Category — China Manufacturing

Sunrise announced that they have divested their US and South America Guardian business. (by the way the Guardian brand was never strong in their European business).

Sunrise CEO Michael N. Cannizzaro said:

For Sunrise Medical this is an important step in our strategy of being the industry’s leading Mobility and Seating Company. We will work closely with Medline to insure a smooth and seamless transition for all of our valued customers

Medline DME Division President said:

The acquisition of the Guardian line marks a significant step forward in the growth and value-added development of our Durable Medical Equipment division,” said Dave Jacobs, president, Medline Durable Medical Equipment division. “Guardian has a long-standing reputation for excellence and innovation in the healthcare industry and we are very pleased to have the opportunity to build on that tradition. In addition to bolstering our competitive position in the marketplace, the acquisition of this highly respected brand expands the range of products, services and value we can offer our customers

My take on this is that this move represents the next stage in industry (re) focus. Sunrise, a former pure play manufacturer, has chosen to exit a lower value added business that is increasingly dominated by people that have been smart in terms of how they source product from Asia. Medline has considerable expertise in this area.

Of interest perhaps is that this was conducted under Michael N. Cannizzaro’s watch. He was hired in 2007 by Vestarcapital partners - private equity shareholder of Sunrise. At about the same time Sunrise had been split into two parts - namely their respiratory business and wheelchair and other businesses.

Vestarcapital had taken Sunrise private in 2000 and speculation is that they may be looking for an exit.

Last week I wrote about Handicare, a relatively highly differentiated European based rehab company that is rapidly reaching the revenues of Sunrise, that acquired Linido, a relatively low value patient aid business last week.

Interesting…

European home healthcare companies have been very aggressive and ahead of the outsourcing curve in terms of Asian sourcing. This has been born, not only as a result of optimizing their bottom lines, but out of necessity as European government pressures on reimbursement (especially in Germany) have increased dramatically.

Here is an example of the problem - and this just scratches the surface.

It is no secret that manufacturing companies as well as pure distribution companies have been competing for the volume of hundreds of thousands or perhaps millions of wheelchairs, rollator, walker or other patient aid products. Price competition has been fierce and margins, after shipping are often less than 1O%.

It is also true that products sourced in Asia are commonly quoted in US Dollars. European customers have benefited from a rising Euro over the past three years and have become complacent as to currency risk as the favorable exchange bubble continue to grow.

Three months ago 1 Euro would have bought you 1.55 US Dollars. Today 1 Euro will buy you 1.29 US Dollars. A drop of round about 20%. Check the chart.

Here is my take on this:

The Chinese are not going to be able to decrease their costs meaningfully.

The Governments are not going to raise their reimbursement prices.

The Manufacturers are not going to sell at a loss.

The Dealers are going to take a haircut.

Manufacturers or Dealers that have signed up for a low competitive bid in Germany are going to have to visit their bank for a loan.

The Banks don’t have any money to loan.

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Xian China

News From The Taipai International Bicycle Show

Pihsiang Machinery Manufacturing Co., Ltd., Taiwan`s largest supplier of handicapped electric scooters, is expected to enjoy a 30% shipment growth this year due to the subsidization program offered by Centers for Medicare & Medicaid Services (CMS) to electric-scooter buyers in the United States.

According to Pihsiang, CMS listed the handicapped electric scooter a subsidization item for the first time in late 2006, and the highest subsidy amount is now set at US$3,800 for each scooter, which almost covers the full price of a Pihsiang product.

Last year, Pihsiang shipped about 65,000 handicapped electric scooters, including around 30,000 units to the U.S. market. Thanks to the CMS subsidization program, some institutional investors estimated that the company`s total shipment this year would surge 30%.

Go figure.

On Friday this news quietly slipped through the news wires but could have a dramatic effect on several businesses, not least of which the US homecare industry.

“WASHINGTON: The Bush administration, in a major escalation of economic pressure on China, said Friday that it would adopt a new policy of imposing tariffs on Chinese manufactured goods on the grounds that its government subsidies violated international trade laws.”

This is an interesting development as the homecare industry continues its frenetic scurry to the outsourcing haven of China.

In the above case, in the paper industry, some costs are estimated to increase by up to 20%. There is no reason why the homecare industry will not be in the line of fire as well. In any event, with Chinese homecare suppliers becoming increasingly arrogant about how they chose to treat their US and European customers, this may be an interesting swing of the pendulum.

Worst effected - will be those companies that have “gazumpted” the homegrown value added manufacturers and suppliers and have chosen to “import commodities at lowest cost” and largely use price as a basis for competition. A cost increase of 20% will close them down, much to the delight of the more diversified value added players.

There is nothing wrong with sourcing in China - just make sure your business model does not wholly depend on it.

More from The International Herald Tribune
With tariffs, U.S. steps up economic pressure on China

As a brief follow - up to the post on this subject this week, we can now confirm that Invacare, Meyra and Handicare will not be attending this years Rehacare.

This is the first time in the history of this show that Invacare and Meyra have not attended.

No doubt the empty space will be used by others - most notably Asia manufacturers.

The reshaping of the industry continues…