The Global Pharmaceutical Industry - Case Study Example

The Global Pharmaceutical Industry Introduction The global pharmaceutical industry is characterized by lengthy and risky research and development process, powerful purchase pressures, stringent government regulations and high competition for rational property. The global pharmaceutical industry has significantly contributed to the human civilization for the welfare of mankind. The study will describe how internal and external environment forces have affected the industry (Maclennan, 2004, p.11). In order to determine the issues, PESTEL Analysis and Porter’s Five Force Analysis have been implemented in the study. Finally, a strategic SWOT analysis has been implemented in the study. This strategic framework will help to conclude the study by determining the industry’s internal strengths, weaknesses and external opportunities, threats. External industry Analysis PESTEL Analysis, Porter’s Five Force Analysis and Industry life cycle analysis framework have been implemented in this study to find out the impact of the external environmental factors on the global pharmaceutical industry. PESTEL Analysis Political Forces The global pharmaceutical industry is quite unusual and in various geographic markets there happens to only one powerful buyer, i.e. the government. During the 80s and 90s the governments round the globe started to concentrate on the pharmaceuticals as some kind of an easy target in order to control the expenditures related to healthcare and get greater value for money. These typed of activities by the governments is just a reflection of the cultural differences. The industry in true sense has got global and hence the employment and ownership has become concentrated in very few countries. Regulators have quite often been challenged to reduce the overburdening of the growing areas related to the area of biotechnology research. There are also increasing pressure from inter country pricing inequality as well as parallel trade. One such example would the difference between USA and Canada (Henry, 2008, p. 89). Economic Forces Patients usually have had very little influence on the choice of price and products, because the doctors make the prescription. Again the medical practitioners tend to favor branded products. On the other hand the incentives to buy products got decreased as the costs were reimbursed or assumed by the insurers or the heath care authorities. The supply of the pharmaceutical market is still quite fragmented as very few companies are holding a share of more than 11%-20%. The industry has the presence of some strong international player’s bases in France, Japan and India in the form of Ranbaxy. However, the recent economic down turn has meant that the companies had to reduce the spending on R&D and as a result number of new products that were supposed to reach the market has fallen (Churchill, 2009, p.211). Social Forces The baby boom generation is approaching retirement and there have been new efforts on the part of the companies to serve the purpose of treatment of the elderly. The end users are now a lot better informed about the products. The rise of the internet has helped the customers to get valuable info about pharmacy based products quite easily. Consumers have become a lot educated and as a result a lot more demanding (Brown, 2009, p. 209). Technological Forces Technological factors can actually lower the market entry barriers and reduce the efficient production levels and influence the outsourcing decisions. Some of the factors include the R&D activities, rate of technology change and technology incentives. One of the major implications of the technological development has been the development of drugs that can help cure deadly diseases like cancer. In 2005 only, 650 cancer drugs were developed. The developing countries are also getting to use such advanced technologies to save lives. Legal Forces The intervention of the health authorities has been the key to determine the length of the patent protection and the approval of new products. The shift towards maintaining international harmony could bring in some significant benefits in the areas of cost reduction and product delivery. Environmental Forces Due to the growing environmental concerns the government and other social activities tend to have a close eye on the policies and practices of the companies. The implications of such developments could be significant in the manufacturing of the pharmaceutical products. Also hereby it needs to be mentioned that the consumers also prefer to do business with companies that provide environment friendly products. Porter’s Five Force Analysis Threat of new entrants The threat of new entrants is low to moderate as companies have to spend have to have huge amount of capital and also follow various legal regulations to start the business. Also the recent economic downturn would probably act as a barrier to entry (Burgemeister, 2003, p. 192). Suppliers’ Bargaining Power Bargaining power of suppliers is low because the number of suppliers is few. Suppliers in this industry are also quite different from the other industries as the ingredients used for manufacturing the products is quite different from the other industries. Buyers’ Bargaining Power Bargaining power of the buyers of