4. Dental Digital X-ray Industry and Competitive Analysis
4.2. Competition Analysis – Five Forces Analysis
4.2.3. Bargaining Power of Suppliers
Suppliers influence the strategy of VATECH and the intensity of the competition in the industry. When the number of suppliers or the quality or price of the products they supply changes, the company has to respond and adjust its strategy. The list below presents some important sources of the bargaining power of suppliers
• (+) There are only a few suppliers of the most crucial components such as sensors, or software programs, so they have the power to regulate price and quantity.
The seriousness of this force is moderate. Although the above issues represent low importance, VATECH is limited by suppliers which have relatively high bargaining power, and it must adjust its processes accordingly.
27 4.2.4. Bargaining Power of Customers
The intensity of the competition in the industry is influenced by the number of customers and their concentration. Customers might be the major force in an industry, or their power might be reduced by strong producers. The analysis below outlines the sources of customers’ power.
• (+) New global markets increase consumers’ power
• The cost of switching between products is high, since the software program and system are totally different by the companies.
• (+) Many low-end products such as Intra-oral sensor and digital panorama can be simply replaced, and thus they are price sensitive.
In a highly competitive market with global customers, the company’s day-to-day operations have to be based on the voice of customers, and therefore the power of customers is high. In order to be successful, the company has to be market-oriented.
Although the power of customers is balanced by the high switching cost of some products, the bargaining power of customers prevails. Thus, the overall seriousness of this force is moderate to high, tending to high. The high power of customers may reduce gross margins and force the company to introduce new or enhanced products much faster. The ability to commercialize products faster and cheaper has to be supported.
28 4.2.5. Industry Structure, Rivalry and Firm Strategy
This is the most powerful among the five competitive forces. Competitors influence each other by changing the pricing policy, quality and features of their products, by changing the services they provide and by conducting advertising campaigns. Rivalry between competing firms to a large extent influences the market in which VATECH operates.
• (+) VATECH’s competitors such as KODAK, SIRONA, PLANMECA, and so on, have relatively long history in the market, and usually well funded.
• (+) The sources for new innovative technologies are fairly well known.
Therefore, rivalry will occur among competitors or larger dental device players searching for innovative new products for development.
• (+) VATECH’s competitors are globally located, and therefore monitoring them and competing with them is difficult.
• (+) Some low-end products are easy to copy
• (+) Brand recognition and image are important in the market, since reliability and accountability are the most important features in the medical and dental industry. Therefore, aggressive advertising and promotion campaigns are necessary as a new company in the industry.
As the above analysis indicates, the dental market is very competitive. Although the company has gained a significant market share over the last couple of years, the factors identified above may increase the activity of competitors. Many well-funded
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companies can introduce new products and technologies similar to those that the company has developed. Moreover, new entrants can emerge, capturing the company’s market share. Therefore, the price of products, development costs and time to market will become significant forces shaping the competitive advantage.
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31 4.3. Driving Forces
World dental X-ray device market size was 1.8 billion dollar in 2005, but anticipated to be 2.34 billion dollar in 2009 with average of 6.6% growth annually. In developed countries like the US, EU, and Japan, demand for digital X-ray device is getting bigger recently. On the other hand, due to the increasing level of income and new openings of dental hospitals in developing countries, they start to introduce digital x-ray device.
The major market driver for this overall growth is the continued aging of the global population and associated increase in their concern on cosmetic treatment and surgery. For example the Korean government estimates that by 2026 the population of seniors, currently 10.3% will grow to 20.8% of the total Korean population. Also, in the U.S. where is the biggest market for dental X-ray devices, the U.S. Census Bureau estimates that the population of seniors will be 17 % of the total population. This severe demographic shift will increase the demand for dental treatment. Furthermore, the increased availability of dental services has improved, further driving the growth of the dental X-ray device market. In emerging markets, such as China and India, the growth has been more by the increasing affluence in these countries.
The major market drivers attributing to the growth in the global medical device industry are summarized in the first column in Table 4.3. The second column translates the implications of these market drivers on the development of new medical devices.
