Competition in the health care industry
The potential rival’s expectations about the reaction of existing competitors will also influence its decision on whether to enter. The health care industry is facing serious threats from potential players entering into the industry. The above barriers may block small players. But a serious and player can easily overcome those barriers if having a financial strength and having a vision for a longer period in the industry.
Bargaining Power of Suppliers:
Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased good and services. The following are the conditions that make a supplier group powerful.
(i) Dominance by a few suppliers and a lack of substitute products: The two factors limit customer’s options, effectively increasing the supplier’s power. Medical equipment manufacturing industry is dominated by few players although there is no collusive arrangement between them. This reinforces their bargaining power in the deal with the health care industry. The industry is facing serious trouble of shortages of nurses in UK and other developing countries. The salary is increasing at an alarming rate and even forces the firms to bring nurses from Asian and other developing countries.
(ii) Greater Concentration among suppliers than among buyers: A concentrated industry is one in which a few large firms dominate, giving their power over those who do business with them. The medical equipment manufactures and suppliers are more concentrated than health care industry which gives them an upper hand on the bargaining table.
(iii) Relative lack of importance of the supplier or the buyer group: Some customers are more important that others because of the size of their purchases or prestige that comes from supplying them. Doctors or physicians or nurses are the most important suppliers of services to health industry but their relative importance is lesser than the industry. It forces the industry to offer favorable reward terms to win the physicians or nurses.
(iv) High Differentiation by the supplier and high switching costs for the buyer: These factors discourage customers from shopping around and playing one supplier against another. All medical equipment may be largely differentiated from another but equipments fitted in high end R&D units and operation theaters are highly differentiated. The industry spends huge amount of money to purchase equipments for a particular purpose, so it discourages the changing of suppliers at least in the short run.
(v) Threat of Forward Integration by suppliers: Forward integration involves a supplier moving into a later stage of the manufacturing process or distribution. That is moving into direct competition with its customers. Usually medical equipment manufacturers or suppliers don’t go for forward integration. But the threat of forward integration comes from high profile physicians. Several times doctors set up their own health care units which is major threat for existing players.
Bargaining power of customers:
Buyers can exert bargaining power over a suppliers industry by forcing its prices down, by reducing the amount of goods they purchase from the industry. Following factors may lead to greater buyer power.
(i) Undifferentiated or standard suppliers: If the product being supplied with no differentiation, the customer can easily switch over from one firm to another for the most favorable terms. In the health industry, the patients (customers) are mostly treated as a commodity and the hospital is only concerned about curing the disease. It is highly important for a health firm to treat the patient beyond curing the disease by offering unique services which will force them not to think about switching over to another firm.
(ii) Credible threat of backward integration: Backward integration involves a buyer moving into a earlier stage of business that is moving into the supplier’s business. This kind of threat is limited in health care industry. It happens only when health care services are provided to a big institution which is concerned about the communities and has the financial strength to set up a health care unit. So health care firms need to be very careful when dealing with big corporations.
(iii) Accurate information about the cost structure of the suppliers: This allows customers to exercise more precision in negotiating the prices of suppliers. Generally it does not happen in health industry besides the charges of doctors. But it prompts the government to regulate the price structure in health care business.
(iv) Price sensitivity of the buyer: Price sensitive buyers are likely to fight for lower prices. In health care industry, buyers are not so price sensitive as in other industries. But time and again dealing with institutions which are concerned about cost needs utmost care while structuring the prices.
(v) Greater Concentration in buyer’s industry than in supplier’s industry and relatively large volume purchases: These two factors imply that buyers are larger and more powerful than suppliers. In other words the buyer is more important to the supplier than the supplier is to the buyer. This condition does not apply in health industry; usually firms have an upper hand when dealing with buyers (patients).
Most of the sources of buyer power can be attributed to consumers as a group or institution as well as to industrial and commercial buyers. So it is essential to distinguish between various customers i.e. patients as individuals or patients from an institution.
Tags: developing countries, financial strength, health care industry, manufacturing industry, medical equipment manufacturing, nurses, salary
