Five Forces Model Approach on Pantai Hospital


The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure.
Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates.
Industry overviewThe demand for health care has tremendously increased in Malaysia, one of the reasons being the ageing population, Malaysia is in the third stage of the demographic transition, in which the population a ageing due to a steady decline in its birth rate,. The number of older people in Malaysia has doubled in the past two decades to almost 1.4 million in 2000. The number is expected to double up to more than 3.4 million by 2020. The government has been the largest provider of the healthcare services to this group, with 60-70% being treated in public hospitals and health care centres. (UNESCAP.ORG RESEARCH,2003). In 2009, the government approved licences for a total of 42 new private hospitals, growing the number of beds at private hospitals by a third to 15,178. This surpassed the number of private hospitals which stood at 209 in 2008 to 254 with 11, 689 beds. In order to understand the health care industry dynamics we have chosen to use Porter’s five forces model to analyse one of the well known hospitals in Malaysia. Pantai Hospitals.
Diagram of Porter's 5 Forces
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Source : http:www.quickmba.com/strategy/porter’s
Competitive Rivalry and Industry growth(Den,2006) credited the private health sector, seeing it as increasingly playing an important role, before 1980 private hospitals were few and consisted mainly of hospitals which were community or philanthropic supported. Back then, private practice was primarily by way of general practice and there were a limited number of specialists in those none for profit institutions. But over the years, there have been key changes in healthcare industry structure since the 80s and recently, a few having occurred mainly for-profit oriented private hospitals mushroomed especially in major towns and growing cities.
Pantai Holdings Berhard started its legacy in 19 74 as a 68 bedded hospital to serve the Malaysian community. It was the pioneer private hospital in Malaysia, since then Pantai has grown to a network of 9 hospitals across 6 states with a range of health care support, However with the ever approval and establishment of private hospitals in Malaysia, Pantai faces intense rivalry in the industry. In Melaka for example, despite its strategic location, Pantai Hospital faces rivalry from Mahkota Medical centre which is strategically located in the centre of the town and have has twice staff as Pantai, in terms of admission, Pantai stays behind with 250 beds and 60 specialists compared to 288 beds and 64 specialists of Mahkota medical Centre. Other rivals are Southern Hospital and Malacca General Hospital. In Kuala Lumpur, Pantai is rivalled by more than 10 hospitals which are spread among the city. The hospitals has 333 beds for instance, which outdone by the Chinese maternity hospital with 350 beds. With the rivalry in the healthcare industry pantai faces a huge problem of leading the patients market. Recently there has been approval of licence for building of more private and with more beds. However competition will not be more intense in terms of geographic location. The hospital can still yield more patients because they are strategically located in cities where there are large populations, such as n Cheras, Melaka, Ampang and Kuala Lumpur.
Another key change in the in the health sector has been the changing paradigms in Malaysian healthcare. As of end of March 20009, some 49 managed Care organizations were formed and registered in Malaysia. The spiralling growth of the MCOs attest to the life that Malaysia’s healthcare system is moving towards some great paradigm shift of which somehow benefits their existence. (Quek, 2000). The healthcare expenditure has reached critical masses, which the citizens must reckon with. Many entrepreneurs have now suddenly awakened and found a golden opportunity to take advantage of healthcare by patients as another tasty morsel for corporate dealings and wheeling. It appears that since the introduction of the organisations, a lot of entrepreneurs have chosen to invest in healthcare provisions such building hospitals and healthcare specialist centres, not really that the investors had any interest in the welfare of patient and but only to exploit them further thorough escalating prices of medical expenditure. This has led to growth in the industry and intense completion among the industry players. There has also been another reason for concern which has been the uncertain viability of the MCO model, most of the private hospitals in Malaysia have been posting marginal profits, with a sizeable number losing but kept afloat b y charitable trusts and philanthropy. Only a few star players have been profitable not even exceeding 10% (Queck,200).The factor has encouraged a competitive and aggressive marketing in healthcare industry. Queck has continued to mention that there is not denying that the size of healthcare spending is growing, and at about 1.5 billion ringgit annually, which certainly an attractive investment enough for to gamble on the prestige of adding a medical centre to their diversified interest.
Rivalry has also been seen to be significant between Pantai and other private hospitals; approximately 30% of all patients would receive treatment in one of the 254 hospitals or same day facilities, taking considerate pressure off the public hospital system. Technology however, and medical advances and specialty services have been driving a strong trend towards private hospitals specialisations with more of the industry players are developing a significant competition for niche areas of expertise such as coronary care, eye surgery, mental health care and maternity admissions. With patients having a freedom of choice to choose the hospital they want and to be seen by a specialist they trust based on records and reputation, some hospitals have found it to be fit to set up strategies that enable them to fend off competition they face and lure more patients to their clinics.

