Medical Tourism 5 Forces Industry Analysis Presentation
May 2009Porter’s 5 Forces Analysis forMedical Tourism Industry in the U.S.
Factors Affecting Rivalry Among Existing Competitors Characterization Future Trend (Current) In the immediate future, one may expect some additional There are currently around 20 companies engaging in players entering the industry during the next 1-3 years.Degree of seller concentration? medical tourism. Only maybe five companies are really However, after that the weak players will exist, while the being active and could be considered serious players. stronger ones will go through consolidation by way of mergers and acquisitions. In 2007 750,000 Americans traveled abroad for treatments. Economist estimates that number of American medicalRate of industry growth? In 2010 as many as 6M Americans will have traveled for tourism may reach 10M per year in 2012. medical treatments. Some players will eventually identify and sign smaller Lack of economies of scale, economies of scope or capacity medical facilities to reduce the cost of input. Economies of utilization contribute no major effects to cost differences. scale will not play a major role, because the variable cost ofSignificant cost differences among Firms? Use of similar medical facilities keep input prices similar for serving clients will still be high due to the nature of this every player. Only a handful of companies had enough business. Economies of scope will increase in importance patients to move up on the learning curve. and learning experiences will reduce costs of some companies. Medical Tourism companies are small firms (3-5 people Since no major capital investments are required to operate inExcess capacity? operations). Operations are rather lean and not much this industry, there will always be little excess capacity. overcapacity exists. Sensitivity of costs to capacity utilization is low. MinimumCost structure of firms: sensitivity of costs to Efficient Scale (MES) is relatively small. At current average Sensitivity of costs to capacity utilization will probablycapacity utilization? industry margin of $1500, a firm needs to generate 200-300 remain low. clients per year to be self-sufficient. Degree of product differentiation is very small. All major As the industry grows and attracts well-trained marketingDegree of product differentiation among sellers? players offer a list of similar procedures from the same professionals, one should expect to see higherBrand loyalty to existing sellers? Cross-price medical facilities. No company has established a well- differentiation. We suspect that within 3-5 years majorelasticities of demand and competitors in recognized brand. Pricing of one company have no effects brands will emerge. Cross-price elasticities will be muchindustry? on prices of other companies. higher.
Factors Affecting Rivalry Among Existing Competitors Characterization Future Trend (Current)Buyers costs of switching from one competitor The cost of switching is relatively low today, since many The costs of switching will remain relatively low.to another? companies use the same treatment facilities. Prices and terms of sales will be observable and/or can be Prices and terms of sales are observable and/or can beAre prices and terms of sales transactions estimated. As more complicated procedures with higher estimated, especially for less costly procedures such asobservable? price differences are added to offerings, pricing information dental implants. may not be as apparent.Can firms adjust prices quickly? Yes, firms are able to adjust prices quickly. Firms will be able to adjust prices quickly. Services purchased by American patients will be infrequent Services purchased by American patients will be infrequentLarge and/or infrequent sales orders? and may be large (e.g. hip replacement). and may be large (e.g. hip replacement).Use of "facilitating practices" (price leadership, I presume some of these practices will occur in this industry None of this taking place is this infant industry.advance announcement of price changes? as well. There is no history of cooperative pricing. Competitors doHistory of "cooperative" pricing? not exert, in a legal fashion, a great deal of energy on It is difficult to answer this question at this time. determining prices of its competitors. As some player deside to vertically integrate, exit costs may Exit barriers are low. Partnerships with medical facilities go up. However, the majority of players, since there are noStrength of exit barriers? can be disolved without major financial burdens. major capital investors their businesses, exit barriers will Infrustructures can be easily dealth with. remain relatively low.
