Hamza Asumah, MD
Many African entrepreneurs are becoming interested in investing in healthcare businesses. This is a common desire among both healthcare experts and those with no prior experience in the field. Regardless of whatever category you belong to, I believe you are investing in this business to earn money. However, for many, the results have been mixed. Others are being swallowed up by the industry, while others succeed because of their strategy.
So, how attractive is this business? What is the best objective method for determining whether or not this is an industry worth investing in, particularly in Africa? We’ll use Porter’s five factors to assess industry attractiveness in this article.
In terms of competitive rivalry, there are several companies in this business on the continent, the most of which are extremely big in size and function. It’s worth mentioning, however, that in Africa, the majority of healthcare businesses are hospitals that provide essentially the same services and operate in the same way. Because service delivery is uniform, all businesses compete on the same “value” for the same number of customers.
Furthermore, due to high sunk costs and the difficulty of recovering investment expenses if a company decides to exit the industry, the exit cost in this business is particularly high. Companies therefore stay in the industry and further stiffen the competition even when they are not making any money thereby further increasing the rivalry. This makes competitive RIVALRY a STRONG force.
The buyer/client in the industry has a wide variety of options when it comes to the kind of services available. A large number of public and private healthcare service providers are available to meet the healthcare needs of their customers, regardless of their insurance coverage or income bracket. However, this population of sick people is quite fixed, and may even be declining since the population in Africa is becoming younger and healthier. As a result, the buyer/client has STRONG bargaining power.
The healthcare industry is served by a variety of suppliers who provide a wide range of medical consumables, pharmaceuticals, and other essential services. Having local and international suppliers makes it impossible for these firms to negotiate with these suppliers. As a result, suppliers in this industry have weak bargaining power.
In Africa, the healthcare industry faces very strong competition from herbal substitutes and other alternative health options including fitness centers and healthy food. In order to avoid patronizing any treatment options, most people prefer to exercise and eat healthy. As an alternative to this, most people prefer to use herbal medication for their medical problems. This gives patients other alternatives thereby making this force very STRONG.
Setting up a healthcare firm is extremely expensive, requiring a significant amount of capital to obtain the necessary equipment and resources to satisfy regulatory requirements and ensure patient safety. Aside from the significant capital needed, this is a highly regulated business that requires the contribution of certain highly skilled services, making it difficult for new entrants to enter. As a result, the threat of new entrants ranges from LOW to MODERATE.
With a STRONG competitive rivalry, a STRONG bargaining power of buyers, a WEAK bargaining power of suppliers, a STRONG power of substitutes and a WEAK threat to new entrants, this may be an unattractive industry to invest into on the Africa continent.
As unappealing as the industry may appear, this is due to the fact that most healthcare firms work in the same way, with no major variation in value produced in new ventures. This dearth of innovation has resulted in fierce competitive strife, which I believe would not exist if each healthcare company made its debut with a distinct value proposition and blue ocean exploration.
We can make this industry more attractive if we expand our thinking beyond the current boundaries of where we are operating. Please share your thoughts in the comments section below.