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Elevating hospitals into the high-tech future: Glad Alliance redefines cold chain management

Interview - January 18, 2024

As a leader in Korean cold chain management standards, Glad Alliance has developed safer refrigerator systems that integrate anti-blackout systems, automatic alarm systems, and double-locking doors. Driven by the vision of highly automated hospitals, they collaborate with Korean automation manufacturers to enhance healthcare facilities.

MR JEONG KWON YOON, VICE PRESIDENT OF GMS & PRESIDENT OF GLAD ALLIANCE
MR JEONG KWON YOON | VICE PRESIDENT OF GMS & PRESIDENT OF GLAD ALLIANCE

In 2021, the size of the medical device market in South Korea reached 9.1 trillion KRW. However, critics such as Professor Sun Kyong of Kyung Hee University claim that this increase has mainly contributed to foreign companies, not domestic ones. More recently during a forum at the National Assembly he emphasized that “the domestic medical device market and the domestic market size should grow together.” How can Korean companies expand their domestic market share?

Historically, Korean medical devices, from around four to five decades ago, were predominantly modifications or adaptations of Japanese, American, or European brands. The issue is that the majority of these medical devices fall under Class Two or lower categories according to the medical device classification system.

This system consists of four classes. Class One encompasses basic, easy-to-produce products that require registration. Class Two includes more general devices, such as centrifuges and refrigerators, which require certification from regulatory bodies like MFDS (Ministry of Food and Drug Safety, South Korea) or the FDA (Food and Drug Administration, USA).

Class Three comprises devices that come into direct contact with human skin or are invasive in nature. This includes items such as injections or syringes, which necessitate clinical research. The highest category, Class Four, refers to devices that are designed for permanent insertion into the human body, such as implants or artificial joints.

The major problem in the Korean medical device industry lies in its concentrated focus on Class Two or lower devices, which often limits the development of new and innovative technologies. A contributing factor to this issue is the stringent regulation under the Korean Medical Act.

While telemedicine is thriving in many parts of the world, it has not gained much traction in Korea. Telemedicine experienced a brief period of use during the Covid-19 pandemic when in-person treatments were restricted, but its usage did not endure.

Collaboration with startups can be particularly challenging for these reasons. Startups often lack the necessary financial resources or support to endure the lengthy clinical research and certification process. While this may seem like a somewhat negative portrayal of the Korean medical industry, it is an accurate representation of the current challenges it faces.

 

In the early 2020s, the government enacted a presidential decree which instigated the formation of a five-year plan designed to enhance Korea's proficiency in the medical field. This plan was developed in consultation with the Korean Medical Device Association and resulted in the first comprehensive development and support plan for the medical devices industry, spanning from 2023 to 2027. Do you think this plan will significantly contribute to improving the ecosystem for Korean medical device companies?

The government has been making substantial investments in both the academic and industrial sectors in a bid to invigorate the medical device industry. However, the most significant impediment remains the complex policies and regulatory barriers. Moreover, the financial burden associated with commercializing a product is immense.

Take the surgical robot as an example: while its concept was formulated 15 years ago, it has not yet reached the commercial market. Therefore, for the industry to thrive, we need to ensure a balanced development between hardware and software technologies. At present, the emphasis seems skewed towards software technology development. This is my perspective on the current state of affairs.

 

President Yoon paid a visit to Boston last week, during which he met with representatives from other notable pharmaceutical and medical device organizations. During these meetings, he emphasized the need for increased collaboration between American and South Korean firms, particularly within the manufacturing sector. Given the combined manufacturing prowess of both South Korea and the US, do you believe that enhanced cooperation between these two nations could prove beneficial for the medical industry?

Indeed. In fact, I was a part of the Korean team that visited Boston last week. We attended a medical event organized by the Korean Ministry of Health and Industry, where I had the opportunity to present strategies for successfully introducing Korean medical devices into the American market.

Key players such as Daewoong Pharmaceutical and Kakao Healthcare also participated in this event. Kakao Healthcare established a partnership with three American companies, formalizing it with an MOU to collaborate on hardware development. Meanwhile, Daewoong Pharmaceutical signed an MOU to export their unique technology and patent to an American company for production on American soil. Our plan is to market our products in the US through these collaborations with American companies.

 

South Korean exports, particularly in medical equipment, have seen significant growth of 79 percent between 2019 to 2020, particularly to regions like Asia Pacific and Western Europe. Currently, there are over 4,000 medical equipment companies operating in Korea. How quickly do you think Korean exports can continue this growth trajectory? And do you think it's feasible for Korea to rise to become the world's fifth largest exporter?

