Shenzhen Health Care Business Strategies - Case Study Example

Business Proposal Table of Contents 1.Executive Summary 3 2.Background 3 3.Company Structure 4 3.1. The Set up 4 3.2. Organisation Chart 5 3.3. Vision, Mission and Values 5 3.3.1. Vision 5 3.3.2. Mission 5 3.3.3. Values 6 4.Contextual and Transactional Environment Analysis 6 4.1.PESTLE Analysis 6 4.2.Market Structures Analysis 8 4.3.Scenario Analysis (2 Stories) 8 4.4.Market Segments and Customer Base Analysis 9 4.5.Strategic Group (Key Competitors) Analysis based on the 7P analysis 9 4.6.The Industry Competitive Analysis 10 5.Internal Resources & Capabilities Analysis 11 5.1.A core (Distinctive) Competences 11 5.2.Value Chain 11 6.Strategy Development 12 6.1.Reviewing the existing strategies (EFE & IFE) 12 6.2.Formulating new strategies (SWOT & TOWS) 12 6.3.Choosing the right strategies based on the core competences with balance scorecard focus using the QSPM (quantitative strategic planning matrix) for ranking strategies. 12 7.The Budget 13 8.Recommendation 15 Reference 16 Appendices 18 1. Executive Summary Shenzhen Health Care (SHC) will attempt to become the new health screening service provider in Shenzhen. Shenzhen is one of the most developed cities of Hong Kong having high per capita income and GDP growth rate. Favourable political and economic conditions have made Shenzhen one of the most lucrative destinations for business ventures. Shenzhen will be a privately owned and operated health screening centre and will be situated at a convenient place so that people can have easy access to it. The health screening centre will provide a wide range of body check up services. Apart from these, it will provide consultants’ services for healthy lifestyle and further treatment from specialist doctors and hospitals. The organisation chart of the company will include all the necessary departments for managing health care and each department will be handled by a team of experts. The primary objective of SHC will be to provide quality service to its client needed for maintaining a healthy life style. Hong Kong health care service sector is quite competitive but profitable. Entering this market with a pre defined set of strategies will help SHC to remain profitable in the long run. SHC will target the rich and working people of Shenzhen as they have the ability to pay for expensive health care services. Its core competency will focus on client centred care and the management is expected to develop relevant strategies accordingly. The financial objective of SHC will be to achieve slow but steady growth. In the first year of its operation, it is assumed that it will face considerable loss resulting from the huge investment. However, after that it is expected to generate decent profit with steady growth rate. The start up funding will be procured from personal sources and rest of the capital will be taken as loan from venture capitalist and banks. 2. Background Shenzhen is one of the most popular cities in China's Guangdong province, situated near the northern Hong Kong. It is “in the top ranks among mainland cities in terms of economic returns. Its per capita GDP ranked first among major cities” (Shenzhen Government online, 2010). The economic condition of this city is favourable for starting a venture since the per capita income and the standard of living of citizens are quite high. The local government of Shenzhen tries to encourage people to invest in the city as sufficient industrial and supporting facilities are available for the development of business and infrastructure. This paper will attempt to frame a business plan for setting up a new health screen centre in Shenzhen. The development of society and the resultant industrialization has polluted the environment and is a cause for several ailments. People have now become increasingly concerned about their health. In such a scenario, business related to health care is supposed to be profitable. However, before investing in this new venture, the overall market situation of this sector should be analysed in order to evaluate the desirable profitability from this sector. This business plan will also include the budget plan that will help to estimate the required investment and the profit thereby generated. 3. Company Structure 3.1. The Set up Name of the new health screen centre will be ‘Shenzhen Health Care’ (SHC). It will aim to provide all types of medical body check up to its client. SHC will be a privately owned and operated venture which will be situated in the heart of Shenzhen so that people can have easy access to it. It will provide high-end health care services to the rich people living in Hong Kong and Shenzhen. The services provided by SHC will be complied according to Hong Kong health screening standard. Besides, it will also try to get accreditation from government association so that people can rely on the services provided by SHC. The services of SHC will include a vast range of body check up like dialysis treatment, stomach screening, radiology examination (X-ray, CT scan), pathology etc. It will also help the patient by referring them to proper hospitals and doctors for further treatments. 