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Strategic Analysis: ResMed Holdings Ltd.

Eduardo Nieto Leal (764703)

Sara Marquez Jaramillo (726689)

Subject Name: Strategic ManagementDate: September 8, 2015Tutor Name: Solomon Habtay



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Executive Summary

This report provides a strategic analysis of ResMed Holdings Ltd., is an Australian subsidiary

of ResMed Inc., a company that develops, manufactures and distributes medical equipment for

the diagnosis and treatment of diverse respiratory disorders that occur during sleep. Methods of

analysis include external environment, encompassing general and competitive environment.

Additionally, the company will be analysed internally by value chain analysis of its primary and

secondary activities, value system analysis of the industry and definition of ResMed extended

value chains and Resource Based View analysis to determine distinctive resources and

capabilities. Results of this analysis show that ResMed Holdings Ltd. is a fierce competitor in the

industry of “Sleep and Respiratory Disorders Solution Devices Manufacturing and Distribution”

due to its high economic power to invest in R&D as well as its brand reputation and global

presence. Likewise, its distinctive resources help them accomplish outstanding product features,

reliability in the eyes of the customer and high speed compared to technology; all factors that

help ResMed maintain its leadership. The report finds that ResMed’s current positioning and

continuous investment in R&D could potentially take the company one step ahead of its

competitors. However, the analysis conducted has limitations, as information of ResMed

Holdings Inc. is not as readily available as information of ResMed Inc. So part of the internal

analysis was made using assumptions of resources and activities that both companies shared.



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Contents

Executive Summary 2

Introduction 4

External environment 5 General Environment 5 Competitive Environment 6

Internal environment 9 Value Chain Analysis 9 Value System Analysis 11 Resources and capabilities 11

Conclusion 14

References 14



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Introduction

This document aims to provide a strategic analysis of the external and internal environments

of ResMed Holdings Limited (ResMed). The internal analysis will focus on the Australian

subsidiary, rather than on the U.S. parent company ResMed Inc., while the external analysis will

also cover the relevant factors that affect their global operations. The specific industry where

ResMed operates can be defined as “Sleep and Respiratory Disorders Solution Devices

Manufacturing and Distribution”, but for the sake of this analysis both the “Medical Equipment

Manufacturing Industry” and the “Australian Health industry” will be considered.

ResMed is a public company that develops, manufactures and distributes medical equipment

for the diagnosis and treatment of diverse respiratory disorders that occur during sleep. It is fully

owned by ResMed Inc., and operates offices in ten countries. Additionally, ResMed sells

products in over 60 countries through and extensive distribution network (IbisWorld, 2014). Last

year, the company was ranked 270 out of 2000 Australian companies, generated total revenue of

$ 1,528,650,000 and had 2592 employees. Although profit margins have declined over the past

five years due to rising costs and investment in R&D, industry-related revenue is estimated to

grow at a rate of 7.4% in the following years (IbisWorld, 2014).

The Respiratory Care Equipment industry is related to technologically sophisticated products,

which has protected the industry from import competition from developing countries, and has

allowed ResMed and its competitors to charge a premium, thus maintaining strong profitability.

ResMed’s main competitors worldwide are Philips Healthcare and Fisher & Paykel, but any

surgical procedure or dental appliances designed to treat obstructive sleep apnoea (OSA) is

considered a competitor. The development of new procedures/devices to treat these disorders can

lead to ResMed’s products becoming obsolete, so even though the main players of the Medical

and Surgical Manufacturing in Australia focus on other segments, ResMed falls into that industry

as well. The industry’s revenue is $3.5 billion, and has an expected annual growth of 3.1% over

the next five years; ResMed currently holds 26.8% of the market share, followed by Cochlear and

Abbott Australasia with 20% and 9% respectively (Little, 2015).



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External environment

The external analysis will cover the general and competitive environments in which the

Australian subsidiary operates. The general environment includes different macroeconomic

factors that affect each firm in every industry, and over which no individual firm has control.

This environment will be analysed using a PEST analysis, to evaluate the power of the Political,

Economic, Social, and Technological factors over ResMed’s performance.

General Environment

First, technology plays a crucial role in the company and industry’s performance, as the

products in medical care and treatment evolve rapidly. For instance, developments such as

nanotechnology, biotechnology and robotic surgery could revolutionise medicine and the way

many diseases are treated. Firms like ResMed must have high investments in R&D to develop

innovative and convenient products that catch up to, or even lead the technological advances of

the market worldwide. ResMed for instance, had a decline in profits in recent years due to a rise

in these investments, especially after 2011 when R&D expenditure increased from $ 31,436,000

to $ 55,831,000, and kept the levels at similar numbers in the following years (IbisWorld, 2014).

