The Central American Group: Hello and welcome to another episode of the Central American Group’s podcast, we speak with people who have expertise in economic and industrial issues that are occurring in Central America. In this podcast, we will be discussing the medical device manufacturing industry in Costa Rica. Today, we have a couple of very nice ladies from Costa Rica with us. They are from the country’s economic development promotion agency, which is called CINDE. I’ll let you ladies introduce yourself and tell us a bit about your organization.
Carolina Sanchez: Thank you, Steve, and hi, everyone, my name is Carolina Sanchez, and I’m the lead of the Life sciences sector at CINDE. CINDE is a not-for-profit private organization that supports foreign direct investment into Costa Rica. We were founded in 1982, and, since then, we have been supporting companies establishing successful operations in the country.
Irene Pacheco: Hello, everyone. My name is Irene Pacheco. I’m also part of the life sciences team here at CINDE. As was mentioned, what we focus on is in voice foreign direct investment attraction. Basically, we take companies hand in hand through the whole installation process.
The Central American Group: Ok, so we’re going to talk about the medical device manufacturing industry in Costa Rica, which is the most prominent production sector in the country. Costa Rica has become a preferred location for medical devices. As a matter of fact, it’s the second-largest exporter of medical devices in Latin America. What are the reasons behind that?
Carolina Sanchez: Yes, we can mention a lot of different reasons, but maybe we’ll start with our main focus, which is balance. I think that the country has great talent and that has attracted many companies. You have to understand that this is a highly regulated industry. So, companies are very focused on quality. That’s why having a strong talent pool, is very important for them. Also, we as a country have a very stable investment climate. That means there is a combination of characteristics that make it ideal for investment and for medical device manufacturing. It also has to do with the incentives. It has to do with the collaboration that we have between companies and also with a proven track record. And I’m going to pass it to Irene because she can add a little bit of information to that as well
Irene Pacheco: Speaking specifically about the proven track record, and this is definitely a key aspect when companies choose to participate in the medical device manufacturing industry in Costa Rica. We have over 80 companies installed in the country. So, this has set a precedent showing the world that we know what we’re doing and that we understand that our talent understands the regulations that the sector requires. We have over 40 thousand people working currently in the Medtech sector. Another of those areas, important areas, is definitely taking a look at the different clusters that we see all over the world such as Costa Rica, Massachusetts, and California. There is a high concentration of medical device manufacturers. This is definitely not a coincidence. All of these countries and Costa Rica, in particular, have a set of values and a set of incentives that are important for companies in the world to be able to come and install themselves here locally.
The Central American Group: Could you tell us how the medical device manufacturing industry in Costa Rica has evolved over the last few decades?
Carolina Sanchez: Maybe we can go back a little bit in the history of our country and our development. Costa Rica for several decades was perfect in agriculture. In the 1980s, the government focused on a new economic development model, which was based on high-tech exports. With that came the approval of the Free Trade Zone Regime. This created the asset of incentives that offers the companies that establish operations in the country access to tax rates that are differentiated compared to the companies that operate locally. This was a huge booster for the medical device manufacturing industry in Costa Rica.
In the late 1980s, we started to have the first medical device company locating here, which was Baxter which was located in the first free trade zone in Cartago. They started growing at the very beginning. At that time, they only did very simple assembly and components. They used to bring the components here and do simple assemblies. With time they started doing extrusion molding and some other more complex processes in Costa Rica. Then we reached a maturity level with some other companies. From the early 2000s up to today, that’s when we have experienced very significant growth. We can talk a lot about our success stories, which are examples of the companies that have grown in Costa Rica. They now have much more mature and complex operations.
Irene Pacheco: Of those examples that Carolina just mentioned, Boston Scientific is one of those companies that was established in the early 2000s. They currently have over 4,500 people working in the medical device manufacturing industry in Costa Rica in two different facilities. They employ over 250 engineers doing R&D in the country.
Another example is ICU Medical. This company has been operating in Costa Rica for over 20 years. They have consolidated twelve different facilities into one. They are very vertically integrated and have over 3000 people working for them here in the country.
The Central American Group: Well, now that you saw the medical device business in Costa Rica progress over the years, did you see an impact, or have you seen an impact in recent months as a result of what’s going on with the virus pandemic that everybody in the world is dealing with now?
