VIH Case Study: Porter's Five Forces and SWOT Analysis

Porter's Five Forces Analysis of VIH

Applying Porter's Five Forces model to Vietnam International Hospital (VIH) reveals the competitive landscape shaping its prospects for success.

There are high barriers to new entry, as the majority of Vietnamese are content with the socialized and often low-quality medical care they already receive. There is a strong bias in the Vietnamese community against paying for medical treatment — a result of being raised in a communist nation where socialized medicine, however poor in quality, is free.

Established hospitals are unlikely to significantly increase their coverage, since the majority of Vietnamese have not been educated about advanced medical diagnostic and analytical techniques. As a result, there is little threat of new entry at the high end of the market from established, socialized hospitals, leaving that segment underserved.

Medical evacuation services — the apex of medical services available in Vietnam — are seen only as an alternative for the wealthiest Vietnamese and the most senior expatriate executives. It is clear in retrospect why medical evacuation companies did not move into clinics and hospitals: their evacuation services are built on cost structures that allow a business model flexible enough to accommodate the high or low activity levels of a select group of clients. Medical evacuation companies have done well by staying with their elite, highly personalized service at a premium price. It is also rare for any Vietnamese national to use medical evacuation services; they would typically rely on localized socialized medicine or on organic and family-handed-down remedies.

Suppliers — in VIH's case, physicians who speak multiple languages including English, French, and possibly German — hold a decided advantage in defining their own salary and benefits packages. The reality, however, is that many physicians attracted to practicing in Hanoi are those more inclined to view it as a labor of altruism, akin to a personal mission of compassion.

Suppliers in the form of medical product manufacturers also have significant leverage when selling into Vietnam, as freight costs are high and demand is limited. The hospital's founders would need to bargain heavily to achieve supply prices comparable to those available in Sydney, Singapore, or San Francisco.

VIH serves only a small percentage of the Vietnamese expatriate population, which declined from approximately 9,000 to 4,500 following the devaluation of the Cambodian currency and the resulting crisis of confidence in the Vietnamese government's willingness to develop business.

Upper-middle-class and wealthy Vietnamese lack awareness and appreciation of the advanced medical techniques VIH offers. Furthermore, they perceive even VIH's entry-level programs as priced at least ten times what they pay — including informal payments and bribes — to providers within the socialized medicine system.

SWOT Analysis of Vietnam International Hospital

The following is a SWOT analysis of the strengths, weaknesses, opportunities, and threats facing Vietnam International Hospital.

State-of-the-art facilities. VIH offers excellent facilities equipped with advanced medical testing and treatment technology.

Financing capability. The concept of a premium hospital facility in Hanoi has proven able to attract investor financing.

Initial high-end positioning. VIH established an early, strong position at the premium end of the expatriate marketplace.

Transformative potential. The hospital has the potential to reshape healthcare across the Southeast Asian region through a new model of comprehensive, high-quality care for wealthy Vietnamese and expatriates seeking exceptional service.

Ambiguous positioning. Unclear and inconsistent positioning in both the Vietnamese and western expatriate communities has made it very difficult for VIH to make meaningful progress in business development.

Negative rumors during staff reductions. When VIH begins reducing staff, rumors spread that it is withdrawing from Hanoi and ceasing operations entirely.

Pricing gulf. The very expensive service programs with which VIH launched created an elitist image. Moving to Australian pricing helps somewhat, but a wide gap remains between the prices wealthy Vietnamese consider reasonable and even VIH's lowest-tier offerings.

Repositioning for the Vietnamese market. VIH could define its primary mission as serving middle-class and wealthy Vietnamese, drastically modifying the services offered and restructuring its cost model accordingly.

Partnering with medical evacuation providers. VIH could define itself as the patient-facing component of a complete medical evacuation service, performing triage and stabilization of serious conditions before patients are airlifted to another facility.

Specialty focus. VIH could pursue a highly specialized direction in one specific area of treatment, such as reconstructive surgery for the region.

Sale to a multinational nonprofit. VIH could be sold to a large multinational nonprofit healthcare organization seeking a presence in Hanoi.

Sale to a French firm. Alternatively, the hospital could be sold to a French company in order to cut losses.

Market confusion. Continued uncertainty about business focus — whether to target high-end Vietnamese patients or the expatriate market — is problematic, as both markets are highly transient: members of each group eventually leave Vietnam for more affluent nations and services.

Rejection by Vietnamese patients. As VIH moves closer to an expatriate orientation through a highly westernized service approach, it risks rejection by Vietnamese patients.

Physician attrition. Continued financial struggles make it increasingly difficult to retain top surgeons and physicians, who may leave to pursue humanitarian work in other nations, disillusioned by VIH's vision.

Government intervention. The Communist government may decide to become the sole provider of healthcare for its people and move to close all privately owned hospitals.

Assessment of the Founders' Market Research

The founders did not make a realistic assessment of the Hanoi market for private medical care when they launched the project. They allowed the compelling concept of a high-end hospital — filling a seemingly unique and potentially profitable niche — to motivate themselves and other investors without first completing the market research necessary to determine whether the expatriate population in Hanoi could sustain a premium-services hospital.

What was needed was a thorough needs assessment of expatriates from western nations who had expectations of premium healthcare from the outset. From those expectations, their unmet needs could have been measured and key value propositions for VIH could have been identified. The path from unmet needs to a unique value proposition, however, required a methodologically sound approach. Instead, the founders replaced systematic market research and analysis with an intuitive sense that the high end of the medical services market represented a prime opportunity. What the painful experience of opening VIH revealed was that there was a very good reason no medical facility of this quality had existed in Hanoi before: the market could not support its ongoing operation. What intuitively appeared to be a wide-open segment at the top of the market was not, in reality, a viable market at all.

The founders instead needed first to understand the supply and demand factors that brought expatriates into the country in the first place. The baht's relative volatility in neighboring Cambodia and the resulting loss of confidence in the Vietnamese government's commitment to business development led to an en masse departure of the very expatriate market VIH was targeting. Even secondary research conducted as part of a broader market research strategy could have revealed this. Secondary sources — such as business plans and 10-K filings with the Securities and Exchange Commission from corporations that had moved to Vietnam — would have offered insight into why companies were entering the region and for how long.

The founders would have benefited from identifying the factors beyond cheap labor that were driving corporate migration to Vietnam and from understanding what type of managers were being transferred there. Answering this question would have identified who the potential customers for VIH actually were.

Equally important — and requiring considerably more work — was a rigorous methodology to ascertain the unmet needs of both expatriates and wealthy Vietnamese, and to determine which market VIH would initially target and which it would forgo entirely. This primary research needed a thorough methodology to capture what services each audience wanted and what they were willing to pay. The bundling of services and the pricing strategies appropriate for each audience are quite distinct. None of this was known when VIH was created, and this is a large part of why intensive sales efforts continue to fail. What VIH is selling does not resonate with either segment — wealthy Vietnamese or expatriates — because neither group was asked what they wanted in the first place.

In summary, there was a complete lack of methodology to move beyond what appeared to be a major opportunity in the Hanoi healthcare market. In fact, there was a very good reason that part of the market was open: no one had taken the time to define what services the high end of the market actually required, and the pricing dynamics of the market would later prove unable to sustain a hospital at this level. Had the founders conducted research before launching VIH, they would have known this.