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Why 3M Sees an Opportunity in Tier B Chinese Hospitals

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Growth in developing economies

20% of 3M Company’s (MMM) Healthcare sales are derived from developing economies, which have been growing organically since 2012. The rapid growth of healthcare in these regions has been majorly due to the growing middle class, which desires better access and quality of care.

Private healthcare systems, which are better funded and more capable of providing high quality care, are also growing rapidly in these regions.

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Among developing markets, China remains a bright spot for the healthcare industry as the country’s median age progressively increases and the healthcare requirements of older populations increase. The middle-aged Chinese population, which puts in long hours in stressful conditions, suffers from diabetes and hypertension, and around 30%–50% of them smoke.

The premature onset of chronic illnesses is also putting a strain on the healthcare system. After criticisms of lack of access when over 95% of the population has insurance, China has been increasing its healthcare spending rapidly to tend to its aging workforce.

3M hasn’t yet penetrated into many Tier B hospitals in China. It sees an opportunity here, and it has increased its sales and marketing personnel on the street to pick up a portion of the pie.

Digitization and penetration of the technology space

As has been the story in many industries, technology is penetrating the healthcare space and disrupting and changing it for the better. In 1956, 3M was the first company to introduce press-and-breathe inhalers. In 2016, the company launched an electronic inhaler that connected the inhaler to the patient and the patient to the caregiver through an app.

More and more dentists are using digital scanning in their practices. Hospital miscoding and duplication cause $11 billion in waste per year in the United States alone. This has given rise to a $4 billion market aimed at addressing documentation challenges.

In line with these trends, 3M has developed proprietary natural language processing technologies, which are expected to drive growth in its Healthcare segment in the next five years.

Key ETFs

Investors interested in trading in the healthcare space can look into the Health Care Select Sector SPDR ETF (XLV) and the iShares US Healthcare Providers ETF (IHF).

Major holdings in IHF include UnitedHealth Group (UNH) with a weight of 13.4%, Express Scripts Holding (ESRX) with a weight of 7.2%, and Aetna (AET) with a weight of 6.4%.

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