Jude Shroff, Managing Director, Chelle Medical Ltd.03.04.20
Medical contract manufacturing is generally not a one-size-fits-all type of strategy. Product technologies and cost pressures can drive different supplier choices. Stage of product lifecycle may also change the calculus. Proximity to end market and/or ability to leverage Free Trade Agreements can also play a factor. For the most part, supplier selection is focused on regions where there are concentrations of contract manufacturers and associated supply chains. There are product types, however, that don’t neatly fit into traditional medical device contract manufacturing models or established regions.
In many ways, the Seychelles represents a “best kept secret” in terms of fit for niche, light manufacturing. The Seychelles is an island state located in the Southwestern Indian Ocean, consisting of 115 islands. Mahe is the largest island of the archipelago and home to the country’s government. It constitutes about one-third of the total land area. The Seychelles are close enough to the equator to have a temperate climate year round. That geographic position also puts them outside the track of typhoons and the seismic instability of the Ring of the Fire (i.e., a major area in the basin of the Pacific Ocean). As a result of an excellent climate, tourism is the primary industry and accommodations and transportation options are well established and excellent. There is good availability of an educated workforce and labor costs are relatively low.
An even bigger advantage, however, is the Seychelles International Trade Zone Sector (SITZ) and the country’s participation in both regional preferential trade agreements and bilateral agreements. The Seychelles is a signatory to several preferential trade agreements with countries in Africa including COMESA and SADC. Its bilateral agreements include South Africa, Switzerland, the European Union, Thailand, Japan, Canada, and the U.S. It is a member of the WTO, and the IMF categorizes the Seychelles as a developed country. The World Bank’s Global Competitiveness Index 4.0 2018 Rankings list it as 74th overall out of 140 countries. In the subcategories, the Seychelles ranked 43rd out of 140 in human capital skills and 23rd in labor markets. It ranked 49th in innovation capability.1 Comparatively, its overall ranking scores better than Vietnam and most of the Caribbean nations.2 In short, its competitive labor costs, proximity and market access to Africa and the EU, and available skilled workforce make it attractive for niche medical manufacturing. Its geographic location, however, limits its attractiveness as a hub for global manufacturing.
The next logical question many may have at this point is, “What types of medical contract manufacturing make the most sense for this combination of advantages?”
One outlier category of products is driven by economic need. While the wealthier nations of the world want the latest technology in their medical products and have the budgets to pay for it, developing nations are often happier with older technology, provided it has been refurbished and meets appropriate quality standards. In a perfect world, this cycle of reuse helps minimize e-waste and ensures products are fully utilized over their entire usable life. The challenge is that the combined cost of tariffs and refurbishment can make this process too costly to pursue. The Seychelles participation in African trade agreements such as COMESA and SADC, combined with its SITZ, simplify market entry and may eliminate or mitigate tariffs. Consequently, this dynamic represents a good option for projects involving cleaning, testing, repairing, refurbishing, remanufacturing, and/or repackaging older medical technology products.
Another outlier category that fits the Seychelles manufacturing capabilities is the light assembly of medical products that don’t easily fit into a company’s internal manufacturing capabilities or traditional contract manufacturing preferred project types. For example, a European company had acquired a pain management pump product line manufactured in Mexico. They had no other products manufactured in that country and wanted to move manufacturing closer to their European operations while keeping costs comparable to what they were paying in Mexico. A medical device assembly firm in The Seychelles had the requisite quality certifications/registrations, rigorous compliance mechanisms, appropriate cleanroom space, and the desired cost structure.
Conversely, there are also projects that don’t fit capabilities readily found in the Seychelles’ manufacturing sector. As mentioned, its geography makes some end markets more attractive than others. Relatively low labor costs have translated to less automation and the technical personnel needed to maintain automated production lines. There is not a strong board-level electronics manufacturing sector, so printed circuit board assemblies (PCBAs) are typically imported. Precision-engineered parts used in electromechanical assembly are also typically imported since there is not a strong molding or stamping manufacturing base. The capabilities for light electromechanical assembly and testing, however, do exist.
Another common question posed is, “Why would a medical device manufacturer choose to outsource light assembly to a Seychelles contract manufacturer rather than stay in a region with a higher concentration of contract manufacturers?”
There are several advantages to consider. First, staff turnover is comparatively low in the Seychelles manufacturing sector, unlike the more popular manufacturing regions where a growing base of manufacturers compete for a finite labor market. Some of Chelle Medical’s employees have been with the company over two decades and the average tenure is 10 years. Second, the SITZ and/or the Seychelles trade agreements contribute to relatively low overall costs of doing business, logistics simplicity, and, in most cases, tariff mitigation. Workforce quality is disproportionate to the comparatively low labor cost. Work ethic is high; employees are educated and they understand the need to rigidly comply with product specifications. Finally, since tourism is an important part of the Seychelles’ economy, sourcing team visits feel more like a trip to a high end vacation spot than travel to a relatively low cost manufacturing region. English and French are widely spoken and business is conducted in English. In a world where extended foreign travel requirements are often a driver of staff turnover, site audits on an island paradise may be advantageous.
In short, manufacturing in the Seychelles may represent a cost effective strategy for tariff mitigation in products shipped to African nations or the EU. The labor force quality versus cost equation also makes it an excellent choice for light manufacturing of products whose volumes don’t justify the cost of automation or have assembly processes that are difficult to automate.
References
Jude Shroff is Chelle Medical Ltd.’s managing director. He has over 25 years of experience in executive and quality management in medical device manufacturing and laboratory testing related fields. Prior to joining Chelle Medical in 2004 as quality manager, he served as manager of the Laboratory Testing Centre of the Seychelles Bureau of Standards. He has also contributed to various governmental committees in the fields of science, environment, and health, and is currently a member of the Seychelles’ Public Health Authority Board in the Ministry of Health.
