Apollo Economics
Apollo Hospitals is a healthcare provider in India. The healthcare system in India is oriented towards private enterprise, as government provides very little care, something that is matched with atrocious health outcomes. Most health spending is on an out-of-pocket basis, with only 15% of the people using health insurance to cover their costs. Within this milieu, Apollo Group emerged to win a substantial share of the private hospital market. Growth now depended on rising incomes that would increase demand, but also on improvements to the insurance system that would bring more Indians, in particular the rising middle class, into the health care system. Apollo is examining a couple of different options with respect to enhancing its revenues. The first such option is to establish an insurance system and the second is to differentiate via the creation of super specialty hospitals.
There are two competitive advantages to the insurance scheme. The first is that the insurance company is like a casino -- the house always wins. So inherently there is profit to be had in the insurance industry, as long as there is enough data to develop accurate actuarial tables. The main benefit of an insurance scheme is that it will enlarge the size of the market, bringing more middle class Indians into the health system. As the only company with its own insurance, and having locations around the country, Apollo would be an appealing option in a country where a high level of vertical integration was critical to fostering high-quality, reliable care. The insurance industry is favorable in India, because there is high bargaining power over both buyers and suppliers, given Apollo's competitive position in the immaturity of the market. There is relatively low competitive intensity and the main competitor/substitute, public health care, is in poor shape.
The resource-based view of strategy holds that companies with superior resources tend to enjoy superior performance (Jurevicius, 2013). Apollo appears to have the financial resources, or at least the access to partners with those resources, to start an insurance business. An insurance business would be something that its competitors are unable or unlikely to match, so there is definitely a resource advantage to this strategy. The main resource that is lacking -- and it's a big one -- is adequate actuarial data. Insurance companies rely on probabilities to determine their pricing, and the reality is that this data is not complete in India (Investopedia, 2014). A new insurance business would only have access to whatever data is available publicly, and internally. This is far less than what an insurance company in the United States might have. Thus, insurance could very easily by mispriced, resulting in Apollo taking a loss on the product. An insurance scheme is something Apollo should only undertake if it genuinely feels that it has the data to support accurate pricing. As for cultural elements, most Indians who would be in the market for insurance are more Westernized, and would probably understand the concept. That said, without a major history of buying insurance, some might well be skeptical of the idea.
The other option, the superhospitals, implies a pursuit not only of dominance in specific fields in India, but a pursuit of the medical tourism market. In that, however, India will be competing with Singapore, Malaysia, Thailand, some of the Gulf States, and other countries that have the ability to deliver a similar cost-quality dynamic. Thus, there is going to be lower bargaining power over buyers. Bargaining power of suppliers remains favorable for Apollo because of its size. The company would be competing against other countries, which implies some increase in the intensity of rivalry, but high-end medical solutions have fewer reasonable substitutes. Overall, however, the forces are a little bit more challenging for the superhospital option because of competition throughout the region.
The resource-based view, however, favors this option. Apollo has the benefit of employing low cost labor, same as many other countries, but it also employs thousands of Indian doctors who trained overseas. Having foreign-trained doctors returning home is one of the main resources Apollo can offer. Few countries can match this advantage of India. With its size and wealth, Apollo will be able to offer technology and working conditions that are equivalent to those in the West. Thus, under the resource-based view, there is significant opportunity for Apollo in medical tourism, if the company can continue to attract back Indian doctors working overseas. Culturally, this option fits as well because Apollo would...
Apollo Hospitals India's Apollo Hospitals Group India Overview Company Overview Porter's Five Forces Threat of New Entrants Supplier Power Buyer Power Threat of Substitutes Competitive Rivalry Strengths Weaknesses Opportunities Threats Strategic Alternative Identification & Fit Assessment Competitive Position, Capabilities, and Deficiencies Strategic Choice & Strategy Formation Finance Income The Apollo group has an extraordinary success record and has proven that healthcare in India can compete with many first world organizations with third world resources. The company faces a number of challenges in the domestic market and must continue to
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