Carolina Sanchez: I think that these circumstances somehow have had an impact on the medical devices manufacturing industry in Costa Rica. What you really need to understand is that we were focusing on continuing operating because hospitals needed the devices and the support. So, what we saw at the beginning was a lot of uncertainty. Companies didn’t know what the governments were going to do in terms of full shutdowns and curfews and all of that. Also, we can say that we have had two different trends during the pandemic. On one hand, we had the devices that were needed in the hospitals, like the ventilators and the infusion pumps which were in high demand during the pandemic. But also, we have the surgeries, for example, orthopedic and all of those surgeries that could be postponed that also suffer a decrease in the demand. So, we have this. I also think that it is very positive is that we developed a very strong network of collaboration during the pandemic between the companies and the government. Also, CINDE was involved. In there we have a working group to discuss the needs of the industry. So, we were sharing information in real-time on what was going to happen.
The Costa Rican government never put strong restrictions on manufacturing operations so the companies could continue to work. Actually, we have seen cases in which companies that have different footprints all over the world look to Costa Rica because in their cases they have completely shut down some of their operations. This happened in places like California and other places in Asia. So, the operations here were able to respond while their other factories were closed. So that was very positive. It is important for me to mention that even though we had no disruptions in the country particularly, we can definitely tell that there were disruptions. This brings me to a phenomenon that is not new. We are starting to see much more nearshoring. This is when companies want to have a closer footprint to their customers with the main objective of minimizing risk. This has definitely put the medical device manufacturing industry in Costa Rica on the map. A lot of companies are taking a closer look at the country due to the need to be closer to customers and to minimize the risks related to being located across the world in places like Asia.
The Central American Group: This is a very interesting development for Costa Rica. We know that companies that come back closer to home need to access their markets. What makes Costa Rica a good place from which manufacturers in the medical device industry can access their buyers?
Irene Pacheco: I’ll say that we’re a very small country, but we’re very open to the economy. Because of that, we cannot depend on what we produce and sell here. We need to open our borders to sell to other countries. That’s what has made Costa Rica very successful. Today, we have 15 free trade agreements that will give the companies that operate in Costa Rica preferential access to those markets. We also have 58 trade partners globally. This basically translates into companies having the possibility to sell with preferential rates and preferential access to two-thirds of the world’s population. That has been a very well-received benefit of locating in Costa Rica. Also, Asia has been a market that has gained importance for Costa Rica. The US, of course, continues to be our number one trade partner because of natural reasons. We’re very close to them and historically has been one of those destinations to where companies export. But more recently, Asia has been very, very important for the medical device manufacturing industry in Costa Rica.
The Central American Group: I’d like to ask a question that I think the answer is important, that people know. One of the things that Costa Rica has as a competitive advantage is the quality of its labor force. Maybe you can comment a little bit about the resources that the country allocates to education and what are the things about the labor force that make Costa Rica attractive, especially to medical device companies?
Carolina Sanchez: Well, that’s a very interesting question, and that’s something that it’s always very attractive to companies. Yes, talent is our main competitive advantage let’s say. You have to know that Costa Rica doesn’t have an army. So, all of those resources are allocated to health and education.
In Costa Rica, education is free and mandatory. Primary and high school education is free and mandatory for everyone. So that means that everyone that is born in Costa Rica should have a good quality education. We also ranked very high in education when compared to other countries in Latin America. Also, talking about the culture, you’ll see it when you come here, we have a very open culture. We’re very curious as Costa Ricans. So, what companies sometimes mention is that when they have operations in the medical device manufacturing industry in Costa Rica, they sometimes find very creative solutions from the people on the production floor. We are not shy when it comes to talking about new ways of doing things and proposing new things. Workers are very enthusiastic when the companies try to implement changes and things of that nature. So that’s what it’s very unique to our culture.
The Central American Group: It’s our understanding that Costa Rica has a very high level of bilingual workers available. Is that the case?
Irene Pacheco: Yes, yes, that’s definitely another key aspect for it, for the direct labor, specifically in the manufacturing companies. This isn’t something that the companies really need at the very beginning for this specific type of labor. But when we talk about administrative posts and the positions that I mentioned at the beginning. There are over two hundred and fifty bilingual engineers that Boston Scientific has. Boston has R&D operations in Costa Rica. Right. I just mentioned it because it’s one of those success stories. We are the second-best in English proficiency in Latin America. This definitely makes a difference in manufacturing, but also in the service sector, which is growing and important to the country.