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Table 4.3. Driving Forces for Dental Digital X-ray industry
Driving Forces Impact on Dental X-ray Development
Increasing patient demands on dental clinics due to severe demographic shift
Development of efficient, quick to use
New generation products exploring new technologies
Increasing pressures to decrease cost of dental treatment
Development of low cost and more efficient dental devices
In conclusion, the dental X-ray device industry is experiencing considerable growth with the most significant increases seen in the developed countries. Increase in affluence in developing countries has placed a demand for innovative new technologies that will reduce costs and risk. These reductions will occur if future devices increase cost effectiveness, efficiency, and accuracy.
33 4.4. Competitor Analysis
VATECH provides mostly dental digital radiography and Computerized Tomography to various markets and faces strong competition in all markets.
Competitors range from multinational corporations to small market players. Thus, the competitors’ ability to compete and introduce new products varies.
The company’s competition can be divided into two distinct groups:
• Large corporations, which are well diversified and which have many R&D facilities throughout the world, experienced staff and robust processes. They are able to fund long-term research and development and to withstand a price war. They also have very strong brand images which is very necessary for perceived reliability of customers.
• Small companies and many new companies which disrupt the existing order by introducing new, innovative products with competitive prices.
However, these disruptors have limited ability to develop advanced products and channels, which requires long-term efforts.
In recent years, the market has become global, and thus the number of competitors is growing year by year. Moreover, other external environment factors such as increasing dental demand from aging baby boomer generation encourage new entrants to compete. This, in turn, forces incumbents to diversify into new markets.
Consequently the industry has become highly fragmented. On the other hand, many industry players have decided to cooperate and to form common entities. Thus, many mergers and acquisitions have occurred in recent years. (ex. Sirona’s merger with
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Schick Technologies in 2005, Kodak’s acquisition of PracticeWorks, Inc. in 2003) As a result, competitors are moving into offering diversified products and becoming one-stop shops for dental devices. Increasing competition makes product development cycles shorter. Furthermore, to sustain sufficient product development capability, the industry will face additional consolidation.
The key dental digital X-ray industry participants and their website information in the global market are tabulated below in Table 4.4. Key Industry Participants and Their websites.
Table 4.4. Key Industry Participants and Their Websites
Major Competitors Website information.
J.MORITA http://www.jmoritausa.com/
ASAHI ROENTGEN http://www.asahi-xray.co.jp
PLANMECA http://www.planmecausa.com/
KODAK DENTAL SYSTEMS http://www.kodakdental.com
SIRONA http://www.sirona.com
SIRONA (SCHICK ) http://www.schicktech.com/
PALODEX GROUP (Instrumentarium dental) http://www.instrumentariumdental.com/
PALODEX GROUP (SOREDEX) http://www.soredex.com/markets.html
Imaging Science http://www.imagingsciences.com
GENORAY http://www.genoray.com
Sigma Biomedics http://www.sigmadigitalxray.com/
35 4.5. Key Success Factors
The analysis of the industry has provided a look at the external forces and trends impacting new and emerging companies. The high market growth has been seen in the world. A critical success factor for any emerging company is its ability to innovate. It is innovative technologies and products that can respond to the market drivers illustrated in Table 4.3.: Driving Forces, while meeting the requirements of regulatory agencies which substantially impact new product adoption. In order to counter the competitive forces faced by VATECH, competitive advantages need to be sought.
From this analysis there are two categories of key success factors that can be derived for dental X-ray device companies such as VATECH. The first is related to market trends and demands and the second is related to the business strategy of emerging companies involved in developing dental X-ray technologies and products.
The success factors related to the current industry are summarized below:
1. Seek emerging market opportunities.
2. Respond to industry market drivers and demands of regulatory agencies for cost effective, easy and quick to use dental devices that will increase patient flow through.
The success factors related to dental X-ray development strategy execution are summarized below:
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1. Obtain greater access to new innovative technologies for acquisition over competitors.
2. Be able to effectively identify, acquire and develop those technologies and products aligned with customer’s demand
3. Be better innovators internally.
4. Have a greater and stronger industry contacts with potential partners.
4.6. Industry Prospects and Overall Attractiveness
In conclusion, the increasing number of competitors, together with decreasing prices of goods, shorter product development cycles and technology changes, will make products’ life cycles shorter, limiting revenue generated. Thus, more innovative products and a wider product range seem to be critical to sustain VATECH’s performance and to achieve competitive advantage.
