External and Internal Analysis of Glaxo Smith Kline - Term Paper Example

External and Internal Analysis of Glaxo SmithKline The common goal of any organization is to achieve its objectives which revolve around profit, survival and prosperity. Robert M. Grant (1991:22) identifies two routes to achieve their objective which includes the location of an industry favorable to earn a rate of return above the competitive level and attain a position of advantage over its competitors within the industry, allowing the company to earn return more than the average return of the industry. Duane Ireland et al (2005) mentioned that internal and external analysis is important for the managers in order to develop and the implement the best strategy by evaluating the capabilities and resources of the firms and customer preferences in the market. Glaxo SmithKline (GSK) with a long history dating back to 18th century produce 9 billion Tums tablet, 6 billion Panadol tablets and 600 million tubes every year with more than 200 million customers worldwide and spends more than £300,000 every hour into research and development for innovation in medicine. The company has been able to compete in the industry with strong customer base all over the world, just because of its business strategy which is aimed at increasing growth, reduce risk and improve GSK’s long term financial performance which include growing a diversified global business, deliver more products of value and simplify GSK’s operating model. The present study aims at identifying the key drivers for change, critical success factors, key business strategies over the past five years using Porters generic strategies and resource and capabilities of GlaxoSmithKline over the past ten years so as to analyze the business strategies. Core Elements of the Glaxo Smith Kline GSK Company, being a global healthcare company, engages in the development, marketing and manufacturing of pharmaceutical and health related products. The company’s products are target towards treating three major diseases. These diseases are malaria, HIV/AIDS and tuberculosis. The company mainly operates through two major segments which are Consumer Healthcare and Pharmaceuticals. The Pharmaceutical segment includes prescription pharmaceuticals and vaccines. On the other hand, the Consumer Healthcare segment provides over-the-counter medicines, nutritional healthcare products and oral care. Its operations are concentrated in Italy, Spain, United States, Japan, France, the United Kingdom, and Germany. (Drinks Business Review, n.d). Market Share GlaxoSmithKline is one of world’s largest pharmaceutical company which came into existence through merger between Glaxo Wellcome Plc and SmithKline Beecham Plc in 2001.(www.corporatewatch.org) In pharmaceutical industry there are about 200 company and they divide the market between them and there is no one company that control the market share. The biggest market share it is for Pfizer which owns 8.7% from the global market share and GSK came the second largest global market share with 6.3% of it and other companies have the rest , GSK the second largest market share in this industry is located and its product in more than 160 market, although it is UK company and the headquarter in UK but about 39% of GSKs sale in USA which its biggest market because the operation based is located there then Europe 31 % second market for to GSK and UK just 3% of their sales.(GlaxoSmithKline,2008) GSK Company has a number of factors that make it very outstanding in the current market. The company published a strategic approach to most aspects of its business performance in 2003 with an intention to ensure a competitive advantage over its rivals and simultaneously satisfying the consumers. The strategic approach related to issues pertaining to the environment, health issues and safety related to stakeholders in order to propel the company into higher levels of better performance. An analysis of the GSK Company reveals that the company’s strategic plan for excellence was meant to prove the GSK’s effort for gaining excellence aligning with environment, health and safety of the companys vision, strategic intent and key business drivers which is important keeping in view the future climatic situations and the effort taken by the various countries to create norms for companies to take measures towards sustainability of environment (GlaxoSmithKline, n.d.) Level and intensity of market competition GlaxoSmithKline is one of the world’s largest pharmaceutical companies with over 100,000 employees and more than 42,000 employees work at 107 manufacturing sites in forty countries and over 16000 employees involved in R&D process.(Maria Pinto et al, 2003) As the pharmaceutical industry is highly competitive market, the company’s strategy can be analysed through Porters Five Forces. Michael Porter provided a framework which helps in analyzing the factors that influence its strategy. (www.quickmba.com) GSK is working hard to increase the diversity of its supply chain by giving opportunities to small, diverse businesses to provide goods and services, the policy which is enforced by the US government to provide livelihood to these sector in order to create employment. GSK sponsors Roanoke Online, a technology company which holds the database for diverse suppliers allowing the company to have access to suppliers and bargain the costs of products. Besides GSK has strong presence in 40 countries with 600 million people using GSK toothpaste worldwide and supplies 1/4th of the world’s vaccines. The company also makes nearly four billion packs of medicines and healthcare products every year which eliminates the fear of duplication from its competitors as it innovates new medicines by the help of its 15000 employees who work at R&D Division screening about 65 million compounds in search of new medicines. (www.gsk.com) GSKs major competitors are international pharmaceutical companies like Novartis, Pfizer and Sanofi Aventis wherein GSK held second position in the world pharmaceutical market with 5.9% market share behind Pfizer with a market share of 7%, as on September 2007. With presence in 40 countries, GSK’s further expansion in new markets would be hurdled due to the presence of big players in the industry, exclusive agreements with the distributors or retailers, facing