The Central American Group: Another point that I think we would be remiss if we didn’t cover, you know, Costa Rica, in addition to having a good workforce and a bilingual workforce also has a very attractive program through its free zone entities that are located throughout the country. Could you tell us a little bit about the benefits companies in the medical device manufacturing industry in Costa Rica enjoy when they locate in a free zone?
Carolina Sanchez: Absolutely. Well, this is the Free Zone Regime that we mentioned at the beginning. It is an agreement between the companies that come and invest in the country from the government of Costa Rica so the companies can meet a certain amount of investment and employment. In exchange, they will corporate income tax benefits. That’s the main one, is a tax incentive that could range from six percent to six percent to zero percent for a year. So that means that companies that have operations here could benefit from those preferential tax incentives. And there is also a number of incentives that are expired. This is the only one, the corporate income tax. This is the only incentive that will expire after a year. But if the company continues to reinvest in the country, they can restart the system and have another six or eight years. This depends on where they are located. And for the listeners, we will be happy to discuss this if you are interested. That’s what we do. So, feel free to reach out to us for further information on the free zone regime. Now I will ask Irene to talk about the Free Trade Zone Regime benefits that do not expire.
Irene Pacheco: The one that I would mention that’s one of the most important ones is the exemption on all imports and exports. So that basically means that since the day that a company started its operations it will be able to import all your raw material tax-free and also be able to export tax-free, as well. So, this is one of the incentives that, as I mentioned, do not expire.
The Central American Group: Well, that will motivate companies to come and speak with you about potential situations in which their companies can set up in a free zone. Now to wrap it up, what do you think is unique about Costa Rica and its Medtech industry?
Carolina Sanchez: Well, we have already covered some of the aspects that make us unique, but one that we didn’t mention, and it’s quite important, is that we have a very robust supplier base. We have the OEMs or the original equipment manufacturers, which are the companies that will produce the devices they will see in the hospitals. The Boston Scientifics, the ICU Medical’s, and all of those companies. We also have more than 60 suppliers that can support these companies with different components and different capabilities. For example, we have contract manufacturers, which are companies that can work with a product from prototyping to full development on behalf of the owner of the patents or the developer of the product. In the medical device manufacturing industry in Costa Rica, we also have companies that provide machining, tooling, extrusion molding, and heat treating, as well as the required cleaning supplies. So, all of that it’s very important for this industry. You are basically a call away from your suppliers, and that’s very, very important for all of them.
Irene Pacheco: I think that I would definitely want to mention, and we have been talking about this, but the collaborative mindset definitely makes a difference. When you talk to companies in the country, this is one of the key points that they mention and point out. Companies understand that working together as partners will definitely strengthen the sector and do even more for all kinds of initiatives. Talent is also one of those initiatives with which they work very with CINDE. In turn, we also work very closely with academia. So, once they understood that this would benefit each of their interests, they started working together. Collaboration is one of those key aspects that have made a difference and that also the sector in the country.
The Central American Group: What we try to do is create an environment that provides good information to our listeners. We have found over time that people who listen to our podcasts inevitably have questions that they like answered in more detail. Could you tell our listeners how they can get in touch with you if they have questions that they want to follow up with you?
Carolina Sanchez: Absolutely. We’re happy to answer all of those questions. The best way to reach out to us will be through our organization’s website. The URL is www.cinde.org. You can actually go to our profiles on LinkedIn and reach out directly to the different emails of the different sectors that we support from here.
The Central American Group: Well, are there any things that you’d like to mention before we close this very interesting session?
Irene Pacheco: Well, from my side, just an invitation. If you are curious about Costa Rica, please reach out to us. We will be happy to discuss your project and how Costa Rica could be a good fit for your company. We love what we do. We love to support companies to establish operations in Costa Rica. We’ll be happy to hear about your project.
Carolina Sanchez: From my side, I might just add that you can definitely count on us. As we mentioned at the beginning, we are a not-for-profit organization and we will definitely be happy to provide all the details required and all customized information needed for the decision-making process. Any interested parties should just feel free to reach out.
The Central American Group: Thank you, ladies. Joining me today, and I think that everybody is a bit more educated about medical devices in Costa Rica as a result of this podcast, so thank you.
Carolina Sanchez: Thank you, Steve.
Irene Pacheco: Have a nice day.
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