Cardinal Health is an American multinational publicly traded corporation operating in the healthcare sector dealing in medical, pharma and surgical products and services. The company was formed in 1971 with its head operations based in Ohio, United States. Cardinal Health is extended over more than thousands of locations in both the United States and the rest of the world to provide and distribute medical products.
As of 2020, the company generated an excellent revenue of 152.92 billion US dollars, and the firm has an ongoing workforce figure of over 48,000 (CAH, 2020). From a perception of the global healthcare industry, an examination of Porter’s five forces would guide future initiatives for an advanced understanding of the organization’s situation
Competitive Rivalry in The Market
The competitive rivalry in the healthcare industry is relatively high due to the increased needs in medical treatment and operational methods. With the increasing population come more complex diseases that need to be looked upon and control them. As a consequence of the increase, several for-profit and non-profit organizations and health professionals have dominated the market in order to provide adequate medication and healthcare facilities.
The major competitors of Cardinal healthcare in terms of top value medical supply firms are McKesson Corporation, AmerisourceBergen, Henry Schein, Inc., and Patterson Companies. As of 2021, Cardinal Health is trying to lead the market with an enterprise value of 19.76 billion US dollars, while other firm holds the value of 36.12, 21.6, 11.2 and 3.68 billion US dollars (Statista, 2021). Thus, the presence of such large firms in the market turns the industry’s climate more competitive.
Threat Of Substitutes
The threat of having substitute products and services in the healthcare industry is considered moderate because of the number of healthcare firms providing medical supplies and drugs. Consumers frequently try to get inexpensive prescription meds by visiting giant grocers or medical stores for lower pricing, but those substitutes are not available under the comprehensive health care plan. Another issue could be the availability of alternative medicines and herbal therapies for customers.
Additionally, the drug’s use is protected by a patent, and no one can offer a substitute while the copyright is active. Therefore, before the expiry arrives, healthcare firms should plan something to handle the situation afterwards (Song and Han, 2016). Thus, the risk of substitutes in the healthcare industry is measured as moderate.
The Threat of New Entrants
The threat of new entrants in the healthcare industry is relatively low. There are plenty of healthcare providers already operating within the society and have raised the barriers elevated enough for new firms to enter and compete with the existing players. The overall product development process, supply chain, and marketing techniques all result in higher costs.
Furthermore, incumbent companies in the industry have preserved economies of scale, making it even harder for newcomers to break into the market. Moreover, the lack of control over resources, financing, and accessibility makes it increasingly challenging for new businesses to enter the marketplace (Khatib et al., 2014). Hence, reducing the entry options for new ones in the industry.
Bargaining Power of Buyers
The Bargaining power of consumers in the context of the healthcare industry is less because even if the corporation charges a premium price for the medicinal products given to them, people generally purchase them. Because they may not be able to manage any severe therapy or medicines, consumers intend to find health insurance and pay as per the arrangement.
Additionally, anyone who accepts healthcare insurance can only utilize one carrier for a set amount of time because of the high expense of switching (Heiss et al., 2016). The behavior of customers strengthens as they gain knowledge of market rates and patterns. Considering such a pattern, buyers’ bargaining power is low in the industry.
Bargaining Power of Suppliers
The Bargaining power of suppliers in context to the healthcare industry is considered high because healthcare organizations rely on vendors to supply their needs for pharmaceuticals and prescription consumables. Despite the rising costs of healthcare resources and equipment, consumption and demand continue to grow due to the nature of the system, in which businesses and governments are more responsible for improving health and quality of life. As a result, large suppliers can impact chain management dynamics and control product lines development (Saluja and Sekhon. 2016). Hence, the bargaining power of suppliers is high in the healthcare sector.
References
CAH, 2020. Cardinal Health Inc. – Financial Reporting – Annual Reporting. [online] Ir.cardinalhealth.com. Available at: https://ir.cardinalhealth.com/financial-reporting/annual-reports/default.aspx.
Heiss, F., McFadden, D., Winter, J., Wuppermann, A. and Zhou, B., 2016. Inattention and switching costs as sources of inertia in medicare part d (No. w22765). National Bureau of Economic Research.
Khatib, R., Schwalm, J.D., Yusuf, S., Haynes, R.B., McKee, M., Khan, M. and Nieuwlaat, R., 2014. Patient and healthcare provider barriers to hypertension awareness, treatment and follow up: a systematic review and meta-analysis of qualitative and quantitative studies. PloS one, 9(1), p.e84238.
Saluja, V. and Sekhon, B.S., 2016. The regulation of pharmaceutical excipients. Journal of Excipients and Food Chemicals, 4(3), p.1049.
Song, CH, and Han, J.W., 2016. Patent cliff and strategic switch: exploring strategic design possibilities in the pharmaceutical industry. SpringerPlus, 5(1), pp.1-14.
Statista, 2021. Enterprise value medical surgical dental supplies companies US 2021 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/331826/medical-surgical-dental-supplies-companies-by-value-in-the-us/.