As the medical device industry is grappling with the double whammy of uncertainty at the U.S. Food and Drug Administration and the looming 2.3 percent excise tax, one concern has become paramount: How to cut costs?
That is one of the few things companies have control over these days and their preoccupation with cost reduction prompted corporate site selection company the Boyd Company Inc. to rate the operating costs at 55 locations in the United States, Canada, Mexico and Costa Rica.
“Many of our Minneapolis clients are very concerned over the 2.3 percent excise tax and are actively seeking less-costly cities,” said John Boyd, principal of the Princeton, N.J.-based the Boyd Group, in a phone interview this week.
Using a hypothetical 175,000-square foot production plant employing 325 workers and shipping to the United States as the basis for the study, the Boyd report found the San Jose/Palo Alto area in California to be the most expensive with total annual operating costs of $30.7 million. Contrast that with the least-expensive site — the Maquiladora plant sites in border cities like Tijuana, Mexicali, Juarez and Nogales — which cost $16.9 million in operating costs yearly.
The study, which was completed in the first quarter of the year, ranked Minneapolis/St. Paul 17th on the list at $26.2 million; Rochester, Minn., came in slightly cheaper at $25.3 million. In Ohio, operating costs in Dublin were $25 million, while the Raleigh/Durham region in North Carolina came in even lower at $24.2 million.
The sites were chosen because they were deemed compatible with the needs of medical technology manufacturing, including their ability to provide access to a skilled work force, Boyd said. He added that medical device manufacturers can reap “significant savings,” depending on where they choose to do their manufacturing. For instance, in Sioux Falls, N.D., which is emerging as a center for the health care industry, operating costs were $22.6 million, $8 million less than in San Jose/Palo Alto.
“The savings are amortized over 25 years, so the difference of $8 million in Sioux Falls over San Jose is 25 times greater than that,” Boyd said.
The high cost of gas is increasing shipping costs to the United States and a weakened U.S. dollar is reducing some of the cost efficiencies of lower-cost countries. Boyd believes that these reasons may prompt manufacturers to consider moving some production back to the United States. When they do, this report may help them decide where to open up shop.
For a summary of the full report, go here.