The medical equipment underworld

Coronavirus test in Chinese laboratory / Photo: Thomas Peter, Reuters, Reuters

As countries compete for vital supplies in a market where speed is everything, Israel was hidebound and slow - until private enterprise stepped in.

The sedentary medical equipment procurement people, whose lives are full of tenders, standards, and regulation, couldn't believe that it was happening to them. Like the whole world, their field had turned upside-down, and it now seemed more like a gangster movie than office work. A person waits at the door of a masks factory after paying an entrance fee just to see the goods. On his right is a Mossad agent, on his left, a Chinese gangster, and he has to make a fateful decision involving millions of dollars within seconds, otherwise someone else will snatch the deal.

A bad deal has serious consequences. Not just the loss of the money, but also continuation of the equipment shortage in Israel, or, even worse, medical teams using faulty equipment. Last week it was reported that the Dutch government had to scrap hundreds of thousands of masks imported from China for the country's medical teams, that were found to be sub-standard.

In Israel, the Ministry of Health and those in the health system do not always understand what the purchasers are having to cope with. "The Chinese set out with duffel bags stuffed with millions of dollars, with bodyguards, with trucks. They come to a factory, take over the production lines, and put their people in place there for when they start sending money to the warehouses for masks. That's what we're dealing with. In Israel, they still talk to us about bank transfers and contracts," says Yuval Golan, an Israeli businessman who has been active in China's Hainan province for nearly a decade.

"Two months ago, when the coronavirus was spreading in the country," Golan relates, "the government in my province gave me money and told me, 'You're one of us. Buy us medical masks and thermometers.' They relied on me even though I'm a foreigner. I come to manufacturers and distributors, sit with them in their warehouses, and close deals on equipment through bank transfers and all the time transfer more and more money to them. In the end, with the help of contacts, I managed to obtain for the Chinese three and a half million masks and more than 17,000 temperature guns - contactless thermometers."

Golan heads Unique 1 Asia, which provides consultancy and project management services to government agencies and government companies in China, and acts as a government supplier. In normal times, the company deals in the areas of culture, art, and technology, but in the past few months it has been buying medical equipment for the Chinese government.

"In these two months, I traveled between the Netherlands, Uzbekistan, Brazil, Israel, and other countries. I met con men, swindlers, liars, and I discovered how many thieves there are in this market trying to sting you, rob you, or sell at extortionate prices. There were instances of Chinese people going around with money in Russia being robbed. I was nearly kidnapped in Uzbekistan," he relates. "They supposedly took me to a factory six hours journey from the capital. A bunch of Uzbeks approached me and yelled at me to pay up and buy masks. They wouldn't let me see the factory itself. In the end, in a dark street, five or six guys surrounded us, and by then I thought they were going to bring out Kalashnikovs. We organized a rescue flight with a helicopter and simply flew out of there."

Golan's tale is typical of the daily routine of other businesses in medical equipment. In the wake of the coronavirus crisis, this field has become a real black market. A couple of weeks ago, a group of people in Ukraine who had bought a hundred thousand medical masks with the aim of selling them at a profit were robbed at gunpoint. At the end of February, Chinese businessmen who bought masks in Russia fell victim to a swindle and paid $15,000 cash for medical masks to two traders who took their money and fled.

On the other hand, suppliers have to be careful as well. Reports about medical equipment exporters in the Chinese press reveal that they encounter forged orders and payments that don't arrive on time, or don't arrive at all. A document drafted by Chinese medical equipment exporters for other exporters warns of fraud both by customers and by equipment manufacturers, and also warns against exporting equipment without FDA approval and appropriate approvals from the Chinese government. These warnings serve as indication that such phenomena are widespread.

Golan says that he was involved in a deal in which a Chinese factory confirmed that it would sell between hundreds and thousands of ventilators to Israelis, but will provide no further details of the deal or those involved in it. "In China, every manufacturer, even a car manufacturer, has become manufacturer of masks and ventilators. So now you have to work through contacts in China," he says. At the same time, he says that in recent weeks he has also met problems in dealing with Israeli government ministries.

