Pharmaceutical Industry and Market - Example

Assignment, Business Strategic Management 0 Pharmaceutical Industry and Market: Home Pharmaceuticals is a major player in the pharmacy industry, and is headquartered in Malaysia. Pharmaceutical business in its modern say is technology focused with advanced research and development activities as the precursor of most nations. Company is possessed by Osman and his family. The chairman of the company is Mr Haji Mohd. and B. Osman, Mr Mohammad was a one of the most respected chemist who started to plan new products.Governments from developed nations openly support the state industry giving it potential for latest modernizations and exports and contributing to state health. It is a research-based international pharmaceutical business that produces and develops pharmaceutical products for both animals as well as humans. “Competition in the pharmaceutical industry lies mostly in specific drug markets’ (Pfizer (PFE) 2006). The business is normally dominated by OTC medicines and the manufacture of modern drugs , with a global industry expansion of 7.5% yearly expected between 2014 and 2019. The Pharmaceutical Industry environment is an ethics based business intended for providing services and products for human consumptions in addition to biotechnology and chemical medicaments. The 21stcentury has brought about many transformations in pharmaceutical industry and at present is highly competitive non-assembled global business.The present Chief Executive Officer for Home pharmaceuticals is Mr.PK Lee while the Chief Operating Officer of the Home pharmaceuticals is Mary Chua. 2.1 Industry Analysis I 2.1 PESTEL Analysis The PESTEL analysis designed to identify the macro environments of the Home pharmaceuticals is subject to certain constraints that influence the planning and decision making. Certain aspects in the macro environment are classified as the PESTEL representation. PESTEL framework of this company is designed to provide the manager a methodical tool to recognize various macro-environmental aspects that many influence strategies of the business. Figure 2.1: PESTEL Framework for Home Pharmaceuticals Industry Environment: Home pharmaceutical company must always be on the move, constantly on the edge and at all times first in making products and innovations that facilitate the existence of mankind. The business faces a need for accelerated savings, so as to deploy the new skills, for pressing economic, geo-political, ecological and social reasons. The business is functioning in the macro environment and there are numerous factors that affect the business in the macro environment. Suppliers: The main suppliers point in the way in which Home Pharmaceuticals sells its products in the global market. The business has its own fleet of transportation. The production hub is accessed smoothly by Damansara-Puchong thruway though traffic jams frequently restrict the seamless flow of products to retailers and suppliers. Competitors: Rivalry is the one of the fundamental aspects of the company that poses a major challenge to them. The competitors of the company are Pharmaniaga Manufacturing Berhad, Hovid Berhad, “Kotra Pharma” (Kotra Pharma News and Events 2009). (M) Sdn Bhd, and CCM Duopharma Biotech Sdn Bhd.” Pharmaniaga Berhad, a member of the Boustead Group of Companies, is the largest integrated local healthcare company in Malaysia” (Business Overview 2014). Customers: Company started to sell its products and services through suppliers to local hospitals and Doctors. This was the indication to a modern culture inherited by the company presently. Government: The government is without any doubt motivated by key development areas for the nations such as, discoveries of new drug, biotechnology, acquition of licensing and technology, production of generic drug and new chances in the halal pharmaceuticals area. A new free trade agreement of the European country will be beneficial for the nation to smoothly sailforth. Likewise, the government is concerned regarding the rising communicable and non-communicable illness in the country and research and production in drugs for such diseases will be of high scope. Volatility: Volatility is the one of the threats that Home Pharmaceutical Company faces. Increasing the price of the products of the competitors will affect the companies profitability. Wholesale price of the company will come under threat. “The medical expenses offset, a 20% tax offset for annual medical expenses above $2120 in the 2012-13 financial year may also apply” (Mihm 2013). Strong environmental facility is the necessary to the overall success of the company in the competitive world. Strong social challenges for Home Pharmaceutical are common to the majority of the businesses for example a social stigma connected to hearing loss and increasing prices but modernization for the company key to hearing aids going forward. Strong legal support helps to expand the business in the other nations so as it will help to increase the overall profit of the company. Strong technological support to the company is necessary to offer better products in the market. New discoveries and modernizations can be attained only through strong technological support. Strong political support can facilitate a suitable environment for the functioning of the company. It includes stability of the rule making authority, social welfare policies, policies related to tax and trade and entry mode regulations. 