Apollo Hospitals India: Strategic Analysis and Growth Outlook

Introduction and India Overview

The Apollo Hospitals Group has an extraordinary record of success and has proven that healthcare in India can compete with many first-world organizations despite operating with comparatively limited resources. The company faces a number of challenges in the domestic market and must continue to leverage its achievements strategically. The organization possesses a unique source of human capital that can offer significant competitive advantages on an international level with regard to technology and education. This analysis provides background on India and the Apollo Group, along with multiple perspectives on their opportunities and challenges.

India is a diverse nation divided into twenty-five states and seven territories (Maps of India, 2011). Among these various territories, sixteen major languages are spoken, while estimates of regional languages and local dialects exceed one thousand (Gomes, 2011). This linguistic diversity creates an obstacle to national unity, and the government has taken steps toward language standardization. Children in schools often learn Hindi as a second language, and English has become commonplace in primary and higher education, helping to build a degree of standardization and an international competitive advantage.

Education has developed as one of the primary strategies for advancing India's economy, and the country has seen rapid increases in both the number of schools and student enrollment. While there is some difficulty in providing sufficient educational infrastructure to meet the demands of an exponentially expanding population, India has focused on education to drive growth and improve human capital. For example, it is estimated that India trains over four hundred thousand engineers per year, while the United States, by comparison, trains only about sixty thousand (Digital Learning, 2008). This strategy has produced a technologically competent segment of the workforce and driven substantial growth in market sectors such as information technology in India.

India's economy is growing very rapidly, and its gross domestic product (GDP) has increased steadily since 1997 at a rate of almost six percent per year (Trading Economics, 2014). India also possesses the second-largest workforce in the world, behind only China. However, China's total workforce and population still hold a commanding numerical advantage. Furthermore, although these two countries are often grouped together in discussions of economic growth, they have developed along very different trajectories and through substantially different strategies (Riley, 2008).

Company Overview and Mission

Dr. Prathap C. Reddy, Apollo's Executive Chairman, stated: "The first part of the game is over. I have shown the world that we can provide first-class healthcare in India." The Apollo Group and the Indian healthcare system in general have proven they can be a competitive force in the global market. With a total staff of over ten thousand, the organization has achieved world-class results. Some key statistics include:

50,000 heart operations with a success rate of 98.5%; cardiac surgeries using the beating-heart technique with a 99.5% success rate; 138 bone marrow transplants with an 87% success rate; and 6,000 kidney transplants with a 95% success rate.

The company began operations over twenty-five years ago with the vision of helping India become a premier healthcare provider. Its first hospital was in Chennai and had one hundred and fifty beds. Today, the organization spans over eight thousand beds across forty-six hospitals and has helped over ten million patients. The company has been innovative in many ways to achieve this impressive growth trajectory and now represents an integrated healthcare provider that has expanded both vertically and horizontally, with a focus on patient-centered care.

Apollo Hospitals' mission is "to bring healthcare of international standards within the reach of every individual. We are committed to the achievement and maintenance of excellence in education, research, and healthcare for the benefit of humanity." (Apollo Hospitals, 2014)

Porter's Five Forces Analysis

Modern healthcare organizations face many challenges in meeting the demands of a growing consumer base. Almost all healthcare organizations are expected to deliver broad access to health services while improving the quality of care and controlling costs. Greater competition has often been proposed as a solution that elegantly addresses each element of this challenge (Dash & Meredith, 2010). The level of competition in any market must be balanced with the healthcare needs of the population to promote access to high-quality, efficient care. The strategies most effective in achieving this balance remain open to debate. Too much competition, for example, can lead to duplication of services that create macro-level inefficiencies, while too few providers cannot meet consumer demand.

On a micro level, however, understanding competition is a vital part of strategic planning. Porter's Five Forces Analysis of industry attractiveness is now being applied to healthcare and includes three forces from "horizontal" competition — the threat of substitute products or services, the threat of established rivals, and the threat of new entrants — as well as two forces from "vertical" competition: the bargaining power of suppliers and the bargaining power of customers (Meyers, 2014). When these forces are intense, there is generally less room for profitability, and the structure of the industry can strongly influence returns.

Porter stresses that the future will belong to those who create value, and he lays out several principles of value-based competition (Meyers, 2014): the focus should be on value for patients, not merely on lowering costs; competition must be based on results; competition should center on medical conditions over the full cycle of care; high-quality care should be less costly; value must be driven by provider experience, scale, and learning at the medical-condition level; competition should be regional and national, not just local; information to support value-based competition must be widely available; and innovations that increase value must be strongly rewarded.

Threat of New Entrants

Hospitals face significant barriers to market entry because they are heavily regulated and require a substantial amount of infrastructure. If a hospital is already serving a local market, it typically holds some degree of monopoly power, and it can be extremely difficult for another hospital to establish itself in that market — either through regulatory hurdles or by generating sufficient market demand. This dynamic makes expansion through acquisition a popular growth model in this industry, as it allows firms to quickly establish themselves in new markets.

Supplier Power

Supply chains in healthcare are complex and dynamic, making broad generalizations about supplier power difficult. Drug companies, insurance companies, and medical technology providers can wield considerable negotiating power, especially for proprietary products. However, hospitals will typically have various supply chain options that can partially offset this power, though the balance must be evaluated on a case-by-case basis.

Buyer Power

Buyer power in the healthcare market can be considered from several perspectives. Individuals may purchase healthcare directly or collectively through insurance companies or government assistance programs. Individual patients typically have few choices — particularly in emergencies — and must visit the nearest available provider. Collective agencies such as insurers have considerably more power, but are still constrained in the options they can offer their members.

Threat of Substitutes

Hospitals have very few substitutes for the provision of care, with limited exceptions. When someone is injured, they typically do not have time to evaluate alternatives. In some non-emergency situations, patients may be able to seek care at a hospital in another region or country. For the most part, however, the threat of substitutes is low.

Competitive Rivalry

Competition in the healthcare industry is generally low at the local level, given the limited availability of substitutes. However, healthcare providers do compete on various performance metrics, and stronger organizations sometimes have the opportunity to acquire additional facilities. More competitive organizations can also attract superior resources, including skilled healthcare workers. Therefore, while regional competition may be limited, competition exists at other levels within the industry.

SWOT Analysis

Strengths: broad product and service mix; high technological capacity; strong market penetration; quality service and brand image.

Weaknesses: pharmacy growth issues; relatively low staff salaries in the face of international competition.

Opportunities: huge market potential; growth in the medical tourism niche; development of high-tech equipment manufacturing.

Threats: high costs of medical equipment (overhead); international competition; emigration of healthcare staff seeking higher wages abroad.

Works Cited

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