3.2. Organisation Chart The organisational chart portrays structures that help to define the functional responsibilities of each department. “Organisation chart is a graphic portrayal of the various positions in the enterprise and the formal relationships among them” (Murugan, 2007, p.205). In order to manage a diverse range of tasks, various departments are formed each of which are handled by efficient and capable management team. Appendix 1 represents the organisation chart of SHC, having various management teams along with their functional areas. The above shows that SHC will place its owner as the president of the organisation and the functional areas will be divided into six major departments each having a distinct management head. The management head for each department will be assisted by a team leader or an assistant who will handle the entire team. The head of each department will contribute towards strategy making and evaluating it in the long run. 3.3. Vision, Mission and Values 3.3.1. Vision Shenzhen Health Care will strive to become a health screening centre of excellence which will gradually grow as the top leader in Hong Kong. SHC will recognise the needs and demands of people and will respond to those demands in the gradually changing environment of health care. 3.3.2. Mission The mission of Shenzhen Health Care will be to provide one stop health screening services to the people helping them to lead a long and healthy life. It will also try to improve its services towards its clients. In order to become health screening centre of global repute it will provide service of international quality. 3.3.3. Values The values of Shenzhen Health Care will include four aspects of ethical behaviour. These will be Excellence, Integrity, Respect, Trust and Empowerment. All these core values have been developed to serve its clients, employees, government and society at large 4. Contextual and Transactional Environment Analysis 4.1. PESTLE Analysis Pestle analysis of Hong Kong will help to evaluate the conditions that are favourable for starting a new business. The political conditions of Hong Kong have eased the process of development of trade and industry. In 1997, it had entered an agreement with China under which it became a part of the Chinese administrative region. The government of Hong Kong has a limited democracy. However, the legal systems are based on the English common law (CIA-World Factbook, 2010). Before the agreement with China, the economic growth of Hong Kong was slow. However, at present it has become “one of the world's most open and dynamic economies. Hong Kong’s per capita GDP is comparable to that of any developed countries” (US Department of State, 2009). In 2009, the growth rate of GDP was reduced by 3% due to global downturn (CIA-World Factbook, 2010). The social condition of Hong Kong is influenced by the Western culture but around 90% of the total population is Chinese. Due to less availability of resources in Hong Kong, around 91.9% of the total labour forces are engaged in the service sector. This situation is favourable for starting a new venture in health care services as the required man-power will be easily available. Since the influence of China and the Western countries are prominent in this region, the use of the latest technology is beyond all bounds. The Chinese Government has made a crucial contribution to the development of R&D. 4.2. Market Structures Analysis According to the Department of Health, the Government of Hong Kong, there are around 77 registered medical clinics in Hong Kong (Department of Health, Government of Hong Kong Special Administrative Region, 2010). These clinics abide by the rules and conditions of government and hence they have gained the trust of people. The competition in the health sector of Hong Kong is quite high. As people have higher per capita income, they are ready to cash out considerable sum of money for their heath care needs. According to the Hong Kong Government’s Department of Health, in 2005-2006 the total expenditure for health care services was around HK$ 71,557 million which 5.1% of the total GDP and per capita total expenditure on health was HK$ 10,503 (Department of Health, Government of Hong Kong Special Administrative Region, 2010). Hence, according to statistics, the health care service sector of Hong Kong receives a considerable portion of its citizen’s income. Before venturing into health care services, it is necessary to be aware of the prevailing diseases and the supporting health care services operating in the province. Fatal diseases like malignant neoplasm, diseases of heart, pneumonia, cerebrovascular diseases ranks in the ‘top five list of diseases’ in Hong Kong, a survey conducted in 2009 has revealed (Centre for Health Protection, 2010). Therefore, SHC should modulate its health screening services to suit the requirements of these diseases. 