Competition & Strategy

By Group 10
Inti Sadhika Dara (1311164)
Mayur Chamaria (1311174)
Roshan Paunikar (1311185)
Sameer Gupta (1311195)
Veerachenan G (1311206)




2013




INDUSTRY ANALYSIS: HOSPITALS

2

Table of Contents
INTRODUCTION TO INDIAN HOSPITAL INDUSTRY ........................................................................................ 3
MARKET DEFINITION ..................................................................................................................................... 3
MARKET DATA ............................................................................................................................................... 4
GROWTH DRIVERS ........................................................................................................................................ 5
PORTERS FIVE FORCES ANALYSIS ................................................................................................................. 6
BARRIERS TO ENTRY .................................................................................................................................. 6
EXIT BARRIER: ............................................................................................................................................ 7
BUYER POWER: ......................................................................................................................................... 7
SUPPLIER POWER: ..................................................................................................................................... 8
THREAT OF SUBSTITUTES: ....................................................................................................................... 10
RIVALRY AMONG COMPETITIORS: .......................................................................................................... 11
GOVERNMENT REGULATIONS: ............................................................................................................... 12
INDUSTRY TRENDS: ..................................................................................................................................... 12
TRENDS IN BUYER SEGMENT: ................................................................................................................. 12
TRENDS IN SUBSTITUTES:........................................................................................................................ 12
TRENDS IN SUPPLIERS: ............................................................................................................................ 13
TRENDS IN NEW ENTRANTS & EXISTING RIVALRY: ................................................................................. 13
CONCLUSION: .............................................................................................................................................. 13
EXHIBITS: ..................................................................................................................................................... 14
REFERENCES: ............................................................................................................................................... 15







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INDUSTRY ANALYSIS
INTRODUCTION TO INDIAN HOSPITAL INDUSTRY
Healthcare sector in India has seen tremendous growth in the recent years and is presently
estimated to be around $30 billion industry [1]. Even so, still around 50% of the population in
India doesnt have direct access to health care facilities. With its growing population, rising
income levels and increasing health awareness, India presents itself as a market, having large
untapped potential. In addition to that, there is an increasing demand of quality health care
services at cheaper prices from the foreign countries, which has given rise to a concept of
medical tourism. Medical tourism in India is estimated to be growing at over 25% annually at
over USD 2.5 billion [1]. Growth of the overall industry is pegged at 12% year on year according
to Crisil.
Healthcare service industry as a whole comprises of hospital industry, medical equipment
manufacturers, research organizations, pharmaceutical manufacturers, insurance providers.
Hospital industry is the single largest contributor to the Healthcare service industry by revenue in
India.
Indian Hospital industry can be divided into public and private. Further sub-classification is
shown in figure 1. Apart from that, there are small and medium nursing homes, rehabilitation
centers and diagnostics centers as well which falls under the purview of Hospital industry.
Private hospitals are estimated to be representing 80% of the total hospital service market [1].
MARKET DEFINITION
The healthcare providers sector is valued as total expenditure on healthcare in each country. This
includes final consumption spending on healthcare goods and services. Goods and services in
this sector include inpatient, outpatient, long-term medical care, and medical goods including
pharmaceuticals and supplies, and collective services such as administration requirements.
Public spending (e.g. by national and local governments, social security schemes) and private
spending (e.g. payments made by private-sector health insurers and individual out-of-pocket
expenditures) are both included.
However, to understand the industry as such it makes sense to analyze all the segments together
given the presence of substitutability in demand side and supply side.

4


Figure 1: Hierarchy of Indian Hospital Industry
MARKET DATA
The Indian healthcare providers sector grew by 15.6% in 2012 to reach a value of $72.4 billion.
The compound annual growth rate of the sector in the period 200812 was 14.6% (Refer
Exhibit 1).
The main reason for the dip in the growth rate during the year 2010 and 2011 was the global
increase in price of raw materials. The Indian healthcare providers sector expanded in 2011,
accelerated growth is predicted in 2012. With some deceleration, this trend is expected to
continue in the forecast period.
The Indian healthcare providers sector is expected to generate total revenues of $82.9 billion in
2012, representing a compound annual growth rate (CAGR) of 14.6% between 2008 and 2012.
The medical goods segment is expected to be the sector's most lucrative in 2012, with total
revenues of $36.6 billion, equivalent to 44.1% of the sector's overall value. The outpatient care
segment will contribute revenues of $20 billion in 2012, equating to 24.1% of the sector's
aggregate value (Refer Exhibit 2).
Even the growth pace of the healthcare sector is very high, there remain many obstacles in its
path towards greater growth. Some of the challenges being faced by corporate hospitals include,
low penetration of health insurance, the non-availability of required medical staff at all levels,
and the difficulty of getting land (and its exorbitant costs) in big cities. Despite the inflow of
Indian Hospital
Industry
Public(Government
owned and run)
State owned
hospitals
Hospitals owned by
central
governments
Private
Non Profit
Owned and run by
trusts dependant
on donations
Clinics run by NGOs
For Profit
Multispeciality
Hospitals
Speciality Hospitals
Private Clinics
5

