Leader Healthcare India is in the process of expansion of its business in India of distributing medical equipment manufactured in the U.S. several options have been explored but without any significant success. For LHC to expand, it must address its existing challenges, the losses faced due to exchange rate fluctuations, the delays caused by the Customs office, or operational inefficiencies. How should Leader Healthcare address its existing challenges to expand and strengthen its market position?
Sonal Singh and Meeta Dasgupta
Harvard Business Review (W17022-PDF-ENG)
January 16, 2017
Case questions answered:
- Why were his expansion strategies not successful?
- Were there other strategies he could use to explain his business?
- How should Leader Healthcare address its existing challenges to expand and strengthen its market position?
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Case answers for Leader Healthcare: Deciding on a Growth Strategy
Executive Summary – Leader Healthcare: Deciding on a Growth Strategy
Leader Healthcare India is in the process of expansion of its business in India of distributing medical equipment manufactured in the U.S. several options have been explored but without any significant success.
For LHC to expand, it must address its existing challenges, the losses faced due to exchange rate fluctuations, the delays caused by the Customs office, or operational inefficiencies.
The above-highlighted issues are roadblocks to the expansion strategy, and each issue is addressed in the following report. The expansion strategy looks to increase monetary and human resources to develop the organizational skill for LHC further to operate in this market and dominate.
The plan has several short- and long-term goals, but the strategy primarily relies on generating funding amounting to $1 million.
How should Leader Healthcare address its existing challenges to expand and strengthen its market position?
Leader Healthcare has a product line with over 100 products, significantly higher than most of its top two competitors. These are branded, top-rated products and allow LHC to target more customers and gain greater market share.
The company’s culture and philosophy of emphasis on quality is matched by its product, manufactured in the U.S. This resulted in LHC allocating minimal resources to marketing, hoping to make revenue based on the product’s high quality.
Leader Healthcare has operated for over 5 years in India and has a technically robust workforce. This has helped the organization differentiate itself from other distributors of low-cost, low-quality devices. Differentiation through the quality of product and skilled personnel was LHC’s key competitive strategy.
Since the manufacturers were foreign-based, marketing was not on their agenda and had to be taken by Leader Healthcare. However, limited resources were allocated towards marketing activities. Hence, they faced issues with convincing buyers that LHC sold the number one brand and how buying LHC’s brands would be the most beneficial.
While specialized, the workforce was limited to 25 employees, which had previously led to failed expansion attempts due to a lack of supervision in the new regions. The limited size could also be a reason for LHC’s operational challenges leading to long delays.
Leader Healthcare operated in two major segments: Respiratory and Aesthetics. Both these markets are expected to experience a compound annual growth rate of 8.7% and 10.8%, respectively, from 2015 to 2020.
While growth was predicted in both segments globally, India’s aesthetic devices market was in the early stages and will grow in the future due to the rise in medical tourism. But India’s respiratory devices market was largely due to India being home to many tuberculosis patients.
The growth in the number of customers in the respiratory segment was 2% and 4% higher than the growth in the number of customers in the aesthetic segment in 2014-13 and 2014-15, respectively.
Since Leader Healthcare imports its product from the U.S, it must go through the tedious process of adhering to the Indian authorities’ trade compliances. One of its key roadblocks is the delay in the clearance of goods through the Customs office, leading to damages and disrupted delivery schedules.
An added concern to importing all the products is the fluctuating exchange rate, leading to Leader Healthcare making losses as prices charged to customers cannot be frequently modified. These trade barrier challenges provide an advantage to domestic manufacturers, which are LHC’s primary competition.
Manufacturers of low-cost, low-quality devices posed a serious challenge to LHC’s market presence. These devices had not only made a swift entry in the market, further intensifying the competition but also affected the distribution network. Distributors would also sell Chinese products as they were low cost and hence easier to sell.
Alternative 1: Raising Internal funding
Leader Healthcare should raise $1 million from its holding company to undertake expansion activities across the nations. The organization must establish a hedging department and recruit skills employees for the same to cut down losses due to exchange rate fluctuation.
A centralized warehousing facility should also be introduced wherein inventory is stored and distributed across the different regions. Rate contracts should be created with all manufacturers, and bulk-buying practices should be put in place.
Establishing a warehouse will help avoid delays and damage caused by the customs office, and recruitment of a skilled Logistics team will help tackle LHC’s operational challenges.
Alternative 2: Narrowing Product Line
Leader Healthcare must focus its approach by trimming its product line to 70 top SKUs, consisting of a combination of Respiratory and Aesthetic devices, the former contributing a larger share.
This will help LHC reallocate its human resource towards addressing the operational challenges as well as for the expansion of the respiratory segment in new regions and to.
LHC can also allocate…