1. Purpose
The purpose of this term paper is to provide each student with the opportunity to
apply economic analysis to a U.S. healthcare-related industry and to learn how to
deal with business problems from an economic perspective
*****Topic assigned: Hospital care, public and private in the Houston Medical Center, making sure to include if the Houston Medical Center can maintain its leading role in cancer and cardiology.
2. Defining the Industry
It is essential to define the industry precisely; otherwise, a tremendous amount of
unrelated data will be available. The U.S. Standard Industrial Classification (SIC)
system has been replaced by the North American Industry Classification System
(NAICS) (you can find them through any website search engine). These codes are
widely adopted for record-keeping purposes and are often used to index private
publications such as market guides, directories of companies, and periodical
indexes. Familiarize yourself with the SIC/NAICS categories. Remember: narrowing
or broadening your industry definition is important based on how much information
you are finding.
3. Data Collection
For any strategic planning process, it is important to understand the industry in
which you are or will be operating, for without an understanding of that industry;
your strategy is unlikely to succeed. Every manager must determine for him/herself
the information required to address the decision at hand. In an increasingly
competitive and dynamic business environment, success depends on continuously
updating information on market trends, competitors, and customers.
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Two types of data can be collected and analyzed: (a) primary data collected from
government records; (b) secondary data collected from reference materials. Prior
to conducting any primary research, savvy managers know that secondary
research should be the starting point in the data collection process. The
government and other agencies publish a great deal of information that can be
invaluable in an industry assessment and is readily available if you know where to
look. While you may not be able to find out everything you need to know, secondary
information is an essential management tool.
The sources of this information are abundant (in printed documents, via the
Internet, etc.); however, they are not always easy to find. Your first challenge is to
know where to look and find the most current, relevant, accurate, and reliable
information promptly when there are so many sources to choose from and
investigate. Data must be current, reliable, unbiased, accurate, and relevant to the
problem to be helpful to the manager. Good managers rely on this information to
make decisions that are based on the realities of the marketplace, not their
opinions or conjectures. Decisions based on information, however, are only as
good as the information itself.
4. Requirements
1. Each paper must include a cover sheet (see the M.S. Word file “COVER
SHEET”.
2. Your paper should have a logical flow and use appropriate headings and
subheadings. Follow the suggested format described in Section 5 below.
3. Any table or graphic (such as bar charts, trend lines, etc.) must be included
in an appendix at the end of the paper.
4. The text of your paper (the text only, not including Table of Contents,
References, Tables, Charts, and other appendices should be about 10~12
pages. The text must be double-spaced with a font size of 12 with a 1-inch
margin in the M.S. Word format. For the whole paper, limit the length to 15
pages (including the cover page).
5. Be sure to acknowledge the source of all information from outside sources in
the text (e.g., “According to Wards’ Automotive News, December 2002, G.M.
has a …”). For article citation, the author’s name and year are required
(Smith, 2007). Also, be sure to have a list of references (i.e., URL is required
for online reference) at the end of your paper. Information from outside
sources that are not attributed will be considered plagiarism. The
consequences of academic dishonesty will result in getting a failing grade in
this course.
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6. Quotations must correspond exactly with the original in wording, spelling, and
punctuation. Page numbers must be given. Changes must be indicated: use
brackets to identify insertions; use ellipsis dots (…) to show omissions. Also,
indicate where the emphasis has been added. Only lengthy quotations (more
than 50 words) should be separated from the text; such quotations must be
double-spaced and indented at the left margin. References to the text’s
authors must match those in the Reference/Bibliography section.
7. Tables must be designed to fit comfortably on a page. For tables, use the
‘create table’ feature in M.S. Word. Each table must have a title and be
numbered consecutively with Arabic numbers. Do not abbreviate in column
headings, etc. For example, spell “percent”; do not use the percent sign.
Place a zero before the decimal point in all decimal fractions (i.e., 0.357, not
.357). Each table should be no more than 10 columns wide.
8. Figures should be supplied as high quality. Figures should be produced in
black and white. Tints and complex shading should be avoided. Figures must
have a title and be numbered consecutively with Arabic numbers.
9. References should be prepared in general accordance with the APA
(American Psychological Association). The references should be in 10-point
font and formatted as a left margin indented with the first line realigned with
the left margin. Below are some examples of different citations.
10. Final versions of your paper should reach the instructor in clear and
grammatically correct English. Proofreading before you submit the final
version is highly recommended. Typos and grammar errors will damage your
score in grading for sure.
5. Paper Outline and Grading Weight
I. Table of Contents (1 page): 2%
II. Executive Summary (1 page): 10%
The executive summary is the last part you write, which should appear first in
your report. An Executive Summary is usually a one-page synopsis touching
on key, insightful highlights of the report. Picture the Executive Summary as
satisfying someone’s request to “just give me the short version.” It should
contain the following two parts:
A. A brief summary of what the industry paper says. (5%)
B. Identify existing firms’ common managerial strategies for profit growth and
provide your recommendation. In addition, please comment on whether a
potential entrant should or should not enter this industry now. (5%)
III. Introduction (1~2 pages): 15%
A. Description. This is to be a general introduction to the particular industry.
What does the industry produce? What is SIC/NAICS code and
description? (4%)
B. History. A brief history. How has the organization of and the nature of
competition in the industry evolved from its earliest beginnings? (4%)
C. Organization. What parts of the chain of production/service do the firms
undertake themselves, and what do they buy from outside suppliers or
pass on to independent distributors or retailers? (3%)
D. Relevant governmental or environmental factors. What role does
government play in the industry? How does (will) regulation or other
government (future) policy (e.g., reform, trade policy…etc.) affect the
industry? (4%)
IV. Market Structure (1 page): 10%
You need to answer the following two questions precisely:
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A. How can the market structure of the industry best be characterized:
perfect competition, monopolistic competition, oligopoly, or monopoly?
