ResMed Case Study

Hsu Chien Chien , Student ID 520412372

Executive Summary

The report aims to use PESTE, porter's five forces, porter's value
chain, and Barney's VRIO to analyze ResMed's external and internal
environments. Then, I would recommend ResMed’s future strategies.
In terms of the general environment, political factor, especial rigorous
regulations are the most influential one. As to the industry environment,
intense rivalry among existing competitors is its biggest challenge. The
value chain analysis shows that ResMed has three significant resources
and competencies, which are brand reputation, innovation, and the
ability to recruit and retain the elite management team.
So far, ResMed has successfully enforced a focused differentiation
strategy. For future growth, ResMed should keep investing on R&D,
expanding its software service segment, and finding more suppliers to
ensure the stability of its supply chain.

Introduction

ResMed Inc, founded in 1989, is a global leading medical equipment

company which based in San Diego, California. It primarily produces and
provides digital, cloud-connected medical equipment for treatment,
diagnosis, and management of sleep-disordered breathing (SDB), chronic
obstructive pulmonary disease (COPD) and other chronic diseases. It also
offers business management software services to support out-of-hospital
health caregivers. The company operates in more than 140 countries and
manufactures in many places.
ResMed separates its business into two major operating
departments, one is the sleep and respiratory disorders sector of the
medical device industry, and another is the software as a service (SaaS)
(ResMed Inc, 2021)

1
 General Environment

Political
First, Medical industry is heavily regulated by governments. ResMed
is subject to USA’s FDA and European Economic Area’s Essential
Requirements and other counties’ Requirements. (ResMed Inc, 2021)
Any change of medical enactments will force ResMed to adjust their
manufacturing, testing, and procurement system, which not only
increase cost but also delay time to roll out and deliver new products.
Second, third-party coverage and reimbursement policy impact
ResMed's revenue profoundly. In the US, where ResMed generated more
than 60% of its total revenue (Jones, 2022), according to the Affordable
Care Act (ACA), businesses that manufacture or import medical devices
need to pay a 2.3% excise tax on selling their devices. In 2011, America
passed the Budget Control Act, which means a decrease in Medicare
payments to providers by 2% per fiscal year. (ResMed Inc, 2021) Many
countries currently try to reform the healthcare system. If cost control
become a trend (Ruckert et al., 2015), it will affect consumer’s
willingness to purchase healthcare products.
Third, private data protection has become stricter. Under the
General Data Protection Regulation (2018), businesses are subject to
stricter standards for obtaining and using customer data. (ResMed Inc,
2021) Since ResMed's service consists of an Information Service, how to
provide customers with a convenient information service under the new
law would be a challenge.
COVID precautions make many patients can’t get treatment. Also,
many resources are directed to treating COVID rather than sleep apnea.
All the above harm ResMed's business. (ResMed Inc, 2021)
The worse geopolitical situation is a risk factor too. The Russia-
Ukraine war disrupted the supply of raw material needed in semi-
conductor and causes a shortage of chips, which are crucial components
of ResMed's products. (PTI, 2022)
The deterioration in China–United States relations and trade war
jeopardize the supply chain and raise ResMed’s cost.

Economic
Recently, high inflation rate may cause some people choose cheaper
2
brands or delaying treatment.

Social and culture

The studies show that age and overweight are two important factors
that cause sleep apnea and other respiratory problems. (Ansorge, 2021)
As the average life span is increasing and the problem of obesity has
become prevalent the demand for medical equipment may boost.
The public are more aware of the serious effects of sleep apnea. This
phenomenon will help to expand the medical device’s market.

Technology
Medical technology may significantly improve in the procedure for
treating sleep apnea and other respiratory problems, the market for
ResMed's devices will be carved up.
But the development of technology also allows ResMed to create a
more comfortable mask, and quieter machine at a lower price.

Ecology
Air pollution is a global serious issue, which make people have
respiratory problems.
And those who have been infected with COVID will suffer from long-
term respiratory problems. (Galiatsatos, 2020)
Extreme climate change and the energy crisis will disrupt freight and
manufacturing; both will increase the cost of products.

