Section A 1.a). This paper seeks to establish the extent to which the Five-Forces Framework map is relevant in identifying environmental forces affecting the global pharmaceutical industry. Thus, in order to fully understand the above concept, it is imperative to begin by defining it…
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This framework is used to analyse the global pharmaceutical industry. In the given case, it can be noted that the pharmaceutical industry is characterised by a highly risky and lengthy research which is very costly. This industry is capital intensive given that the cost of developing a new drug is estimated at over $ 1 billion which deters other small players from entering it. The industry is also under stringent government regulation which makes it challenging for other competitors to enter it. It is not very easy to find a substitution for a drug given the complexity of the process involved in carrying out the research as well as the costs For instance, Lipitor could not be easily replaced or substituted in the given case study. The buyers are affected by various factors which affect their buying power. As a result of the global economic crisis, consumer spending power with regards to health care has been affected. However, those with medical insurance can afford to meet their healthcare requirements. Unfortunately, about 46 % of the people in the US do not have medical insurance and this has a bearing on their buying power of the drugs. It also has to be noted that the government controls the industry since it is the largest purchaser of the drugs in a bid to control the health sector. Since this a sensitive sector, it can be noted that the suppliers have no bargaining powers since the industry is strictly controlled. The pricing regime is controlled by the government so there is no single supplier who can charge very high prices. There is intense competition for intellectual property among existing players as they compete to preserve their inventions. This industry is highly specialised and this is the reason why there is rivalry among existing players as they seek to dominate it. Over and above, it can be noted that the Five Forces Framework map is relevant in identifying the environmental forces affecting the global pharmaceutical industry. It can be noted that there are different factors that characterise this industry hence there is need to take these into consideration so as to be in a better position to establish the attractiveness of this particular industry. Failure to do so can result in wrong perceptions about the industry since it is a bit different from other industries. b). In order to establish whether these forces differ by industry sector as well as the place they can be placed in different sectors in the industry life-cycle, it is important to begin by explaining the meaning of industry or product life cycle. Basically, every product has a certain life cycle in the market. Therefore, product life cycle refers to the different phases passed by the product in the market from the time it is introduced until its withdrawal period (Strydom, 2003). The product usually passes through four distinct stages namely: introduction, growth, maturity and decline. From this definition, it can be seen that the five forces discussed above differ by industry sector. For instance, the forces that operate within a clothing and textile industry are different from those operating in the pharmaceutical industries as a result of various reasons. First and foremost, it must be noted that the industry life cycle of the pharmaceutical
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