As of now, the prospect of becoming the 5th largest exporter seems quite formidable. Initially, we would need to transform our sales strategies and distribution locations. American medical devices dominate the global market, constituting 54 percent of all the world's products. Ignoring the American market isn't a viable option for Korean medical device companies if they aim to thrive. In the industry hierarchy, American medical devices typically hold the top spot, followed by European manufacturers.

Therefore, to effectively infiltrate the American market and compete with US-based firms, we must overcome the regulatory hurdles posed by the FDA.

I entered this industry seven years ago, initially aiming to break into the VA and GSA markets. However, at that time, there was no demand for Korean medical devices in the American private market, particularly in hospitals. Consequently, I had to shift gears. I was in the process of completing GSA registration and adjusting the price list when the Covid-19 pandemic hit. As a result, I couldn't finish the GSA registration process, and the three-year pause stalled my progress. However, I'm now on the verge of obtaining final approval. The key setback is that failing to conclude the GSA registration process means starting from scratch.

Let me further highlight issues with the current operation model of Korean medical device manufacturers. Over the past thirty years, these manufacturers have been participating in various world exhibitions, establishing distributors in regions throughout Asia, Arab countries, and Europe. But they often face the challenge of competing with price-competitive products from China and India. To maintain competitiveness, we must fundamentally revise our mode of operation.

 

Indeed, several Korean companies have performed remarkably well. For instance, Lutronic, a Korean firm, achieved sales in the US amounting to 109 billion won last year, which now constitutes 47 percent of its total sales. Another example is Inbody, which has also found considerable success in the US.

So, what would it take for Korean small and medium-sized enterprises (SMEs) to not only compete technologically with American firms but also remain price competitive against Chinese manufacturers or those from emerging economy manufacturing hubs?

For Korean small and medium-sized enterprises, penetrating the American market is a significant challenge due to the considerable time and effort required for their products to gain traction there. The FDA approval process is notably more demanding than receiving CE approval, and therefore the CEO of an SME must possess a strong determination to succeed in the international sphere, particularly the American market.

To achieve success in the US, a company must be fully prepared for the rigorous FDA approval process. The right certifications and setup must be in place to facilitate the sale of their products in American markets. However, this necessitates a substantial upfront investment, which most SMEs cannot shoulder without governmental assistance due to their limited budgets.

During the event in Boston, numerous government officials probed for challenges faced by Korean SMEs when venturing into the American market, signaling their intention to provide support. Without such governmental backing or grants, it remains exceedingly challenging for SMEs to establish a successful foothold in America, with only a handful managing to do so.

When it comes to competing with Chinese products in the US, it's essentially a battle of price undercutting. The US imposes a hefty 25% tariff on Chinese goods, causing them to sell their products at extremely low prices to offset these charges. They typically sell their products as OEM to mask their original brands and focus on saturating the market with their goods, which makes it difficult for Korean SMEs to sustain their market presence.

Until last year, for instance, the logistics costs for Korea stood at $20,000, while for China, they were merely $5,000 - a substantial disparity. However, this logistical bottleneck seems to have been eased since the beginning of this year, offering us a chance to compete on price.

Backed by the increased revenues from their vast domestic market, Chinese companies have been merging with many companies worldwide. Take Mindray, for example. Most people don't realize it's a Chinese company due to its numerous international mergers, its listing on NASDAQ, and its enlarged market presence.

 

Indeed, you recently secured a substantial contract and have become a part of the procurement process in the US. You've also made significant strides in prioritizing the US, having obtained both FDA and CE certifications, and I believe you were the first in Korea to do so. Can you share how you managed to penetrate the US market and the importance of this market for your company? You've mentioned the scalability advantage that Chinese companies have, and given the limited nature of the Korean market, how vital is it for you to leverage the American market to expand your operations?

The primary motivation behind my decision to venture into the American government market was the existing tension between the US and China. I perceived an opportunity to leverage this strained relationship, as China finds it challenging to sell its products to the US government. That's why I chose to concentrate on sales through the GSA and the VA. Only 10 to 20 countries, including France, Australia, England, and Japan, are permitted to sell in the US government market. Among them, only 7-8 countries are robust manufacturers, with the rest being mainly distributors like the Arabian countries. In this competitive environment, Korean medical devices emerge as the most affordable options in the US government market.

