Business Analysis of Home Pharmaceuticals - Case Study Example

Home Pharmaceuticals Case Study Name Institution Course Date Table of Contents Table of Contents 2 Home Pharmaceuticals Case Study 3 1.Pharmaceutical Industry and Market 3 2. Industry Analysis I 4 2.1.PESTEL Analysis 4 2.2. PESTEL Narrative 5 3.0 Industry Analysis II 7 3.1 Introduction to Five Forces: 7 3.2 Five Forces Narrative 9 4.0 Industry Analysis III 10 4.1 Key Success Factors Table for Home Pharmaceuticals 10 4.2 Key Success Factors Narrative 11 5.0 Return on Assets Forecast: 13 References 15 Home Pharmaceuticals Case Study 1. Pharmaceutical Industry and Market The industry for Home Pharmaceuticals could be described as technology intensive where research and development is carried out and has the potential for innovation and contribute to national health. Pharmaceutical industry is dominated by innovative drugs and OTC and has a global growth of 7.5 per cent yearly expected between 2014 and 2019. With such growth expected, the worldwide annual sales for pharmaceutical drugs are expected to be approximately $1,158.5 billion in 2014 which is considered the highest growth rate for an industry. The key success factors that contribute to the growth of pharmaceutical companies include enhanced innovative biotechnology companies, high rate of commercialisation, government support including funding mechanism, strong regulatory environment to name a few. The global market for pharmaceutical products is large and growing rapidly. Nevertheless, international competition in the pharmaceutical industry is quiet pronounced across countries. However, there is room for improvement with regard to low cost generic products and high-end quality drugs. In the Asia Pacific region, the big markets for pharmaceutical products include China, Australia and Malaysia. Home pharmaceutical is situated in Malaysia and is founded upon the culture of research and puts in emphasise in producing OTC drugs and over the years it has ventured into new products such as bio-medical, heating devices and food supplements. Home pharmaceutical has performed well in Malaysia but is unsure of how it will respond to the global competition. There is forecast for growth for every SBU by unit and price. Even though OTC brings about the largest turnover, it requires large capital investments in order to remain competitive. SBU 1and SBU 3 is expected to increase or decrease by small proportion with regard to current competition. On the other hand, SBU 2 is based on a 50 per cent split between export as well as national sales. Hearing devices are of concern due to competition from Sonova, GN ReSound and William Demant. The development of wireless and FM technology are some innovations of Home pharmaceutical driven by the increasing population of aging people where one out of 6 people suffer from hearing impairment. Home pharmaceutical is faced with the challenge of the increasing cost of medicines and drugs which tend to reduce its sales. The company name is well known in Malaysia due to its research profile though some of its competitors have more intensive research thus becoming a challenge to Home Pharmaceutical. Some major competitors of Home include Pharmaniaga Manufacturing Berhad, Hovid Berhad and Kotra Pharma among others. 2. Industry Analysis I 2.1. PESTEL Analysis PESTEL Analysis is designed to analyse the technological, political, natural and social-cultural changes in business environment. Therefore, it assist in understanding the forces of change that businesses are exposed to and therefore an organisation is able to take advantage of the opportunities presented to it. Generally, PESTEL analysis allows us to understand and adapt to future business environment (Grant et al., 2014). It categorizes factors affecting organisations into six factors namely: political, economic, social and technological, environmental and legal factors. Each of these factors indicates that organisations can be better off if it can analyse the challenges, opportunities, environment and incentives it faces (Grant et al., 2014). Figure 2.1: PESTEL Framework for Home Pharmaceuticals 3. 4. 5. 6. 7. 8. 2.2. PESTEL Narrative Political: The political environment appears to support home pharmaceutical since Malaysia has strong political stability and highly supports pharmaceutical industry. The International Environment: This international environment is highly competitive. Home pharmaceutical’s major competitors include Sonova, GN ReSsound and William Demant to name a few. Socio-technical Factors: These factors are critical because they have a direct influence on how pharmaceutical industry understands their customers and what drives them. They assist home pharmaceutical understand the dynamics of its potential markets and their needs. Technological: The technology environment continues to change and this tends to create new business prospects with regard to new therapy and drug provision. Home pharmaceutical has introduced major innovations such as wireless and Bluetooth and customized treatment. The Natural Environment: People are concerned about the natural environment because it affects their wellbeing especially pollution from pharmaceutical industry. Home pharmaceutical should see how their operations