The strategic challenges of Netcare can
be summarised as: variant external environment conditions, and lack of
resources and capabilities that can create a sustainable competitive advantage.
The external environment has a
significant impact on Netcare’s international expansion strategy is the
variation of external factors. These factors are shaped by the influence of the
different stakeholders including governments, competitors and the general
market (Johnson, Whittington and Scholes, 2011). In the stakeholder mapping
grid below, government can be described as a key player due to the fact that it
has a very high interest in healthcare service provision while also wielding
immense power over the actions of the private sector players.
As a stakeholder, government actions
determine the mode of operation, the range of services that can be offered,
prices that can be charged, and other restrictions on operations and ownership
of business ventures (Harrison, 2003).
For instance, the push by the South African government to demand that the
general public is served by private hospitals makes it imperative for them to
review their operational approaches to enable them maximise on the high
quantity-low margin services (Case, p. 239). Such initiatives would not be
needed in countries like Brazil where there is no requirement for private
hospitals to serve the general public (Case, p. 249). Their actions can also
have a direct impact on the affordability of healthcare. The strategic
challenge of the organisation is therefore on how to accommodate these
different legal and political climates while ensuring that the global brand is
maintained. Netcare is therefore likely to be forced to abandon its
standardised approach to strategic management and concentrate on embracing
diversified approaches. For instance, it could successfully concentrate on
serving higher end customers in the UK and Brazil while modifying its services
to enable them serve the general public in South Africa.
In international expansion, the
organisation has to choose between embracing a localisation or a globalised
approach. In localisation, the strategic approach as well as leadership and
management styles applicable is modified to suit differences in the external
environment (Frynas and Mellahi, 2011). The level of psychic distance between
the countries in question is among the factors that must be taken into
consideration when determining the level of local differentiation that can be
embraced. The influence of the psychic distance is demonstrable in the success
of the organisation in its international expansion endeavours in the UK and in
Rwanda. In the UK, there was no significant psychic distance since the South
African private healthcare sector was largely conformant to the standard of
world class healthcare as is common in the developed countries (Case, p. 236).
In determining the culture distance as
relates to Netcare, it is important to delink the traditional market served
from the general South African public. Nevertheless, subsequent legal and
political changes have forced the organisation to redefine its target market
hence giving them an edge in understanding the experiences of developing
markets (Case, p. 241). In Rwanda, however, there was a significant psychic
distance with differences and suspicions among different sections of the
population making it necessary for a unique approach to leadership and
operations to be embraced (Case, p. 247). This rendered Netcare’s attempt to
embrace a standardised approach to be unsuccessful.
Competition plays a critical role in
determining the extent to which an organisation can be successful in the
international markets. Where competition levels are high, it becomes critical
for the organisation to develop its resources and capabilities to become more
competitive (De Wit and Meyer, 2010). Netcare’s competitive edge may be drawn
from its competence in excellence in operational efficiency, ability to attract
the best talent, strong partnerships with physicians, and quality service to
patients. A critical examination of these competencies indicates that the
organisation may not be having a source of competitive advantage when the
competencies are subjected to the VRIN framework. The VRIN framework dictates
that a resource or competence should be valuable, rare, inimitable and
non-substitutable for it to be a source of competitive advantage for the
organisation (Ramsay, 2001). Additional capabilities for Netcare are financial
strength and strategic agility as developed from its diverse international
experience. The evaluation of the same is as below:
Capability/
competence
|
Valuable
|
Rare
|
Inimitable
|
Non-Substitutable
|
Competitive
status
|
Operational excellence
|
Yes
|
No
|
Yes
|
Yes
|
Temporary competitive advantage
|
Attractiveness for top talent
|
Yes
|
No
|
Yes
|
Yes
|
Competitive parity
|
Strong partnerships with physicians
|
Yes
|
No
|
Yes
|
Yes
|
Competitive parity
|
Financial strength
|
Yes
|
No
|
Yes
|
No
|
Competitive parity
|
Strategic agility
|
Yes
|
Yes
|
No
|
Yes
|
Temporary competitive advantage
|
From the critique tabulated above,
Netcare can be said to only have a temporary competitive advantage in a few areas.