"I contact them and don't manage to get through the bureaucracy. 'They'll get back to you, they'll get back to you.' I sent employees of mine to film in the warehouses to show them that we have millions of masks that we're keeping for them and that they should close a deal. Two days ago, I put down $200,000 of my own money to reserve the masks. It didn't work, the masks were gone," he says. By contrast, he says, "The Chinese government works amazingly, and gives them approvals through the WeChat payments app, with medical committees manned by health professionals and government people. Unreal efficiency.

"There are good people in the system who try to help, but the system needs to wake up. The world's biggest and strongest governments are by now making orders for billions of masks a week. A production line in a strong factory can produce between 100,000 and 500,000 masks, so simple arithmetic tells you that hundreds of factories are involved. How can you fight this? The way to jump the queues is to use connections, or to give a better price. In normal times, equipment sellers chase the buyers, send them samples, plead with them, and offer easy payment terms, but the world has changed. It's like guerilla warfare. We have to adapt ourselves to the battle conditions, and we're a country that's good at that."

Everyone in the pyramid gets a cut

Amir Gal-Or, founder and managing partner of Infinity Group, and founder and chairman of the Innonation China-Israel Investment Summit, has encountered similar problems in his attempts to assist the procurement effort. "Most of the medical equipment factories today are in China, and the Chinese have always worked through a chain of middle-men. The country approaches a businessperson, who approaches his contacts, and they say, 'I've got the goods', but they haven't. They take an advance payment from you and go to look for the goods, and none of the middle men knows whether he'll really have them. And so the price goes up, because everyone in the pyramid receives his money.

"To see the goods, you have to pay, and to reserve a supply date, you have to pay. If someone comes along after you and pays double, then you won’t receive the goods on the date they told you but two months later, and they'll tell you it was 'force majeure.'"

It's like drug dealing

"The similarity there is that the deals are mostly in cash, and you see the equipment for a moment, and if you don’t strike a deal immediately, you lose it."

So you need connections

"That's precisely the mistake. In general, and particularly with China, procurement is a matter of connections, but today, connections aren't enough. New factories have arisen in China, and even the existing factories are flooded with demand. What helps is to be capable of cutting a deal quickly and of doing due diligence quickly, that is, to understand faster than anyone else who really has the high quality goods and who's tricking you. We have reached a position in which we can do due diligence is a few hours."

Don't the suppliers care about their reputations the day after?

"In any case it's a long chain in which the end of the chain doesn't know you at all."

That explains why the Mossad is in the picture?

"The Mossad knows how to do research on someone and how to do non-standard deals, but here, even the Mossad isn't enough. The Chinese are smarter than the Mossad. The Mossad isn't strong enough in China."

The Israeli government works too slowly

With demand for medical products substantially higher than the supply, payments to medical equipment suppliers are being made in advance, and mostly in cash. All kinds of people are trying to buy up as much equipment as they can to prevent others from obtaining stocks and to raise market prices. Since there is large shortage, many of the deals are for the purchase of production lines rather than for products, which raises prices even higher.

In this situation, the Israeli government is struggling to compete. It has no mechanism for payments in advance, or people in the field who can close deals and inspect the quality of the equipment.

"Israel is one of the slowest countries," says Gal-Or. "Besides the bureaucracy, everyone thinks 'Why should anyone make money?' and everyone is afraid of accusations. The Americans are faster than us; the Germans are super-fast, as are the British. In Israel, there's no national emergency fund from which money can be spent quickly. Other countries have such a model."

Alongside the activity of government agencies, two other tracks have been operated: security organizations like the Mossad, which has the job of finding deals from non-routine sources, quickly examining their reliability, and providing security; and groups of high-tech businesspeople, generally working voluntarily, using their local connections. They are acting in cooperation with the Ministry of Health and the Ministry of Defense, and also directly with medical teams in the hospitals.

