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Healthcare Industry Analysis: Health is the real Wealth

PESTLEanalysis Team
PESTLEanalysis Team
Table of Contents
Table of Contents

We conduct a healthcare industry analysis to get more information about the industry's current situation and find out about the competitiveness in the industry.

Ever heard the saying "Health is the real wealth"? Not gonna lie; that's actually true. We all know that good health is essential to enjoying life, but how do you get protected from all the viruses and bacteria around us?

To keep us protected and cure our diseases, we have a Healthcare Industry. The healthcare industry is probably the most significant. Humans would probably still be in the stone age if it had not been present.

The world has been exposed to several deadly pandemics over time. However, what kept us going and prevented the entire economic system from collapsing was an efficient healthcare industry.

Since the healthcare industry is directly linked to each of our lives. Today, we decided to conduct a healthcare industry analysis.

Before we proceed further to the analysis, let's get some insight into the healthcare industry first to better understand the analysis.

Healthcare is an industry that seeks to extend, protect and improve the quality of your life. Healthcare providers work together as a network of specialists that coordinate to increase your health by providing medical products and equipment.

The healthcare industry is one of the prime industries worldwide. In 2018, it was worth $8.45 trillion. Each year the most developed countries spend almost 10% of their GDP on healthcare.

Medicines are one of the significant products of the healthcare industry. These medicines are manufactured in different countries across the globe. In 2020, alone from the exports of medicines and drugs, $407.7 billion were generated.

In drugs and medicine manufacturing, Europe is considered the leading player. In 2020, Europe exported 80.5% of the total drugs and medicines. 

Some of the largest companies responsible for manufacturing and exporting medicines and drugs worldwide are Johnson & Johnson, Roche, Novartis, etc.

The healthcare industry has been growing fast for quite some time now. Since 2014, the healthcare industry has been growing at a rate of 7.3%, and it is predicted to grow even at a higher rate in the future. Recently, the pandemic really helped the healthcare industry to grow.

It's not just that the healthcare industry is enormous in terms of revenue only. It is also huge in terms of manpower. Healthcare provides employment to more than 59 million people, and each year this number is increasing. According to the prediction, almost 2.6 million people will become a part of the healthcare industry from 2020 to 2030.

So far, we have discussed the financial side and workforce of the healthcare industry, but another important player of the healthcare industry is still missing; the hospitals that provide the foundation for the healthcare industry to run.

Hospitals hold a very important place in the healthcare industry. Japan is the country that has the highest number of hospitals. It has more than 8,335 hospitals.

However, we have discussed enough to understand the healthcare industry. Now it is time to conduct the healthcare industry analysis to get more information about the industry's current situation and find out about the competitiveness in the industry.

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Photo by National Cancer Institute

Healthcare Industry Life Cycle

To start off with the Industry analysis, first, we will investigate the life cycle stage of the healthcare industry. However, you guys need to know that the life cycle has five stages before we move ahead.

The first stage is the startup stage, then the industry moves uphill to the growth and shakeout stage. Then the industry reaches its peak at the maturity stage, and then it goes down towards its decline.

Startup Stage

The startup stage is the first stage of the life cycle. This stage represents when companies in the industry are trying to engage customers by promoting their products since consumers are not familiar with the product.

The healthcare industry crossed its startup stage centuries back. So if we look at the healthcare industry's history, we get to know that the healthcare industry is centuries old.

Initially, there were traditional healthcare practices that varied from culture to culture. Later due to colonialism, healthcare practices changed.

Growth Stage

This is the second stage of the life cycle. This stage is critical since it represents the industry's growth. At this stage, the industry's market share is increasing, and companies are trying to maximize their profits through innovation.

The healthcare industry is an industry where the growth stage prolongs for a very long time. Such a phenomenon is present because the demand for healthcare products and services never ends.

People keep on falling sick due to new diseases and viruses; hence the healthcare industry continues to grow. Currently, the industry is growing at 7.3%, which means new entries are also taking place in the industry.

Shakeout Stage

The shakeout stage is the third stage of the life cycle. In this stage, the competition among the firms starts to get intense. Due to such high competition, weak companies leave the industry.

The healthcare industry hasn't reached the shakeout stage yet since companies like Johnson & Johnson are still enjoying high profits. Moreover, there is limited competition in the healthcare industry, and there is potential for more competition in the future.

Maturity Stage

After the shakeout stage, where weak companies are forced to leave, the industry maturity stage arrives. At this life cycle stage, the industry is at its peak since it reaches its maximum size, and there is no more potential to grow.

The healthcare industry is still growing quickly, and it hasn't reached its maximum size yet.

Decline Stage

The maturity stage is followed by the decline stage. As its name suggests, at this stage, the industry starts to decline. An industry declines due to many reasons, such as the availability of new substitutes and changes in the rules and regulations.

At the decline stage, the industry's market share starts to fall. However, having said that, the healthcare industry is definitely not in the decline stage since its market share is continuously growing, and there is no substitute available for the healthcare industry.

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Photo by CDC

Assessing the Competition: Porter's Five Forces Model

After finishing the life cycle analysis of the healthcare industry, we will now assess the competition in the healthcare industry through a business model called Porter's five forces model.