investments in this sector, the demand-supply gap is huge, indicating its massive scope for
growth.
GROWTH DRIVERS
Per Capita Income Growth
The share of households falling in the income bracket of Rs 2-5 lakh per annum is expected to
increase to 29 per cent in 2017-18 from 25 per cent in 2012-13, indicating growth in disposable
incomes. An increase in purchasing power is likely to encourage growth in demand. The growing
per capita income naturally leads for an increasing number of people asking for quality
healthcare services.
Population growth and increased life expectancy
India's population is expected to grow to over 1.5 billion by 2026, from around 1.2 billion in
2012-13 [4]. At 9 beds per 10,000 persons, the number of beds in India significantly lags the
global median of 30 beds. This paves the way for a huge growth in the hospital delivery market
in India. As life expectancy has increased, the share of population aged over 60 years is expected
to reach over 12 per cent by 2026 from current levels of around 8 per cent. This demographic
change implies a growing need for hospitals and healthcare services.
Increase in health awareness:
Widespread measures to enhance awareness on preventive and curative healthcare will boost
demand for healthcare delivery services. CRISIL Research estimates that the hospitalization rate
(percentage of people who visit a hospital when unwell) for in-patient treatment will reach 88%
in 2016-17, from 84% in 2012-13 [4].
Increase in life style diseases:
With the dynamically changing lifestyle of urban India, lifestyle related illnesses have been
increasing rapidly in India over the last few years. Rising income levels and lifestyle illnesses
increase in tandem, a trend which is soon becoming perceptible in modern India. The share of
households earning above Rs 5 lakh per annum is expected to increase to 5 per cent in 2017-18
from 3 per cent in 2012-13 [4]. Lifestyle related diseases such cardiac ailments, oncology,
diabetes etc demanding special healthcare facilities is expected to increase.
Growth in Medical Tourism:
6

Developed economies have a high cost of surgery. The relatively low cost of surgery and critical
care in India makes it an attractive destination for medical tourism. Medical tourism refers to the
expats and non-resident Indians looking for cheaper healthcare services in India. According to a
report by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the
number of medical tourists visiting India will increase to 32 lakh per annum by 2015, as
compared with the 8.5 lakh tourists at present.
PORTERS FIVE FORCES ANALYSIS
BARRIERS TO ENTRY
1. Economies of scale: This industry is mostly organized and fragmented with hospital
chains and individual players. The hospital service industry is expected to grow at the
rate of 12.9% CAGR for next five years and hence the hospital chains can achieve
economies of scale if they work on improving operational efficiencies. It will be difficult
for the new entrants to achieve this economies of scale after investing huge amount of
money in fixed costs involved in raising a hospital.(Industry attractiveness: 1)

2. Brand Identity: The established hospitals like Apollo have the brand identity to attract
more customers. Similarly the incumbents in this industry also will have loyal customers
(patients and insurance providers) in their respective geographies. As there is risk of life
involved, this industry is all about building trust to the customers. Hence, initially it will
be very difficult for the new entrants to build the level of trust as the already existing
incumbents. (Industry attractiveness: 1)

3. Switching cost: Patients mostly will be comfortable when they are treated by the doctor
who knows about their history. So, patients will be hesitant to change the doctor unless
otherwise it is strongly recommended by someone else. Hence, the switching from one
hospital to another for the same treatment occurs rarely in hospital industry. Even
insurance providers tend to have agreement with already established players to get more
customers enrolled in their plans. Hence, the switching cost is high for them also. So, it
will be difficult for the new players get patients from other hospitals and also to attract
health insurance providers. (Industry attractiveness: 1)