Briefly go over the market characteristics to confirm your definition here.
(5%)
B. How many major firms (up to the top four if applicable) are in the industry,
and what is their market share? A table showing the market shares in the
U.S. is required here. (5%)
V. Industry Demand (1~2 pages): 15%
A. What are the key determinants of market demand in your chosen industry?
(5%)
B. Describe the current changes in the determinants that have caused the
demand change. (10%)
You may want to think about the following factors: population and demographic
changes, new regulation (reform), income and wealth trends, consumer tastes
and preferences, prices of substitutes and complements in consumption,
introduction of new substitutes or complements in consumption, expectations
about the future prices of this particular good/service.
VI. Cost Structure (1 page): 10%
You need to answer the following two questions precisely:
A. What are the key determinants of an existing firm’s (1) fixed costs and (2)
variable costs in the short run? (5%)
B. What is the shape of the existing firm’s (1) average cost cure and (2)
marginal cost curve (i.e., U-shaped or L-shaped)? A graph illustration here
will be a plus. (5%)
VII. SWOT Analysis (1 page): 10%
SWOT analysis is a structured planning method used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats involved in a business venture. A
SWOT analysis involves specifying the objective (i.e., profit growth) of the
business venture and identifying the internal and external factors that are
favorable and unfavorable to achieve that objective. Setting the objective
should be done after the SWOT analysis has been performed. This would allow
achievable goals or objectives to be set for the organization.
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Please choose one of the top 4 firms in the industry to analyze the firm’s
objective of profit growth:
• Strengths: characteristics of the firm that give it an advantage over others
• Weaknesses: are characteristics that the firm at a disadvantage relative to
others
• Opportunities: external chances to improve performance (e.g., make
greater profits) in the environment
• Threats: external elements in the environment that could cause trouble for
the f
VIII. Analysis of Competitive Forces (Porter’s five forces) (1~2 pages): 15%
Please consider each of the following five forces for the industry. At the
beginning of each force, please highlight the force as “strong,” “moderate,” or
“weak.”
A. The threat of entry by new competitors (3%)
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For example, those industries with high entry barriers, such as
pharmaceutical manufacturing, will have fewer firms entering. With fewer
firms, there is less environmental complexity, and it is easier for one firm to
begin to dominate the industry. Economic rents are usually higher, and entry
becomes more attractive in such an environment. New service providers
come and go rapidly for industries with a low barrier to entry, such as the
physician service. This prevents dominance by anyone or a few, firms.
Economic rents are usually low.
B. The intensity of rivalry among existing competitors (3%)
What are the current top firms and their market shares in the U.S.? How do
they compete (i.e., price or quality)? Any alliance or particular strategy is
practiced now for competition? An industry characterized by high rivalry is
unattractive because it limits the ability to achieve above-normal economic
rents. At the other extreme, industries with no rivalry are usually dominated
by a few major firms, which could limit strategic flexibility.
C. Pressure from substitute products (3%)
Are the industry’s products/services differentiated and, if so, according to
what characteristics (design, function, price range, geographic market,
etc.)? How innovative is the industry, and what are the sources of
innovation? The industry will be attractive if there is no threat from substitute
products. A substitute is any product or service that will fulfill the same need
while using a different technology. The relevance is that substitutes can
render obsolete the present capital investment of the industry.
D. The bargaining power of buyers (3%)
First, determine who the buyers are. What are the channels of distribution
for the industry? Do not only consider the ultimate consumers unless there
are no intermediaries. Identify significant macro-environmental trends, such
as changes in customer demographics, needs, wants, lifestyle, etc., that
have/will positively/negatively affect the industry. Do buyers have a strong
power over firms to negotiate prices in this industry? How is the power
exercised?
E. The bargaining power of suppliers (3%)
What are the markets for inputs (labor, machinery, capital, raw materials,
etc.) like? While we were concerned about threats in the “entrants” section,
here we are concerned with power. Do suppliers have power over firms in
this industry? The first step is determining what this industry purchases, not
in detail, but as a generalization. Focus on suppliers of critical items that
firms in this industry must have. Would firms have access to labor on
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favorable terms? Does this industry have unions? If so, they limit access to
labor and usually increase costs. Do firms in this industry require highly
skilled knowledge workers? How is the present labor market for this
industry?
IX. Conclusion (1 page): 10%
Your analysis should lead you to reasonable conclusions. You have, by
now, discovered several factors. State what you consider to be the
opportunities and threats for this industry. Support your final argument as
to whether this industry will be more profitable; or what managerial
strategies of profit growth for existing firms should be most effective. Make
sure that the conclusion/recommendation and executive summary are
consistent. Do not just repeat the sentences in the previous sections.
X. References: 3%
Please list the references that you cite, but also a listing of the material that
contributed to your body of knowledge.