In absolute terms, we cannot compete with Chinese contenders head-on. Thus, we adjusted our strategy to target the US government market with entry-level products. In addition to exporting our own products, we're developing a new platform to collaborate with other manufacturers in Korea. So, if a client needs an affordable product, we'll coordinate with these other manufacturers to create a reasonably priced product since we understand how to procure the right components.

Our initial step is to sell entry-level products. Once the US government acknowledges the competitiveness and superior quality of our products compared to Chinese ones, we plan to showcase our entire product range. Therefore, our strategy is not about working alone, but rather forming valuable partnerships.

 

I'm curious, beyond the North American market, are there any other regions that particularly pique your interest?

We've recently started making inroads into the Australian market, as obtaining CE certification has become more stringent. We're primarily focusing on Australia and the US because we already hold FDA approval, and it's relatively simpler to secure TGA certification for marketing in Australia than it is to obtain CE. We're moving away from the Asian region, where we'd be competing with Chinese and Indian products. Instead, we're shifting our interest towards Australia, Mexico, and the American market. While we do have a sales channel in Indonesia, we're no longer interested in engaging in a price war, choosing to focus on quality instead.

 

You once stated, "We are not just a medical device company; we are your safety guard." That's a powerful phrase. One of South Korea's strengths is the global competitiveness of brands like Samsung, which can rival Apple, as mature markets often prioritize quality over cost. How do you capitalize on the reputation for quality that South Korean brands enjoy, especially in the medical field where quality is paramount? While Chinese products may be cheaper, how crucial is this quality-driven competitive edge when interacting with the international community?

A decade ago, Chinese products were often seen as low-quality, but they thrived due to their unparalleled ability for mass production. Now, however, the quality of Chinese products has risen to match that of other countries. Take robot hardware, for instance. About 80 percent of robotic hardware globally is manufactured in China. Nearly every country imports hardware from China, adding value by integrating their software technology. Therefore, even though numerous companies – around 10 to 15 – are working on robot transportation technology, the majority of the hardware originates from China. This landscape makes competition increasingly complex.

As everyone has recently emphasized ESG management, corporate social responsibility has become more important than differences in technology or quality. Therefore, Korean manufacturers should strive to earn customer trust through their service and benefits.

 

Let's delve a bit deeper into your company. Established in the 1980s, it has been operating for quite a while now and holds a dominant position in your sector, commanding around 70 to 80 percent of the market share within Korea. What factors contributed to such success domestically? Additionally, how do you perceive the future trajectory of your core business segment? Before we shift our focus to technology, I'd like to understand how you envision the evolution of your principal market segment in Korea in the coming years.

Essentially, we design and build refrigerators and freezers using domestically developed technology. However, what's truly crucial for us is actively engaging with and learning from our users' feedback, as we view ourselves as safety guards. When customers express the need for specific features, we strive to enhance our products to cater to these needs and requirements, while also ensuring compliance with pharmaceutical and medical regulations.

We were pioneers in initiating the validation process for clinical tests as these tests began to gain prominence. Furthermore, we contributed to the establishment of standards for the cold blood chain in Korea, a process that required understanding and meeting distribution requirements. We also initiated innovative measures like a remote alarm system for our refrigerators and freezers, alerting users when any issues arise. We even introduced a double-locking system, adding an extra layer of security for the storage of antipsychotic drugs. This continuous feedback loop with our clients and the subsequent integration of their needs into our products is a hallmark of our operations.

Certainly, some of our competitors now offer similar features, but we were the pioneers in bringing these functionalities to the market. Prior to entering the US government procurement market, we began by supplying innovative products to the Korean government market. Products considered innovative are high on the priority list and generally preferred over other items. With these products, we managed to achieve annual sales of 10 billion won in the Korean market alone. Now, leveraging this momentum, we aim to explore the larger American market.

 

Given the critical importance of cold chain management in the medical field, which was particularly highlighted during the COVID-19 vaccine rollout, and considering incidents like the loss of 1.6 million vaccine doses in a Northern French hospital due to improper storage, how are you navigating the complex requirements of vaccine storage such as the need to keep Pfizer's vaccine at temperatures below minus 60 degrees Celsius for more than two weeks? What specific challenges are you currently confronting in cold chain management, and what innovative technologies are you developing to surmount these challenges as this sector escalates in significance?

The Covid-19 pandemic saw the significant purchasing of cold chain systems for vaccines, predominantly by governments, who bought around 500 to 600 ultra-low temperature cold chain systems, as well as approximately 2000 vaccine refrigerators. However, issues surfaced when it came to private entities like clinics or hospitals managing these vaccines. Owing to the high costs of the temperature regulation systems necessary for vaccine preservation, these entities were reluctant to invest, which unfortunately led to vaccine wastage due to inadequate storage. In response to this challenge within the private sector, we have initiated a collaboration with large conglomerates such as LOTTE E&M. Nevertheless, there remains a persistently low recognition of the essential role of cold chain systems amongst the private sector.

