Pharmaceutical Goods Company - Case Study Example

Introduction Since the industrial revolution, the concept of entrepreneurship has widened in greater perspectives. Through the years, firms have emerged unknowingly and eventually creating major impacts in the market. These unprecedented developments have marked a dawning of an era characterised by movements in the industry. Also, competition has been intensified in most notable markets. Because of threats coming from competitors, several strategies were developed for firms to maintain their market shares and continue to compete for the consumers controlled by the competitors. The concept of merger immediately took notice because of the inevitable benefits provided by the strategy. Most mergers have expanded their operations and surpassed the achievements that the observers have predicted. The Company Primarily, Alliance Boots is wholesaler and retailer of pharmaceutical goods. The company controls a wide chain of pharmacy spread all across Europe. At present, the company maintains 17% of its total target market (BBC News, 2005). Moreover, Alliance Boots is the largest pharmaceutical wholesaler in UK covering 40% of the market. Its wholesaling and retailing activities are undertaken by subsidiary UniChem. With its vast operations, the company employs approximately 100,000 workers in more that 3,000 retail stores in which 2,700 have pharmacies. In addition, the firm has established 380 retail depots to boost its operations. This has made Alliance Boots one of the largest retailers in terms of retail space (Alliance Boots, 2006). Boots Group Prior to the merger, Boots is bannered by Boots the Chemist, which was regarded as a dominant retail pharmacy operating in UK. Most of the company's outlets are situated in high streets and in highly urbanised areas. From a traditional pharmacist, the company has expanded its business portfolio and ventured to photo processing, opticians, and selling of home appliances. The increasing pressure caused by competition has limited the chances of Boots to improve its performance. It was evident that the company illustrated signs of stagnation and such weak showing eventually created the drawing board that led to the inevitable merger with Alliance UniChem. Alliance UniChem In terms of operational scope, UniChem was bigger and its more established reputation has enabled the firm to occupy markets in Europe. Its major aim is to deliver healthcare service and improve the health situation in most of the locations. The business primarily thrives on retailing and wholesaling pharmaceutical products. UniChem has been relying on its core strategies built on the aspects of expansion, innovation and performance enhancement. Aside from these concepts, the company valued the satisfaction of the customers and other stakeholders. The Merger Because of Boots' financial conditions, it was speculated by financial analysts that the merger with Alliance UniChem is already at work. It was surprisingly announced in October 2005 that the merger was officially created. Part of the announcement was the financial considerations made by both parties. Both companies were valued at 7 billion British Pounds and a split of 50.2 and 49.8 were divided among Boots and Alliance respectively. Basically, the merger was undertaken with the expected intervention of the Office of Fair Trading (OFT). It was reported that 96 stores were sold to comply with the requirements of OFT. In truth, the merger was pictured as a takeover by Boots, which acquire the whole share capital of Alliance UniChem. This was manifested through the issuance 1,332 Boots Group PLC shares for each Alliance UniChem shares held. After this process, the merging firms adopted the name of Alliance Boots PLC. This was done, accordingly, to reduce the time and paper works needed because of the merger. Most important, both firms remained intact only under the supervision of the parent company (OFT, 2001). Objectives Essentially, the purpose of the merger is to combine a supplier in Alliance UniChem and a customer in Boots. The strategy was primarily designed to create a stronger pharmaceutical empire. Also, the merger was manifested to combine the resources of both firms. The managing styles, financial capabilities, and manpower will be combined to achieve the merger's goals. The merger aims to improve the quality of the products including the kinds of medicines sold. Aside from Europe, the merger sets its sights on bigger markets that are valued for their untapped potentials. The initial plan of the merger was to make extensive use of the brand name Boots reinforced by the range of generics produced by Alliance. Indeed, there are possibilities of exploring on other business portfolio, specifically the manufacturing of different kinds of pharmaceutical commodities. Most important, the merger was aimed at lowering the cost that both firms have been incurring and to improve on the efficiency of their operations (Fair Disclosure Wire, 2005). Market Structure According to BCC (2000), the pharmaceutical industry is one of the largest in Europe. During the year, it is expected that Europe will manufacture 40% of the global pharmaceutical requirements. In addition, the growing competitiveness of the European Union has improved the business environment and economic situation. Among the competitors of Alliance Boots, GlaxoSmithKline is the most dominant