Siemens forms joint venture to win MR sales in China

May 29, 2002

Chinese firm provides needed local connectionIn five years, China could become the third or even the second largest market for MR scanners, according to a top executive at Siemens Medical Solutions. The German vendor of imaging

Chinese firm provides needed local connection

In five years, China could become the third or even the second largest market for MR scanners, according to a top executive at Siemens Medical Solutions. The German vendor of imaging equipment is hoping its joint venture with Mindit Instruments, a Chinese manufacturer of permanent magnets, will pave the way to success in that market.

Heinrich Kolem, Ph.D., president of Siemens MR division, expects the newly formed company, called Siemens Mindit Magnetic Resonance, to have two MRI systems dedicated to the Chinese market in full production by early next year. One is being built around a Mindit Instruments 0.35T permanent magnet, the other around a 1.5T superconducting magnet provided by Oxford Magnet Technology in England.

The first two 0.35T systems are scheduled to ship in July, and eight more are expected to ship before the end of the year. Two of the 1.5T systems have already shipped to customers. Another 10 could ship by year's end, according to Kolem.

Initially the systems built by Siemens Mindit will be sold just to customers in China. Eventually, however, the Shenzhen-based joint venture could begin selling the product, to customers elsewhere.

"That is clearly a long-term goal, but we will take it step by step and confirm the readiness of the product," Kolem said.

China figures largely in Siemens' plans to expand sales in Asia. The country currently accounts for about 150 MR scanner sales annually. This puts China fourth in MR sales behind the U.S., Japan, and Germany. But China, whose MR sales are growing 8% to 10% a year, may soon jump ahead of Germany, and within five years it could pass Japan, according to Kolem, to capture the number two spot.

Siemens has sold a few Magnetom scanners in China on its own. But the way to increase sales, Kolem said, is to partner with a Chinese firm. Some companies have formed joint ventures with distributors. Siemens chose to work with an equipment manufacturer because of how such a union would be perceived by customers.

"For the Chinese people, it is important to have the feeling that there is local competence involved in the making of equipment," Kolem said. "Therefore, local manufacturing is important."

The joint venture is even helping Siemens win sales on its own. Kolem noted that the company recently sold a 3T system to a Chinese customer.

"The Siemens Mindit deal helped us get this sale because the customer felt we are invested there in China and that we are building a local competence," he said.

Siemens holds a 75% stake in the Mindit joint venture. The German company will supply the technical expertise in manufacturing MRI scanners, as well as much of the hardware and software that goes into the two types of MR systems. This is particularly the case for the 1.5T product, which Kolem describes as essentially a Siemens Symphony with a few Chinese components. Mindit provides the magnet technology used in the 0.35T system and management expertise.

"The current management of Mindit is mostly educated in the U.S., and they have a lot of MR knowledge, so we have the feeling that the know-how is excellent on the management level," Kolem said. "With our know-how to mass produce systems, we think it is a perfect combination."

Oxford Magnet Technology, in which Siemens holds a 51% stake, played an important part in the development of the Chinese joint venture. Oxford first enlisted Mindit as a customer for the sale of superconducting magnets when Mindit was pursuing plans to launch its own scanner business. After learning from Oxford about Mindit's interest in manufacturing high-field systems, Kolem contacted the president of the Chinese company to explore the possibility of working together. The joint venture was made easier by the two men's previous professional and personal relationship.

"The president of Mindit and I had a common scientific paper in 1992, so we have known each other for a very long time," Kolem said.

The Siemens-Mindit joint venture was preceded by another such partnership established with a formerly state-owned company that manufactures CT scanners for the Chinese market. Siemens strategists considered combining the two but decided against it.

For the time being, Siemens Mindit will focus just on making MR scanners for China. Siemens has high hopes for the venture.

"We are aiming to capture the majority of the Chinese market in MR," Kolem said.