4. Capital Requirement: This industry requires huge capital to meet the fixed costs. The
fixed costs include land cost, building construction cost, cost involved in getting 18
licenses from different government bodies, buying equipment etc. They may also need
money to do marketing and to attract doctors with high salary in comparison with the
other incumbents. It will be difficult for the new entrant to generate such huge capital.
(Industry attractiveness: 1)
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5. Access to technology: Innovations in healthcare industry has led to sophisticated
technologies in treating patients. To get access to these technologies, huge fixed cost will
be incurred. So, incumbents can afford to invest in this as the demand is high for their
service in the market. Hence, it will be difficult for the new entrant to invest in
technology also. (Industry attractiveness: 2)

6. Industry Growth and market penetration: Growth of hospital service industry is
expected to grow by 12.9% CAGR from 2013 to 2017. Moreover in India, number of
beds per thousand persons is 9 which is very low when compared to world average which
is 30. Hence, the opportunity in this market for new entrants is very high if they can
afford huge money to meet the capital requirement. (Industry attractiveness: 4)


From the above graph we can infer that overall entry barrier can be defined as moderate for
hospital service industry.
EXIT BARRIER:
Cost of Exit: Hospitals being capital intensive industry requires huge capital investment to
meet the fixed costs. Sunk cost is also very high. Therefore exit barrier for an incumbent to exit
this industry is high with respect to the costs incurred. (Industry attractiveness: 2)
Hence, overall exit barrier can be defined as high due to high sunk cost involved in hospital
service industry
BUYER POWER:
1. Switching Cost: The buyers can switch from one player to another incumbent if there is
difference in the prices without much difference in service level. The same holds true for
healthcare insurance providers. Hence switching cost is moderate for both individual
patients and healthcare insurance providers (Industry attractiveness: 3)

0
1
2
3
4
Economies of Scale
Brand Identity
Switching Cost
Industry Growth Capital Requirement
Access to Technology
Market Penetration
Barriers to Entry
8

2. Price Sensitivity: The people from low and medium level group, even though the
switching cost is high, if similar service is being provided at affordable cost, they prefer
to switch from one hospital to other. So price sensitivity is moderately high as majority of
Indian population belongs to low and medium income groups (Industry attractiveness:
2)

3. Threat of Backward integration: Individual patients have no power to backward
integrate. But healthcare insurance providers will have the power to backward integrate
but private insurance covers only 20% of the insurance covered patients. Hence, the
threat of backward integration is very less(Industry attractiveness: 4)

4. Product differentiation: The product differentiation will be very high when the patient is
treated for fatal diseases like cancers. Hospitals specialized for that particular treatment
will be very less in number and product each hospital offers will be differentiated. But the
proportion of patients which such deadly diseases is less and hence the buyer power is
moderate high in terms of product differentiation(Industry attractiveness: 2)

Hence, from the above graph it is visible that the buyer power is moderate in hospital service
industry
SUPPLIER POWER: The suppliers to healthcare providers are majorly pharmaceutical
companies, healthcare equipment suppliers and skilled staff. Hospitals are labour intensive,
skilled personnel including doctors, nurses and para medical staff. Pharmaceutical companies
and equipment suppliers are generally large multinational-corporation.
1. Concentration: India is home to a large number of medical staff with almost 700,000+
doctors and 1,000,000+ nurses. The number is however, significantly low compared to
global standard, 6.5 doctors per 10,000 and 10 nurses per 10,000, compared to global
0
1
2
3
4
5
Product Differentiation
Switching Cost
Price Sensitivity
Threat of backward
integration
Buyer Power
9

median value of 14 and 29 for doctors and nurses respectively. Pharmaceutical
companies develop and market licensed drugs which is essential for any organization I
healthcare industry. The existence of large multinational corporations, providing similar
drugs for numerous diseases, significantly decreases their bargaining power, as the
hospitals have options at their disposal. The healthcare equipment industry is again
dominated by large scale organizations that benefit from the economies of scale.
(Industry attractiveness: 2)

2. Substitute availability: The existence of numerous pharmaceutical companies like
Ranbaxy, Cadilla, Dr Reddy and suppliers of capital equipment significantly reduce their
bargaining power as the hospitals can switch between the suppliers. (Industry
attractiveness: 4)