Since ResMed’s main competitors are North American or European firms, high levels of quality

and innovativeness must be achieved in order to maintain market share and profitability. Seeking

this innovativeness, ResMed announced in 2013 a partnership with the University of Sydney that

includes long-term funding of research into sleep-related breathing disorders (IbisWorld, 2014).

Secondly, political factors affect ResMed’s operations by implementing policies and

regulations that can benefit or affect their business. In Australia, therapeutic goods manufacturers

are required to hold licenses, as well as taking full responsibility for the design and production of

their goods (Little, 2015). The Federal Government’s Medicare Levy implemented in 1997 has

benefited the industry by motivating people to buy private health insurance and therefore making

private hospitals invest more in equipment to provide better services. Policies related to public

funding affect revenue as well, as expenditure in public hospitals means that they can buy new

equipment. In the near future the Federal Government will fund hospitals depending on the



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amount of procedures carried out each year, which provides incentives for hospitals to increase

efficiency and use the industry’s most advanced equipment (Little, 2015).

Thirdly, economic factors affect ResMed mainly through international trade. Exchange rates

can have an impact on the imports and exports of the products, affecting competition both in the

Australian and the global market. As mentioned, ResMed exports to over 60 countries, and

imports in the Medical Equipment Industry in Australia account for over 75% of domestic

demand (Little, 2015). With an Australian dollar expected to devaluate in the near future, revenue

from exports will grow as Australian products become more competitive, and import competition

will decrease, as foreign products will become more expensive. It is the case with the European

market, as the AUD has lost value over the last months compared to the Euro (XE, 2015),

ResMed’s products become more competitive against European brands like Philips. Factors such

as tariffs and other trade barriers, inability to obtain import licenses, and changes in import or

export restrictions are just some of the risks that ResMed faces with international trade.

Finally, social factors affect the demand for ResMed’s products around the world. As people

live longer lives and ageing population increases around the world, chronic diseases emerge and

the need for products like ResMed’s arises. There is also a global increasing awareness of

respiratory disorders, and their relation with other diseases like cardiac or neurologic disorders

that forecast growth in the industry. Being expensive products, ResMed targets mainly countries

with developed economies with high health budgets, or private hospitals where wealthy people

would pay for the use of the products.

Competitive Environment

ResMed’s competitive environment can be analysed using Michael Porter’s Five Forces

Model, which takes into account factors such as: threat of new entrants, power of suppliers,

power of buyers, threat of substitutes and existing competition to determine the overall

attractiveness of an individual industry.



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First, the threat of new entrants to the “sleep and breathing disorders solutions” can be

considered low, due to the complex barriers to entry. First, health devices manufacturing and

distribution are highly regulated by governments, and low experience in the industry pose a

barrier for new participants. Second, the fast rate of technology change means that there is a high

investment in R&D, in addition to the high costs of machinery. Finally, brand name and

reputation are highly valued by customers when purchasing health related products. On the other

hand, existing competition in the industry is high. Two of ResMed’s main competitors globally

are Philips and Fisher & Paykel, which have great financial, research, manufacturing andmarketing resources. Therefore, ResMed has to develop high quality products and efficient

operations to be able to meet the highest standards. The main competitive factors in the industry

are product features, reliability and price, but customer support and efficient distribution are

important as well (ResMed Inc., 2015).



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The power of buyers is high in ResMed’s industry, given the high competition and different

options in the market. Customers in many countries have access to products from different

companies around the world, which feature different characteristics and prices, giving the

customer the opportunity to choose the product that provides the greater value. As mentioned

above, ResMed must differentiate from its competitors by its innovativeness and efficiency in

operations, due to the price consciousness of the market. The power of suppliers could be

considered as medium, as most of the raw materials are off-the-shelf products available from

multiple vendors, such as silicon and plastic. On the contrary, some rare components are

purchased from single-source suppliers, which gives them power to bargain knowing that

ResMed would need to find a new qualified supplier if they left (ResMed Inc., 2015). This

means that ResMed has power over most of its suppliers, but has to be careful with its

relationships with the single-source suppliers.

Competition from substitute goods is low, as ResMed’s products are highly specialised.

However, surgical procedures and dental appliances designed to treat OSA and other respiratory

conditions are substitutes. Despite the current competition from substitutes being low, the rate of

change in medicine and technology means that a new procedure or product can be developed in

another industry that could make ResMed’s products obsolete.



