[Explained by an Active Engineer] Characteristics and Structure of the Japanese Medical Device Industry
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Introduction
The medical device industry in Japan is a noteworthy field that continues to grow alongside the progress of an aging society.
However, compared to industries like IT or automotive, its structure and characteristics are not widely known.
In this article, I will explain the characteristics of the Japanese medical device industry in an easy-to-understand manner from the perspective of an engineer involved in embedded software development for medical devices.
Recommended for the following people
Engineers considering a career change or entry into the medical device industry, those interested in medical device-related investments, and business professionals who want to grasp the overall picture of the industry
An industry that is a growth market yet has a unique structure
An aging population supports growth
In Japan, the elderly aged 65 and over account for a large portion of medical expenses. With the increase in the elderly population, the demand for medical devices continues to expand. While many markets are shrinking due to the declining birthrate, medical devices are one of the few domestic growth markets.
A unique structure of a "collection of small markets"
Although the medical device industry as a whole is large, the reality is that it is a collection of fragmented, small markets.
For example, the technologies, standards, and sales channels required for each product category—such as endoscopes, electrocardiographs, artificial joints, and surgical robots—are completely different.
Therefore, it has the characteristic that economies of scale are difficult to achieve. It is difficult to establish a model like the automotive industry where costs are reduced by mass-producing a single product. As a result, many small and medium-sized enterprises specializing in specific fields are active, and it is not uncommon for even small companies to hold a high share in niche markets and maintain stable management.
Price competition is unlikely to occur, and profit margins are high
Because medical devices are products that involve patients' lives, it is difficult to switch suppliers simply because they are "cheaper." For medical institutions, product reliability, track record, and support systems are more important criteria for judgment than price.
Therefore, price competition is less likely to occur, and manufacturers' profit margins tend to be relatively high. In extreme cases, even if a manufacturer has a scandal, if there is no problem with the product itself, it may continue to be used as is.
Regulations and barriers to entry
High barriers to entry (though not as high as pharmaceuticals)
Medical devices are subject to regulations under the Pharmaceutical and Medical Device Act (formerly the Pharmaceutical Affairs Act), and permits are required for manufacturing and sales. Since the construction of a Quality Management System (QMS) and compliance with international standards such as IEC 62304 are also required, the hurdle for new entry can be said to be high.
However, compared to the clinical trial process in the pharmaceutical industry, the barriers to entry are relatively low, and entry from other industries can be seen. In fact, general trading companies, major home appliance manufacturers, and computer manufacturers have also entered the medical field.
Risk classification of medical devices
Medical devices in Japan are broadly classified into three categories according to the risk to the human body.
General Medical Devices (Class I): Thermometers, scalpels, etc. Low risk, can be manufactured and sold with just a notification.
Controlled Medical Devices (Class II): MRI, electrocardiographs, etc. Requires third-party certification or ministerial approval.
Highly Controlled Medical Devices (Class III/IV): Pacemakers, artificial joints, etc. Requires ministerial approval and is subject to the strictest regulations.
Diagnostic equipment is generally classified as controlled medical devices, while therapeutic equipment is generally classified as highly controlled medical devices. In the field of embedded software development, this classification significantly changes the requirements for development processes and documentation, making it essential knowledge for engineers as well.
Japan's Strengths and Challenges
Japan is strong in diagnostic equipment
Japanese medical device manufacturers have global competitiveness in the field of diagnostic equipment. Representative companies include the following:
Olympus: World-leading market share in gastrointestinal endoscopes.
Terumo: Operates domestically and internationally in catheters and blood transfusion-related equipment.
Fujifilm: Growing in medical diagnostic imaging (X-ray, endoscopes) and AI diagnostic support.
The challenge of device lag
On the other hand, Japan faces the challenge of device lag (the time difference until medical devices approved overseas become available in Japan). Because clinical trial approval takes time and money, there are cases where the latest equipment used overseas is not easily introduced in Japan.
Also, because Japan has a well-established social security system, including the universal health insurance system, it is difficult for innovative medical devices not covered by insurance to become widespread. It cannot be denied that the stability of the system is a factor that suppresses the speed of innovation.
The medical device industry from an engineer's perspective
What I feel while working on embedded software development for medical devices is that in this industry, understanding standards and regulations is just as essential as technical skills. Since software quality is directly linked to patient safety, compliance with development processes based on IEC 62304 is required.
Conversely, engineers with know-how in standards compliance have high market value, and the industry continues to face a shortage of engineers. For those considering a career change from the IT industry, I believe it is a field worth entering.
Summary
The Japanese medical device industry can expect stable growth due to an aging population, but it has a unique structure with regulatory compliance and market fragmentation. Since economies of scale are difficult to achieve, it is an industry with great opportunities for small and medium-sized enterprises and engineers who can demonstrate expertise in niche markets.
In the future, with the progress of medical DX and AI diagnostic support, the role of software engineers will become even more important.
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