Factors Affecting the Threat of Entry Characterization Future Trend (Current)Significant economies of scale? No significant economies of scale exist. No significant economies of scale exist. Even though the importance of reputation is enormous, it is Reputation and brand loyalty will be of paramountImportance of reputation or established brand not a major factor today, because none of the brands are importance. A single mishandled case, and bad handling ofloyalties in purchase decision? well recognized brands. those incidients will ruin companies. This is not a simple task. Evaluating and developing relationships with reputable medical facilities takes time and Identifying and accessing major medical facilities will a great deal of knowledge. Thats why most companies areEntrants access to distribution channels? continue to be relatively easy. Developing relationships with dealing with only a handful of centers in the world. Top other centers will never be easy. medical tourism centers are easily accessible. However, the other facilities are not. This is not a major issue for medical tourism industry. This is not a major issue for medical tourism industry. Webpage design, travel agency arrangements will always beEntrants access to raw materials? Webpage design, travel agency arrangements will always be available to new entrants. However, working with insurance available to new entrants. companies may not be as simple. Know proprietary technology for Medical Tourism has been developed so far. This industry will always be high touch point and only certain functions of the process can be automated. Furthermore, process flows can be studies and replicated, albeit not easily. Only exclusive contracts with Exclusive contracts will prevent certain entrants fromEntrants access to technology/know-how? medical facitilies that possess a major know-how will prevent accessing know-hows posessed by certain world-reknowned access to technology/know-how. The number of players in medical centers. the value chain and number of processes that must be in place create a significant learning curve. Entrants must be comfortable nevigating through complex environment of health care, insurance, and medical procedures.
Factors Affecting the Threat of Entry Characterization Future Trend (Current) Eventually, we may see a trend for major brands signing exclusivity contracts with major favorable locations. In It appears that at this time all "favorable" locations do notEntrants access to favorable locations? addition, even smaller reputable medical facilities will sign exclusive contracts with medical tourism facilitators. eventually be signed. Thus, access will continue to diminish with time. This factor will be more important but will never be a majorExperience-based advantages of incumbents? This is a factor but not a major one. one. This is a major factor. Larger client based translates intoNetwork externalities: demand-side advantages better reputation. Furthermore, word of mouth advertising This will continue to be a major factor. Larger client basedto incumbents from large installed base? will play a major role in the introduction and growth stages of translates into better reputation and brand name. PLC. As the industry grows and as number of poor treatmentGovernment protection of incumbents? No such protections exist at this time. incidents will rise, the government may start regulating and/or governing this industry.Perceptions of entrants about expected On the contrary, most competitors are quite cooperative, It is hard to answer this question at this time, since we dontretaliation of incumbents/reputations of because they realize that joint efforts will benefit everybody know who will run companies.incumbents for "toughness"? in this growing industry.
Substitute Products and Support from Complements Factors Affecting or Reflecting Pressure from Substitute Products and Support from Complements Characterization Future Trend (Current) Domestic care will continue to be the closest substitute. Available domestic medical care is the closest substitute. Even if the US moves towards more national healthcare At this time the higher cost of this care will not make system, the wait for treatments will make domestic medical domestic care a major threat. Arranging your treatmentsAvailability of close substitutes? care still not a major factor. Self arrangements will continue and trips on your own is another possible substitute. The to be a threat. However, I presume most patients will want importance of selecting a reputable clinic, evaluating it will the peace of mind of dealing with a US intermediary. And force most patients to rely on intermediaries. many medical facilities will be in exclusive partnerships. The price value will be low, especially given the risk of The price value will be low. A well-run established medicalPrice-value characteristics of substitutes? medical incidents stemming from lack of medical facility tourism facilitator will always provide better value. evaluation.Price elasticity of industry demand? Elastic Elastic with the exception of rare, unique procedures. Travel industry is a great complement and will continue to Travel industry is a great complement and will continue toAvailability of close complements? exert a favorable influence on medical tourism. exert a favorable influence on medical tourism.Price-value characteristics of complements? Price-value will depend on the destination. Price value will depend on the destination.