the buyers is quite low as the buyers have to follow the prescription made by the doctors. Also as mentioned before doctors also tend to favor the branded products only (Wenderoth, 209, p. 359). Threat of Substitute products Threat of substitute products in the market is also quite low as there is low degree of availability of the substitute products. Add to this the customers also tend to prefer the branded products prescribed by the doctors as opposed to the generic drugs (Kotler, 2001, p. 25). Existing rivalry The existing rivalry among the firms is very high. Competitive advantage is usually gained by the first movers in terms of patent. There is also presence of some top global players in the market. The shorter product life cycle and requirement of heavy investments makes the industry a lot more competitive in nature (Kolb, 2008, p. 92). Industry Life Cycle Analysis Framework The industry life cycle framework comprises of four aspects such as introduction, growth, maturity and decline. Basis on the behavior and nature of this industry, it can be stated that, the global pharmaceutical industry has attained saturation (Pandya, 2012, p.288). Therefore, it is feasible that, the organization has reached in the maturity stage of the life cycle. The high production level and high sales volume has made the global pharmaceutical industry as maturated industry. At this stage, the products of the organizations within the industry has been satisfied and standardized. Due to high competition and increasing demand of people the organizations are trying to response to the needs of people rapidly. The organizations within the industry are aggressively competing with each other to increase their market share. In his stage, the customers used to practice repeat purchasing activities. Conclusion The Pharmaceutical industry has made effective contribution for the mankind. Recently, the industry is facing tough time. The industry is targeted by both media and government. The industry life cycle is getting shorter due to these issues and controversies. However, a SWOT analysis framework has been implemented to reveal the internal strengths and weaknesses of the industry. Moreover, this strategic analytical tool will help to find potential opportunities and probable threats. SWOT Analysis This analytical tool consists of four elements. Strengths and weaknesses are internal factors. On the other hand, external opportunities and threats are the external factors. The following is the SWOT analysis of global pharmaceutical industry. Strengths Patent is the key strength of the global pharmaceutical industry. Several potential organizations and strong brand names such as GlaxoSmith, Pfizer, Johnson and Johnson, Novartis and Merck are competing with each other within the industry (David and Zhimin, 2009, p.179). These organizations have good brand reputation in the global customers’ mind. The industry has effective access to the distribution networks. Exclusive access to several natural resources is key strength of the organization. Weaknesses Limited patent time is the biggest weakness of the industry. Due to limited patent time the products have several side effects. Legal issues and FDI regulatory are other major weaknesses of the industry. High cost structures such as high advertising cost, high R&D investment can affect the business output of the organizations within the industry. The products generally take long time to develop and float in the global target market. Opportunities Implementation of new advanced technology can reduce the business operation time. Introduction of new differentiated products can help the organizations to map the untapped global market and satisfy the unfulfilled needs of the customers. Threats Legal entry barrier in several countries is the biggest threat for the organizations within the industry. Parallel business trade is one of the major threats to the pharmaceutical industry. Availability of potential substitute products is posing threat to the industry. The products within the organization are costly. The recent economic slowdown has affected the buying decision of people. Low disposable income of middle class people, economic slowdown, limited purchasing power of people and expensive resources are the major reasons behind the saturated global pharmaceutical market. References Henry, A., 2008. Understanding Strategic Management. UK: Oxford University Press. Kolb, B., 2008. Marketing Research: A Practical Approach. UK: Sage. Brown, L., 2009. Marketing and Distribution Research. US: Ronald Press Company. Kotler, P., 2001. Marketing Management. UK: Prentice Hall. Burgemeister, S., 2003. Market analysis. DE: GRIN Verlag. Churchill, G., 2009. Marketing Research. US: Cengage Learning. Wenderoth, M., 2009. Particularities in the Marketing Mix for Service Operations, DE: GRIN Verlag. Pandya, J., 2012. The Global Age. US: Springer. David, Z., and Zhimin, C., 2009. China’s Reform and International Political Economy. US: Taylor & Francis. Maclennan, J., 2004. Brand Planning for the Pharmaceutical Industry. US: Gower Publishing. Appendices Figure 1: Porter’s Five Force Model (Source: 5180779_lecture_205_20_2030_20may_202013-5; Page No. 7) Figure 2: Industry Life Cycle Framework (Source: 5180779_lecture_205_20_2030_20may_202013-5; Page No. 20) Read More