3
 Industry environment (Porter, 2008)

The threat of new entrants - low

Firstly, as mentioned above, medical devices are a highly regulated

industry. Complicated regulations may deter new entrants.
In addition, ResMed and Phillip are the two key players in the sleep
apnea devices market, they together account for over 80% of the global
OSA devices and mask market. (Welch, 2021) making them enjoy the
benefits of economies of scale. (Porter, 2008)
Third, ResMed’s long history in this field let them accumulate
numerous trademarks, patents, know-how, and heavy investment in R&D
will deter new entrants.
Finally, medical products' distribution channels highly depend on
home healthcare dealers, hospitals, and clinics. (ResMed Inc, 2021) This
channel relies on long-term cooperation. New entrants are hard to
establish distribution channel quickly.

The power of suppliers-Medium

ResMed needs to negotiate with suppliers of raw materials and
other components. It can buy most of them from diverse suppliers, but
some of the special configured components can only get from a single
supplier (ResMed Inc, 2021), which significantly reduces ResMed's
bargaining power, though the disadvantage may be offset by its scale.
Also, chips are crucial components of ResMed's products. However,
because of the pandemic, natural disasters, trade wars, etc., the world
suffer from a shortage of chips. There's no substitute for chips. At the
same time, compared with auto, computer, and cellphone industries,
ResMed only accounts for a small portion of chip suppliers' revenue,
(ResMed, 2021) which is a disadvantage for ResMed. (Porter, 2008)

The power of buyers-Medium

ResMed’s products are sold around 140 regions and its buyers
include healthcare dealers, hospitals, clinics, and millions of individuals.
(ResMed Inc, 2021) And its products have a good reputation for
reliability, quality, and special features. Millions of buyer and product’s
4
differentiation decrease the buyers' power.
However, there is a tendency for the consolidation of health care
dealers and out-of-hospital health providers. (ResMed Inc, 2021) This will
enhance buyers' bargaining power. What's more, some countries are
forced to force them cut off public health expenditure (Ruckert et al.,
2015), which will make buyers more sensitive to price.

The threat of substitutes-low

Except for CPAP, the other ways to treat sleep apnea are surgical
procedures or wearing an oral appliance. Surgery is invasive, most
people won't choose it unless there is no other choice. As for oral
appliances, it is only suitable for mild to moderate patients, and their
effect is not as good as CPAP. (Mayo Clinic, 2018)

Rivalry among existing competitors-intense

The company's major competitors are Philips BV, Fisher & Paykel
Healthcare Corporation Limited, etc.
Though the industry’s future is optimistic (IData Research, 2021),
competition is fierce.
There is a huge gap between ResMed's revenue growth speed and
net profit growth. This results from a price war between the
competitors. Though the cost of manufacturing and running the
company has been dropping, ResMed has been cutting prices even
faster. (Witcomb, 2019) Besides, because medical industry involves
patients' rights, so players is highly regulated and can't exit randomly.

5
 Internal analysis

Value chain analysis

Marketing & Sell

ResMed's founder once said that the science was great, but for
technology companies, it was generally only five percent of the cost and
task of creating a viable technology business, the other 95 percent is
marketing. (Roberts, 2020)
ResMed adjusts marketing approaches based on regional laws,
reimbursement policy, and the awareness level of sleep apnea. To
broaden the market, ResMed tries hard to arouse public and clinical
awareness of sleep apnea.
Its promotional activities target on those who are predisposed to
sleep apnea, medical specialists, and special interest groups, like
National Stroke Association, the American Heart Association, COPD
Foundation, etc.
It also helped to establish a medical research center for sleep apnea
and COPD at the University of California, San Diego. So, they can provide
scientific proof to prove the seriousness of sleep apnea and encourage
people to treat symptoms. (ResMed Inc, 2021)

Technology
Technology is an important part of ResMed's value chain. ResMed
allocates about 7% of net revenues and 16% of its employees to research
and development activities. (ResMed Inc, 2021)

Human resource
ResMed value people’s diversity and inclusion, and their recruiting
and training follow the company's Code of Business Conduct & Ethics,
Diversity and Inclusion programs, and other policies on workplace
behavior (ResMed Inc, 2021), allowing it to create an environment where
everyone feels safe and has a sense of belonging and elevate employees'
engagement and attract many talents with different race and cultural
background.

