Blue Ocean Strategy – SpiceJet flying to destinations unchartered by rivals

Tough competition, margin pressures and too many big carriers flying in the regular busiest routes like Singapore, Kuala Lumpur, etc has forced the Indian low-cost carrier (LCC) SpiceJet to spread its wings to destinations like Kazakhstan capital Almaty, Uzbekistan capital Tashkent, Chinese city Guangzhou and Chinese special administered region (SAR) Macau that are left unchartered by major full service peers and sought government nod to fly to 10 new destinations like this. SpiceJet already flies to war region Kabul Afghanistan, tourism-cum-trade centers of Colombo, Dubai and Kathmandu and the airline is expected to fly to Male, Riyadh and Dhaka soon. "We follow a blue ocean strategy for international flights which means flying to places where not too many airlines go. We would like to go to more points in China," SpiceJet CEO Neil Mills said. Mills is targeting routes where the airline will have a first-mover advantage at least six months to one year head start, particularly where its competitive rivals other Indian LCCs are not flying, not much competition and where setting up operations and getting permission is difficult, due to tough bilateral rules. SpiceJet's strategy to fly to the above said destinations with no competition from the other Indian rivals could benefit it as there is demand on these routes which will allow it to charge rewarding fares and increase profitability.

SpiceJet Blue Ocean Strategy is to develop new markets instead of competing with experienced big players in the established routes which are no longer profitable due to margin pressures and other costs along with cut throat competition. But the Blue Ocean Strategy of flying to war torn Afghanistan Capital Kabul carries a huge risk and only three Airlines fly to this destination but there has been significant medical tourism traffic from Kabul into India along with strong trade between the two countries, basic supplies are carried mostly through air rather than any other mode of transport and with supply constraints allowing airlines to charge between Rs 10,000 to Rs 29,000 for a one-way flight that took just two hours — making it one of the most profitable routes from India. Flying to former Soviet Republics like Uzbekistan, Kazakhstan, etc is also a good move because there have been good growth in terms of trade between the countries in this region and India and more over close to 1000 students from India are going to these countries for studying medicine and also students from these countries are also coming to India for studies as part of exchange programs that include cultural, academic, scientific, etc. National carriers from Uzbekistan, Kazakhstan are flying to India since past few years and there is also good opportunity for growth in tourism traffic between India and various countries in the Central Asia as tourism is being mutually promoted by all the nations.

A look at other international routes announced by SpiceJet like Madurai-Colombo, Delhi-Dhaka-Rangoon/Yangon, Delhi-Riyadh, Delhi-Guangzhou, and Trivandrum-Male reinforces its Blue Ocean Strategy of flying to unchartered routes not served by competition. Large Tamil population in Si Lanka along with strong business links has encouraged the airline to connect Madurai and Colombo and expects demand to be strong. Delhi Riyadh route is again significant as there is large movement of labor as many big contracts won by Indian companies and Muslims from India travel to this country in large numbers for this purpose. Guangzhou is China’s third most important city and it’s the manufacturing capital and lots of Indian Traders frequently travel to this city and no Indian airlines fly to the city and Macau is famous for its casinos and tourism. SpiceJet is also experimenting with this first-mover advantage within India too by flying to smaller towns and cities and connect them with multiple metros and larger cities, where no Indian airline flies at the moment. SpiceJet already connects 16 destinations, including Jabalpur and Amritsar, as well as Hubli and Tirupati, among others and it is doing this through its acquisition of the 78-seater Bombardier Q400.

SpiceJet adoption of the Blue Ocean Strategy of flying into new destinations underserved by its rivals with good revenue potential and taking big risks will only work for shorter time as first mover advantage will be lost once all the competitors start entering into these destinations once they see the profitability in those routes. So SpiceJet have to make money fast and hope that the bilateral agreements between India and nations like Saudi Arabia, China that makes it hard for getting licenses by the other Indian rivals will be there for some more time. Volatility in aviation turbine fuel (ATF) prices which is imported into India is another concern as most of the Indian Airlines are struggling to keep their costs under control in terms of fuel expenses. Maintaining two different types of aircrafts new-generation Boeing 737 for playing between major routes and Bombardier Q400 for flying to smaller cities and minor routes is like operating two low cost carriers which will put pressure on managing costs and technical maintenance costs will also raise. Another risk is the domestic strategy of flying to smaller cities and towns which are point to point as Air Deccan earlier failed to make profits in this model. But SpiceJet is forced to take these risks and adopt a Blue Ocean Strategy as the airline in the last financial year made losses of around Rs 600 crore and it picked up 12 million passengers. Neil Mills, the current CEO is aggressively looking to turnaround the airline with these strategies. 