In many ways, the Seychelles represents a “best kept secret” in terms of fit for niche, light manufacturing. The Seychelles is an island state located in the Southwestern Indian Ocean, consisting of 115 islands. Mahe is the largest island of the archipelago and home to the country’s government. It constitutes about one-third of the total land area. The Seychelles are close enough to the equator to have a temperate climate year round. That geographic position also puts them outside the track of typhoons and the seismic instability of the Ring of the Fire (i.e., a major area in the basin of the Pacific Ocean). As a result of an excellent climate, tourism is the primary industry and accommodations and transportation options are well established and excellent. There is good availability of an educated workforce and labor costs are relatively low.
An even bigger advantage, however, is the Seychelles International Trade Zone Sector (SITZ) and the country’s participation in both regional preferential trade agreements and bilateral agreements. The Seychelles is a signatory to several preferential trade agreements with countries in Africa including COMESA and SADC. Its bilateral agreements include South Africa, Switzerland, the European Union, Thailand, Japan, Canada, and the U.S. It is a member of the WTO, and the IMF categorizes the Seychelles as a developed country. The World Bank’s Global Competitiveness Index 4.0 2018 Rankings list it as 74th overall out of 140 countries. In the subcategories, the Seychelles ranked 43rd out of 140 in human capital skills and 23rd in labor markets. It ranked 49th in innovation capability.1 Comparatively, its overall ranking scores better than Vietnam and most of the Caribbean nations.2 In short, its competitive labor costs, proximity and market access to Africa and the EU, and available skilled workforce make it attractive for niche medical manufacturing. Its geographic location, however, limits its attractiveness as a hub for global manufacturing.
The next logical question many may have at this point is, “What types of medical contract manufacturing make the most sense for this combination of advantages?”
One outlier category of products is driven by economic need. While the wealthier nations of the world want the latest technology in their medical products and have the budgets to pay for it, developing nations are often happier with older technology, provided it has been refurbished and meets appropriate quality standards. In a perfect world, this cycle of reuse helps minimize e-waste and ensures products are fully utilized over their entire usable life. The challenge is that the combined cost of tariffs and refurbishment can make this process too costly to pursue. The Seychelles participation in African trade agreements such as COMESA and SADC, combined with its SITZ, simplify market entry and may eliminate or mitigate tariffs. Consequently, this dynamic represents a good option for projects involving cleaning, testing, repairing, refurbishing, remanufacturing, and/or repackaging older medical technology products.
Another outlier category that fits the Seychelles manufacturing capabilities is the light assembly of medical products that don’t easily fit into a company’s internal manufacturing capabilities or traditional contract manufacturing preferred project types. For example, a European company had acquired a pain management pump product line manufactured in Mexico. They had no other products manufactured in that country and wanted to move manufacturing closer to their European operations while keeping costs comparable to what they were paying in Mexico. A medical device assembly firm in The Seychelles had the requisite quality certifications/registrations, rigorous compliance mechanisms, appropriate cleanroom space, and the desired cost structure.
Conversely, there are also projects that don’t fit capabilities readily found in the Seychelles’ manufacturing sector. As mentioned, its geography makes some end markets more attractive than others. Relatively low labor costs have translated to less automation and the technical personnel needed to maintain automated production lines. There is not a strong board-level electronics manufacturing sector, so printed circuit board assemblies (PCBAs) are typically imported. Precision-engineered parts used in electromechanical assembly are also typically imported since there is not a strong molding or stamping manufacturing base. The capabilities for light electromechanical assembly and testing, however, do exist.
Another common question posed is, “Why would a medical device manufacturer choose to outsource light assembly to a Seychelles contract manufacturer rather than stay in a region with a higher concentration of contract manufacturers?”
There are several advantages to consider. First, staff turnover is comparatively low in the Seychelles manufacturing sector, unlike the more popular manufacturing regions where a growing base of manufacturers compete for a finite labor market. Some of Chelle Medical’s employees have been with the company over two decades and the average tenure is 10 years. Second, the SITZ and/or the Seychelles trade agreements contribute to relatively low overall costs of doing business, logistics simplicity, and, in most cases, tariff mitigation. Workforce quality is disproportionate to the comparatively low labor cost. Work ethic is high; employees are educated and they understand the need to rigidly comply with product specifications. Finally, since tourism is an important part of the Seychelles’ economy, sourcing team visits feel more like a trip to a high end vacation spot than travel to a relatively low cost manufacturing region. English and French are widely spoken and business is conducted in English. In a world where extended foreign travel requirements are often a driver of staff turnover, site audits on an island paradise may be advantageous.
In short, manufacturing in the Seychelles may represent a cost effective strategy for tariff mitigation in products shipped to African nations or the EU. The labor force quality versus cost equation also makes it an excellent choice for light manufacturing of products whose volumes don’t justify the cost of automation or have assembly processes that are difficult to automate.
References
- World Economic Forum, “The Global Competitiveness Report”, 2018-19, pp. 503-505. http://bit.ly/mpo200320
- World Economic Forum, “The Global Competitiveness Report”, 2018-19, p. xi. http://bit.ly/mpo200320
Jude Shroff is Chelle Medical Ltd.’s managing director. He has over 25 years of experience in executive and quality management in medical device manufacturing and laboratory testing related fields. Prior to joining Chelle Medical in 2004 as quality manager, he served as manager of the Laboratory Testing Centre of the Seychelles Bureau of Standards. He has also contributed to various governmental committees in the fields of science, environment, and health, and is currently a member of the Seychelles’ Public Health Authority Board in the Ministry of Health.
