tag health hcit economic cluster
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Building an Economic Cluster for Healthcare Technology in Georgia
Mark Reiboldt, Vice President
Coker Capital Advisors LLC
July 22, 2010
Atlanta and the HCIT Economic Cluster
Why is Silicon Valley the center of the technology world? What is the significance of Research Triangle on life sciences? How did Detroit become the epicenter of the auto industry? The primary characteristic that these regions and others like it share is explained in an aspect of economic theory known as “Cluster Economics,” which was coined by the famous strategy expert Michael Porter of the Harvard Business School.
We will be considering the healthcare IT (HCIT) industry in Georgia and its significance on the broader economy. We will also explore how the rich combination of technology leaders and healthcare industry organizations have been laying the foundation for a new economic cluster in Atlanta and throughout the State to ultimately form the basis of Georgia emerging as the “Silicon Valley of Healthcare IT.” And finally, we will explore the potential benefits of such a model in terms of benefitting Georgia’s private business sector as well as the social and community benefits that ultimately make economic clusters so valuable to a region’s economic infrastructure and growth.
Why discuss economic clusters in the context of healthcare IT?
Economic Clusters 101
• Geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Considered to increase the productivity with which companies can compete, nationally and globally.
– Alfred Marshall (Agglomeration in urban studies)
– Michael Porter (The Competitive Advantage of Nations, 1990)
– Paul Krugman (Geography and Trade)
• Common Types:
– Geographical
– Sectoral
– Horizontal
– Vertical
What is an economic cluster?
Economic Clusters 101
• Clusters typically impact competition within a given market in the following ways …
– Increasing productivity of companies involved
– Driving innovation within industry / sector
– Stimulates new businesses within the field
• Geographical / Regional clusters emerge when …
– There are enough resources and competences amassed to reach a critical threshold;
– The cluster represents a key position in a given economic branch of activity;
– There is a decisive sustainable competitive advantage over other places, or even a world supremacy in that field.
Impact of economic clusters on competition (Porter)
Examples of Economic Clusters
• Silicon Valley – Technology
• Research Triangle – Medical Technology
• Charles River (Boston) – Life Sciences
• Detroit – Auto Industry
• Delaware – Corporate Registration
• Nevada – Gaming & Entertainment
• Houston – Energy
• Switzerland – Banking
• Wall Street – Financial Services
• Nashville – Healthcare Services
Despite representing completely different industries and having entirely different backgrounds, economic clusters typically have some common characteristics
Key Traits
1) Catalyst for attracting companies / industry to a region or cluster
2) Some degree of value for participants beyond geography
3) Model for long-term growth and sustainability exists
Nashville Health Care Council’s
Nashville Health Care Industry Family Tree
(2009)
Value of Clusters
• Competition
• Synergies
• Economies of Scale / Scope
• “Keep your friends close and enemies closer”
• Regulatory / Policy Incentives
• Group Leveraging Opportunities
How do companies benefit?
Value of Clusters
• Employment / Career Growth
• Training / Workforce Development
• Revenues / Financial Value
• Tangential Awareness (cottage industries, etc)
• Downstream Benefits (housing, education, etc)
• Pleasant, attractive places attract new people
How do communities benefit?
In order for an economic cluster to truly pose long-term value, there must be
an efficient combination of both financial value and
economic value, which are distinctly different
characteristics
Making the Case for HCIT in Atlanta / Georgia
Georgia represents the largest concentration of revenues from HCIT companies
The value of Georgia’s HCIT industry competes with entire REGIONS
Making the Case for HCIT in Georgia
• As a region, Georgia ranks 3rd in terms of market cap and 4th in revenues
• As a state, Georgia comprises the most market cap and revenues among US-based HCIT companies
• None of these data points account for or include those companies with headquarters outside of Georgia but with significant operations (and revenues) in the State
• This also does not include smaller growth companies
– Startups
– Incubation-stage companies
– Academic and government affiliated entities
Twenty percent of the largest publicly-traded HCIT firms are based in Georgia
Snapshot of Atlanta’s HCIT Market
McKesson/Relay
Jackson
MedAssets
Greenway
Health Systems
ADAM
Matria Navicure
Novo
Clear Wave
• Over $25 billion market cap concentrated in Georgia
• Over $35 billion in revenues allocated to HCIT in Metro Atlanta area
Other Advantages (Besides Geography)
• Transportation (Hartsfield)
• Innovation coming out of Universities
• Significant healthcare provider market
• Innovative nature of regional healthcare providers
• Proximity to complementary areas
• Cost of living, environment, people, jobs, etc
The value is not entirely just about location of existing HCIT companies
Making the Case for HCIT in Georgia
Research TriangleMedical Technologies
NashvilleHealthcare Services
AtlantaHealthcare IT
Approx. 18-25% of HCIT revenues and over 80% of all healthcare industry revenues
*Does not account for companies with corporate HQ’s outside the region despite the majority of HCIT related revenue, operations and personnel being located in the Southeast (e.g., MCK revenue = $108bn, approx 35-40% of which comes from HCIT)
Questions & Contacts
Mark ReiboldtVice President
O: 678-832-2004
M: 678-637-2040
F: 678-832-2016
www.CokerCapital.com
Questions?