Discussion Points:

1.Will SpiceJet strategy of flying to destinations unchartered by rivals generate profits?
2.What should they do additionally to keep up revenues and increase profitability along with safeguarding its market share?
3.Despite its Blue Ocean Strategy, SpiceJet is not able to compete with other players like Indigo Airlines, Jet Airlines. What should they do improve their performance?

Significant Growth in Healthcare Outsourcing opportunity for Indian IT Vendors in 2012

At the end of June 2012, the US Supreme court upheld the main elements of the Patient Protection and Affordable Care Act, which President Barack Obama signed into legislation in the year 2010. The law mandates all the American citizens to buy health coverage in 2014 or else pay huge penalties if they fail to buy and the employers should offer healthcare coverage for their full time employees and their dependents or they will face penalties. After this decision more than 30 million uninsured Americans are estimated to buy healthcare insurance because of the reform, and new projects are expected by Indian IT Vendors like data conversion, creation and management of electronic health records, as well as claims processing and insurance sales. Indian IT Vendors can actively vie for the deals worth up to $22 billion (Rs 1.2 lakhcrore) and according to NASSCOM, Healthcare accounts for another 4% of the IT-BPO industry, which is expected to grow slower this year, at 11-14% from 17% last year. According to TPI, a sourcing advisory the new law allocates about $37 billion for creation and management of electronic health records, data conversion, beta testing and change management.

According to Everest Group report titled, “IT Application Outsourcing (AO) in the Healthcare Payer Industry – Annual Report 2012”, the US$20 billion healthcare IT outsourcing (ITO) market nearly doubled its cumulative contract value in 2011 compared to 2009. Processes that are outsourced to Indian IT vendors include Application development and maintenance, testing services, and software package implementation and North America market is the primary market that outsources in healthcare payer segment. India is the preferred delivery location in this segment followed by China, the Philippines and Latin America and more than US$3 billion worth of payer AO contracts are due for renewal between 2013 and 2018. The Everest Group Service Provider Landscape analyzes more than 15 AO service providers, eight of which are mapped on the PEAK Matrix. The Leaders include Accenture, Cognizant and IBM; Major Contenders include CGI, Dell Services, Infosys and TCS; and Emerging Players include Mphasis. Other aspiring service providers in the payer AO space include Fujitsu, HCL, Hexaware and Mahindra Satyam. 

<!--[if !vml]--><!--[endif]-->Cognizant Technology is far ahead of its peers in terms of Healthcare vertical revenues with US$1.74 billion 37% (YoY), followed by Wipro, TCS, Infosys & HCL Tech. Infosys dethroned HCL Tech and it shows that Infosys is seriously targeting more deals in this vertical as evident with 42% YoY growth. Even TCS is also focusing aggressively on healthcare segment and Cognizant is keeping up its growth. Cognizant was the first player who bid aggressively in healthcare vertical and has built significant domain capability in healthcare and domain which makes it difficult for other Indian IT vendors to match it. Table source: “Report Card for the Indian IT Majors: Pecking Order Analysis of the “WITCH” Group”

Healthcare Vertical has become a critical for all the Indian IT vendors due to the ongoing reforms in the US and also the trillion dollars spend that is expected in coming years in United States. Analysts estimate the US’ healthcare market at $2.5 trillion and projected to grow to $4.6 trillion by 2020. For capturing this opportunity Indian IT vendors have to invest in developing and acquiring domain expertise in terms of people, processes and technologies. Analysts also predict that there will be significant rise in the M&A transactions particularly in Healthcare domain as most of the Indian IT vendors do not have necessary domain expertise and skills in healthcare domain and they are aggressively looking at the M&A route to acquire companies that have healthcare domain skills and expertise. Regulatory conditions also force the Indian vendors to set up delivery centers in United States and service the clients locally and also have to recruit local talent for this. Infosys and TCS have announced that they are looking for acquisitions in this segment both in US & Europe.

IT Application Outsourcing (AO) in the Healthcare Payer Industry – Annual Report 2012, published by Everest Group, an advisory and research firm on global services identified five key themes is fuelling IT services demand in the U.S. healthcare payer market: Compliance with regulatory reform, Consumerization, Claims transformation, Convergence of information across healthcare entities, Consolidation and M&A. Healthcare vertical also provides an opportunity for the Indian IT Vendors to also focus on nonlinear revenues that will lead to more revenues and increased margins and profitability. Outsourcing penetration levels is very low in the healthcare Payer Industry and in future this segment is expected to grow rapidly and present a significant opportunity for the Indian IT Vendors to focus and improve their presence. 

Discussion Points:
1.What is the impact of PPACA act on healthcare BPO particularly for Indian Outsourcing vendors?2.What are the strategies adopted by Indian Outsourcing vendors to capture revenues from US healthcare outsourcing due to the changes and reforms in Healthcare?
3.What are the processes in healthcare that can be outsourced to Indian vendors?