company. Edan contracted with German testing and certification company TUV Product Services GmbH to help implement the necessary process changes.

TUV requalifies Edan's quality management system annually for both CE marking and ISO9001/13854 compliance. For FDA certification, Edan provides medical-device reports annually to the Food and Drug Administration.

The FDA and EU requirements are not only about processes; they also apply to materials. For example, said Zu, Edan must use CE-registered plastics, which it can't source in China.

For a relatively small business like Edan, managing five product families can be challenging. The company has to purchase a variety of high-cost components, such as DSPs, microcontrollers, memory, analog and mixed-signal chips, PLDs, printer modules, interconnect, passives and electromechanical components. "Our problem is that everything is in small volume, but everything has to be quickly available," Zu said.

Edan purchases most of its components — including chips from Analog Devices Inc., Texas Instruments Inc. and Freescale Semiconductor Inc. — through local distributors, which are more willing to work with the company's low-quantity orders than are international distributors. The downside is that the local houses generally don't provide value-added services, such as design support (access to reference designs and software solutions).

Another challenge for Edan is the rise of additional compliance programs, such as the EU's RoHS and WEEE directives, which respectively restrict the use of hazardous substances and require a waste disposal and reuse plan for electronic gear. Edan began implementing RoHS and WEEE processes a year ago.

The directives have confounded medical-device manufacturers, Xie said, because hazardous materials are often involved in the products' manufacture. Medical equipment is currently listed as exempt from the RoHS directive but not from WEEE.

R&D commitment
A key competitive differentiator for Edan, its executives said, is its commitment to research and development. The company's 70-engineer in-house R&D team accounts for about a third of its total staff. The team's hardware and software designers work on all five of Edan's product families. The company commits 10 percent, or about $1 million, of its revenue a year to R&D, Xie said.

That research focus has enabled Edan to achieve some design innovation "firsts" in the Chinese market. In 1996, it became the first Chinese company to develop

a Windows-based transcranial Doppler system (TDS). In 1997, it launched China's first series of fetal monitors that tracked the mother's vital signs as well as those of the fetus. In 1998, Edan developed the first TDS in China to offer such functions as embolus detection, bilateral scanning and multigate spectral analysis.

The company also taps into some of the world's top research institutes and third-party design houses to help develop products to meet niche demands for overseas and domestic customers, according to Xie. For instance, Edan has set up a joint research team with a German research institute to develop ultrasound products.

"We choose to work with international research institutes because they know much more about the market needs and have a technology advantage," Xie said.

While Edan's future looks promising, there are plenty of challenges. One is the appreciation of China's currency, which will make Chinese goods more expensive overseas. Another is how to manage the company's low-volume, high-mix business model and remain competitive with much larger rivals, including international OEMs and EMS providers.

Then there's the problem of managing a 50 percent-plus annual growth. But that's a challenge many of Edan's biggest competitors would love to confront.