This means that its main challenge is to develop its resources and competencies
in a manner that can yield a sustainable competitive advantage. This challenge
needs to be tackled in conjunction with the need to ensure that the competitive
strategies adopted conform to the environmental factors of the new markets. Its
preference for standardisation across different countries can be a source of
competitive disadvantage in markets with a high psychic distance from its home
market.
In international expansion, the
organisation seeks to utilise the capabilities developed in the home market to
grow internationally. This means that international expansion is greatly
enhanced where capabilities developed in the home base are highly valuable.
The home base plays an important role
for any organisation wishing to pursue international expansion. One of the main
roles of the home base is the provision of financial capabilities that enable
the organisation to invest in acquisitions and partnerships across different
countries (Harrington and Ottenbacher, 2011). This explains why many of the
leading multinationals have their home base in the developed markets from where
their financial strength was drawn. The home base also determines the level of
operational excellence that is attainable by organisations. This operational
excellence is a function of a number of factors: the type of clientele being
served, and the level of competition that the organisation is exposed to
(Harrington and Ottenbacher, 2011). Diffusion of knowledge and skills within an
industry raises the likelihood of excellence in operations and management in
industries characterised by organisations seeking high levels of operational
excellence. The same can be said of technological advancements.
Considering these factors, South Africa
is both advantageous and disadvantageous as a home base. The main advantage
comes from its ability to give an organisation an edge in strategic agility.
The country is described as two different countries existing side by side where
one section is comparable to the developed world while the second is comparable
to the developing world (Case, p. 236). Netcare has traditionally served the
high end clients comparable to those in the developed world. In this service,
the clients were few but with high margins per client. However, with the
changes in the legal environment where private hospitals were being compelled
to serve the general public, the organisation was compelled to embrace further
structural and strategic changes. The new services are accordingly suited for
more clients albeit with lower unit margins.
Even though there was a significant
psychic distance between South Africa and Rwanda, this distance is not likely
to be high when applied to other developing countries. As a developing country,
the general South African public has issues that are similar to those
afflicting many populations in the developing world. This makes them highly capable
of tackling health issues that afflict poor populations hence an ability to
implement a successful strategy as a provider of private healthcare services to
the relatively poor populations in the developing world. It can therefore
operate in an environment of low cost-low margins with remarkable success. This
is because it has been able to develop this competence from its experiences in
the South African market.
The South African healthcare sector is
unique in its ability to provide a developed market perspective despite being
located in a developing country. Netcare can draw from its experience in
innovation and serving the high end clients to serve developed markets. This
means that they’d not be facing a significant psychic distance in the event
that they opt to grow into a developed market. Their success in the UK market
despite the fact that they did not need to make any significant adjustments to
their strategic or operational models is evidence of this. Netcare can
therefore expand into the developing markets or enter developing markets to
specifically target the high end customers without facing immense difficulties.
Despite the strengths highlighted above,
the South African government’s role in the healthcare sector has raised
concerns on the implications on the financial performance of the main players.
The government’s insistence on the general public being served lowers the
highly innovative model whose high cost is offset by the high medical fees paid
by the wealthy clients (Case, p. 241). This diverts attention from innovation
and quality service delivery. It could therefore break the progress made in
innovation and make the organisation less innovative. While the diversified
targeting imposed by law could help in improving strategic agility, it is
likely to reduce the industry players into regular healthcare sector players
with no definite source of competitive advantage. Failure to specialise
inhibits the ability of the organisation to build a brand identity that is stands
out in the market (Brown, 2005). Having South Africa as a home base can also be
a disadvantage in financial terms. Restrictive government policy that can be
likened to price controls can inhibit profitability. The resultant weak
financial position can inhibit further international expansion efforts.
Having highlighted the pros and cons of
South Africa as a home base, it can be concluded that the market is good for
the organisation. Its ability to reduce the psychic distance with virtually every
country that the organisation could expand to, together with its ability to
boost strategic agility, makes it easy for international expansion. These
qualities can be utilised to make an organisation very competitive at an
international level.