3. Switching costs: Most of the products of suppliers like drugs and capital equipment are
commoditized across the industry because of nearly same production and processing
technology and hence low on differentiation. Thus, hospitals face very low switching
costs. However, there are certain manufacturers that have exclusive patent for drugs
which are required for the diagnosis of a particular disease making the hospitals
dependent on it for the same. Also physicians have skills that comes with experience and
can be difficult to replace. Thus, overall switching costs are low to medium for hospital
industry. (Industry attractiveness: 3)

4. Suppliers threat of forward integration: The pharmaceuticals companies already have a
huge investment in the research and development of drugs and are not known to further
increase their capital outlay by forward integrating in to hospital sector. However, we
have instances of doctors going and setting up their own small scale clinins and hospitals
like Narayan Hrudayalaya by Dr. Devi Shetty, Aravind Eyecare Hospital by Dr
Govindappa Venkataswamy. (Industry attractiveness: 3)

5. Industrys importance to supplier: Due to the inherent nature of the industry,
pharmaceutical companies are dependent on the hospitals. In 2010, $ 58.50 bn of revenue
of Pfizers revenue out of $ 67.8 bn, was from prescription drugs. This highlighting the
importance of the hospitals for the suppliers. (Industry attractiveness: 4)

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THREAT OF SUBSTITUTES: The substitute for healthcare services can be treatment and
diagnosis based on cultural or traditional practices including herbal medicine and acupuncture.
1. Availability of close substitutes: Alternative medicine are a substitute for traditional
healthcare services, however they are not based on scientific evidence and the success
rates tend to differ and the efficacy and safety of alternative medicines in questionable.
The use of alternative medicine has decreased significantly in the 20
th
century and the
trend continues. (Industry attractiveness: 4)

2. Switching cost: The switching costs for the buyers are low. The substitutes are available
for certain diseases like depression and anxiety by doing therapies. But the drugs,
facilities provided by hospitals and skilled staff cannot be easily substituted. (Industry
attractiveness: 3)

3. Substitutes price value: Alternative medicines cost significantly less than traditional
healthcare options, but their availability is skewed like Ayurveda and Herbal treatment
options in India and China. However, the efficacy of these medicines make them an
unattractive option as witnessed by increasing number of people shifting from alternative
treatment to conventional options. (Industry attractiveness: 3)
0
1
2
3
4
5
Concentration
Substitute Availability
Switching Costs
Supplier's threat of
forward integration
Industry's importance to
supplier
Threat of suppliers
11



RIVALRY AMONG COMPETITIORS:
The intensity of rivalry in an industry is determined by various factors such as the following:
1. Concentration: Concentration refers to the number of companies competing in this
market. Rivalry is intensified if these companies have similar market shares thus reducing
profitability. However, we can see, in the Indian hospital service industry, the existence
of large number of players and hence the market is considered to be highly fragmented.
Hospital chains are found predominantly in metros. As the opportunity is very high for
established player in the market, the hospital chains are now moving to tier 2 and tier 3
cities which will affect the performance of established players in those cities (Industry
attractiveness: 3)

2. Product Differentiation: As the product differentiation is hospital service industry is
very less unless otherwise the service is for fatal diseases like cancers, heart disease etc.
But the proportion of demand for such specialized services will be very less and hence
the product differentiation is moderately less in hospital service industry. (Industry
attractiveness: 3)

3. Excess Capacity: The healthcare industry is facing a supply shortage compared to the
demand for healthcare services. There is a lot of opportunities in the tier 2 and 3 cities,
where there is paucity of quality services. Also the industry has 9 beds per 10,000 people
compared to international average of 30 per 10,000 people. (Industry attractiveness: 3)

0
1
2
3
4
5
Availability of close
substitutes
Switching cost
Substitute's price
value
Threat of Substitutes
12

4. Cost Conditions: The capital requirement in this industry is very high. Firms in this
industry require high capital to setup a hospital, which can range from INR 2 Mn to 8 Mn
per bed. (Industry attractiveness: 2)