Factors Affecting or Reflecting Power of Input Suppliers Characterization Future Trend (Current) The supplier industry is relatively concentrated than Medical In the future as more smaller medical facilities enter theIs supplier industry more concentrated than Tourism industry is, even though there is currently around market, the supplier industry is going to be less and lessindustry it sells to? 120 (2007 numbers) medical facilities worldwide which treat concentrated. the majority of medical tourism patients.Do firms in industry purchase relatively small Some medical facilities may switch to entirely servicingvolumes relative to other customers of Typical firms purchase volume is smaller relatively to sales foreign clients. There will be very few of those. Hospital willsuppliers? Is typical firms purchase volume of typical supplier. continue serve domestic and international clientele.small relatively to sales of typical supplier? There few substitutes for suppliers input. All top notch We dont foresee any changes in the foreseeable future. facilities have to hire well-trained, possibly foreign educated Very few companies enter a relatively competitive medicalFew substitutes for suppliers input? doctors. In addition, equipment and processes come from a device market every year. Training of doctors has always relatively small number of manufacturers and teaching been a relatively controlled process. facilities. Investments that firms in the industry make are travel It is possible that eventually the industry will see medical expenses, legal fees, and time. Travel expenses can range treatments brokers, who will broker treatments based onDo firms in industry make relationship-specific from 2-3 thousand dollars per trip per person. Legal fees availability and requests. Otherwise, the specificinvestments to support transactions with associated with drafting contracts can be between 2 and 5 investments will remain relatively the same. Somespecific suppliers? thousand dollars per contract. And the last investment is companies will develop software applications to integrate time. Firms have to spend 20 to 30 hours of time on with medical offices that deal with. In that case, integration selection and evaluation process. costs should be taken into account. Lack of marketing skills and travel agency competencies in Once major brands emerge, it will be harder for travel countries outside their own may prevent many suppliers from industry companies to enter this market. Some medicalDo suppliers pose credible threat of forward vertically integration. Travel agencies in the US do not facilities may try to partner with or acquire other centers tointegration into the product market? typically possess medical expertise. However, stiff offer a wider range of geographic locations and enough competition in the travel industry may prompt some clients to vertically integrate. companies to consider entering this more profitable market.Are suppliers able to price-discriminate amongprospective customers according to This practice is not currently observed. It is hard to predict these dynamics at this time.ability/willingness to pay for input?
Factors Affecting or Reflecting Power of Buyers Characterization Future Trend (Current)Is buyers industry more concentrated than Patients environment is not concentrated at all. We do not foresee any major changes in this area.industry it purchases from?Do buyers purchase in large volumes? Does a Even as the revenue per client will grow due to including Revenue coming from one single patient does not representbuyers purchase volume represent large more expensive complex procedures into offering, a single a large fraction of companys sales revenue.fraction of typical sellers sales revenue? client will never present a large fraction of firms revenue. Even though the gap in prices may be reduced during the Yes, patients can certainly find alternatives to treatmentsCan buyers find substitutes for industrys next decade or two, medical tourism treatments will always outside the US. However, these alternative will always be 30-products? be less expensive alternatives to treatments in the developed 60 more expensive. world.Do firms in industry make relationship-specific Since demand side of this industry is not concentrated,investments to support transactions with WE dont anticipate any changes in this realm. relationship specific investments will not be common at all.specific buyers? The price elasticity for patients procedures will vary. PriceIs price elasticity of demand of buyers product elasticity of demand for such treatments as hip or knee Price elasticity of demand will continue to vary based onhigh or low? replacement may be quite inelastic. The price elasticity of medical procedures. demand for elective plastic surgery procedures is elastic.Do buyers pose credible threat of backward Buyers will not pose absolutely any threat of backward Buyers pose absolutely no threat of backward integration.integration? integration. Yes, medical procedures will represent even at a lower level As procedures offered become more complex, the cost ofDoes product represent significant fraction of of $2-$3 thousand dollars a significant fraction of patients medical procedure will represent higher and higher fraction ofcost in buyers business? budget. patients family budget.Are prices in the market negotiated between Due to uniqueness of each medical case, prices arebuyers and sellers on each individual typically negotiated on each individual transaction. Certain There wont be any significant changes in this area due totransaction or do sellers post a "take-it-or-leave- plastic surgery procedures can qualify for "take-it-or-leave-it" uniqueness of each medical case.it" price that applies to all transactions? pricing strategy.