2.2: Element Narrative: Political Factors: The political environment appears to support government policies and the economic involvement in the pharmaceuticals business. The pharmaceutical business has attracted so much attention on political factors to its momentous impact to the financial system due to the growing rate of healthcare that proved to be a trouble. Most of the policies of the government worldwide are being determined mainly due to the political pressures. The rising socio-political pressures in the industry of the health care pharmaceutical business are at the present being forced by government policies from all over the world to lower their cost. Economic Factors: The economic environment of Home pharmaceutical is based on rate of interest, economic developments, tax variations, price rises and exchange value changes in the nation. The major factors are the good growth and the increase in the GDP, improvement in the payment from the diverse parties, which may guide them to the change in the high disposable income and the intense development in the economical constraints. Social Factors: These factors are critical because it comprises the changes in social trends and the impact created on upcoming demands projected for the convenience of the service and compliance of individuals. The customers complain about the high costs of drugs except high quality drugs and alsowant such companies to meet their social obligations. Technology Factors: The technology environment continues to change and this aspect consists of the innovation, new product development and the discarding of the obsolete ones in the market. The technology consists of the use of the various information technology devices and processes in the industry. The growth in technology is exceptional forcing pharmaceutical business to accelerate adopt to transformations in the industry. Environmental Factor: People are concerned about the natural environment because governments and customers both become antagonized about companies that cause negative impact on the environment. Human impact upon the environment is a rising concern, and businesses must refer to both the political and social divisions of PESTEL in combination with this. Legal Factor: The industry is very much dependent on strong legal support. The last aspect is the legal components involved, which can also be coupled to the political framework. Legal issues for example “affirmative action cases” (What Affirmative Action is And What It Is Not n.d.) infringements of the patent and anti-trust laws, health policy, and regulations of the safety can all play a huge role on a business that does not act correctly. Overall Industry Environment: The overall industry environment influences the company considerably. In relation to Home Pharmaceuticals it always enjoys a edge over its rivals, at every time of making new products with the intention to facilitate the solutions to the diseases. Going forward, these factors result in the introduction of new technology and then it will be easier to generate quality medical products which would help diseases and even immortality. Home’s assessment at the PESTEL stage most likely means providing tools to citizens around the world who are down with illness and disease. PEST analysis primarily focuses on the results of the environment outside the company. Political pressures to reduce the cost can be addressed without influencing the profits by lowering operating price. Carrying out a “PESTEL” (What is the PESTEL Framework 2014) analysis manager may generate new strategies that take various macro-enviornmeal factors so that formulation of the strategy will be as sensitive to future and present factors of the environment as possible 3. Industry Analysis II 3.1 Introduction to Five Forces: The analysis of Five Forces helps in planned business managers to examine the industries in which their companies operate, to decide what could be done to get a benefit over their present competitors and also to decide how attractive a specific company will be for new entrants. The five forces include “Threats to New Entrants,” (Kaiser 2009). Rivalry within the industrial community, bargaining power of buyers, bargaining power of suppliers and availability of substitute products. Following the table of Home Pharmaceuticals five forces analysis; Figure 3.1: Five Forces Model for Home Pharmaceuticals 3.2 Five Forces Narrative: Suppliers: Figure 3 indicates the supplier’s power of the Home Pharmaceuticals. Home Pharmaceuticals provide benefit when the company bargains with the suppliers. Still concerning the purchase cost of raw materials and specially chosen agricultural-based resources completely depend on short term imbalances and market conditions among demand and supply. The main suppliers are doctors and retailers. As biggest pharmaceutical organizations in general rely on the supplies of commodity that are mostly based on international market costs, the quantities of purchasing amount are high. Home Pharmaceuticals still has a benefit when “negotiating with suppliers,” (Negotiating with Suppliers n.d.) if a vertical assistance is started for big quantity of organizations total purchases. The supplier power improves all for suppliers. Potential Entrants: Earlier analysis of the industry indicates that the threat of new entrance is low. As Home