Strategic Management EPGP Group Assignment

Five Forces Analysis - > Apollo Health and Lifestyle Ltd.

Authors: (Group 9)
Name Bhawani Rathore Kailash Hegde Ratnavali Burra Sudhanshu Kumar Vivek Likhi Roll Number 009epgp2011 018epgp2011 027epgp2011 036epgp2011 045epgp2011

Strategy Management

Five forces Analysis

Summary of Impact of Five forces

Forces
Established Rivals Savvy Customers Powerful Suppliers Aspiring Entrants Substitute Offerings

Impact
Low Low High High Low

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Established Rivals
As per Michael Porter, the degree to which rivalry drives down the profitability of the industry is dependent upon the intensity of rivalry and basis on which they compete. Analyzing the Apollo Health and Lifestyle Limited on the above factor does give us some insights into the effect of this main competitive force. The industry space is already crowded with number of players like Max Health Care, VLCC, Dr. Batra Clinics etc. Some of the clinics are also backed up by leading hospitals. All the primary health care centers do have specific niches in which they operate with common basic health care services. The table compares the various attributes of the above mentioned competitive force. Factors for intensity of Rivalry Size and Power Apollo Clinic vs. Competitors The competitors are equal in strength. There is no industry leader in the business. Highly fragmented. The growth is slow as all of them cater to middle or upper middle class segment which can afford to pay a higher premium. The exit barrier for Apollo clinic is low due to franchise business. High for competitors due to investment done. There is no subjectivity in competition. This has led to diverse strategies with differing goals.

Growth

Exit Barriers Competition

However the competitors do not operate on the same dimension. As mentioned earlier, while the some aspects of the primary health care can be common, each of the above competitors to Apollo clinic operates in different mixes of products and services. In some cases the customer segment might be the same. This niche offering can be used to increase the profitability of the clinic by catering to a different customer segment like low priced offerings to attract wider range of customers. By looking at the dimensions in which Apollo Clinic and competitors operate can be seen from the below table. Dimensions Product or Services Apollo Clinic vs. Competitors The product mix and services are different. However the switching cost is low.

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Strategy Management Fixed Costs

Five forces Analysis Apollo Clinic has an advantage here due to franchise business. However the marginal costs for the franchise is very low.

The overall perspective on the rivalry on the above industry does offer insights. The rivalry may not be intense and do not operate on same dimension. It might be an opportunity to explore other customer segments which might be a factor in differentiating and increasing the sustainability and profitability even with the franchise model.

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Five forces Analysis

Savvy Customers
Demand outstrips supply by huge margins. Customer power is low and thus can not affect the profitability adversely. The growth of the Indian economy, GDP and increased purchasing power combined with population growth ensures that there is huge demand for the primary healthcare. Since the demand is huge and supply is fewer customers cannot drive the prices down. With India's changing demographic profile, rise of middle class, shift in the disease patterns and growing awareness of health and fitness are the main factors driving the growing demand for healthcare services in India. The Indian health care industry is growing by leaps and bounds and has a future potential to reach over USD 150 billion by 2017. With the increase in the spending power of the Indian middle class, the demand for quality health care is also seeing a surge. Further increase in the lifestyle-related and other diseases and the growing elderly population are other factors fueling demand for health care services. As a result, in spite of a steady growth in the supply of health care services, there remains an imbalance in the demand and supply that creates friction in the growth of this industry. Considering the huge demand for health care services in India, the sector expected tremendous support from the government in the Union Budget 2009-10. Medical Tourists Reducing Dependence on Local Customers Medical tourism is one of the major external drivers of growth of the Indian healthcare sector. The emergence of India as a destination for medical tourism leverages the countrys well educated, English- speaking medical staff, state-of-the art private hospitals and diagnostic facilities, and relatively low cost to address the spiraling healthcare costs of the western world. India provides best-in-class treatment, in some cases at less than one-tenth the cost incurred in western countries The foreign traffic was 10% earlier and has trebled in the last three years.

The greatest impetus for the growth of medical tourism in India is the difference in the cost and the increasing world-class medical facilities available in here. A simple rhinoplasty costs 2.64

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Lakh in US, but will only cost around 50,000 Rs in India. Likewise a face lift costs 5.28 Lakh in USA but costs only 1.5 Lakh rupees in India. If such is the difference then who is not tempted to avail the dual benefit of cure for sure and explore for sure
References:http://www.indiahealthvisit.com/medical-tourism-statistics.htm

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Strategy Management

Five forces Analysis

Powerful suppliers
Powerful suppliers capture more of the value for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants. In the case of Apollo, the suppliers can be broadly classified into four categories: Hospital Equipment supplier Pharmaceuticals Labor Hospital Infrastructure

The table below gives the effect of suppliers on the hospital industry in general: Evaluation Parameter/Supplier Impact to the hospital Supplier concentration Importance of volume to supplier Hospital equipment Pharmaceuticals Labor (Nurses, Doctors etc) Hospital Infrastructure