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Internal environment

The internal analysis will cover the value chain analysis, the value system analysis and the

resource based view analysis (RBV). The value chain analysis includes the significant processes

within the primary and supplementary activities of ResMed, which is then extended in the value

system analysis. Finally, the RBV identifies the significant and distinctive resources and

capabilities associated with the activities described in the value chain analysis. These analyses

show how ResMed’s activities differentiate them from its competitors by transforming resources

into core competences to achieve competitive advantage.

Value Chain Analysis

In order to analyse ResMed’s value chain, it is important to define who the target market

is. As mentioned before, ResMed’s industry is the Sleep and Respiratory Solutions Devices,

having as its core market are adults with OSA (ResMed, 2015b). This market has one main need:

treating and managing their respiratory disorders. To achieve this, ResMed performs the

following activities, aiming to add value to its cost position (Porter, 1998):

ResMed invests around 6-7% of its total revenue in research and development of sleep apnoea

and related issues (ResMed, 2015b). Through this research they develop innovative products and

treatments that increase customer’s willingness to pay. Subsequently comes the development of



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the product, which depends on sourcing raw materials, parts and components from multiple

vendors through inbound logistics. As said before, most of the sleep disorder products are made

from off-the-shelf items, but a few of them are uniquely configured components that might have

various or single-source suppliers (ResMed Inc., 2015). This activity is mainly supported by

procurement , as ResMed must monitor supplier performance in terms of quality and efficiency,

and as technology changes, it must purchase inputs from new qualifying suppliers.

Once ResMed sources the different components, manufacturing the devices mainly consist on

assembling and testing, as suppliers already manufacture components (ResMed Inc., 2015). The

Australian manufacturing site is located in Sydney, consisting of a 155,000 square-foot owned

plant (Company 360, 2015). Manufacturing the products in Australia reduces the costs of the

consumers in this country, as no high transport costs must be added to the total price. ResMed

constantly improves manufacturing and supply chain in order to improve gross margins and offer

competitive costs (ResMed Inc., 2015). The manufacturing activity is mainly supported by

technology development because factors such as component design, field-testing and technology

selection are essential in the development of an attractive product for the consumer,

Afterwards, products are distributed locally and internationally to over 70 countries (Company

360, 2015). Distribution in Australia is made through wholly-owned subsidiaries, direct sales

force, independent distributors and directly to patients (ResMed Inc., 2015). Furthermore,

marketing and sales focus on building sleep apnoea awareness in patients, clinics and doctors,

instead of marketing aggressively its products (ResMed, 2015b). So ResMed markets with the

help of medical institutions that offer their products as solutions for respiratory and sleep

problems.

Finally, service occurs when consumers need replacement or adjustment of products. Distributors

can repair them using parts supplied by the firm, or in some cases products are shipped back to

ResMed’s facilities (ResMed Inc., 2015). This is a cost advantage for patients in Australia

because the plant is located in Sydney and there are no extra costs in terms of time and money for

sending the product abroad.



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ResMed’s general administration and HR area enhance the six primary activities mentioned.

General administration is in charge of developing the overall strategy of the company, while HR

links employee and corporate strategies (ResMed, 2015).

Value System Analysis

Inside the value system of ResMed’s industry, the company has a horizontally integrated value

chain, performing only two specific activities while working with other companies that perform

the rest (Abdi, 2015). The following diagram shows how ResMed extends its value through the

activities of assembly and distribution.

Resources and capabilities

“The ability to predict outcomes, communicate insights and act on data effectively and

efficiently keeps ResMed in a leadership position” (ResMed, 2015b). So, ResMed’s proven

solutions to the OSA are its competitive advantage. ResMed has a set of resources and

capabilities that are significant for each of its value-adding activities; these are shown in the

following table.



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Some of these resources are distinctive, as they provide the firm with its differential

competitive advantage. ResMed believes that “the principal competitive factors in all of our

markets are product features and reliability,” as well as the speed of product development, testing

and marketing (ResMed Inc., 2015). In other words, the characteristics that help ResMed achieve

1 ResMed acquired CareTouch, a provider of resupply programs for home medical equipment providers

(ResMed, 2015d)

2 ResMed’s senior management team has extensive experience in the medical device industry in general and

intend to continue to leverage the experience and expertise of these individuals (ResMed Inc., 2015)

Activity Significant Resources and Capabilities

R&D

- Patents

- Successful legal team

- Innovativeness of productsInbound Logistics - Reputation with suppliers

Manufacturing

- Plant facilities in Australia

- Excellent trial and control systems

- Efficient product development

Distribution - Reputation with independent distributors

Marketing & Sales- Global brand name

- Reputation with customers for reliability and quality

Service- Outstanding customer service

- ReSupply1

General Administration - ResMed Inc. benchmark and communication

HRM- Managerial experience

- Knowledge transfer 2

Technology Development

- Technical and scientific skills

- Customer and distributor feedback

- Innovation capacities

Procurement- Acquiring new suppliers

- Qualifying suppliers



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a competitive advantage are: product features, reliability and speed. These characteristics are

accomplished by using the following distinctive resources.