In several instances in which the government boasted of having obtained medical equipment, it was in fact from beginning to end a matter of a deal put together by private businesspeople acting voluntarily and handed to the government on a plate, as a donation - and then there is no need for approvals and signatures. Presumably, in the future, people in government will remember who helped in times of trouble.

In the past few weeks, communications equipment company Mellanox Technologies has been operating what is in effect a war room for procuring and importing medical equipment, run by company founder and CEO Eyal Waldman and VP Purchasing and Logistics Oshri Cohen.

"Our real competitors are other countries, some of which are capable of moving faster, and have far more resources and means at their disposal, such as the US, which can locate sources and get there, or the Gulf states, which come along with cash. We're also having to deal with export restrictions. Germany, for example, has outlawed exports of ventilators, and the EU has halted exports of all vital medical equipment outside its borders," says Waldman.

"Mellanox's war room has been operating for several weeks, and we have people deployed around the world. We know how to work with the shipping companies, and we're working with other organizations. For example, the Public Trustee decided to grant NIS 17 million to the war on the coronavirus, and there are others such as Shai Wininger from Lemonade, who are trying to raise money. So far we have raised money from ourselves, from Mellanox employees, and from the company, and we have reached a total fund of over $1 million," Waldman adds.

Mellanox says that its procurement activity helped government procurement agencies locate five million surgical masks and six million N95 protective masks for medical teams. In addition, the money raised was used to buy eight ventilators, 70,000 additional N95 masks, and 3,000 containers of alcoholic gel for hospitals.

Shai Wininger is also operating a war room of volunteers, and it too has raised money and has bought medical equipment for hospitals in Israel. "The health system is operating as though we're in peacetime, but this is war. Our aim is to help and of course not to attack the system, which is working well, only at its own pace. Everyone is making a supreme effort, but sometimes the government apparatus is too heavy and too political to achieve fast results in an environment of uncertainty. It's very hard to compete with other countries that are sending people with cash in suitcases. You can't compete with this with current plus 90 days payment terms and piles of forms," Wininger says.

Gal-Or points out that in addition to the equipment itself, shipping costs have also risen, partly because of the decline in global air traffic, and partly because people are taking a cut. "We're now trying to lease a plane to bring the medical equipment to Israel," he says.

Gal-Or adds that the Ministry of Finance has not offered to help medical equipment importers, whether those acting voluntarily or those who ordinarily make a living from it, to finance shipping costs. Nor, ironically, do medical equipment companies have an exemption from port congestion charges.

"It doesn't have to be this way"

"All these James Bond operations are nice, but really not necessary," says a source in the business of procurement and distribution of medical equipment, who asked to remain anonymous because "there are vengeful and resentful people in the Ministry of Health."

"There is medical equipment in the world," he adds. "There is medical equipment in China that can be bought. The whole story is purely and simply to get the deal done fast. We send proposals to the Ministry of Health to supply equipment form sources that we know, and we receive no reply, because there isn’t enough manpower working on this. The Ministry of Health itself published a call for proposals on equipment. We responded to the call with a proposal to act as broker with a source who has the required equipment - no response was forthcoming.

"There's no need to bring in the Mossad. What has the Mossad got to do with it? Put a pulmonologist, a respiratory equipment technician, and someone with authority to sign checks on an air force plane to China, and you won't have to deal with all kinds of dubious traders. Amir Gal-Or is leasing a plane? Why should a private individual have to lease a plane? Conclusion need to be drawn from this for the next crisis."

The Ministry of Health refrained from commenting.

Published by Globes, Israel business news - - on April 6, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Coronavirus test in Chinese laboratory / Photo: Thomas Peter, Reuters, Reuters
Coronavirus test in Chinese laboratory / Photo: Thomas Peter, Reuters, Reuters
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