The potential of China’s medical device market has led many multinational and local players to place large bets. But with lower growth, more intense competition, and government actions on pricing and compliance, it’s becoming a lot tougher.

China’s medical device market has been growing at annual rates of close to 20% for much of the past decade. Stagnant or declining growth in mature markets hasfueled enthusiasm for China and has led medical device players to place big bets there. Billions of dollars have been invested in manufacturing and R&D capabilities. Many multinationals have acquired local companies to tap into the China opportunity.

But the market is entering a new phase of development. Following the crackdown on non-compliant practices in the pharmaceutical industry, many medical device executives are investing heavily in minimizing compliance risks in their own commercial models, which often rely heavily on extensive, multi-layered distributor networks into which they historically had limited visibility.

Government guidance, suggesting hospitals should give greater consideration to local products in their purchasing decisions, has created uncertainty. And now, market growth is hovering below 15% – still fast by global standards, but a challenge for China.

How do industry leaders feel about their businesses in 2015? We talked to the general managers of 16 leading MNC medical device companies, representing about half of the MNC-generated revenues in China’s medical device sector. These executives remain positive toward the opportunity in China (they certainly don’t want to be transferred elsewhere), but at the same time, point towards areas where significant improvement will be required.

There is broad consensus that growth in the 10-15% range will continue. Market fundamentals certainly support this – demographics, the growing burden of non-communicable diseases, and improving affordability are leading to rising patient volumes and a concomitant need for medical supplies. Inpatient admissions continue to grow by more than 10%.

It’s therefore not surprising that three-quarters of the executives we surveyed expect to sustain their high levels of investment in China and continue efforts to localize their business activities. The surge in new privately-run hospitals is expected to be a new source of growth, though most growth is still expected to come from the larger class III hospitals in major cities.

Sales forces will need to change a lot – companies that make this switch best will come out ahead. In the past, a fast ramp-up of salesforce was a fairly sure way to drive growth; only one out of four executives now sees salesforce expansion as a priority.

By contrast, more than two-thirds believe that salesforces will have to become more broadly skilled to sell to a wider range of customer segments. Many see the distributor model if not dying, then at least consolidating dramatically as it has in so many other industries.

The “value segment” – the largest and most price sensitive segment-has been seen as the source of a key threat, the place local companies learned to compete and move up market. This is changing. More than half of the executives we asked now see this segment as a key source of growth.

Finally, executives express a shared concern around finding and retaining suitable talent, even in a market where millions of university graduates fail to find good jobs.

2015 will be a year of major change in the sales and marketing model used by medical equipment manufacturers in China. The industry will see new talent, new skills and new ways of working with (fewer) distributors.

Standing still means falling behind.

I’d like to acknowledge the contributions to this post by my colleague Florian Then, a Partner in McKinsey’s Healthcare Practice in China.

For a related article on this topic, please check out “How medical-device manufacturers can transform marketing and sales capabilities”

Read more of my views on my blog, Gordon’s View. And please follow me on Twitter.

Image credit: NEC Corporation of America / Flickr