Stryker is a medical equipment manufacturer and marketer. The regulatory environment is the most critical external factor for the company. The medical device industry is governed by the FDA, which must approve all medical devices prior to their use by the public. Almost all of Stryker's products is under FDA jurisdiction, and therefore the company is highly dependent on the FDA for getting its products to market. If a product is not granted approval, it cannot be sold until it has been modified to get approval. There are high costs to the company associated with the regulatory burden, and the company needs to develop competency in navigating these regulatory waters.
The legal environment is another point of interest, at the very least, for Stryker. The new health care laws of the Affordable Care Act are likely to affect the industry in a range of ways. The most important of these for Stryker is that there is going to be a shift in bargaining power towards the customers, payers and end users of medical equipment. Stryker is going to face companies that have either less capacity to pay for high end new devices, or less desire to do so. This increase in buyer bargaining power is something that could threaten the profit margins of Stryker, all other factors being equal. It is unknown at this point, with the major components of the law just now coming into force, what the actual impact will be.
Another major force in the external environment is technology. There has been a rapid pace of change in medical technology in recent years, and this has in many ways framed the competition in this industry. Firms that do not have a high level of technological competency will fall behind in the competitive marketplace. To an extent, major new innovations can help restore some of the bargaining power to the industry that might have been lost with the ACA, but there is also the risk that a combination of higher costs for investments in technological research and development, combined with a reduced ability to pass these costs onto payers, is going to harm profitability of medical equipment companies further.
There is also the social environment that needs to be taken into consideration, along with the economic environment. The health care business is general does not track the general economy, because health care has a fairly low price elasticity of demand, owing to information asymmetry (buyers know little) and the consequences of not purchasing health care for those who need it. The social environment is therefore a much more significant driver. The U.S. is an aging society, and the baby boom generation is just getting into their senior years, where there is much greater health care demand. The downside for Stryker is that anyone over 65 is covered by Medicare, which has the most bargaining power of any buyer in the industry, but the upside is that there are tens of millions of boomers still on private insurance, and that this bulge in the population graph creates tremendous demand for the coming couple of decades.
The competitive environment remains challenging as well. There are several firms competing directly with Stryker. While the company is granted by the FDA intellectual property rights protections that are robust, once a device goes generic or a competitor can imitate that device without infringement, there is significantly reduced profitability in the industry. Stryker needs to maintain its competitive position in order to thrive. Overall, the competitive environment is actually less important than the other facets of the external environment.
Internal Competitive Environment Scan
Stryker has achieved some positive strengths. The company has been listed as one of the best companies to work for by Fortune Magazine, an informal designation but one that indicates a strength in human resources that will allow Stryker to attract and retain top talent. This is important in a business where research and development is so critical to success. It was also named as one of the most admired companies by the same publication.
Financially, Stryker has grown its income steadily over the past five years. While this is good news, profit growth has not kept up, as the analysis of the external environmental factors predicted would be the case. That said, Stryker has a relatively good gross margin, and the research & development costs are not unduly high relative to the company's revenues.…