All of the above external analyses indicate that the dental industry is very dynamic and competitive with high growth. Changes in the environment are driven by emerging technologies, new market trends and strong competitive forces. To compete successfully, VATECH has to monitor changes and adjust its strategy accordingly.
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5. VATECH, Taiwan Situation Analysis
The internal analysis includes organizational analysis, VATECH Taiwan’s current business status, SWOT analysis, value chain analysis, Competitive advantage and internal organizational assessment, and major strategic issues and recommendations.
This analysis begins with a closer look at VATECH’s organization examining its corporate vision, mission, products and service, and the corporate strengths and competitive capabilities. This is followed with SWOT analysis of VATECH Taiwan.
Once the internal strengths, weaknesses, and external opportunities, threats are identified then the value activities, in which the company intends to focus, are analyzed.
Once this is done, a closer look at the company’s competitive strength assessment and internal organizational assessment in Taiwan market is undertaken to see what are its competitive advantages and disadvantages. Finally, the key core competencies and strategic issues are identified.
5.1. Organizational Analysis
The parent company is headquartered in Yongin, South Korea, and VATECH is the fast-growing manufacturer in dental radiography. The company exports reached out to 54 countries all over the world including the US, Australia, and countries in Europe, Middle East, and Asia. The company is strongly committed a foundation of financial strength, technological excellence, and superior customer service.
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This section is an assessment of VATECH’s organizational structure, resources, strategies, and so on.
5.1.1. Corporate Vision
The corporate vision identifies where the firm’s orientation for the future is in order to best serve stakeholders’ needs. The vision incorporates current realities and any expected future conditions to create an ideal scenario within a relevant time frame. The company’s vision is:
“… to achieve the company’s proactive strategy in becoming the world’s No. 1 within the Dental X-ray market with the pioneering spirit and a leading medical device company in Korea, working together to create a happy work place.”
In review of VATECH’s strategies and the above vision statement, it is trying to achieve the best-in-class in each part of their products for the future.
5.1.2. Corporate Mission
An organization’s mission statement is meant to describe a firm’s fundamental purpose. A mission statement is written statements of purpose that can be used to initiate evaluate, and refine all of an organization’s activity. It is important for businesses to have mission statements because they help provide quality goods and services.
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VATECH has a well-defined mission statement that shows its intentions to communities around the company and defines how they plan to demonstrate their abilities. VATECH’s mission statement is “To become an esteemed global pioneering company in medical device industry.” The company will do so by:
• Developing and providing the cutting edge medical devices, and eventually contributing to health care of all mankind
• Providing more job opportunities to the second-class citizens and creating harmonious society
By incorporating these aspects into their mission, VATECH is trying to show their stakeholders not only what their plan is to strategize, but how they plan to achieve it. The mission statement is an integral part of the company because it ties their goals and strategies to a realistic idea that the company wants to achieve.
5.1.4. Products and Services
VATECH has several different products and services they offer to their customers. The company offers a full range of dental digital panorama, dental 3D CT, Intra oral sensor, and software. According to 2008 earnings report standard, weights of main products are 59.97% for dental digital panorama (PAX series), 16.44% for dental CT (Implagraphy, VCT, and DCT), 5.06% for dental oral sensor, and 18.53% for etc (software and service).
40 Table 5.1. Weight of Main Products of VATECH Business Sale
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In 2005, Implagraphy was introduced worlds’ first. Implagraphy has great advantage, because it can be use for individually or combine of digital panorama, digital Cephalo, and CT to support general medical procedure, implant surgery, and braces for tooth. Also, if a dentist buys Implagraphy, it is needless to spend double money for 2 devices (CT and panorama) and installation space will be just about the same for one panorama device. Based on economical efficiency and convenience, Implagraphy took up 95% of market share in its first year in Korean domestic market and raised its brand recognition in a short time.
PAX series have been to be drivers of entry to overseas markets with 2 merits.
