The medical appliances and supplies have proved to be a significant industry in the modern world. The industry is not only growing rapidly, but it is a very dynamic industry in terms of its ability to change and adopt new technology. The industry is a fast-growing industry that includes the supply of surgical instruments, ultrasound equipment, pace makers, hearing aids and magnetic resonance imaging equipment.
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The industry has witnessed massive growth in the recent past. This growth has mainly been in the market field, which has been attributed to the rising demand in medical supply and equipment. Change in lifestyle and demographic changes have been the main accelerators of this demand. The US medical supplies industry being the leader in this market has experienced the most growth in the industry. From the year 2002, the industry has grown by an annual rate of six per cent and by the year 2006, the industry was worth $82.4 billion. The industry has maintained this growth margin, and it can, therefore, be described as a rapidly growing industry.
Competition is essential for the growth of any industry, and the medical supplies industry is not an exception. In order for the products of businesses in this industry to remain in the market, then they must survive through the competition in the market. The manufacturers of this product, therefore, will apply the differentiation of product as the basis for launching their promotion campaign. The differences will be witnessed through market price differences, differences in qualities and value addition. Taking toothpaste as an example of one of the industry’s supply, this product will come in different tastes, colours, packaging, price and other medicinal additives such as tooth whitening enhancements.
Although the industry is competitive, entry into the market is not difficult although it is not easy either. This is mainly due to the ever-increasing demand in these products. The other reason that will make entry into the market not to be so difficult is the fact that people are out there to try new things that come into the market.
Although the whole industry is in constant growth, some of the segment in the industry is growing faster than others. Technology has always been a major player in this industry, and therefore the segments of the industry that employ the latest technology are in a better position for growth than those that are using out-dated technology. Beauty and fashion have also become a major element in the modern generation, and therefore the segments of the industry that are dealing with supplies that are meant for cosmetic purpose are expected to grow faster than others. Growth in this segment will, of course, attract the other segment, but the threat cannot be said to be too high.
Vertical integration refers to the unification of companies that are involved in the production of certain product under a common owner. Vertical integration is a situation whereby a company controls or owns a company that produces its inputs. In the medical supplies industry, the degree of vertical integration is high. A good example of this is in the production of products that use agricultural products as their inputs, and in most case, they will be producing their own inputs.
Since the industry is a highly integrated industry, there are intermediaries who are involved in the processing of inputs. An example of this will be a company producing a product that makes the use of lenses; then this company will have a lenses manufacturing company making the product on its behalf. In such a situation, the end company is likely to make a high profit than the company that participated in the making of the input. This is because the end company earns extra money from value addition.
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Technology is changing rapidly, and this is having a direct impact on the industry. Since the industry is heavy, dependent on technology adapting to the newest technology will provide a good base for competition, and therefore companies in the industry will be on the lookout for new technologies. Nuclear technology is an area that has not been exploited much in the past, but currently, the area is developing fast, and for this reason, the segments that are applying this technology are changing at a faster rate than the others are. For these companies to protect their interests, they will tend to put mechanisms in place that are meant to be a barrier to other companies willing to enter the industry. In most cases, these barriers will be disguised as a consumer or public protection policies.
Incumbents firms enjoy many advantages, and this always keeps them ahead of their competitors who have entered the market recently. These companies have created these advantages in order to be the leaders in the market. Cost is one of the advantages enjoyed by incumbent firms. Due to the consumers having confidence in the product of these firms, they are able to maintain a price that is not very different from that of their competitors. Differentiation is a major factor in this industry, and most firms will use this as a tool for competition. Incumbent firms also enjoy a lot of efficiency in their transaction from their well-developed management systems. From a combination of these factors, there is medium ease in entry into the industry.
Although there is, a degree of rivalry in this industry, it is not as high as in other industries. This is mainly because there are no many players in the industry. The high demand, nature and purpose of these products also reduce the rivalry. Price is also not a major tool for competition in this industry, and for this reason; other factors such as quality assurance, customer care, advertisement and application of innovation are used for competition purpose. Rivalry can therefore be rated as medium in this industry.
Mergers and acquisitions are tools used for survival in a competitive market. In this industry, mergers and acquisitions are not common since every company is seeking to establish its own business empire. This industry also has firms that are the market leaders, and therefore rivalry is minimal.
The industry of suppliers in this industry is fragmented since it is composed of small companies that supply a large market, and there is the availability of substitute products. Due to the differences of the suppliers, the integration rate is low, and hence, their power is low.
The segment of institutional buyers is consolidated while that of individual buyers is fragmented. Consumer royalty is common in the industry, and hence switching of buyers is not easy. Buyers buy the quantity that can sustain them incase the goods are out of supply. Backward integration of buyers though possible it is not easy, and this makes their power to be low.
The medical supplies industry is an attractive industry, although the rate of entry to the industry is low. Some segments are more attractive than others are, and it is not easy to switch from one to the other. The rating of the five forces is as follows.
- New entrant – low.
- The threat of substitutes – high.
- Buyers bargaining power – medium.
- Suppliers bargaining power – low.
- Degree of rivalry among the competitors – medium.