6
 Distinctive resources and capabilities (Barney, 1991)
According to the analysis, I concluded that ResMed has three
significant resources and competencies:

Brand reputation.
Value. Patients tend to choose ResMed products and prevent other
entrants to grab its market share. And make them cooperate with
government to create ventilators, offsetting the decline of sleep apnea
market during pandemic. (ResMed IOC, 2021)
Rarity. In the current CPAP market, ResMed accounts for over 45%
share in the global OSA market (Welch, 2021), which shows their brand
reputation is incomparable to others. After the Phillip recall incident, its
reputation will gain more. (Park, 2022)
Inimitability. It takes time to build brand equity. Companies must
devote a lot to research, marketing, and risk management. Besides,
ResMed's history relation with the creators of CPAP is completely
inimitable.
Organization. ResMed invest a lot on its innovation. Also, their
product test is based upon the stricter requirement. Test procedures will
also be re-evaluated if other device manufacturers raise their concerns.
Its main manufacturing sites are certified to ISO 13485 and are audited
by a Notified Body regularly. (ResMed Inc, 2021) Innovation and quality
combined with the company history are conducive to its brand image.

Innovation
Value. ResMed makes their machines quieter and other wearable
accessories more comfortable. Combined other product features
encourage more people to treat sleep apnea with their products rather
than other brands. The patents can protect their profitability. Also, the
innovation helps them to automate some of its manufacturing processes,
which allow them to quickly redirect their resources and increase
productivity to meet the sharp increase of demand for ventilators during
pandemic. (Manufacturing Tech Insight, n.d.)
Rarity. Only a few competitors have the same resources and
capability of innovation.
Inimitability. Innovation requires a large amount of money and
7
talents. Even with enough funds and people, accumulation of skill and
know-how are also important.
Organization. ResMed devotes about 7% of net revenues and 16% of
its employees to research and development activities. (ResMed Inc,
2021)

Recruiting and Retaining Management Elites

Value. The management team is experienced in the fields of sleep
apnea (ResMed Inc, 2021), respiratory care, and healthcare, which allow
ResMed to maintain business acumen.
Rarity. Some major competitors like Philip and fisher & Paykel also
have many talents.
Inimitability. To recruit and retain elite managers, in addition to
salary, the company must have a good reputation, making people proud
of being part of the team. As mentioned before this is hard to get. Also,
the company's culture must be attractive, this relies on long-time
company practices and policies.
Organization. Obviously, ResMed knows the importance of operate
localized because its manufacture facilities and markets are all around
the world, it's crucial for them to recruit local people who understand
the market the best.

Strategic evaluation and recommendations

From the perspective of Porter’s Generic Strategies (Mindtools,

2007) Matrix, ResMed's overall strategy focused on differentiation.
It succeeds to carry out the strategy. It especially focuses on people
with sleep apnea and makes its products stand out from other brands
through better features and quality. It accounts for almost half of the
global market share in OSA (type of sleep apnea) devices and masks.

Recommendations
First, ResMed should keep its innovation momentum to maintain its
leading position in the sleep apnea field.
Also, the company should keep on developing its SaaS segment
because Out-of-Hospital Care is the trend in the future.
Third, ResMed should find more suppliers for unique components
8
and sign a long-term contract with chip providers to avoid supply chain
disruption.

9
 Reference List

Ansorge, R. (2021, May 12). Causes of Sleep Apnea. WebMD.

