Executive Summary

This report provides evaluation and analysis on ResMed's business condition based on the company's
external factors and internal factors. Although many strict government regulations might impact
ResMed, ResMed's financial condition is in a health condition due to increased demand and changes in
social behavior as the response of COVID-19. However, ResMed should be aware of the potentially
severe respiratory diseases as the result of climate change. Furthermore, this is an attractive industry,
but some challenges exist in terms of the supplier since there is a global shortage in one of the main
components and established competitors, as the business operates in a highly competitive market. In
terms of the internal environment, ResMed’s core competency is on technology development according
to the company’s value chain. Overall, this resource and capability might be a source of temporary
competitive advantages in the eyes of incumbent firms and sustained competitive advantages for new
entrances.

1. ResMed Vision and Mission 

ResMed is a leading and preferred global company specialized in cloud-equipped respiratory
medical devices to treat sleep apnea and respiratory disorders (ResMed, 2021a). ResMed was
established in 1898 and sells its products in more than 140 countries worldwide through its subsidiaries
and independent distributors (SEC, 2021). ResMed aims to improve 250 million lives in 2025, aligned
with environmental regulations such as supporting waste and pollution reduction, using sustainable
materials, and labor equality in its businesses (ResMed, 2021a, 2021b). This goal is to be achieved by
manufacturing advanced wireless health equipment and providing solutions to patients with sleep
apnea and breathing disorders (ResMed, 2021a, 2021b). ResMed has consistently aligned its short-term
goals with long-term goals based on the vision and mission statement above.

2. External analysis of the macro environment

2.1 Political-legal dimension
In terms of the political-legal segment, several policies detriment ResMed financially, such as the
third-party coverage and reimbursement system. For example, the third-party government payors in the
United States may reject payment and reimbursement if a device is used with an inappropriate
treatment method. In addition, since Affordable Care Act (ACA) was enacted, government payments to
health device manufacturers has been reduced by 2% per fiscal year (SEC, 2021). Furthermore, ResMed
is subjected to other regulations such as anti-kickback, fraud, data privacy, Food, and Drug
Administration, quality standards, tax regulations, as well as the restriction of businesses to operate to
control the spread of COVID-19 (SEC, 2021). The implementation of these health reforms and the failure
to comply with other regulations can significantly impact company profitability and operations.

2.2 Economic Dimension

The COVID-19 pandemic has had a number of (several) impacts global economic conditions,
especially the sleep and respiratory care industry. One impact is the growth in global demand for
ventilators at the end of 2020, which has increased by 400% to 413,000 in a year, and it is predicted that
the market will grow consistently at a compound annual growth rate (CAGR) of 15.13% from 2021 to
2030 (“Global Ventilator Market”, 2020). Furthermore, this positive impact also occurred in the market
for sleep apnea devices, where the market is expected to move at a CAGR of 9.94% between 2021 and
2030 (“Global $13.18 Billion Emerging Sleep Apnea Devices and Platforms Market to 2030”, 2020) .
According to the SEC (2021), the demand for ResMed’s products such as masks, ventilator devices, sleep
care, and SaaS, in response to COVID-19 pandemic, showed an increase and the average movement of
foreign currency exchange rates against the U.S. dollar, had a positive impact on ResMed’s revenue. In
general, ResMed’s net revenues for the year ended June 30, 2021, increased by $239.8 million to
$3,196.8 million (SEC, 2021). All of these imply that ResMed’s business activities are in relative
prosperity periods.

2.3 Socio-culture Dimension

Since the outbreak of the COVID-19 pandemic, social behavior has changed in multiple ways,
including increases in health consciousness. In addition, a study conducted by Maas et al. (2020) showed
that obstructive sleep apnea (OSA) patient has eight times greater risk in terms of COVID-19 infection
than a regular patient. Therefore, people with OSA disorder must take precautions to reduce the risks.
Another social norm which has changed during the pandemic is that consumers increasingly prefer
online shopping (Fabius et al., 2020). ResMed has online stores that enables customers to keep order
and purchase products regardless of government restrictions.

2.4 Technology Dimension

Technology and digitalization have crucial roles in the health sector as one of the most impacted
industries during the pandemic (Xiang et al., 2021). Technology, such as online consultations and other
telehealth services, ensures that businesses provide their best service to patients. Regarding technology,
ResMed has committed to continue to conduct research and development to improve its service to
patients and customers, including software as a service (SaaS) that allows self-monitoring for the
patient, which is helpful during the pandemic (SEC, 2021). However, due to these advancements,
regarding data privacy and sensitive information, the IT system could potentially be hacked by an
unauthorized person if ResMed continues outsourcing its computer operations. Therefore, although
ResMed has invested heavily in technology, there is still a probability of cybersecurity risks due to the
reliance on the third party.

2.5 Ecological Dimension

Climate change has negatively impacted humans' immune and respiratory systems, such as
asthma, cardiovascular disease, and COPD, and the effect will be more significant in the coming years
(D’Amato et al., 2014; Takaro et al., 2013). This situation might pose a significant challenge for the sleep
and respiratory care industry like ResMed in the future. ResMed needs to conduct intensive research
and take serious steps to overcoming this issue.

