In the medical sales industry, most of the competitive advantage comes from the doctor preference. Because of the high cost and amount of time that it takes to learn how to use a different company’s medical equipment, most doctors use one company’s products for life. Stryker has always recognized the existence of brand loyalty and has made it a top priority to develop excellent relationships with its customers. Hospitals that use Stryker’s equipment are more likely to continue to buy from Stryker because of their diverse product offerings. The key factors that differentiate Stryker from its competitors are innovation, reliability, service and reputation. As of December 31, 2010, Stryker owned approximately 1,125 United States patents and 1,945 international patents. With a diversified sales footprint in its three segments, Reconstructive, Medsurg., and Neurotechnology and Spine, no one segment holds more than 16% of total sales. Stryker holds the top positions in the majority of their markets. Stryker also has a large amount of cash and cash equivalents to spend on future acquisitions and R&D. Stryker’s acquisitions over the last 10 years coupled with their internal focus on innovation has given them the competitive edge over its competitors. It has built an internal structure that would be time and capital intensive to imitate.
Due to its large global sales footprint, it has the benefit of economies of scale which enables the corporation to offer innovative solutions at cost savings that potential new competitors would not be able to imitate. There are high barriers to entry in the medical sales industry. These barriers include high cost and expertise in the industry. Stryker operates in a capital-intensive industry that requires a lot of specialized machinery and constant spending on research and development, which leads to high startup costs.
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Stryker’s main competitive advantage continues to be its diversification. 44% of its sales come from its Reconstructive segment, which produces hip, knee, shoulder implants, implant instrumentation, and trauma related products. 38% of its sales come from its MedSurg products segment, which produces medical and surgical equipment. 17% of its sales come from Neurotechnology and Spine products, which produces spine and CMF implants, interventional spine equipment, and neurovascular products. Stryker continues to have a consistent flow of new products that expand markets. They just recently bought MAKO Surgical Corp. for $1.65billion, which develops robotic technology for hip and knee replacement surgeries. As long as Stryker continues to develop innovate new products and acquire its competition will continue to gain market share. Stryker has a Quick ratio of 3.08, which shows it has the ability to meet any short-term cash needs. Stockholders Equity has increased by 8.18% from Q2FY12 to Q2FY13. This tells me that it is very unlikely that they will face any financial difficulty in the near future. It also indicates they have the cash flow to continue growing through acquisitions.
One disrupter for Stryker and all companies in the med tech industry will be the new Affordable Health Care Act. The Affordable Health Care Act will include a 2.3% excise tax on medical devices. For Stryker, 2.3% of their revenues is $100million dollars, which is 20% of their R&D budget. This would be a direct hit and will have a significant impact on Stryker especially since 65% of their revenues come from the United States. In 2012, U.S. revenues were $5.658 billion and international revenues were $2.99 billion. Another disrupter, which will work in Stryker’s favor, is the provision for patient satisfaction in the Affordable Health Care Act. If hospitals are not able to reach a certain level of patient satisfaction, they will have a reduction in their Medicare reimbursement. A patient’s bed is very important to the comfort of the patient. Stryker is currently the leader in patient handling equipment. Stryker has hospital beds, hospital furniture, support surfaces, and stretchers that use BACK SMART technology.
This would be a direct hit on Stryker’s competitors in the patient handling equipment segment such as Hill-Rom. Also if more patients that have knee problems start to enter the health care system, Stryker’s knee replacement business could begin to grow significantly, since knee surgery is a more elective procedure. Stryker’s business segments are Orthopaedic Implants, Medical Surgical Equipment, Reconstructive, and Neurotechnology and Spine. Stryker has been able to acquire many of the companies in these segments through takeovers. One example is MAKO Surgical Corp., which develops robotic technology used in knee and hip replacement surgeries. In 2012 there were rumors that Stryker was developing its own robotic technology. Recently Stryker acquired MAKO Surgical Corp., for $1.65billion dollars. Stryker realized that MAKO had been in the market a lot longer and they could not compete with some of the features and cost. Stryker has been able to use it extendable core to try and gain market share internationally in countries such as China, which is growing rapidly in the health care industry. In 2012 Medtronic bought out China’s Kanghui Holdings for $816million. Kanghui Holdings is an orthopedics company that makes spine, trauma, and joint reconstructive devices. Kanghui also has a very large already-established distribution network. In July, 2013 Stryker paid over $685 Million Dollars to acquire one of the largest orthopedics firms in Asia, Trauson Holdings Co., Ltd. and its shares recently shot up by 2.5%.
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