First, intangible resources such as technical and scientific skills and innovation capacities

(refer to table) enhance product features. ResMed is committed to an ongoing program of

product development that is not only focused on improving current products, but also in

expanding to new product applications (ResMed Inc., 2015). This set of resources is valuable as

they help ResMed achieve differentiation, and rare because it encompasses over 5,000 patents

and designs that are rare to competitors and hard to imitate due to physical uniqueness ().

However, this is not a sustained competitive advantage as technology is always changing and

more substitutes to ResMed’s products are being developed.

Secondly, reliability is a function of two different intangible and distinctive resources: brand

name and reputation with customers. Brand name and reputation are valuable and difficult to

imitate because of path dependency and social complexity respectively. These two factors make

the resource a temporary competitive advantage. However, a brand name and reputation can be

substituted by developing a different but strong brand name, and many of ResMed competitors

also have globally recognized brand names.

Finally, to achieve a high speed compared to technological change, ResMed uses its

distinctive resources of plant facility and location, excellent trial and control systems and

efficient product development. The first two resources that relate to the plant are valuable but

easily imitable and not rare, as many companies can establish in strategic locations and many

have greater financial resources to establish an even bigger plant (ResMed Inc., 2015); therefore,

they are act as a competitive parity. On the other side, trial and control systems and efficient

product development are also valuable, but these are harder to imitate due to path dependency.

Still, there is a chance that a company may substitute these resources by developing different but

effective control and product development systems. So high speed is also a temporary

competitive advantage for ResMed.



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Conclusion

After analysing the external factors affecting ResMed, the industry can be considered very

attractive for the company. “Sleep and respiratory solution devices” is an industry with high

competition, but with low risk of new players or substitute products, and with high profitability

and projected growth. ResMed has already the brand reputation and the global presence needed to

compete globally, and has the economic power to invest in R&D and maintain its leader position.

By analysing the internal environment, the value chain analysis shows how ResMed’s primary

and secondary activities add value to the customer’s need of managing the respiratory disorder

effectively and cost efficiently. The second part of the analysis demonstrates that the two main

areas of emphasis of this company are assembly and distribution, which differentiate them from

the industry’s value chain and competitors. Likewise, ResMed’s competitive advantage is

accomplish using the significant resources that accompany each of ResMed’s activities, but

specially through their distinctive resources of product features, reliability and speed.



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References

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sites-poland-polish-australian-resmed-s-launch-in-central-europe

Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of

Management. Retrieved 5 September 2015, from http://jom.sagepub.com/content/17/1/99

Company 360. (2015). ResMed Holdings Limited . Bella Vista, NSW: Company 360.

Dess, G., Lumpking, G.T., Eisner, A.B., McNamara, G. (2014). Strategic Management. Text

and Cases. Seventh Edition. United States

Hoovers. (2015). “ ResMed Corp Competition”. Company information, Hoovers Database.

Retrieved on the 2nd

of August of 2015 from: http://www.hoovers.com/company-

information/cs/competition.Resmed_Inc.58a83d51ae773c5e.html

IbisWorld (2014). “ ResMed Holdings Limited ”. IbisWorld Company Report.

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Australian Industry Report, Ibis World.

Abdi, M. (2015). Lecture 5 Powerpoint, Week 5, Internal Analysis. P. 23. University of

Melbourne.

Porter, M. (1998). The Value Chain and Competitive Advantage (1st ed., Chapter 2 in"Competitive Advantage: Creating and Sustaining Superior Performance"). Free Press.

Porter, M. (2008). “The Five Forces That Shape Strategy”. Harvard Business Review. Retrieved

on the 4th of August of 2015 from:



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https://services.hbsp.harvard.edu/services/proxy/content/37635932/38061467/6420c1e826aff4e4

4f3218c9b7eb6360

ResMed. (2015). About ResMed : The executive team. ResMed. Retrieved 4 September 2015,

from http://www.resmed.com/au/en/consumer/about-us/the-executive-team.html

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Investor-Presentation-FINAL-(1).pdf

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CMO-_FINAL.pdf

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