Undergraduate Review Volume 14 Special Issue: Canada and the United Article 10 States in the Age of Trump 2018 The ndE of NAFTA and a Future for Companies in the Medical Device Industry Melissa Guimond Jennifer Krouse Kyle Beauregard Follow this and additional works at: https://vc.bridgew.edu/undergrad_rev Recommended Citation Guimond, Melissa; Krouse, Jennifer; and Beauregard, Kyle (2018). The ndE of NAFTA and a Future for Companies in the Medical Device Industry. Undergraduate Review, 14, 58-67. Available at: https://vc.bridgew.edu/undergrad_rev/vol14/iss2/10 This item is available as part of Virtual Commons, the open-access institutional repository of Bridgewater State University, Bridgewater, Massachusetts. Copyright © 2018 Melissa Guimond, Jennifer Krouse, and Kyle Beauregard and Medtronic. Through our research, we are able to The End of NAFTA and generate potential strategies for each of these companies should the possible changes to NAFTA occur. a Future for Companies While studying the impact of the potential changes of NAFTA in regard to the Medical Device in the Medical Device Industry, we first need to learn about how the industry is currently doing and how potential changes proposed Industry could affect the industry. Our research of the Medical MELISSA GUIMOND and JENNIFER KROUSE, Device Industry uses a strategic audit approach to with KYLE BEAUREGARD analyze and make recommendations to the top three companies in the NAFTA region. Were NAFTA to n 1994, the North American Free Trade Agreement be scrapped or severely limited, there are a number of (NAFTA) created one of the world’s largest free likely impacts on the Medical Device Industry in the trade zones and established the foundation for United States. First, Mexico and Canada could retaliate economic growth and increased prosperity for by imposing restrictions on United States products ICanada, the United States, and Mexico. This essay sets that currently have favorable trade terms and high sales out to examine how proposed changes to NAFTA could volume. Second, there is the potential for a lower trade affect the Medical Device Industry.1 In recent weeks, deficit between Mexico and Canada. Third, scrapping U.S. President Donald Trump has threatened to scrap NAFTA might bring about an end to the Value-added NAFTA or limit the number of economic sectors that Tax (VAT). The VAT is a type of general consumption “free trade” with Canada and Mexico could encompass. tax that is added incrementally throughout each stage Were this to happen, the medical device industry of production or distribution. This would increase could be impacted in both positive and negative ways. profit margins for many companies, including those in These possible changes create positive impacts for both medical device production. Lastly, there could be more Canada and Mexico. Most of the possibly negative complications involved when American-owned factories changes directly impact the United States. Our research stationed in Mexico are moved back to the United States analyzes external environmental factors and the industry (Varney, 2017). as a whole. We look at how the proposed changes could affect three major companies operating in the Context NAFTA region: GE Healthcare, Johnson & Johnson, Our research includes an assessment of the industry as a whole within the NAFTA countries, its top sectors, top 1 Editors’ note. This essay was written in early Spring 2018, months trends, and the current performance of GE Healthcare, before the October 2018 conclusion of negotiations resulting in the United States-Mexico-Canada Trade Agreement (USMCA), the Johnson & Johnson and Medtronic. We also use successor to the North American Free Trade Agreement (NAFTA). Porter’s Five Forces, a tool to analyze the competition This scholarship provides scholarly insight into the subject that was available at that moment. of businesses, to assess the Medical Device Industry. It 58 • The Undergraduate Review• Special Issue • 2018 BRIDGEWATER STATE UNIVERSITY Figure 1: Basic Facts about Healthcare in NAFTA’s Three Countries Canada Mexico United States Population 35,099,836 121,736,809 321,368,864 Total Healthcare $186 Billion $82 Billion $3 Trillion Spending Healthcare expenditures 10.4% 6.3% 17.1% total (% of GDP) Healthcare expenditures $5,292 USD $677 USD $9,403 USD per capita Expenditures on Gov’t 71%, Gov’t 52%, Private 48% Gov’t 48%, healthcare Private 29% Private 52% Size of medical device $6.2 Billion $5 Billion USD $147.7 Billion market USD USD is a five-force model that determines the competitive directly to the top sectors, such as the revolution of intensity or attractiveness of a company in regard to diabetes care, surgical robots, and devices that connect its profitability. Figure 1 details