4.3. Scenario Analysis (2 Stories) As per the market structure analysis of Hong Kong health care services, Shenzhen Health care may face two types of scenarios. Scenario analysis deals with the future prospects of the market the business that Shenzhen Health Care may experience. The future of the Hong Kong health care services is quite promising as people are being more conscious regarding their health and the their per capita income is also rising at a decent rate. The population of the Hong Kong, specifically of Shenzhen is rising as this city is the most developed city in the Hong Kong and many people migrate to this city from different regions of Hong Kong and China. However, in future, Shenzhen Health Care may face intense competition from other hospitals and health screening centres. Though, the profitability in this sector will rise due to increase in the population and income level, many foreign and potential players will enter into the market. With the development of technology in the field of heath care, the market will be competitive with more numbers of new health care organisations. 4.4. Market Segments and Customer Base Analysis The market will be segmented according to customers’ base analysis. Shenzhen Health Care will focus on the rich and working people in Shenzhen as its potential customers. Customer base analysis mainly refers to the tastes & preferences, and buying behaviour of consumers. Shenzhen is an important city as it is situated between the Chinese Mainland and Hong Kong. It is one of the most important cities for trade and business that has led to economic development. Per capita income of people residing in Shenzhen is high and they are expected to be able to pay for their health care services. Another group of target consumer will be the people having their occupation in Shenzhen. Most of the working people from Hong Kong are rich and they will also be able to afford health screening services by Shenzhen Health Care. 4.5. Strategic Group (Key Competitors) Analysis based on the 7P analysis In the services sector, there 7 P’s of marketing instead of the 4 P’s. These 7 P’s include price, place, product (services), promotion, process, physical evidence and people. The key competitors of health care services in Shenzhen focus on these 7 P’s to formulate their set of strategies. The major competitors of Shenzhen Health Care follow the latest market trends to plan their strategies. Most of the competitors are providing the same types of health care services according to the market needs to compete with each other. However, there are also many specialized health screening centres that provide specific services like cardiologist tests. All the competitors are aware of the economic conditions of Shenzhen people and hence, they are present in the prominent areas charging standard prices for health services. In the services sector, people and processes are main features and the competitors are concentrating to develop their process and skilled people for enhancing their services. 4.6. The Industry Competitive Analysis Appendix 2 displays the five forces of an industry that drives the competition. The analysis of these forces will help to realize the profitability in the health care service sector of Hong Kong. The competition among the rivals operating in this industry is the most crucial factor for profitability. In Hong Kong, many health screening centres are available and most of the hospitals also provide these services. Presence of a large number of competitors has increased the competition level. The industry is free from the threat of substitute. The services for health screening have no substitute. However, in this case the hospitals can be considered as a substitute service provider that offers the same services to people. Health screening activities requires the use of many types of latest medical equipments. These medical equipments are made in China or imported from European countries. The number of suppliers of such equipments in Hong Kong cannot meet the domestic demand. Therefore, these equipments have to be imported and hence, the bargaining power of foreign suppliers is quite high. Since many health screening centres are available in Hong Kong, people are spoilt with choice. Apart from that, in health care service sector, the clients are not generally willing to shift to new health care service providers. However, as people have now become increasingly concerned with their health, footfalls in the health care centre have increased considerably. Therefore, the bargaining power of the buyers remains moderate in this sector. This market demands huge capital investment. Machines like X-ray, CT Scan etc are very expensive and require skilled manpower to operate them. These two factors reduce the chances of potential entrances. 