First, the company reduced photographing time to 1/5 of pre-existing average with the cervical vertebra avoidance technology. Previous products took 9 seconds of photographing time; however, PAX series takes only 1.9 seconds (Ceph) with high resolution and low degree of radiation exposure. PAX series to have high market potential as requiring usage of device with short photographing time to lower the degree of radiation exposure becomes trend. Second, VATECH remarkably improved resolution of image by applying Dual Shot Signal Integration Technology (A technology to enhance power of discernment between Hard Tissue and Soft Tissue).
Weight is more on Analogue products in world’s dental medical device market and not many products have less than 9 seconds of photographing time. For these reasons, PAX series should have high overseas market potential in emerging markets.
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5.1.5. Company Strengths and Competitive Capabilities
Currently VATECH has three key identifiable strengths and capabilities and two of them are intangible and the rest is tangible. These include:
1. Cost competitiveness based on its advanced technologies
2. Strategic alliance with Samsung Electronics
3. Software programs
The following sections will provide an introduction to theses assets.
5.1.5.1. Cost Competitiveness based on its Advanced Technologies
VATECH has cost competitiveness based on its own advanced technologies, comparing with other competitors. This is one of the main reason why the company currently has been leading the markets in Taiwan, Germany, Japan, and of course Korea. According to 2008 Annual report, about 40% of its employees are in R&D and engineering departments.
VATECH’s R&D center has 8 independent R&D teams which work in coordination with each other. These teams are developing new technologies and cutting edge products which meet current needs of customers. Furthermore, the R&D center works with prestigious universities in Korea such as KAIST (Korea Advanced Institute of Science & Technology), Busan National University, Medical school of Catholic
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University, and Yunsei University to develop new technology as a part of long-term future plan of the company.
Table 5.2. Status of Employees in VATECH, 2008 Number of employees in 2008
Management Sales R&D, Engineers Total
36 171 134 341
From VATECH Annual Report, 2008
Table 5.3. VATECH’s Technologies VATECH’s X-ray sensor related core technologies
Main core technology Technologies in details
X-ray Detector Technology
Detector material(High Resistivity Silicon, CdTe, CdZnTe, etc) analysis technology
Read out Integration Circuit(ROIC) design & manufacture technology
Fiber Optic Plate and Phosphor material technology
Analysis & design technology of material & X-ray’s reaction degree
X-ray processing technology
Low voltage current eliminating circuit design & manufacture technology
High density measuring circuit design & manufacture technology FPD(Flat Panel Display) testing movie making technology Analogue/Digital signal dividing & conversion technology Firmware/Software design technology
Micro processor design technology DATA: VATECH
44 5.1.5.2. Strategic Alliance with Samsung Electronics
VATECH announced on November 22nd in 2007 that the company has joint-developed a core part of DRS (Digital Radiography System) with Samsung Electronics and got down to mass production and sales since 3 quarter of 2008. Based on world famous TFT technology of Samsung Electronics and X-ray sensor technology of VATECH, the company developed a high-resolution 17-inch Flat Panel X-ray Detector (Xmaru-1717).
Since the technology has a wide applicability, the company expects to branch out to many businesses other than dental field like general medical device market (X-ray device for animals, breast cancer detector), industrial detector, movie sensor, printer and scanner. The product developed is a 17 inches model, which is most commonly used within Korea. Even though digital X-ray device offers better resolution and low-risk of being bombed, it had low diffusion rate due to its high price as domestic demand in Korea for this product was wholly relied upon import. Since this product offers even better resolution with less image noise compare to competitor’s product, market potential is very high.
This strategic alliance with Samsung Electronics can be divided into production and sales. Samsung Electronics is in charge of producing LCD flat panel and scintillator, and VATECH is in charge of X-ray part (Board, software, circuit board, image processing algorithms) as well as final assembly. VATECH and Samsung Electronics agreed to release the product as sole brand and do joint-marketing to separated markets. Also, the companies plan to develop a product with movie function
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with the same way. This FPXD one-stop, total solution will help the company to secure the leadership position in dental X-ray industry as well as the growing market for medical equipment detectors.
5.1.5.3. Software Program
VATECH’s a series of integrated software programs give competitive advantages to the company. Since the use of digital system in hospitals and dental clinics are in increment, there had been a strong need for the software which integrates
VATECH’s a series of integrated software programs give competitive advantages to the company. Since the use of digital system in hospitals and dental clinics are in increment, there had been a strong need for the software which integrates