annual revenue of 21 billion British Pounds. Also, the company has to contend with the other strong competitors that include Astra Zeneca, Aventis, Novartis, and Roche (Markovic, 2001). To respond to the challenge, the company has devised strategies that are expected to provide expected present and future gains. The management has combined wholesale and retail initiatives to further enhance the approach of the company to the market. Part of the strategy is to continue to expand the operations in valuable areas. As of March 2005, the revenue of the company has reached more than 9 billion British Pounds. In 2005, however, the net income decreased considerably (Hoovers, 2005). This result can be explained by the increasing effort of the company to improve research and development. Because of such strategy, the company has incurred more cost than the previous year. Structural Performance As mentioned, the operations of the company are divided into two sectors. The first sector is the retail group, which operates in some part of Europe and in Thailand. Among the retails locations, the stores in UK are considered as the most valuable. The wholesale division is the largest sector operating in most of Europe. Basically, the group has been performing well and continues to post improvements. In Europe, most governments have been the primary customers of pharmaceutical firms. Because of this most companies are restricted from increasing the price of the medicines without government approval. Another major restriction that the government emphasises is the tendency of mergers to create unfair competition. For instance, some mergers were created to take full control of the market shares. Alliance Boots practically challenges the competitors with its wide range of products. The quality of the goods provided by the company as tested and proven to be effective. Also, the company competes using its extensive research and development arm. Company Attitude According to Singuefield (1995), active behaviour pertains to the art of stock picking and market timing. In this sense, the company tends to be selective on the investments given in the market. Companies acting in this behaviour tend to wait for the right price to make a purchase and also take advantage when the price appears beneficial for a sale. It is expected that firms will critically monitor the movement in the market before making the right moves. Although this appears to be dragging, the process eliminates the likely risks associated with the planned investment. The passive behaviour, however, promotes the buy and hold attitude. Essentially, this process has been adopted by Boots and Alliance UniChem. The idea in this concept reveals the intention of both companies to take develop their merger based on their strengths. Instead of waiting for the responses in the market, the company acts accordingly and slowly creates a space that will eventually separate it from the competition. Future Plans The future prospects for Boots Alliance appears to be wide. Indeed, it unprecedented merger has become an important event in the industry. Basically, the immediate aim is to improve it market share. The company needs to remain highly competitive in the coming years. In doing this, there are three core initiatives that have to be pursued. First, the company needs to focus on innovation. Allocating more funds for research and development will improve the quality of products. It will also allow the company to discover more effective products that will be embraced in the market. Second, the marketing initiatives need to be developed. The company has to take advantage of its superior branding and the extensive use of the Internet as a marketing vehicle. Finally, the company needs to continue its expansion plans. Aside from Thailand, there are several big markets located in Asia. The possibilities of gaining a reputation is markets that have high demand for pharmaceutical goods will bode well for the company's future performance. Conclusion Evidently, the merger of Boots and Alliance UniChem was an elementary strategy. The growing pressure caused by the competitive industry and the rising operational costs are basic justifications. On the other hand, the merger was viewed positively and with lofty goals set in the minds of the framers. The plan was to combine two contrasting approaches and arrive at an effective scheme. The personality of Boots along with the capabilities of Alliance UniChem proved to vital assets. Although there are several hurdles to overcome, the future looks bright for the merger. References Alliance Boots. (2006). Group Profile. Date retrieved: 14 November 2006, from: BBC News. (2005). Q & A: Boots and Alliance looks to merge. Date retrieved: 14 November 2006, from: Business Communications Company. (2000). European Pharmaceutical Industry growing at 11% annually in the next 5 years. Fair Disclosure Wire. (2005). Alliance UniChem PLC proposed merge and acquisition of Boots. London: eMediaMillWorks, Inc. Hoovers. (2005). Alliance Boots financial report. Date retrieved: 14 November 2006, from: Markovic, J. (2001). Business Briefing: Global Healthcare Issue. "The European Pharmaceutical Industry: Opportunities and challenges." Office of Fair Trading. (2005). Boots and Alliance UniChem Notification. London: OFT. Singuefield, R. (1995). Active vs. passive management. Date retrieved: 14 November 2006, from: Read More