 

That's a fascinating perspective, and you're absolutely right. In the case of France, the issue was due to human error. The proper functioning and storage capacity of refrigeration equipment can be influenced by several factors. For instance, frequently opening and closing the door can disrupt temperature regulation, and an unlocked door can also pose problems. Given that the individuals handling the equipment have such a crucial role, I'm curious to know, from a technological standpoint, what innovations and processes your refrigerators incorporate to specifically address these challenges? Can you elaborate on that?

Typically, medical refrigerators come equipped with alarm and sensing systems. Even in hot summers, when outside and indoor temperatures can both reach 30 degrees Celsius, these refrigerators don't get affected by the surrounding environment. Instead, they prioritize maintaining the right temperature for the stored vaccines or other medical supplies.

In case of any issues, there's an automatic system for text alerts and calls. This feature is relatively common worldwide. However, the main challenge arises from user perception and understanding of the product. Even though we have various alarm mechanisms - like immediate alert messages, automated calls, and app-based monitoring systems that allow users to track temperature variations in real-time - the issue arises when users don't react promptly to these alerts. Our hotline is available around the clock, even on holidays, ready to offer immediate solutions if users report issues promptly. However, users often contact us days after the alarm, by which time the vaccines might have already spoiled.

Compared to our competitors, we have strong collaborative ties with large companies like Lotte, which manufactures commercial refrigerators on a large scale. Our after-service center, staffed with experienced personnel from major convenience stores operating 24/7, assists with product maintenance. This collaborative approach enables us to offer extensive coverage without placing an undue burden on our internal team.

We also outsource our customer service operations to well-established third-party companies, which enhances our management efficiency. Recently, we developed a world-first refrigerator with anti-blackout capabilities that can run for up to 72 hours, even in case of a power outage. This innovation has already been recognized and certified by the Korean government and has been selected as a government innovation product, 20% of which is mandated to be purchased as per the total budget quota.

 

I'd like to shift our focus towards the Fourth Industrial Revolution. The aging population is paving the way for an increased need for robotics across various fields like transportation, anti-cancer drug dispensation, blood medicine, etc. Could you share your journey of transitioning into the robotics sector and what your future aspirations are in this domain?
Facing a constant challenge of tight budgets and increased competition in the local market, with about 40 competitors including both manufacturing and importing companies, I felt a need to pivot our business strategy. Predominantly, our refrigerators were used in hospitals, pharmaceutical environments, and laboratories, and I have spent my career specializing in sales in these fields. I often heard about the struggle with vaccine and blood transportation, with over half of the human resources dedicated solely to these tasks. This led me to envision a business model that involved automating transportation with robots.

Initially, LG, who later became our partner, was our competitor. However, as they ventured into the robot business, I realized that competing on price wasn't sustainable. Customers prioritized cost along with professional medical acknowledgement, and LG had an advantage in this regard, which led us to form a partnership. I also contracted with ST Engineering with an aim to offer diverse options to our customers.

We found that automation greatly eased the challenges in this sector. As we provided robots to the pharma industry, we saw a significant reduction in manual work for pharmacists. For instance, tasks such as breaking down pills and manually placing them into cassettes were automated through a contract with Swisslog. We also present hospitals with automated syrup dispensers.

The move to automate is driven by two main factors: the 50-hour workweek rule set by labor regulation, and the decrease in young professionals entering this labor-intensive field. Regulations have in fact prompted a change in the procurement system in hospitals. As an integrated solution provider, I was able to streamline the procurement process and offer better pricing through package deals. Moreover, at least 20 new hospitals were built since 2020, and with the medical industry consistently understaffed, automation was the only viable solution.

Another key reason technology is vital in this space is due to the rise of ESG considerations. The need to reduce environmental footprint is being addressed through our refrigerators, which use fewer coolants or carbon-intensive components in compliance with ESG guidelines. I believe we are transitioning from self-reliant manufacturing to an era of collaboration and mutually beneficial relationships, and ESG compliance is a significant part of that journey.

 

I'm intrigued to know about your long-term vision. Suppose we were to have a follow-up interview five years from now. What significant goal or ambition do you aspire to have accomplished by then?

Certainly, I envision significant growth and expansion within the medical device market in the future.

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