https://www.webmd.com/sleep-disorders/sleep-apnea/obstructive-
sleep-apnea-causes
Barney, J. (1991). Firm Resources and Sustained Competitive Advantage.
Journal of Management, 17(1), 99–120.
https://doi.org/10.1177/014920639101700108
Benjafield, AV., Ayas, NT., Eastwood, PR., Heinzer, R., Ip, MSM., Morrell,
M, J., Nunez, CM., Patel, SR., Penzel, T., Pépin, J, L., Peppard, P, E.,
Sinha, S., Tufik, S., Valentine, K & Malhotra A. (2019, July 09).
Estimation of the global prevalence and burden of obstructive sleep
apnoea: a literature-based analysis. Lancet Respir Med, 7(8), 687-
698. https://doi.org/10.1016/S2213-2600(19)30198-
Galiatsatos, P. (2020, April 13). What Coronavirus Does to the Lungs.
Www.hopkinsmedicine.org.
https://www.hopkinsmedicine.org/health/conditions-and-
diseases/coronavirus/what-coronavirus-does-to-the-lungs
IData Research. (2021, March 26). Anesthesia & Respiratory Devices
Market Analysis | Europe | COVID19 | 2021-2027.
https://idataresearch.com/product/anesthesia-respiratory-and-
sleep-therapy-devices-market-europe/#competition
IData Research. (2021, March 26). Anesthesia & Respiratory Devices
Market Analysis | U.S. | COVID19 | 2021-2027.
https://idataresearch.com/product/anesthesia-respiratory-and-
sleep-therapy-devices-market-europe/#competition
Jones, D. (2022, March 3). ResMed: Fantastic Firm But Fantastically
Overpriced. Seeking Alpha.
https://seekingalpha.com/article/4492469-resmed-stock-
fantastically-overpriced

10
Manufacturing Tech Insight. (n.d.). ResMed’s manufacturing facilities.
Retrieved September 11, 2022, from https://chemical-
tech.manufacturingtechnologyinsights.com/cxoinsights/resmed-s-
manufacturing-facilities-nwid-1702.html
Mayo Clinic. (2018). Sleep apnea - Diagnosis and treatment.
https://www.mayoclinic.org/diseases-conditions/sleep-
apnea/diagnosis-treatment/drc-20377636
Mindtools. (2007, October 19). Porter’s Generic Strategies Choosing Your
Route to Success.
https://www.mindtools.com/pages/article/newSTR_82.htm
Park, A. (2022, April 29). ResMed shaves $100M off earnings expected from
Philips’ ventilator recall. Fierce Biotech.
https://www.fiercebiotech.com/medtech/resmed-shaves-100m-
expected-earnings-philips-ventilator-recall
Porter, M. E. (2008). The five competitive forces that shape strategy.
Harvard Business Review, 86(1), 78–137.
PTI. (2022, March 4). Russia-Ukraine conflict to further worsen chip
shortage: Moody’s Analytics. The Hindu.
https://www.thehindu.com/business/russia-ukraine-conflict-to-
further-worsen-chip-shortage-moodys-
analytics/article65190335.ece
ResMed Inc. (2021). ResMed annual report 2021.
https://www.annualreports.com/HostedData/AnnualReports/PDF/
NYSE_RMD_2021.pdf
ResMed. (2021, December 3). Update on Supply Chain Challenges:
December 2021. [Video]. Youtube.
https://www.youtube.com/watch?v=zb8R4T2AjfE&t=410s
Roberts, P. (2020, August 27). Australia’s niche champions - ResMed, 5%
inspiration, 95% perspiration. Australian Manufacturing Forum.
https://www.aumanufacturing.com.au/australias-niche-champions-
resmed-5-inspiration-95-perspiration
11
Ruckert, A., Labonté, R., Parker, R.H. (2015). Global Healthcare Policy and
the Austerity Agenda. In: Kuhlmann, E., Blank, R.H., Bourgeault, I.L.,
Wendt, C. (eds) The Palgrave International Handbook of Healthcare
Policy and Governance. (pp 37–53) Palgrave Macmillan, London.
https://doi.org/10.1057/9781137384935_3
Tarver, E. (2021, September 1). What are the primary activities of Michael
Porter’s value chain? Investopedia.
https://www.investopedia.com/ask/answers/050115/what-are-
primary-activities-michael-porters-value-chain.asp
Welch, S. (2021, August 2). Resmed: Tackling a large opportunity while
capitalising on a competitor’s misstep. Alphinity.
https://www.alphinity.com.au/resmed-tackling-a-large-opportunity-
while-capitalising-on-a-competitors-misstep/
Witcomb, G. (2019, May 3). ResMed's price war continues. INTELLUGENT
INVESTOR.
https://www.intelligentinvestor.com.au/recommendations/resmeds
-price-war-continues/144788

12