pharmaceutical business has few big industry players that control the market “threat of new entrants” (Kaiser 2009) is comparatively low, and is extra reliant on probable mergers and strategic alliances between the industries. The Home pharmaceutical has grown its research into new products containing health food supplements and bio-medical containing more lately radical novelty in hearing devices. This strengthened organizations positions in market, and similar mergers can be expected by competitors. Other threat can be perceived in small organizations that could expand drugs and during mergers could develop their market share in particular market sections. Still due to incredibly high resources required for technological growth the “threat of new entrants” (2009) is low. Buyers: Currently, buyers of the company’s products range frame moderate to high. They include retailers, wholesalers, clinics, hospitals, pharmacies and “government agencies” (Summary: Trovan, Kano State Civil Case – Statement of Defence 2007). The largest wholesalers have an important buyer power when buying manufactured products of Home pharmaceutical due to organizations revenue dependence on them. Apart from this, about three main traders none of the business sections is reliant on anyone buyer or their group. Also “the healthcare reform” (Adams 2013) in United States will influence the industry: the better amounts of drugs governmental changes have been planned that would permit the government of US to straightly negotiate costs with pharmaceutical producers for Medicare beneficiaries that expectedly will limit access to and repayment of the products of Home pharmaceuticals. This gives an extremely low buyer power for wholesale business and end customers in case of sole drugs for that the demand of market is high. Substitutes: Presently Home pharmaceuticals faces certain threats to their products of substitute but this is not a serious concern. The international market for drugs is huge and rising with half of all sales made by the top 10 international companies. On the other hand, global competition at a manufacturing level is quite pronounced though there appears to be room for niche, high-end quality products and low cost generic products. Still in rising markets and in increasing economies import policies and other legislative matters and the threat of substitute products can be a concern. Thus “threat of substitute products” (Porter’s 5 Forces Analysis 2008) of the Home pharmaceuticals can be perceived as high and can considerably affect the future revenues of the company. Even currently patent protected drugs face rivalry from common production. Compliments: The compliments to the industry relate to the all Five Forces. Rivalry: Overall, the business is exhibiting strong competition. The market of the industry conducts its dealings and the pharmaceutical firms are extremely competitive. The major issues of rivalry in pharmaceutical industry are accurate search for technical innovations, and capacity to market them in efficient way. Home pharmaceuticals energetically uses external sources, making joint ventures and licenses. On the other hand, introduction of new goods and processes results in lesser incomes, and naturally in this industry, the amount of compounds for specific treatment of illness even if protected by patents “face competition” (Appendix A 2012 Financial Report 2012) from same goods after of new medicines are introduced. Home’s main competitors also compromise healthcare groups. They include Pharmaniaga Manufacturing Berhad, Hovid Berhad, Kotra Pharma (M) Sdn Bhd and CCM Duopharma Biotech Sdn Bhd. 4.0 Industry Analysis III 4.1 Key Success Factors Table for Home Pharmaceuticals Table 4.1 Key Success Factors for Home Pharmaceuticals Industry External Forces/Needs Current Key Success Factors in Industry & Response to External Forces/Needs Key Success Factors going forward? Pharmaceuticals The increasing health standards & regulations Social factor keeping the well being of the society Etc Technological factor business faster evolving atmospheres in the industry The rising socio-political pressures in the industry of the health care pharmaceutical business Global funding partnerships for research. A high proportion of innovative biotechnology companies. High rates of R & D. Strong rates of commercialization. Government support nationally Global funding partnerships for research are the success factor of the Home Pharmaceuticals. The innovative biotechnology companies provide much of the success in the Australian industry is its spending on research and development and its investment in bio-technology research intensive industries. High rates of R & D providing expand new technology or develop existing technology. Commercialization helps increasing manufacturing costs in technology process. Government support is very effective in future Home Pharmaceuticals marketing. Key Success Factors are used to define strategies that are important for the success of business. “Key Success Factors” (Key Success Factors n.d.) are those purposes, actions or practices of business, described by the market and perceived by the clients, and are of critical significance to the relationship with customer. These factors are also defined by the market and by the consumer, not by the organization. They also relate to processes, skills and systems. There are mainly three variables to consider the Key Success Factors. The primary variable is to consider if the purpose, business practice has important qualities of market differentiating or customer value. The next variable is to perceive and sort the problems in conditions of order qualifiers. That is, the purpose and activity have to be done to complete the transactions of business failing which; value addition cannot occur. The third variable is the greatest consideration of all as “order winners” (Brito et al. n.d.). That is the purpose, activities are conducted in a better fashion to overcome the rivalry and are extremely valued by the client. 