Government Hospitals

The government’s effort to continue with caring for the nation has seen more public hospitals being built and many more proposed. It has not been good news to the private healthcare providers as many public hospitals accommodate the most sophisticated technology to match the private standards. The government has even gone to an extent of hiring the highly qualified nurses, doctors, nurses, surgeons and other practitioners and managed match the salary standards of their private counter parts. Some of the systems do not provide access to the private hospital system and the private hospitals have been found by the patients to be very expensive and accommodation alone could costs around RM500 ringgits per day, not including doctor’s fees and a myriad of other additional expenses. Patients have found that in overall a hospital stay may run into a few thousand of ringgit compared to RM50 that can be paid for consultation and RM100 for admission. The private sector has attempted to rival these strategies by allowing patients to have their choice of doctor/specialist, the speed of service, improved treatment options or simply comfort and convenience. They have tried to compete with the public system in cases such as elective surgery, where the public system often has a long waiting list. As a result, this low switching costs to government hospitals has increased rivalry. If growth will be slow with the Pantai hospital, it would be expected that the rivalry will increase and there would be more attraction of new entrants.

Non Profit Hospitals: A diversity of rivals with different cultures, histories and philosophies makes an industry unstable. Private hospitals operated by religious or charitable institutions offer an alternative source of private hospital services to some of the Malaysian patients. Tung Shi hospital was established with objectives to offer medication to patients for free or low cost treatment regardless of religion, creed or gender, and to even help the poor and make funeral arrangements for those with no next of kin. The occupancy rate of this hospitals can be higher that of the Pantai private hospital in Kuala Lumpur more especially for the psychiatric bed occupancy and acute diseases. Rivalry here is volatile and can be intense. Study have shown than the mix philosophies about mission has occasionally led to fiercer struggles by hospitals over who will get expensive diagnostic and thereupatic service. At other times, local hospitals become cooperative with one another on issues such as community disaster planning and therefore shutting of the Pantai Hospital.


Threats of New Entrants – High

The two important considerations in observing the topic of new entrants to the Malaysian private hospital are the levels of attractiveness and the barriers to entry. The industry incomes form the focus of operations for this analysis. The rapid growth of private hospitals was the result of the government policy of letting private sector play greater roles in the healthcare industry. The prospect of making money has therefore resulted in more potential entrants under companies wanting to make fortunes in healthcare industry.
In the beginning of the article we mentioned that in 2009 45 licences were approved for private hospitals. The new entrants are coming wing a sole purpose to get the same market that Pantai hospital is currently having a large share of. In Kuala Lumpur for example, a state of art hospital called GleanEagles is under construction, with expected completion to be 2014. Having recently received the ministry of health award, The hospital is a threat to Pantai because they are introducing top notch technology and sophisticated medical care that is in demand by the patients. Another hospital is HSC which is also located in the heart of the city near KLCC, posing yet another direct threat to the hospital under study. HSC’s strategic location gives easy access to the highways, corporate buildings and shopping centres. This gives it the advantage to capture more customers and admit more patients than Pantai the rivalry will intensify more because the hospitals have similar market share and it will lead to struggled for market leadership. There have been a few complications faced by potential entrants in executing the strategy to establish new hospitals. Malayisa is still a developing country giving more opportunities for establishment of hospitals. Despite high healthcare costs involved. The operation costs are relatively low. Secondly the government has made it easier to find sites, purchase land, gain various approvals and build hospitals strategically positioned adjacent to prime markets especially in cities and big towns. It is also easier to recruit medical practitioners in Asian countries at lower prices; in many private hospitals in Malaysia most practitioners would be found do to be interns and fresh graduates. Finally healthcare spending in Malaysia is currently at 3% of the gross domestic product being among the lowest
A general conclusion from potential new entrant dimension is that it is much attractive to enter the Malaysian Private Hospital industry, even by way of setting up new facilities. The companies do not need to acquire existing operations but rather they establish hospitals from scratch.
Buyer PowerRegarding the role of patients in isolation to other influencing factors, it can be said that their ability to impact on industry players in a negative or damaging way to shareholders interests or assets and returns is relatively low. Hence, this element is favourable to industry members. It is also favourable to Pantai hospital. However, the patients can easily find some alternatives to change their hospitals and doctors because of the many medical centres around that make switching cost low. This is gives buyers higher power, for is instance, a patient can easily shift from Pantai hospital to Sunway Medical centre or any other hospitals. There are some reasons that will drive customers away from Pantai, escalating medical expenses have are just one of the reasons why customers will opt for cheaper hospitals but yet with better services.
To combat this problem, the formation of 45 MCO, has enabled the industry players to form a stronger partnership with the insurance companies. The can easily get information about customer demands and new developments in health care industry.

