Evaluation of the marketing environment for private health care in the USA and China

Term Paper, 2007

24 Pages, Grade: B (67%)


Table of Content

1. Introduction

2. Marketing Environment: Overview
2.1. Macro environment
2.1.1. PEST Analysis
2.2. The Micro environment
2.2.1. Porter’s five forces

3. Adaptation versus Standardisation

4. Recommendation and Conclusion

5. List of References

List of figures

Figure 1: Growth in national Health Expenditures: 1980-2004

Figure 2: Healthcare expenditure by source of payment

Figure 3: Government’s share of national healthcare spending, as a percentage of total healthcare expenditure

Figure 4: International Comparison of Spending on Health 1980-2004

Figure 5: Market Entry Mode Decision

List of tables

Table 1: Economic data, China 2001-2004

1. Introduction

The world today is changing faster than ever. Technological developments, financial constraints, expanding markets, restructuring and mergers, new philosophies and government legislation are all putting pressure on organisations to change and stay dynamic (Davenport and Short, 1990; Aijo, 1996).

This paper defines the external environment the private healthcare sector is facing in the USA, the world largest economy, and China, one of the biggest emerging markets and third largest trading nation in the world (bpb, 2005). According to Farnham (1999) the PEST-Analysis and Porter’s (1980) five forces model provide a useful start for analysing the external environment. Building up on the information gathered it will be discussed what key challenges the private healthcare sector is facing, the significance of these challenges and how they might be overcome. Finally, it will be examined whether strategies of localisation or standardisation should be chosen in the USA and China, respectively.

2. Marketing Environment: Overview

Marketing does not occur in a vacuum. The marketing environment consists of external forces that directly and/or indirectly impact the organization and management’s ability to build and maintain relationships with target customers. It includes the macro and micro environment (www.marketingteacher.com).

Whereas the PEST analysis examines the general business (macro) environment in order to manage future opportunities and threats from probable changes in the environment (Mullins, 2002; Farnham, 1999) represents Porter’s (1980) model the microeconomic environment; it focuses on individuals and companies in a single industry (Stonehouse, 2001). It is essential when using this model, to consider the characteristics of the industry in regard to technological and economical aspects and the influence of the government in regulating competition (Porter, 1980).

2.1. Macro environment

2.1.1. PEST Analysis

The PEST Analysis divides the environment into four categories: P olitical, E conomic, S ocio-Cultural and T echnological (Johnson, Scholes and Whittington, 2005). McMillian and Tampoe (2000) state this framework represents a guide to the general environment but is based only on historical data and the past, but it refers to forces of changes in the environment and can be used to forecast the future.

Political environment:

The political character of a government and the potential for change can have important implications for business, both nationally and internationally. Political factors include government regulations and legal issues and define both formal and informal rules under which a firm must operate.


The US is a market-oriented economy where private individuals and companies make most of the decisions (www.cia.gov)

The government still remains the largest provider and payer of healthcare services totalling 46.7%. Of the nation’s healthcare expenditures, 32% comes from private healthcare insurance payments, while out-of-pocket payments total 17.2% (Guo, 2004).

Figure 1: Growth in national health expenditures: 1980-2005

illustration not visible in this excerpt

Source: Catlin et al., 2007

State and national policy makers, faced with rising rates of uninsured, are increasingly turning toward the private insurance market as the mechanism for expanding healthcare coverage and restraining healthcare costs (Pryor, Cohen and Prohas, 2007)

At the federal level, there is a range of legislative proposals that seek to improve efficiency and contain health expenditures. Proposals in the 109th Congress address four major areas (Davis et al., 2007):

Simplifying, standardizing, and introducing negotiated pricing into Medicare Part

Enhancing the utilization of health information technology and building a national interoperable technology system

Integrating value-based purchasing into Medicare payments

Improving public access to information on quality and price


- China's economy has changed from a centrally-planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector (www.cia.gov)

It follows a one-party-system with its Communist party (CCP), however there are eight registered small parties controlled by CCP (www.cia.gov)

China’s policy of reforms can be described as an “economic modernisation without “western democratisation” (bpb, 2005)

Joint Venture regulations require that Chinese mainland investors must own at least 51 percent stake or play a leading role in their joint ventures with foreign investors (www.wikipedia.org)

Policies governing a single sector can vary widely from city to city, district to district or province to province and intellectual property protection is still lacking (Dammon Loyalka, 2006)

For over 50 years the central, provincial and local governments funded hospitals and medical care was provided at either no charge or very little charge. Now this system was dismantled without establishing an alternate system (Moreton, 2004)

The provision and regulation of health service is now largely decentralised and managed by a multitude of different stakeholders (patients, government, service providers). This creates great variation in terms of quality of care across the healthcare system and makes it difficult to monitor the level of care. Therefore the Chinese government has emphasised the need for private and public sector cooperation (Hew, 2006)

China reduced the central government’s share of healthcare spending from 32% in 1978 to 15% in 1999, transferring this function to provincial and local authorities. The privatised decentralised healthcare facilities were forced to rely on the sale of services in private markets to cover their expenses (Blumenthal and Hsiao, 2005)

The government encourages the growth of private medical insurance to complement coverage of basic medical services and also encourage private insurance companies to develop more innovative products, new operational models and new business management techniques to fully position commercial health insurance in the Chinese health economy (Hew, 2006)

Figure 2: Healthcare expenditure by source of payment

illustration not visible in this excerpt

Source: Hew, 2006

Figure 3: Government’s share of national healthcare spending, as a percentage of total healthcare expenditure

illustration not visible in this excerpt

Source: Blumenthal and Hsiao, 2005

In China, everyone can sell almost any pharmaceutical product, only selling of narcotics and major tranquillisers are regulated by the government (Bloom, 1997)

The boundaries between public and private providers of healthcare are blurred, as most health facilities derive revenues from government grants and payments from patients and insurance schemes (Bloom, 1997).

Economic environment:

The economic level covers all aspects of economic behaviour at an aggregate level and includes economic policy. Factors such as the level and rate of growth in incomes will have important implications for the level of consumer spending (Ennew, 1999).


The US has the largest and most technologically powerful economy in the world with a Gross National Income per capita of USD 41,657 in 2005 (www.oecd.org)

On the other side it saw a steady increase in interest rates since 2004. Higher interest rates will constrain the ability of individuals and companies to spend (Bew, 2007)

Stagnation of family income in the lower economic groups – "3 tiered society" (www.cia.gov)

Private healthcare expenditure amounted to 8.5% of GDP in 2004 (vs. 6.9% in public expenditure) (OECD, 2007). This represents the largest expenditure on healthcare in the world in terms of total expenditures as percentage of GDP and healthcare per capita (www.wikipedia.com)


Excerpt out of 24 pages


Evaluation of the marketing environment for private health care in the USA and China
University of Sunderland
Marketing (Master)
B (67%)
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
638 KB
Evaluation, China
Quote paper
Bsc Hons, MA Nicole Burkardt (Author), 2007, Evaluation of the marketing environment for private health care in the USA and China , Munich, GRIN Verlag, https://www.grin.com/document/154698


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