4.2 Key Success Factors Narrative Five key success factors for the industry: 4.2.1 KSF 1: Global Funding Partnerships for Research: Global Funding Partners of Home Pharmaceuticals is committed to assist by making the most of the investment to profitable realty. Using the financial qualifications and goals, mortgage preferences the company directly offer lending plans all through the country. The global market for drugs is huge and rising with half of all sales made by the top 10 global companies. On the other hand, across countries, global competition at an industry level is quite pronounced though there appears to be room for niche high-end quality products and “Low-Cost Generic” (Increasing the Availability if Safe, Effective, Low-Cost Generic Medications 2008) products. This KSF is most success factor of the Home Pharmaceuticals. 4.2.2 KSF 2: A High Proportion of Innovative Biotechnology Companies: The Home Pharmaceuticals consists of mostly biotechnology firms and bio-medical research, generic and originator medicines organizations and service connected segments containing wholesale distribution. By 2009-10, the business employed above 40,000 people with a turnover more than $22 billion; whereas Australia’s population is comparatively small to global standards; it consumes more than 1% of whole global sales and is predictable to export above $5 billion from the year 2014 given further projections. This evaluates with China for example with a drug market positioning about 8th but with the biggest population in the world. Much of the success in the Australian industry is its spending on research and development and its investment in bio-technology research intensive industries. 4.2.3 KSF 3: High Rates of R & D: High rates of R & D of Home Pharmaceuticals expand new technology or develop existing technology. Developing a successful R&D department could need a huge capital investment which a lot of small businesses might not be able to afford. Understanding the benefit of R&D in business could help justify the costs. Capital injections will considerably raise new innovations; debt to equity might increase which may entail negative return on investments. 4.2.4 KSF 4: Strong Rates of Commercialization: Commercialization is perceived as a process of marketing a new product into the industry. The real start on of a new product is the last stage of “new product development” (New Product Development 2009) and the one where the majority of investment be spent for sales promotion, advertising and other marketing efforts. Home presently receives no assistance from the existing government for R&D or considerable tax write-offs. The Home pharmaceuticals current CEO PK Lee estimates that based on present and forecasted demand, the market share can decrease by about 0.5% in Home sales with a rising heavy reliance on Hearing Devices going forward. PK has also been concerned about increasing manufacturing costs in technology procedures and an over reliance on older technologies to expand and test new products. 4.2.5 KSF 5: Government Support Nationally: Government support of Home pharmaceuticals is very effective in the business. In this case, Malaysian government has enhanced the national health budget by about 14.5% that appears similar to the PBS system in Australia. The Government is possibly prompted by key development areas for the country in the areas of new drug discoveries, biotechnology, licensing technology and acquisition, generic new opportunities in the “halal pharmaceuticals” (Akasah n.d.) region and drug production. A novel EU free trade agreement will be helpful for the nation to go forward. Likewise, the government is concerned regarding rising for example diabetes with as a minimum 4.5 million sufferers forecasted by 2020. 5. Return on Assets (ROA) Forecast: “ROA” is the ratio of yearly net income to common total assets of an industry during a financial year. It is calculated with the formula: “income ÷ Total assets” (Formulas and Definition of Variables n.d.) or Operating Profit/Total Assets or Net Profit/Average Assets. Forecasted ROA of 2014/15; Year 2014 2015 ROA 110,000,000.00/1443.2 =76220 110,500,000.00/1555.92= 71019 The table above shows the return on asset of Home pharmaceuticals of 2014/15. By this analysis it can be seen that ROA shows decreasing trend. A decreasing ROA signifies less profitability. So to develop the return on assets the company has to enhance Net Income without investing on new assets. References Adams, A. D. 2013. United States Securities and Exchange Commission. Division of Corporate Finance. [Online] Available from [Accessed on 07th May, 2014] Akasah, T. n.d. Overview of Halal Guide for Pharmaceutical Industry MS 2424. National Pharmaceutical Control Bureau. 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