Multinational medical device and solutions provider GE Healthcare has started exploring China's vast grassroots market through technological innovation.

"We plan to increase the proportion of business in China's grassroots market, but it will take time," said Rachel Duan, president and chief executive officer of GE Healthcare China, at the 96th Scientific Assembly and Annual Meeting of the Radiological Society of North America, which will close on Friday (local time).

So far, the niche sector accounts for 80 percent of GE Healthcare's business in China, the remaining 20 percent being earmarked for the grassroots market, including second- and third-tier cities, and rural areas.

To penetrate the grassroots market, the US-based company needs to develop products that meet local demand, establish a sales network, and provide tailored services based on local products and networks, she said.

"All in all, our expansion (in the grassroots areas) is based on innovation of products and services," said Duan.

GE Healthcare now has more than 600 engineers in China, who are focusing on the development of 17 new types of equipment and technology, 80 percent of which are targeted at the grassroots market.

Ideally, these products should be simple to use, highly portable, low in cost and high in efficiency.

They're developed for the Chinese market by adapting global technologies, and are made by Chinese engineers, according to GE Healthcare President and CEO John Dineen. The company's portable and multi-functional B30 Patient Monitor, launched in China in mid-November, is a prime example.

A 500-member sales team has been set up to cover China's second- and third-tier cities and the underdeveloped rural areas.

"We are optimizing our long-distance and online services, which are more convenient and more efficient in this vast market," said Duan, who took up her current post in October.

The strategy is timely, complementing the Chinese government's three-year, 850 billion yuan ($128 billion) reform of the medical system, which was launched in January 2009 and aims to expand access to healthcare throughout the country.

Although GE Healthcare won't reveal its exact investment in the expansion plan, the funds are part of $2 billion that the company has set aside for the Chinese market through 2012, as it focuses on strengthening its innovative capabilities in the emerging market.

GE Healthcare's business in China has seen compound annual growth of 20 percent in recent years, and sales will exceed $1 billion this year.

The company's former China president and CEO Marcelo Mosci said earlier this year that he expected annual sales to reach $3 billion within five years.

Medical analyst Hong Yang, from Guolian Securities Co Ltd, said that GE's plan is likely to face a strong challenge from domestic players, who have the edge in sales networks and offer competitive prices to the local market.

Moreover, GE Healthcare's promotion of affordable equipment, tailored to second- and third-tier cities and rural regions, may narrow the company's profit margin.

Dineen said that quality and high cost-efficiency will help guarantee GE Healthcare's business.

"The profit margin of these products will not be lower than that of high-end equipment, due to the cost savings brought about by technological development and integration," said Duan.

According to the Chinese Medical Association, GE, Siemens and Philips, the three medical equipment giants, account for more than 70 percent of China's high-end market, and they have all started grassroots expansion initiatives.