[Edaily Reporter KIM SAE-MI ] “Although the volume of the Voluntary Buying Program (VBP) for dental implants does not account for a large share of total sales, gaining access to major public hospitals through this program is strategically important.”

Jeong Hyun-woo, head of DIO Corporation(039840) ’s China subsidiary, made these remarks at a recent investor relations (IR) briefing. The company plans to expand its presence in public hospitals following China’s second-round VBP and enhance the profitability of its China operations by leveraging local production facilities and a restructured distribution network.

First VBP Dealt a Blow to K Implant… Will the Second Round Be an Opportunity for a Rebound?

DIO Corporation’s immediate focus on the Chinese market stems from a strategic decision to prioritize allocating limited investment resources to markets with high growth potential. Kim Jong-won, CEO of DIO Corporation, stated, “We cannot help but consider where to invest our limited resources to generate the most effective growth and profits,” adding, “We have primarily focused on markets where we can maximize growth, such as China.”

The company plans to target the U.S. market in the medium to long term by leveraging an artificial intelligence (AI) platform. CEO Kim noted that penetrating large U.S. dental service organizations (DSOs) requires significant manpower and revealed plans to expand the business more efficiently using an AI platform in the future. This strategy appears to involve seeking to improve performance in China in the short term while securing new growth engines in the U.S. over the medium to long term.

However, China is by no means an easy market. A major factor behind the struggles of domestic implant companies in China over the past few years was the impact of the first-phase Value-Based Payment (VBP) program implemented in 2023. As the Chinese government encouraged lower implant prices through large-scale joint purchasing, price competition among companies intensified. Compounded by a local economic downturn, domestic companies faced falling sales prices and deteriorating profitability.

The second phase of the VBP, set to be implemented this year, is expected to shift away from the existing lowest-price-based competition toward an open-bidding system. As quality competitiveness is expected to become just as important as price, there is growing optimism that new opportunities may open up for domestic companies.

Jung, the branch manager, explained, “While lowering prices through lowest-price bidding was crucial in the first round, we understand that the second round will not follow the lowest-price bidding method.” He added, “It appears the process will involve setting a maximum price and a standard price, and then soliciting quotes within that price range.” He further predicted, “Korean companies have a competitive edge in terms of quality relative to price, so they may be in a more favorable position than in the first round.”

Expectations are also rising within China’s local distribution industry. Weiwei Tian, CEO of Hailun—DIO Corporation’s distribution partner in China—remarked, “While the first VBP round focused on price reductions, we anticipate that quality will take on greater importance in the second round,” noting, “This could work in DIO Corporation’s favor, given its digital and cutting-edge technologies.”

Branch Manager Jeong said, “We expect the second-round VBP bidding to be completed by the end of this year,” adding, “Our goal is to increase our allocated volume compared to the first round by combining the expanded demand base from public hospitals, a distribution network centered on large, reputable dealers, and our local production capabilities.” However, he also noted that with over 100 brands expected to participate in the bidding, competition is likely to become even more intense. Jung added, “The actual allocation volume may vary depending on the bidding conditions and the competitive landscape.”

Demand from Public Hospitals Up 84%… Competing with Local Production and Distribution Networks

DIO Corporation is focusing on the growing demand from Chinese public hospitals. According to Branch Manager Jeong, while 252 medical institutions participated in the demand survey for DIO Corporation products during the first VBP round, that number rose to 464 in the second round—an increase of 212 institutions (84.1%).

Branch Manager Jeong explained, “The number of hospitals participating in the demand survey does not directly translate into actual allocated volumes or sales,” but added, “We view this as a positive development, as it indicates that the demand base for DIO Corporation products among public hospitals is expanding.”

To translate this into actual sales growth, DIO Corporation’s China subsidiary has restructured its sales operations over the past three years. In 2024, it reorganized its organizational and sales structures, and last year, it shifted its distribution network from one centered on small and medium-sized dealers to one focused on large, high-quality dealers.

This year, the company is focusing on “sell-out”—actual sales at end-user dental clinics—rather than “sell-in,” which involves supplying products to dealers. The strategy aims to enhance the stability of accounts receivable collection and reduce inventory burdens through a transaction policy centered on advance payments.

CEO Jeong emphasized, “We have confirmed that it is difficult to sustain meaningful growth by simply supplying products and increasing sales volume through price competition alone,” adding, “Rather than forcing product supply to expand sales in the short term, it is important to manage orders and supply by considering actual demand and inventory levels.”

The company’s local production facilities in China are also cited as a key competitive advantage. Since entering Ziyang, Sichuan Province, China, in October 2017, DIO Corporation has gradually expanded its production facilities. The third production facility, whose construction began last September, was built on a site of approximately 5,200 square meters with an investment of about 25 million yuan (approximately 5 billion won) and began full-scale operations last July. Its current annual production capacity is 750,000 implants, which can be expanded to a maximum of 3 million in the future.

Jung, the branch manager, noted, “If we can utilize locally produced products to meet VBP requirements, it will broaden our options in terms of supply flexibility and price competitiveness.” CEO Ten added, “There are reports that the Chinese government is encouraging the use of domestically produced products,” and remarked, “The fact that DIO Corporation has established a production base in Ziyang could also have a positive impact.”

Meanwhile, DIO Corporation’s Chinese subsidiary is also pushing for the launch of its new dental implant product, “UNICON,” in China by the end of this year. UNICON obtained certification under the European Medical Device Regulation (MDR) last December and is already being sold in countries such as Türkiye and Portugal. In the second half of next year, the company plans to seek regulatory approval for another new product to expand sales through its existing distribution network.