Entry into foreign markets can be
through a number of entry modes whose choice ought to be influenced by the
level of knowledge in the market. This can be explained using the international
expansion model which recommends that incremental knowledge in the market be
accompanied by an additional commitment of resources (Frynas and Mellahi, 2011).
The risk taken by the organisation increases as additional injection of
resources is done. The risk is accentuated by lack of knowledge or experience
in the market. Certain aspects of the foreign markets may be difficult to learn
about due to the culture of secrecy that could exist in certain markets. The
difficulty of foreigners to access such crucial pieces of information makes it
difficult for foreign companies to run successful operations in the
organisation.
Bartlett et al (2008, p.10) summarise
the entry modes in an incremental basis indicating the level of resources
invested as well as the level of control over operations. On this scale, direct
acquisitions require higher levels of resource commitment than partnerships. However,
they come with substantial risks to the organisation. In acquisitions, the
organisation buys out an existing business where they are able to take over its
assets and impose their operational approach on them (Frynas and Mellahi, 2011).
It requires a high level of commitment of resources. The organisation in turns
has sole control over the strategic and operational aspects of the
organisation.
Having full control over the management
of the organisation makes it easy for the organisation to build its global
brand. The organisation is thence able to implement its global strategy without
any inhibition. The choice on strategy is therefore not restricted to local
differentiation and standardisation across countries can be done where the same
is found likely to lead to organisational success. Acquisition as an entry mode
is advantageous over direct investment into a new subsidiary as it enables the
organisation tap into the capability, goodwill and competencies of the business
being taken over (Som, 2009). The distribution network that has already been
developed can also be of immense value. Besides, the organisation has the option
of letting the organisations being acquired to continue functioning as before
where it can learn from their experiences and gain more knowledge about the
market. This advantage is however rarely realised with many organisations
tending to prefer restructuring and conforming the newly acquired subsidiaries
to their global strategic and operational models.
The disadvantage of this entry mode is
that the risk of loss is much higher. This is especially with regards to
organisations that are expanding into markets they do not know much about. In
the case of Netcare, this riskiness of acquisitions was evident in the
company’s entry into Rwanda. Having entered the market through acquisition, the
company would proceed to set up operations that were comparable to its
operations in the UK and South Africa. However, it would turn out that their
understanding of the Rwandese culture and market was low hence leading to
immense failure of their venture (Case, p. 247). In a hypothetical scenario,
the presence of a local partner would have gone a long way in enabling them
understand the market hence modify their operational and leadership models
accordingly.
Entry into a foreign market through
partnership involves shared control over the operations of the foreign
subsidiary or alliance (Frynas and Mellahi, 2011). This increases the risk of
disagreements where the different partners could be competing for influence
over the management or influence over operational approaches. These
disagreements can nevertheless be minimised through thorough due diligence in
the process of identifying a strategic partner. The existence of a shared
vision as well as compatibility of organisational cultures should be some of
the elements to look out for. In spite of these risks, partnerships can be very
beneficial to the organisation.
This advantage is evident in Netcare’s
entry into the UK market where its entry was through a partnership with the
National Health Service (NHS). This partnership was in form of a contract where
Netcare was to conduct 44,737 cataract operations on NHS patients (Case, p.
243). This partnership proved to be a great success. It can be presumed that it
is through the success of this venture and the subsequent knowledge of Netcare
about the market that prompted the company to make an acquisition of one of the
industry players GHG 5 years later.
As the company grapples with the
question on whether to embrace acquisitions or partnerships, the main elements
for consideration should be: the amount of resources available for investment,
and the level of knowledge about the target market. The risk is lower where
there is a very low psychic distance between the home market and the target
foreign market. Acquisitions are preferable where total control over the
foreign subsidiary is crucial. However, it comes with a high risk such as
insufficient knowledge about the market. This deficiency can be sealed by
having a local partner with thorough knowledge about the target market. This
would however come at a cost of loss of partial control and the risk of
disagreements with such partners. These are the considerations that Netcare
should make on a case by case basis before settling on a foreign entry mode in
each of the target markets.
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Education
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