Threats of Substitutes



Substitutes, or alternative health services, include
-Not for profit hospitalposes medium to high threat depending on the hospital location, Tun-Shi hospital for example is located in the Kuala Lumpur, and with its mission and philosophy to offer medical treatment to patients for free or a t lower costs might inflict a positive threat to a pantai hospital located in the city.
- Public Hospitals: Low to medium threat depending upon the type of service. Customers who resort to government hospitals threaten the market share of Pantai hospital. The Malaysian government is working hard to compete with the private industry by building first class government hospitals with savvy technology that can match the standard of the private hospitals. Malaysia gives everyone reasonable access to health, the government being the largest provider of the service with 60-70% treated in public hospitals and health centres under a heavily subsidised scheme. Some patients can get a coronary bypass surgery for a maximum of RM500, a liver transplant for the same price too. Even though there is some degree of waiting times and long queues, and rationing to healthcare particularly of expensive private tertiary care, patients may find it much cheaper and better to go for treatment in a public hospital than a private hospital.


Technology as a substitute to Private health care, - Even though there are some advancement and research still be carried out to introduce information technology in healthcare, the threat is still low. E-health for example uses the application of information technology in healthcare to avoid unnecessary admissions and unnecessary payments in hospitals. The introduction of remote health care will eliminate the role of private hospitals as only means of administering patients. Mobile healthcare also enables patients to manage their health while at their homes; it even goes to an extent of giving patients a chance to refill their medical closets by ordering medication online and having it delivered at their doors. This reduces costs on the side of patients and also save them time and resources. However it is a threat to the private hospital in a way that, if there is no admission of a maximum number of patients, then there is going to be a profit loss.


Reduction in Demand for private HealthcareThis poses almost no threat, even though prices of treatment are going high, still some customers want to have their own private doctors, and be treated at their comfort with satisfactory service, and highly qualified doctors, it is for this reason that private hospitals are still mushrooming, and it is for this reason that Pantati will still expand in other parts of the country and be one of the market leaders in healthcare industry.
Following the rationale above, it can be summarised that, the combined threat of substitutes impacting on the Pantai hospitals in a negative or damaging way to shareholders interests or assets, and returns is medium, this is so because there are so many private hospitals offering services at various prices and creating a competitive platform. Public hospitals are also rising in par with the Private sector hence this elements can be favourable at a medium level to Pantai.

Power of Suppliers

In terms of medical equipment and pharmaceutical products, supplier power is high. Pantai Bhd, holdings and the hospitals they manage are only focused on providing clinics, hiring medical staff, marketing and advertising. The supplier power as a variable has the potential to be most critical for members of the for profit Pantai private hospital in managing viable hospital units. As mentioned before, Pantai relies on key supply companies for their quality of supplies and timely services and products to their various hospitals location. The supplier power is also considered to be high regarding the credible forward integration by suppliers of the equipment and medical suppliers. The Medical equipment and medical products are follow the line below

Forward Integration.


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To analyse the Supplier power furthermore, each of the main supply components has been summarised below;
Medical Practitioners – the Malaysian Nurses Association and Doctor’s association are fundamental prerequisites to viability and success of the Hospital. Non-support of doctor and nurse groups can lead to serious underperformances of both the individual hospitals and companies under the company in this industry. The nurses and doctors’ groups are well organized in Malaysia in terms of union representation and enjoy a strong positive image with the press and the public ( MNA.org.2010). There two groups therefore have strong collective bargaining power with the private hospitals groups, hence they are in a strong position to negotiate conditions and pay structures.
Consumable Medical Supplies – Pantai’s consumable medical supplies are supplied industries such as HNS MEDICAL SUPPLY (M) SDN BHD. The increasing demand of the health products and services by the private sector has provided a greater opportunity for HNS medical to be actively in the healthcare industry. Supplying consumable and disposable medicine has given such supplying companies room to exercise some control over price and supply conditions. Prostheses for example, are costly components of some medical treatments and are supplied by a limited number of suitable manufactures. For them to be recommended, some qualified doctors have to endorse and certify a certain company to supply the product to the hospital.
Medical Equipment – over the years the private health industry has become increasingly dependent on advancing technology by way of high capital costs equipment which is used for diagnostics and treatment of medical conditions, with limited suppliers, creating limited opportunity for competitive buying. The impact of suppliers on Pantai Private hospital can be negative or completely damaging, Suppliers hold latent power that they can use in negotiation conditions of supplying their equipment to the private hospital.