New entrants use this model to assess the competition in the industry before entering it.

Competitive Rivalry

This is the first factor of Porter's five forces model. It highlights the competitors present for the newly entering company in the industry. This factor also highlights the quality of products of already existing companies.

Any company entering the healthcare industry has to face a high level of competition since the healthcare industry is an old industry and several companies are already present in the industry.

For example, any company that will try to enter the pharmaceutical sector of the healthcare industry has to take its place between already existing pharmaceutical giants such as Sinopharm, Roche Pharmaceuticals, Novartis, etc.

Supplier Power

This factor analyses the power of suppliers to control the price by controlling supply. Through this factor, we get to know whether suppliers can manipulate prices or not.

In the healthcare industry, there is a small number of suppliers compared to buyers. Due to this inequality of numbers, suppliers force the buyers to buy at a higher rate.

Buyer Power

Buyer power is similar to supplier power; The only difference is that buyer power indicates the ability of buyers to be the price setter in the industry. Buyers can only influence them if they are in fewer numbers compared to the sellers.

However, in the healthcare industry, buyers have close to no power to set prices. The number of buyers outnumbers the suppliers. As a result, suppliers are in complete control of setting the price.

Other than that, suppliers in the healthcare industry offer products and services that are a necessity. Therefore, they have the power to manipulate prices.

Threat of Substitution

This section highlights the threats newly entering companies will face of getting substituted by any other company that offers products of similar nature at a lower price or better quality.

Companies in the healthcare industry are exposed to a high threat of substitution since healthcare is necessary, and consumers want to get healthcare products and services at a lower price.

Consumers will naturally shift to any cheaper substitute to cure themselves by spending less money. For example, Walmart offers discounts on drugs. This will shift the consumers from other drug-selling companies to Walmart.

Threats of New Entry

This is the last factor of Porter's five-factor model. It analyses the worry of new companies entering the market that companies in the healthcare industry have to face.

Since there are only a few dominant players in the healthcare industry, such as Pfizer, the pre-existing companies aren't really worried about new entrants.

Moreover, due to high switching costs, it is tough for new entrants to enter the industry and compete with the giants of the healthcare industry.

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Photo by Sander Sammy

Environmental Analysis

The last factor that needs to be added to an industry analysis is environmental analysis. The environmental analysis highlights the external and internal factors that affect companies operating in an industry.

To analyze these factors, business tools such as SWOT and PESTLE analysis are used since these two tools are best at highlighting the internal and external factors that affect a company's operations.

Pestle Analysis

Pestle analysis highlights the external factors that impact the operations of an organization. Factors that PESTLE analysis considers are political, economic, social, technological, legal, and environmental.

Political Factors 

One of the significant products of the healthcare industry is medicines, which are manufactured and exported from different countries. In case of political tension between countries, the supply of drugs can be disrupted.

Economic Factors

Higher interest rates as an outcome of an economic policy can discourage investors from investing in the healthcare industry; as a result, the supply of products and services in the healthcare industry can fall.

Social Factors

The healthcare industry can face serious social constraints in countries where people are less aware of modern medical treatments and prefer traditional treatments to get cured.

Technological Factors

Latest technological developments can help the healthcare industry to produce customer-friendly products that can cater to the needs of customers in a better way.

For example, power wheelchairs help users to mobilize easily. Such innovative products will increase the market share of the healthcare industry.

Taxes imposed on the imports of healthcare equipment can decrease the demand for healthcare products. Therefore, strict tax laws can harm the healthcare industry.

Environmental Factors

Serious debates take place on the disposal practices of the healthcare industry. Poor disposal practices can draw the attention of environmental organizations, and the healthcare industry can face heavy penalties.

This will thin the profit margins of the healthcare industry and damage its reputation. Read more in our complete Healthcare PEST analysis.

SWOT Analysis

"SWOT" represents strengths, weaknesses, opportunities, and threats. The SWOT analysis is a business tool that highlights both external and internal factors that affect organizations.

Strengths

The healthcare industry has a very high number of consumers. This is because every human needs healthcare products and services at some point in time. Such high, never-ending demand results in increased profits.

Weaknesses

 From time to time, controversies arise involving the healthcare industry. Such controversies earn the healthcare industry a bad name, damaging its reputation.

Opportunities

The healthcare industry always has the opportunity to use technology to make more effective products in curing diseases.

Threats

The health industry faces a great threat from the arrival of new health practices. This will make the demand for the healthcare industry fall, and losses will incur.

You may find more factors affecting the healthcare industry in our comprehensive SWOT analysis.

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Photo by National Cancer Institute

Healthcare Industry Analysis: Final Word

At the end of this article, let's summarise what we've learned. So, we started off by discussing the importance of the healthcare industry financially, and in terms of jobs, it has created.

Then we discussed how global stakeholders are involved in this industry as it is spread all across the globe.

We then conducted the industry analysis of the healthcare industry by analyzing its life cycle and assessing the competition that lies in the industry through Porter's five-factor model.

In the end, we included the environmental analysis to complete the industrial analysis by using SWOT and PESTLE techniques. We hope that you guys enjoyed reading this article and it made you familiar with the important business tool of industry analysis.



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