new policies and laws of that government, economy of scale, etc. (Deshapriya, 2008) There are competitors in specific products like vaccines but the main competition in this industry is to produce and develop new medicines and drugs because introducing of new products and processes by competitors may affect pricing and product replacement. (GlaxoSmithKline, n.d.) Thus it is evident from the porter’s five forces analysis that company needs to invest huge resources, finance and human, in research and development to innovate new medicines to minimize the competition in areas of CNS disorders, respiratory problems, anti bacterials, anti virals, metabolic and gastro intestinal and vaccines. (www.gsk.com) PESTLE analysis The PESTLE analysis of GlaxoSmithKline reveals the following facts. Political – The international pharmaceutical industry in regulated by national regulatory authorities through various laws and regulations governing the testing , approval, manufacturing, labeling, and marketing of drugs along with safety, price and effectiveness of products. (www.gsk.com) Economic – As per the data of fiscal year ending December 2007, the company had sales of $45816.1 M with a growth of 0.7% and net income of $10,605.7 million registering a growth of 21.2%. Whereas global pharmaceutical sales in 2007 were £329 billion as compared to £328 billion in 2006 wherein US is the major market with 43% sales led by Europe and France which are followed by other European and Non European nations. (Deshapriya, 2008) Sociological – GSK is also doing its part with providing the small and minority owned suppliers an opportunity to work with them so that employment is generated in the poor classes and in the process they earn a livelihood. Technological – Technology has indeed allowed for the Glaxo Smith Kline’s products and services to be made more cheaply and be of better standard of quality. Secondly, technology has offered consumers and the Glaxo Smith Kline company innovative products and services such as internet selling and marketing of its products and services, online transition, faster and more efficient communication thus improving its overall market performance (Atkinson, pp.217-222). Environment - Necessary environmental considerations are always made to ensure that it does not venture in very risky investments which may not be feasible. The levels of pollution created by the products or services of the company have been minimized in all the countries in which GSK operates. This has been made possible through its recycling considerations, positive attitude to the environment from the company employees and other stakeholders, and thorough understanding of the current and future environmental legislative changes. (www.gsk.com) Legal - Menon (1999, p. 23) explains that another key driver for change in Glaxo Smith Kline is the appreciation of the environmental changes and its ability to respond to threats and environmental, political, social and economic changes in a timely manner. For instance, when Glaxo Smith Kline received negative publicity through newspapers articles on the companies disclosure levels, Glaxo Smith Kline, like other companies, reviewed on the role of the media in shaping society attitudes. It then took the necessary measures to prevent the same problem from recurring and even did publicity through the same media to ensure that public confidence in the company and its products and services is fully regained and it succeeded in this Endeavour. The critical success factors for GSK Andrew Witty, CEO GlaxoSmithKline reports that GSK is changing with good growth rate in sales and investments in R&D, emerging markets, consumer healthcare, etc. Further it is mentioned that three main factors have contributed to the growth rate of GSK in recent times which includes innovative medicines such as Seretide, Avandia and products from GSK pipeline which were introduced with innovative pricing strategy to maximize patients access. The second factor was the medicines tagged under ‘classic brands’ like Augmentin which was introduced in emerging markets, the sales of which is growing at the rate of 20%. The third key factor was increase in the sale of Vaccines in emerging markets which has high rate of birth cohort and its introduction in the market with tiered pricing mechanism with the governments has led to dramatic increase in the sales contributing the overall increase in sales of GSK. (www.gsk.com) These factors have been responsible for the success of GlaxoSmithKline resulting in increased sales and profit. GSK Business Strategy GSK reported an increase in sales for the year 2009 which is driven by its strategic priorities which include growing a diversified global business, deliver products in value and simplify the operating model. The business strategy of GSK is analyzed using Porters Five Forces method to identity the suppliers, buyers, threat of product substitutes, barriers to entry and rivalry in the market. The business strategy has yielded good results for company in comparison to the last five years which is evident in the annual report. These strategies were developed in the year 2008 form whereon the turnover of the company has increased at consistent rate of 3%, free cash flow has increased from £4664 million in the year 2005 to £5254 million in 2008. (GSK Annual Report, 2009) Michael Armstrong (2007) provided the integrating rewarding strategy of GSK which is the part of business strategy which enables GSK to be the indisputable leader in the pharmaceutical industry by building the best pipeline, product commercialization and finally resulting in operation excellence. Supplier Power – The company has a links to unaffiliated third party suppliers who provide good number of goods and services to support the development of key products which are important for the groups operation. However company also has supplier in the form small and minority owned shops, which has been implemented by the government regulations to enhance the economic situation of the poor people and allows bargaining and gets products at lower costs. However the company faces threats if any of these third party affiliates fail to deliver in timely manner affecting the overall performance of the company. (Annual Report, 2009) Buyer Power – The company has its operations in 40 nations with the