Low High hence impact is low

Low High as this is the only industry they supply to hence impact is low

Low Medium (As they can setup private units)

High Low as there are many other industries they can supply to hence impact is high Low

Differentiation of products

Switching costs of firms in the industry Presence of substitute inputs

High (because of specialized equipment made by different suppliers) High Low because of specialized equipment hence impact is high High

High (because of patented drugs)

High (because of the quality of service they provide)

Low Low because of patented drugs so impact is high

High Low because of unavailability of quality doctors/nurses hence impact is high High

Low High, hence impact is low

Cost relative to total purchases in industry

High

Low

According to the table given above, every supplier has a medium-high impact on the industry under each evaluation parameter, which only shows that the suppliers for this industry are very

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powerful. Porter says to neutralize supplier power; the company needs to standardize specifications for parts so that the company can switch easily among vendors. Having said that Apollo did take some measures to neutralize supplier power in the case of Labor where keeping in view the role played by family physicians, their availability in large numbers they confined themselves to consultations by specialists and super specialists however, Apollo franchisees still faced the problem of doctors concentrating more in their private practice and hence diverting patients. Moreover, the doctors demanded higher incentives for their services and referrals. The Apollo clinics did not have the high-end equipment or very competent doctors as the basis for their operation was availability of affordable healthcare. However, these two play a very important role in the hospital industry, as people will not think twice to invest extra amount of money when they are confident that they are in the right hands. Here, it shows the power of these two suppliers- hospital equipment and Labor. Adding to that, the franchisees could not obtain the requisite licenses for operating its pharmacy as a result the ball is entirely in the court of the Pharmaceutical suppliers. Thus Apollo faced problems with each of the suppliers and was unable to neutralize the supplier power.

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Strategy Management

Five forces Analysis

Aspiring Entrants
Apollo clinics are targeted at providing specialized primary healthcare to middle and upper class people in the country at competitive prices, a one stop shop for the family healthcare. At present there is a great demand for the quality primary healthcare in the market. There are a lot of other primary healthcare providers, but they offer a specific positioning, e.g. VLCC beauty healthcare; MV Diabetes clinic for diabetes; Dr Batras clinic Homeopathic healthcare. Let us take a look at the possible threats of new entrants in the context of Apollo clinics franchised model: Threat of entry in any industry depends upon the entry barriers, which are the advantages that incumbents have relative to new entrants. Entry Barrier Brand identity Apollo vs. Competitors Apollo hospitals have well established brand in the healthcare industry in the country. So they can leverage this brand value to attract patients in their clinics. A new comer will have difficulty in establishing its brand. As far as capital requirement is considered in the franchised model, there is very little capital requirements. Therefore if other big names (e.g. Fortis, Wockhardt, Max Healthcare etc) decide to enter in the primary healthcare business with the franchised model, they can do it easily. For specialized primary healthcare business, the inputs required are availability of doctors, nurses and advanced medical equipments. All of these are relatively easily available. Impact High But other established brands in healthcare industry can easily enter into the primary healthcare business. Low

Capital Requirements

Access to inputs

Low

We can infer from above that the barriers to entry for the new entrants are relatively low and there are good opportunities in the market for them. So there is a big threat that new entrants will enter into the market.

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Strategy Management

Five forces Analysis

Substitute Offerings
Alternative Medicines: Alternative Medicine is a kind of diagnostic technique and method of treatment whose theory develops from generally accepted medical methods. Alternative medicine is often treated as a substitute for or complementary to conventional medical treatments. Alternates to allopathic treatments include: Ayurveda Homeopathy Osteopathy Acupuncture Biotechnology Unani and more. The advantages of alternative medicine are that they are often safe, without side-effects and effective. However, the certain disadvantages are that the alternative medicines are not tested for efficacy. Delay in getting results is another common problem with alternative medicines. Although the dissatisfaction with western medicine seems to be growing but no other alternate has yet posed a serious challenge. In the case of Apollo Health and Lifestyle Limited (AHLL), though the franchise based business model has yet to come close to the targets, the five force analysis reveals that the threat of substitutes is low at this point in time. Price performance Trade-Offs: Some of the substitutes available may have an edge when it comes to pricing but there are no clear cut performance benefits to be gained. Although there is no dearth of practitioners of alternate medicine they are not as readily available. Customer targeted in specialised primary health care by AHLL are price sensitive but no proofs of the efficacy of substitutes and the time involved in diagnosis and treatment dilutes the threat of these alternates. Low switching cost: The switching cost in this case is very low as a patient can easily consult another practitioner. On the face of it the threat of substitutes should be higher owing to low switching costs, but some people may not choose to do so due to because of the reasons discussed above. At best the threat of substitutes because of low switching costs could be assumed to be moderate. The business of AHL would not be seriously threatened by the alternates as the price performance trade-offs (low) and switching costs (moderate) do not contribute significantly to raise a serious challenge to Specialized primary health care targeted by AHLL.

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