3. External analysis of the industry environment

3.1 Threat of new entrants
During this COVID-19 pandemic, the demand for sleep and respiratory disorder treatment
devices has increased dramatically, which means that economies of scale occur within this industry.
Therefore, new entrants might suffer cost disadvantages if they want to compete in this industry. In
addition, there are several prominent global leaders in the sleep and respiratory care industry, including
ResMed Inc., Philips BV, Fisher & Paykel Healthcare Corporation Limited, DeVilbiss Healthcare, Apex
Medical Corporation and BMC Medical Co. Ltd. (SEC, 2021). These top incumbent companies possess
brand identity and customer loyalty which are difficult for the new company to get. While the rapid
development of technology and software for medication purposes increases competition among
companies in the healthcare industry, overall, in terms of the threat of new entrants, the force is weak.

3.2 Bargaining power of suppliers

One of the most critical components of health devices is the semiconductor chip. However,
there has been a shortage in supplies due to increased laptop demands due to the COVID-19 pandemic
and a water shortage in Taiwan, affecting TSMC as the biggest semiconductor manufacturer in the last
several months (Dudeja, 2021). This condition negatively impacts the sleep and respiratory industry,
such as extended lead times, interruption in productions, and price increase from the supplier. In
conclusion, the supplier has a high power of bargain since there is no suitable substitution for the
semiconductor chip at this moment.

3.3 Threat of substitutes

The use of CPAP and ventilators for sleep apnea and respiratory disorder is still irreplaceable.
Nevertheless, the pharmaceutical drug can be a potential substitute for treating sleep apnea and
respiratory diseases. Although the efficacy of pharmacotherapy is not as high as CPAP and ventilators
(Gaisl et al., 2019), the alternative pharmaceutical treatments might be a threat to the attractiveness
because of the cheaper cost and more convenience, especially for older people. Overall, however, the
threat of substitutes in this industry is still low at this point.

3.4 Bargaining power of buyers

The devices for treating sleep apnea and respiratory disorder are highly differentiated products
since these products have a specific function only to cure OSA and certain breathing diseases. This has
been particularly pronounced during the COVID-19 pandemic. All of these conditions make the
bargaining power of buyers is increasingly low.

3.5 Rivalry amongst established firms

The sleep and respiratory healthcare industry markets are highly competitive. Some of ResMed’s
primary competitors have better financial conditions and technology improvement. Furthermore, the
consolidation of the healthcare industry will cause the competition more intense. If ResMed does not
cope with this challenge by developing new products or adopting new business strategies, this condition
will affect the company financially. However, one of ResMed’s main competitors, Philips, recalled its
certain ventilator and CPAP devices in response to the polyester-based polyurethane foam that may
break down and potentially be inhaled by consumers (Philips, 2021). In consequence of this recall,
ResMed experienced an increase in product demand, which shows that the competition in this industry
is high, especially during the pandemic.

Sleep and respiratory care, including the SaaS industry, are attractive markets according to the
five external forces that shape the competition. In terms of the height of entry barriers, the threat of
substitutes, and the bargaining power of buyers, these forces can be considered low or weak. However,
due to the COVID-19 pandemic, the supplier power and the competition intensity between incumbent
firms increase. The global shortage in the semiconductor chip and increases product demand become
the main reason of the high level for both supplier and rivalry amongst existing companies.
 4. Internal Analysis
ResMed’s value chain can be seen in Figure 1., which consists of the primary and secondary
activities of the firm. ResMed has potential resource and capability in terms of technology development.

Figure 1. ResMed’s Value Chain Diagram.

From ResMed Inc. Annual Report by SEC, 2021.

Considering ResMed’s business strategy to focus on technology development is an essential

resource and capability for the company. ResMed has invested heavily in developing and innovating its
sleep apnea, respiratory care products, and digital health technology to increase the comfort and
efficacy of patient outcomes. ResMed has its R&D facilities in several countries and has invested $225.3
million for the year ended June 30, 2021, which increased 12% from last year (SEC, 2021). Furthermore,
ResMed allocates 16% of its employees to R&D activities (SEC, 2021). Overall, this business strategy is
valuable for ResMed to compete in the market.

Since ResMed’s first operating in 1989, the company has engaged in technology to support its
business operations. Aggressive investment for research and product development to avoid faulty
productions has been ResMed’s strategy. Overall, compared to other firms in this industry, the company
strategy is rare.

Serious commitment to support R&D activities requires a large budget allocation. Furthermore,
consolidating these core competencies takes time as ResMed has operated for 32 years now. These
imply that the resources and capabilities built within ResMed are costly to imitate and have unique
historical conditions. In addition, ResMed has approximately 8,300, including pending and allowed
patents used to legally protect their products and rights (SEC, 2021). Therefore, it is difficult for both
new competitors to imitate ResMed’s core competencies. However, this situation might be slightly
different for incumbent firms in which they might have better financial conditions to imitate ResMed’s
technology and management system.

ResMed has fully exploited its resources and capabilities as the company can cope with current
challenges. It is maintaining business’ operations by providing safe work environments for employees
during the pandemic. Moreover, ResMed can still meet customer demand, although there is a global
shortage in semiconductor supply.

ResMed’s commitment to technology advancement is valuable, have been rare, costly imitate to
new entrants but not for existing competitors, and can be organized appropriately. To sum up, ResMed
could be a source of sustained competitive advantage in the eyes of new entrants, while relative to
incumbent firms, ResMed has a temporary competitive advantage.
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