strategic priority to grow a diversified business which involves groups expansion in emerging markets. The groups pharmaceutical sales in emerging market has resulted in 20% growth in 2009 amounting to £3 billion representing 10% of the company’s turnover. GSK’s major market is United States with 39% of market share followed by Europe – 31% and the remaining sales come from rest of the world, which shows that the company has strong buyer power in most of the countries that it operates. (Annual Report, 2009) Substitutes - During the year 2009, the company has invested £4106 million in R&D out of which £3947 million was directed towards new pharmaceuticals and £159 million towards consumer healthcare as compared to £3327 million in the year 2007 which shows the commitment of the organization towards creation of new products with value over time and again to remain competitive in the market with discovery and development of new products. Thus the threat of substitution is not applicable to GSK as it invests huge money in research and development of both pharmaceutical as well consumer products eliminating the risk of product duplication. (Annual Report, 2009) Barriers to Entry – One of the strategies is to grow a diversified global business. The annual reports reveal that sales in emerging market were growing and the company entered in 10-bolt acquisitions in 2009. The business expansion in Japan reported 22% increase in sales, mainly in Adoair and Relenza. Moreover the company is present in 40 nations with good market share. (Annual Report, 2009) Further GlaxoSmithKline employ unit branding strategy in the b2c market which provides resistance from reputation damage in the consumer market. (Ron Van Tulder et al, 2006) GSK’s mission statement is ‘help people do more, feel better, live longer’ which can be regarded as an occupational strategy and offers structured return on work approach for people with long term condition which is part of the integrated reward strategy that motivates the employees to work harder to achieve the objectives of the company. (Great Britain, National Audit Office, 2009) GSK Resources and Capabilities Generally any organization’s main resources refer to its human resources, financial resources, time, infrastructure, knowledge, information technology etc. On the other hand organisation’s capabilities refer to its ability to retain talent, ability to innovate new product, ability of learning from past experiences, ability to improve efficiency, ability to identify target customers etc. Resources of GSK The company has good financial and infrastructure resources including current and noncurrent assets and also intellectual resources like patents, products, innovation, etc. in form of its employees. Noncurrent assets have increased from £22124 million in 2008 to £25292 million in the year 2009 showing good improvement in investments in associates and joint ventures increasing from £552 million to £895 million in the year 2009. GSK allocates significant financial resources to the renewal and maintenance of its property, plant and equipment to minimize risks of interruption of production and to achieve compliance with regulatory standards which is evident from its range of capabilities in producing innovative medicines. (Annual Report 2009) GSK globally acts according to the strategy ‘think globally, act locally’ which refers to the concept to succeed in the modern marketplace, expansion is inevitable but should also focus on the needs of the country in which they operate. GSK has committed its resources to the strategy which is a long term investment to bring benefit to the country. (Bonnye et al, 2007) GSK has various useful resources which shall be useful in the near future to achieve its objectives which include intellectual property like patents, trademarks related to their innovative medicines, use of information technology in supporting the merger process, enhancing global communication and business performance, transforming and extending business activities. (www.gsk.com) Capabilities GSK, for many years, has invested in developing its influenza capabilities. GSK immediately responded to the WHO in order to manufacture vaccine for H1N1 flu pandemic which was supply all over the world. GSK claims to have the potential to launch number of brand new medicines and vaccines including Benlysta, the first of its kind to cure systemic lupus. GSK also received 12 product approvals and 11 new product filings. The company has strong human, financial, infrastructural resource which increases the capabilities of the organization to create, innovate and manufacture new products like H1N1 or Benlysta, before its competitors thus providing them a competitive edge over their rivals. Conclusion In conclusion, it is worth noting that the continuous improvement in the performance in the company against its competitors can be greatly attributed to the fact that the company has established a strategic position in the market and it also ensures that it meets the needs of its client’s. This report is an essential source for data, analysis and strategy. It has been made possible through the analysis of its strengths, weaknesses of its products, the available opportunities in the market and the possible threats that do exist with the market sphere. Moreover, it is clear from the research work done that the pharmaceutical industry has much of untapped potential and it will be interesting to see how the industry matures over the long term. Undoubtedly, the long history and global expertise of firms like Pfizer, Glaxo Smith Kline and Merck will stand them in good status so as to create and benefit from emerging global opportunities. This company’s strengths and complacency must be guarded against because smaller, agile and innovative firms are on the prowl and all it takes for the small upstarts is a super drug that can change the entire face of the industry. References 1. Angelmar, R., Angelmar, S. & Kane, L. (2007). Building strong condition brands. Journal of Medical Marketing (2007) 7, 341–351. 2. Atkinson, W, et al 2000, Centers for disease control and prevention, Epidemiology and Prevention of Vaccine-Preventable Diseases. 6th ed. Atlanta, GA: Public Health Foundation; pp.207-229. 3. Bonnye E. Stuart, Marilyn S. 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