Value chain migration from production to product centred operations: an analysis of the Irish medical device industry

Abstract

The medical device industry in Ireland is largely confined to manufacturing operations. This narrow focus limits the competitiveness of the industry in Ireland and consequently poses a threat to development and growth. Economic opinion indicates that more emphasis must be placed on higher value-added activities such as research and development (R&D) and new product development. This paper explores the concept of value chain migration in the Irish medical device industry. Specifically, it examines the shift from production to product-centred operations in the medical device industry. A significant proportion of organisations that occupy this industry are multinational subsidiaries. Typically, subsidiaries depend on their parent company to develop new products using R&D resources close to headquarters. Few subsidiaries have control of their product development activities and spending on research and development is inadequate. Subsidiaries cannot depend on the benevolent actions of the parent company to secure future viability. This study examines the competitive environment of multinational subsidiaries based in Ireland. The nature and extent of R&D activity in the industry is explored and potential threats and shortcomings are noted. The argument for and against moving towards product centred operations is examined and presented. The findings of this study reveal that the proactive subsidiary is far more responsive to its business environment than an organisation with centralised control. For example, certain initiatives can help to maintain market entry barriers, can help to control the power of suppliers and customers and can help to guard against substitutes. Moreover, subsidiaries must proactively manage the supply of new product developments by securing an adequate share of the output of parent company R&D. To do this, they must demonstrate solid performance, build local capabilities in new product development and actively manage relationships.