5. Internal Resources & Capabilities Analysis 5.1. A core (Distinctive) Competences In order to penetrate the market of health care services of Hong Kong, SCH will strive to achieve the core competences that define the medical industry. Most of health screen centres specialise in particular type services which later on becomes its core competency. Since SHC will aim to provide all the necessary health screening services, unlike others its core competency cannot be specific. SCH will attempt to enhance its service satisfaction. The services of SHC will be client-centred care. Such service necessitates an extensive use internal and external communication. There are certain areas in which SHC will focus to develop client-centred care services. SCH will try to address the needs and demands of the patient. It will also provide medical recommendations to promote healthy lifestyle to its clients (Pruitt, Canny & Jordan, 2005, p.21). 5.2. Value Chain The value chain for services sector portrays all the processes in a chronological order that optimises the value of the services by satisfying the consumers’ needs. Appendix 3 depicts the value chain of an ideal health care services and this value chain will be followed by Shenzhen Health Care. The entire processes have been divided into certain important areas that include services delivery, customer relationship, customer opportunities and logistics of the services. 6. Strategy Development 6.1. Reviewing the existing strategies (EFE & IFE) Internal factor evaluation (IFE) is an important tool in strategic management that evaluates the weaknesses and strengths in the primary areas of functions and External factor evaluation (EFE) is the tool for evaluating the threats and opportunities. The existing strategies formed by analysing the competitors are significantly influenced by their strengths & weaknesses and threats and opportunities of the industry. Most of competitors generally focus on their core competencies to take positioning in the market. They constantly change their strategies after evaluating their markets needs. Whereas, the threats and opportunities are important factors that shape the market trend affecting the strategies of major existing players. 6.2. Formulating new strategies (SWOT & TOWS) Before formulating new strategies for Shenzhen Healthy Care, it will be necessary to scan its expected strengths, weaknesses, opportunities and threats. According to the earlier discussions, its core competencies and targets markets are two most important strengths, whereas, its new entry in the Hong Kong’s health care services will be its major weakness. However, the PESTLE and market structure analysis have clarified the opportunities and strengths. TOWS analysis is a vital tool for formulating new strategies by combining strengths and weaknesses with threats and opportunities. The strategy combinations as per TWOS analysis are dived into four groups; strengths-opportunities, strengths- threats, weakness- opportunities and weakness- threats. The strategies of Shenzhen will focus on these combinations. 6.3. Choosing the right strategies based on the core competences with balance scorecard focus using the QSPM (quantitative strategic planning matrix) for ranking strategies. The above sections have dealt with many important analyses that have helped to understand the prevailing condition of Hong Kong’s health care services and internal and external factors of Shenzhen health Care. The most noteworthy of them have been the competitive nature of Hong Kong’s services sectors as many hospitals and clinics are available that provide health screening services. Secondly, the accreditation from the Hong Kong’s Department of Health is very important to gain the trust of people. Lastly, the people can afford expensive health care services in Hong Kong as the per capital income is quite high. SHC should take such factors into consideration before drafting the set of strategies. Appendix 3 displays the ideal balanced score card that will help Shenzhen Health Care to form proper strategies. The balanced score card depicts all necessary areas that that includes financial, business process, customer and future growth. The appendix 3 shows all the primary objectives in these necessary areas that Shenzhen will have to maintain in order to establish in the health care service sector. In the SWOT and TOWS analysis section, the strategy combinations for Shenzhen has been developed and according those combinations strategies will be formed considering its strengths, weaknesses, opportunities and threats. The appendix 5 depicts all the strengths, weaknesses, opportunities and treats. According to the priority of the balance score card, all the factors have been ranked providing proper weight. Next the total weightage has been calculated. As per the calculations, the total weightage points for opportunities and threats are higher than the strengths and weaknesses. Therefore, Shenzhen Health Care must focus on the strategies for external opportunities and threats so that it can survive in the market. 