GOVERNMENT REGULATIONS:
1. Foreign Direct Investment: The government, in 2000, has permitted Foreign Direct
Investment (FDI) of up to 100 per cent under the automatic route in hospitals in India.
This provides an opportunity for the established healthcare chains to compete in the
Indian healthcare industry. This was followed by setup of recognized healthcare names
like Pacific Hospitals in Hyderabad and the Columbia Asia Hospital in Bangalore.
(Industry attractiveness: 2)
INDUSTRY TRENDS:
TRENDS IN BUYER SEGMENT:
Inpatient & Outpatient spend:
Because of the growing lifestyle diseases theres going to be a large demand for the specialized
in-patient care. It is estimated that the share of outpatient spend will decline from 61% to 53% [5]
in the coming years.
Aging population:
The aging population in India is estimated to increase in three folds in next 40 years [6]. This
increases the people suffering from chronic diseases, disabilities & diseases that are expensive to
treat, thus straining the health care systems.
TRENDS IN SUBSTITUTES: Mobile based health care deliveries are increasing
enormously giving rise to the avenue for remote treatment & Diagnosis. Many telecom service
providers such as Nokia and Blackberry are using mobile phones for remote disease monitoring.
0
1
2
3
4
5
Concentration
Product Differentiation
Excess Capacity
Cost Conditions
Rivalry among Competitiors
13

Telemedicine is evolving fast in India, supported by ICT sector. ISRO is planning to establish
100 telemedicine [7] centers across India in the coming years.
TRENDS IN SUPPLIERS: The growing role of Philanthropy made several foundations and
NGOs play a major role in funding for the research to develop drugs and the delivery systems in
curing the diseases. On the infrastructure front, it is estimated that 450,000 additional hospital
beds [2] will require. The growth rate of medical equipment and clinical lab diagnostics is
estimated as 15% and 30% respectively [9]. The number of doctors in India is decreasing day by
day. According to WHO reports, there are one out of 1700 people [8] in India are doctors and
there is a dire need of 4 lakh+ doctors [8] by 2020 to meet the needs.
TRENDS IN NEW ENTRANTS & EXISTING RIVALRY: According to Indian
Investment commission, the number of hospitals and nursing homes are growing 20% per annum
[9].To cope up with the competition, the existing incumbents are planning to spend Rs5700crores
[10] merely on IT products and services in 2013. The growing rivalry is making the existing
hospitals not only invest in urban chains but also in rural sector to contribute significantly to the
market share
CONCLUSION: Based on the overall average scores obtained from each of the five force
analysis as obtained above, we have plotted the chart depicting the overall attractiveness of the
industry. Scores obtained are listed below:
Entry
Barriers
Exit
Barriers
Supplier
Power
Substitutes
threat
Buyer
Power
Competitor
Rivalry
Government
Actions
1.71 2 3.16 3.33 2.75 2.6 2

Overall, the average score for hospital industry is 2.51 which points that the industry is not that
attractive considering porter five force analysis. However, considering the trends in this industry,
there is a lot of demand for branded apparels in the coming years.
14



EXHIBITS:
Exhibit 1:
Figure 1: Source: MarketLine


0
1
2
3
4
5
Barriers to Entry
Exit Barrier
Supplier Power
Threat of
Substitutes
Buyer Power
Rivalry among
Competitiors
Government
Actions
Industry Attractiveness
Industry Attractiveness
15

Exhibit 2:

Year

$ billion


Rs. Billions

% Growth
2008 41.9 2,2,48.1
2009 50.5 2,705.6 20.3
2010 58.7 3,148.8 16.4
2011 62.6 3,358.1 6.6
2012 72.4 3,883.0 15.6

CAGR : 2008-12

14.6%
Table 1: Source: MarketLine

REFERENCES:
[1]http://www.cii.in/Sectors.aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTuNu2yMtqEr4D
408mSsgiIyM/
[2]http://www.investindia.gov.in/?q=healthcare-sector
[3]http://www.rncos.com/Report/IM381.htm
[4] Crisil Research Industry Report
[5] Health care sector in India by ASA & Associates
[6] http://www.telegraph.co.uk/news/worldnews/asia/india/9690781/India-facing-elderly-population-
time-bomb.html
[7] http://www.albrightstonebridge.com/healthcare_india/
[8] http://newindianexpress.com/magazine/India-has-just-one-doctor-for-every-1700-
people/2013/09/22/article1792010.ece
[9] http://www.indiamedicaltimes.com/2011/08/06/indian-healthcare-industry-poised-for-rapid-growth-
dr-prathap-c-reddy/
[10] http://www.ibef.org/industry/healthcare-india.aspx