some basic facts about cars and trucks with health sensors. Health sensors the medical device industry within Canada, Mexico placed on the steering wheels of cars can detect heart and the United States. The US dollar is very strong attacks, seizures and other health conditions that could and constitutes one of the reasons why the medical happen while driving (though this device is still in the device market is on the rise. However, the strong dollar early development stage). With innovation in medical creates challenges for American device manufacturers devices, though, there are always some unexpected issues exporting to markets with weaker currencies (Corpart, that occur. In 2017, some of the concerns raised by 2018). Comparing the NAFTA countries gives a deeper innovation in the medical device industry included those understanding of how each country values healthcare concerning a restrictive regulatory environment, the and the medical device industry. speed of technology, the ability to raise capital to fund The Frost & Sullivan website provides a complete innovations and the changes in customer behavior and 2017 snapshot of the Medical Device Industry. demands. The medical industry is constantly changing According to it, the top five sectors of 2017 were: and it is extremely difficult to make sure that products structural heart, robotics and robot assistance, neuro- and devices are reliable. In 2017, there was also a devices, integrated patient monitoring devices, and transformation in the medical device industry ecosystem. diabetes care. Some of the top technology trends relate Companies in this sector developed a connected BRIDGEWATER STATE UNIVERSITY 59 • The Undergraduate Review• Special Issue • 2018 ecosystem of sensors and devices that are readily available volunteering. The four main product and service to individuals and that serve the functions of identifying, focuses of Medtronic are cardiac and vascular afflictions, capturing and measuring health data, stratifying risks, restorative therapies, diabetes, and minimally invasive informing patients of conditions, and helping them and therapies. their physicians to make decisions and take action. These Johnson & Johnson sensors and devices can be placed on an individual’s body, in their homes, in community centers, in clinics Johnson & Johnson is the world’s largest independent and, of course, in hospitals (Frost & Sullivan, 2017). biotech company with a market cap of $343.8 Billion. These sensors are extremely important for innovation A manufacturer of medical devices, pharmaceutical for consumers, such as those with diabetes, who use and consumer packaged goods, it is an American them multiple times a day to check blood sugar levels. multinational company that was founded in 1886, with The medical device industry is constantly changing its headquarters in New Brunswick, New Jersey. In the and evolving with new technologies. These changes can third quarter of 2017, Johnson & Johnson’s revenue in be seen in the current performances of the companies its medical device section was a little more than $19,650 Medtronic, Johnson & Johnson, and GE Healthcare. Million. In Johnson & Johnson’s medical device section, the main products they focus on involve general surgery, Medtronic energy science, endocutters, biosurgery, infection Medtronic is a Global Healthcare and Medical prevention and wound closure. Medical device sales Device company located in Mansfield, Massachusetts. account for 35% of the company’s value. As a company Medtronic’s mission statement claims that its first that has been around for more than 100 years, Johnson priority is “to contribute to human welfare by & Johnson has been and will continue to be a leader of application of biomedical engineering in the research, innovation in the medical field. By 2024, the company’s design, manufacture, and sale of instruments or forecasting predicts that its revenue will be around appliances that alleviate pain, restore health, and extend $29 Billion. (Johnson & Johnson - Medical Device). life” (Medtronic). Medtronic is growing innovation in Johnson & Johnson’s future growth concerns include the area of biomedical engineering. In 2017, it invested changing healthcare needs for an aging population, more than $2 Billion in research and development, changing dynamics in the women’s health market, price which represented 7.4% of the company’s net sales that regulation, and developing minimally invasive surgery year. Medtronic also launched labs to bring about new procedures to reduce infections. Johnson & Johnson initiatives to deliver financially sustainable businesses continues to be the world’s leader of innovation among that expand access and reduce health inequality in biotech companies. emerging