7. The Budget Shenzhen Health Care will try to ensure its financial growth through its cash in-flows. Therefore, SHC will need to concentrate on the long term growth. However, the growth may be slow but the associated risk will be less. The financial objective of SHC will be to focus on long term profitability. SHC is a unit operating under health care services sector; therefore, it is very important to gain the trust of people. The process of nurturing trust and faith requires a considerable amount of time. The budget for sales, expenditure and profit need to be projected. Initially, SHC will need huge investment for the start up capital. The most important investment will be to acquire land & building for health screening centre and to purchase the medical equipments for the same. The set up cost for the first year of SHC has been shown below. Rent for acquiring the building for setting up health screening centre: HK$ 500000 Cost for purchasing medical check up equipment: HK$ 15000000 Other Capital Expenditure: HK$ 900000 Administrative Charges: HK$ 200000 Legal Charges and Accreditation Fees: HK$ 500000 Payment to the Skilled Employees: HK$ 15000000 Required Cash in Hand: HK$ 500000 The estimated start up capital for SHC will be around HK$ 32600000. The expected annual sales, expenses and profit for the next 5 years will be as follows. Table 1: Figures in HK$ Since the growth rate at the initial stages will not be that promising, the company should prepare itself for a loss. However, after the first year the growth rate is expected to be steady and constant. The necessary capital investment will be obtained from personal sources, from venture capitalist and from banks. 8. Recommendation The health care service sector of Hong Kong is quite competitive, but the enormous population and their high expenditure have reduced the intensity of competition to a certain extent. In order to sustain in the market, SHC will need to focus on certain important aspect of health care services. Some important recommendations have been provided to help SHC to gain the trust of people and to generate profit. All the major and profitable health care organisations are accredited to the Hong Kong’s Department of Health and they strive to maintain the standard of services as prescribed by it. Therefore, the foremost task for SHC will be to get the accreditation from the Hong Kong’s Department of Health and to maintain the required service standards. This will also help SHC to get the government grants. The process of delivering service to the client should be unique and impressive. The service should be ‘client centred care’. SHC should focus on two way communication with its clients. After analysing the expenditure incurred by the people of Hong Kong, it has been revealed that the rich people of Hong Kong are able to afford expensive health care services. Therefore, SHC should focus on this particular segment. The presence of skilled manpower in this sector is another important resource for success. Therefore, it should also concentrate on human resource to reduce the turnover of skilled employees. By providing all types of health screening services, it should try to emerge as a one-stop health screening centre. Reference Centre for Health Protection. 2010. Number of Deaths by Leading Causes of Death, 2001 – 2009. [Online]. Available at: http://www.chp.gov.hk/en/data/4/10/27/380.html. [Accessed on July 30, 2010]. CIA-World Factbook, July 15, 2010. Hong Kong. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/hk.html. [Accessed on July 29, 2010]. Department of Health, Government of Hong Kong Special Administrative Region. 2010. List of Registered Clinics. [Online]. Available at: http://www.dh.gov.hk/english/main/main_orhi/list_rc.html. [Accessed on July 30, 2010]. Department of Health. Government of Hong Kong Special Administrative Region. 2010. Health Facts of Hong Kong. [Pdf]. Available at: http://www.dh.gov.hk/english/statistics/statistics_hs/files/Health_Statistics_pamphlet_E.pdf. . [Accessed on July 30, 2010]. Grünig, R. and Kühn, K. 2008. Process-based strategic planning. Springer. Kaplan, R.S. & Norton, D.P. 1996. Using Balance Score Card as a Strategic Management System. [Pdf]. Available at: http://portal.sfusd.edu/data/strategicplan/Harvard%20Business%20Review%20article%20BSC.pdf. [Accessed on August 15, 2010]. Murugan, M.S. 2007. Management Principles and Practices. New Age International. Pruitt, S. Canny, J. & Jordan, J.E. 2005. Preparing a health care workforce for the 21st century: the challenge of chronic conditions. World Health Organization. Shenzhen Government Online. 2010. Economy. [Online]. Available at: http://english.sz.gov.cn/economy/. [Accessed on July 29, 2010]. US Department of State. December 10, 2009. Background Note: Hong Kong. [Online]. Available at: http://www.state.gov/r/pa/ei/bgn/2747.htm#econ. [Accessed on July 29, 2010]. Appendices Appendix 1: Organisational Chart for Shenzhen Health Care (SHC) Appendix 2: Porter’s Five Forces (Source: Grünig & Kühn, 2008, p.144) Appendix 3: Value Chain Appendix 4: Balanced Score Card (Source: Kaplan & Norton, 19969) Appendix 5: Quantitative Strategic Planning Matrix for Shenzhen Health Care Read More