affect the natural environment and should incorporate environmental sustainability programs. Legal Conditions: The industry is very much dependent on strong legal framework that supports pharmaceutical operations. Ease of starting the business, low taxation and ease of entering the industry are some factors that enhance growth and success of pharmaceutical industry. Overall Industry Environment: the overall industry environment is very much influenced by suppliers, customers, competitors, technology to name a few. In relation to Home Pharmaceuticals, competition is high, they use advanced technology and government supports the industry. Going forward, these factors are expected to be controlled in order to enable the growth of the company. Home’s assessment at the PESTEL stage most likely means that political, technological, social and legal factors are favourable for the growth of the company According to business theory for company growth, for any organisation to succeed in today’s economy, it must have knowledge of the external factors and current market (Grant et al., 2014). A company should have the necessary knowledge about the changing needs of the customers, management processes, its legal requirements and economic trends. The company should be considered as a whole for it to grow and this depends largely on a firm in its entirety. To achieve optimum growth, a company must consider factors such as policies, how authority is exercised, structures, etc. (Vovchenko, Kochka and Pogorelenko, 2015). According to the theory for company growth, in order to gain the clear picture of business environment, external and internal contexts need to be analysed. PESTLE analysis provides the external framework which enables a company to determine opportunities and threats (Vovchenko, Kochka and Pogorelenko, 2015). On the other hand, internal framework can be determined by analysis of the strengths and weaknesses. Developing the understanding of Home Pharmaceutical environment is a fundamental step towards developing strategy and reviewing information for goal setting process. 3.0 Industry Analysis II 3.1 Introduction to Five Forces: The purpose of the five forces is to understand exactly where power lies in organisational situation. It helps to understand and highlight the strengths of the current competitive positions of a company. Generally, the porter’s five forces are used to identify whether business operations or products have potential to bring profits (Grant et al., 2014). Figure 3.1: Five Forces Model for Home Pharmaceuticals 3.2 Five Forces Narrative Suppliers: Figure 3 indicates that for suppliers, the bargaining power is low since there are so many players in the industry with diverse supply channel which increases the competition of suppliers and therefore reducing the bargaining power associated with them. Potential Entrants: Earlier analysis of the industry indicates that pharmaceutical industry is unattractive for new entrants. This means that there is low competitive force with regard to entry as a result of regulatory constraints and strict government regulations. . Buyers: Currently, buyers exhibit medium bargaining power. This is attributed to low price sensitivity, products are important to customers and large number of customers. In addition, hospitals buy in bulk and thus exert pressure on pharm organisations to keep the prices constant. Substitutes: There are many substitutes in the pharmaceutical industry. In addition the closeness of substitute is very high. This can be attributed to the generation of generic branded drugs that are alternative for brand name medicines and treatments. Therefore, the pharmaceutical industry is faced with high threat of substitute. Compliments: The compliments to the industry relate to technology and volatility of the market. The industry is described as technology intensive with regard to research and development practices which contribute to the national health. Overall Industry Rivalry: Overall, the industry is exhibiting strong competition. For Home Pharmaceuticals, this means that larger competitors are acquiring market traction. Similarly, in response to this, Home might establish strong capitalisation and intensive research in order to survive in the market. If not, it will lose to its competitors. Generally, the degree of rivalry is a high competitive force. Competitive advantage illustrates the means by which business organisations achieve success (Kannan, 2013). A review of approaches and theories for building competitive advantage suggest that marketing plays a fundamental role. Some popular approaches are strong market position where products cannot be substituted easily, strong bargaining position, innovation, time based competition, core competencies and entry barriers to name a few. The principal emphasis is on protecting and enhancing market positions. In addressing competitive advantage, business has drawn from porters five forces model. According to Kannan (2013), competitive advantage is achieved by considering external and internal changes. These changes assess a business potential for profitability in any given industry. They can be organised into five competitive forces developed by Porter (Abdul and Adris, 2010). The five forces analysis was develop in reaction to SWOT analysis which was considered unrigorous and ad hoc. According to Hills and Jones, (2009), five forces analysis constitute strong threats to profitability and when responded favourably can result to long term profitability of a given industry. 