http://knowledge.insead.edu/INSEAD-knowledge-fortis-healthcare-111216.cfm |
Healthcare needs are almost desperate in many parts of
Asia and one company is ambitiously ramping up its services across the region.
For India’s largest hospital
chain, Fortis Healthcare, the opportunities are knocking loud in an
under-served, fragmented and potentially large market right at its doorstep.
Yet the 10-year old company’s
ambitions extend far beyond: it wants to become an integrated global healthcare
player - and an on-going purchase of its Singapore-based sister firm Fortis
Healthcare International for US$665 million has set that agenda in motion.
“The opportunity [in India] is large but we
don’t want to be limited to being a healthcare player confined to a market,”
explained Executive Group Chairman Malvinder Mohan Singh in an interview with
INSEAD Knowledge on the sidelines of the Global Entropolis Summit in Singapore
in October. “Compare a US$500 billion Asian healthcare market with a US$50
billion Indian market. I clearly see a lot more opportunity and a lot more
growth happening in international markets.”
An M&A fueled expansion
Starting from nearly scratch in
2001, Fortis’ network in India has grown to 68 hospitals, through organic
growth and a series of big-ticket acquisitions in metropolitan, Tier II and
Tier III Indian cities. Despite direct access and experience in a bourgeoning
Indian healthcare sector that’s expected to swell five-fold and reach US$280
billion within ten years, Fortis is focused on a global expansion plan.
The fledgling Fortis Healthcare
International established last year has completed seven acquisitions, gaining
entry in new markets like Hong Kong, Vietnam, Sri Lanka, Australia and Dubai.
In 2008, Singh and his brother Shivender sold Ranbaxy, a third-generation
pharmaceutical firm for US$4.6 billion and reinvested some of those proceeds
into Fortis and Religare Capital, an emerging-markets investment bank.
“We are focusing on the globe
as a market, but in a phased manner,” says Singh. “The first decade was
therefore envisioned to build a leading position within its home market. The
[other] component is to look at healthcare in a more holistic manner where we
will be entering and be present in different verticals of healthcare over a
period of time in multiple markets.”
A diversified international
portfolio is intended to broaden the depth of the organisation, explains Singh,
by drawing from existing capabilities, knowledge, management teams, and
leveraging those resources to cast a wider net. “My focus on different
healthcare verticals was driven by the opportunity in that market and what was
a right entry strategy.”
Fortis’ acquisition of Quality
Healthcare - Hong Kong’s largest primary care network - represented both an
important market and an area that was new to Fortis as a business. “If I were
to start afresh from scratch in a market in primary healthcare, our learning
and the time we would have taken would be a lot more,” he notes.
The company’s international
operations are expected to generate roughly US$500 million in sales this year,
on a par with Fortis’ India operations.
Building a multinational healthcare company
Can such a cross-fertilisation
strategy work across heterogeneous markets, and, also within a sector that is
inherently complex? Emerging markets like India, for instance, are beset with
issues such as poor medical infrastructure, accessibility and affordability,
while advanced economies have to counter issues of rising costs and quality of
care.
Stephen Chick, INSEAD professor
of technology and operations management, sees the gains when interactions
within and across national boundaries can aid innovation of patient care
processes. “In today’s world, healthcare is looking across industry sector
boundaries too, to identify, adapt and improve best practice in care delivery,”
he says.
But it does entail challenges,
he cautions, that include understanding different regulatory and reimbursement
models on the business side, managing different sets of expectations and health
care needs across markets and adapting what is a highly-sensitive and sometimes
highly technical service system to a new culture.
Meanwhile, in the
immediate-term, the Bombay Stock Exchange-listed Fortis Healthcare still has to
smooth out its acquisition of Fortis International, owned fully by Singh and
his brother. Shares are trading at one-year lows which analysts have attributed
to investor concern over financial performance given the sharp increase in the
company’s debt burden. The deal, expected to be completed by mid-December, will
be funded by debt initially, and would increase the Indian parent’s total debt
to above one billion US dollars, said Singh in an official statement. But
capital and equity raising plans are underway, he noted.
Post-consolidation, the
Singapore-headquartered entity will encompass ten countries with about 74
hospitals, 580 primary care centres and nearly 200 day-care speciality and
diagnostic centres.
Looking ahead
Uncertainty in global financial
markets is not deterring Singh’s long-term strategic goals as “healthcare is
really recession proof,” he explains. “There is a huge demand-supply gap
sitting across Asia and so there is a substantial need for investment in
healthcare whether it’s from the private side, public side or through a
public-private partnership model.”
Fortis is focusing on the
Asia-Pacific region although it holds subsidiaries in Canada and Dubai.
Structurally, it will continue to build vertically and expand horizontally
through a mix of organic and inorganic opportunities while M&A will remain
integral to its growth strategy, says Singh.
“There is tremendous
opportunity for healthcare investment in Asia, for creating additional
infrastructure, for providing additional services, for being able to have a lot
more talent on the medical and management side,” reflects Singh. Rising income
levels and a desire for better healthcare, ageing populations and more chronic
diseases are driving demand across the region.
Chick concurs. But, “in each
country, the shorter term needs for developing capacity of the medical
corporation, the physical infrastructure, process efficiency and effectiveness,
leadership and management skills, and market mechanisms, may differ.” As Fortis
increasingly goes borderless, how it manages the costs and benefits of its
cross-cultural networks will be critical.
Global Entropolis Singapore was
held on 16 and 17 October, 2011.
Mrinalini Reddy
Business & Investment Opportunities
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