For India’s largest hospital chain, Fortis Healthcare, the opportunities are knocking loud in an under-served, fragmented and potentially large market right at its doorstep.

Yet the 10-year old company’s ambitions extend far beyond: it wants to become an integrated global healthcare player - and an on-going purchase of its Singapore-based sister firm Fortis Healthcare International for US$665 million has set that agenda in motion.

“The opportunity [in India] is large but we don’t want to be limited to being a healthcare player confined to a market,” explained Executive Group Chairman Malvinder Mohan Singh in an interview with INSEAD Knowledge on the sidelines of the Global Entropolis Summit in Singapore in October. “Compare a US$500 billion Asian healthcare market with a US$50 billion Indian market. I clearly see a lot more opportunity and a lot more growth happening in international markets.”

An M&A fuelled expansion

Starting from nearly scratch in 2001, Fortis’ network in India has grown to 68 hospitals, through organic growth and a series of big-ticket acquisitions in metropolitan, Tier II and Tier III Indian cities. Despite direct access and experience in a bourgeoning Indian healthcare sector that’s expected to swell five-fold and reach US$280 billion within ten years, Fortis is focused on a global expansion plan. The fledgling Fortis Healthcare International established last year has completed seven acquisitions, gaining entry in new markets like Hong Kong, Vietnam, Sri Lanka, Australia and Dubai. In 2008, Singh and his brother Shivender sold Ranbaxy, a third-generation pharmaceutical firm for US$4.6 billion and reinvested some of those proceeds into Fortis and Religare Capital, an emerging-markets investment bank.

“We are focusing on the globe as a market, but in a phased manner,” says Singh. “The first decade was therefore envisioned to build a leading position within its home market. The [other] component is to look at healthcare in a more holistic manner where we will be entering and be present in different verticals of healthcare over a period of time in multiple markets.”

A diversified international portfolio is intended to broaden the depth of the organisation, explains Singh, by drawing from existing capabilities, knowledge, management teams, and leveraging those resources to cast a wider net. “My focus on different healthcare verticals was driven by the opportunity in that market and what was a right entry strategy.”

Fortis’ acquisition of Quality Healthcare - Hong Kong’s largest primary care network - represented both an important market and an area that was new to Fortis as a business. “If I were to start afresh from scratch in a market in primary healthcare, our learning and the time we would have taken would be a lot more,” he notes.
The company’s international operations are expected to generate roughly US$500 million in sales this year, on a par with Fortis’ India operations.

Building a multinational healthcare company

Can such a cross-fertilisation strategy work across heterogeneous markets, and, also within a sector that is inherently complex? Emerging markets like India, for instance, are beset with issues such as poor medical infrastructure, accessibility and affordability, while advanced economies have to counter issues of rising costs and quality of care.

Stephen Chick, INSEAD professor of technology and operations management, sees the gains when interactions within and across national boundaries can aid innovation of patient care processes. “In today’s world, healthcare is looking across industry sector boundaries too, to identify, adapt and improve best practice in care delivery,” he says.

But it does entail challenges, he cautions, that include understanding different regulatory and reimbursement models on the business side, managing different sets of expectations and health care needs across markets and adapting what is a highly-sensitive and sometimes highly technical service system to a new culture.

Meanwhile, in the immediate-term, the Bombay Stock Exchange-listed Fortis Healthcare still has to smooth out its acquisition of Fortis International, owned fully by Singh and his brother. Shares are trading at one-year lows which analysts have attributed to investor concern over financial performance given the sharp increase in the company’s debt burden. The deal, expected to be completed by mid-December, will be funded by debt initially, and would increase the Indian parent’s total debt to above one billion US dollars, said Singh in an official statement. But capital and equity raising plans are underway, he noted.

Post-consolidation, the Singapore-headquartered entity will encompass ten countries with about 74 hospitals, 580 primary care centres and nearly 200 day-care speciality and diagnostic centres.

Looking ahead

Uncertainty in global financial markets is not deterring Singh’s long-term strategic goals as “healthcare is really recession proof,” he explains. “There is a huge demand-supply gap sitting across Asia and so there is a substantial need for investment in healthcare whether it’s from the private side, public side or through a public-private partnership model.”

Fortis is focusing on the Asia-Pacific region although it holds subsidiaries in Canada and Dubai. Structurally, it will continue to build vertically and expand horizontally through a mix of organic and inorganic opportunities while M&A will remain integral to its growth strategy, says Singh.

“There is tremendous opportunity for healthcare investment in Asia, for creating additional infrastructure, for providing additional services, for being able to have a lot more talent on the medical and management side,” reflects Singh. Rising income levels and a desire for better healthcare, ageing populations and more chronic diseases are driving demand across the region.

Chick concurs. But, “in each country, the shorter term needs for developing capacity of the medical corporation, the physical infrastructure, process efficiency and effectiveness, leadership and management skills, and market mechanisms, may differ.” As Fortis increasingly goes borderless, how it manages the costs and benefits of its cross-cultural networks will be critical.

Global Entropolis Singapore was held on 16 and 17 October, 2011.