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 The increasing competition Strong political stable environment Changing technology Government support nationally Strong rate of commercialisation Capacity to create strong innovation culture High rate of research and development Global funding for research Partnership for competitive advantage Much stronger growth in innovation Development of strong regulatory environment Stronger drug approval methods Stronger R &D sectors 4.2 Key Success Factors Narrative 4.2.1 Pharmaceutical manufacturers should be based on strong government support in terms of funding and collaboration with stakeholders. This KSF is critical for the industry because without government support, the industry will be able to handle its technical aspects as it requires a lot of capital and also it will be affected negatively by the increasing health restrictions and regulations. 4.2.2 Pharmaceutical industry should be based on strong rate of commercialisation that will allow accompany stand out from its competition and thereby to institute stable strong relationship with the market it operates on. 4.2.3 Pharmaceutical companies that are based on new and enhanced innovation culture are able to establish a stronger presence in the market in addition to boosting its competitive advantage. Enhanced innovation set aside a company from its competitors. 4.2.4 Research and development determines the magnitude, success and effectiveness of growth of pharmaceutical industry. R &D should focus heavily on improvement in quality of output and should be carried out by experienced human resource. Therefore, pharmaceutical manufacturers should develop a high rate of research and development. 4.2.5 Pharmaceutical industry requires a lot of capital for its operations. A huge percentage of the capital is required in carrying out research and development. Many companies lack enough capital to develop enhanced R & D and therefore global funding for research will assist in production of high quality drugs. The key success factors are used in different ways. To start with, they are necessary components in the management information system, they act as unique feature of a company, and they are tools used by managers to sharpen their thinking and are resources needed in the success of an industry in a given market (Gassmann, Reepmeyer and Von, 2004). For any company to succeed, it requires five factors namely: employees, customers, purpose, processes, and physical resources. According to Blau et al., (2004), what you do to the above mentioned factors determines the success of a company. In any industry, the key success factors are based on the five unique factors of success. Today, pharmaceutical industry is faced with many challenges as a result of the ever-changing conditions in terms of political and legal concepts. In addition, there is essential need for enhanced research and development and innovative processes. For these reasons, the industry is faced with challenges with regard to producing quality drugs. In order for such industry to succeed, Pumpin 2005) suggests that a goal-oriented approach should be developed by business organizations for pursue of long term goals. Such approaches may include the above mentioned key success factors for pharmaceutical industry. The exploration of the key success factors by an industry is useful for strategy development which is required for the success of a company. Every industry has its specific and unique key success factors which depend heavily on its mission and operational styles. 5.0 Return on Assets Forecast:  Where: ROA = Return on Assets NP = Net Profits TA = Total Assets 1. In the year 2014 2. In the year 2015 3. In the year 2016 4. In the year 2017 5.1. Graph of years versus Return on Assets References Abdul Aziz, S., & Idris, 2010, K. E-Government Application: The Challanges in Malaysia. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2184632 Blau, G., Pekny, J., Varma, V. and Bunch, P 2004, Managing a Portfolio of Interdependent New Product Candidates in the Pharmaceutical Industry, The Journal of Product Innovation Management, No. 21, p. 227-245. Gassmann, O., Reepmeyer, G. and von Zedtwitz, M 2004, Leading Pharmaceutical Innovation, New York: Springer-Verlag, Berlin, Heidelberg. Grant, R, Butler, B, Orr S& Murray, P 2014, Contemporary strategic management: an Australian perspective, 2nd edn, John Wiley, Milton, Queensland. Hill, C & Jones, G 2009, Essentials of strategic management, Mason, OH: South-Western/Cengage Learning. Kannan, V 2013, Strategic management in the 21st century, Santa Barbara, Calif: Praeger. Pümpin, C and Amann, W 2005, SEP - strategische Erfolgspositionen. Kernkompetenzen aufbauen und umsetzen. Bern: Haupt, p.112-154. Vovchenko, N., Kochka, V., & Pogorelenko, N 2015, Pestle analysis. sberbank russia. Bulletin Of The Saint Petersburg State Institute Of Technology (Technical University), 54(28), 99-101. http://dx.doi.org/10.15217/issn1998984-9.2015.28.99 Read More