The changing nature of competition within the global pharmaceutical - Assignment Example

?Pharmaceutical industry is under a of constant revolution ever since its official origin in the nineteenth century. This is due to the reason that it is an industry that is characterized by research and development processes that are highly risky, costly and time consuming; along with purchaser pressures, increasing government regulations and intense competition. The nature of the competition in this field has also been in a constant state of revolution along with its changing entities. While, in the 1960’s regulatory controls were held on a lighter end, due to rapid expansion of the industry along with the medical practitioners insensitive to the price entity; on the other hand, the industry demographics shifted in the 1970’s following a series of events, to constitute an environment that was ruled by strong regulatory bodies and increased patent protection. This is just the example of how industry shifted over a period of two decades alone. Over this period the competition started to get a boost through introduction of generic medicines competing on price. This entity of generics had a major impact on the level of competition in the pharmaceutical industry in terms of providing incentives and a race to market. In other words switching to generics is one of the most common and convenient ways to save cost. They are even being used as fist line treatment options with patent drugs used only once they fail. This also presents with it increased rivalry and competitiveness within the industry. Such challenges have been attempted by the organizations to counter using various strategic responses such as disease management initiatives or demonstrating added value offerings of the drugs in terms of various related entities. Porter’s Five Forces Analysis: Threat of Substitutes: When it comes to the pharmaceutical industry, the primary threat that the companies is faced with is of Generic Brand Medication. However, they may be countered through the factor of patents. Other than that, companies in the pharmaceutical industry can also be faced with threats from Complementary Alternative Medicine and alternative medicine which could serve as substitutes; with alternative medicine would serve as a substitute even more so based on the fact that it is not influenced by the pharmaceutical industry (What is CAM?). Threat of New Entrants: The pharmaceutical industry is an industry that has exponentially high barriers to entry making the threat of new entrants as being relatively low. A few of such barriers are the great costs required to enter the industry, extremely high Research and Development investments, costly and time consuming production process, which combined with strict government regulations and patents makes it really hard for anyone to initiate an entity in this field be it even the big bees. Also, the established firms in this industry are strong enough and well differentiated along with having a loyal customer base making it extremely hard for anyone to develop a brand name and get it recognized (Pharma: Through Porter's Eyes, 2004). Bargaining Power of Suppliers: In terms of the supplier side of the pharmaceutical industry, we see that it constitutes of various entities such as raw material producer and suppliers, local- co-marketing partners, internal labour and even the patients for clinical trials etc. When it comes to the threat presented by the supplier side in terms of their bargaining power we see that though all the suppliers present with themselves varying degrees of threat, but it is no more bigger than the threat presented by any such suppliers in other industries either. So, we can say that though there is some extent of threat present, but it is not that exponentially high. Bargaining Power of Buyers: The biggest buyer of the pharmaceutical industry is the government sector and it is one that can impose pressures on the pharmaceutical companies to achieve their own purpose. In addition to that, big hospitals and drug stores can pressurize the company to lower its prices provided they are buying a large stock and hold greater power. Taking the buyer power indicators of threats into consideration i-e the number of buyers, product differentiation and product significance of a buyer’s final cost, we see that the firms primarily spend their R&D budget on new patent drugs hence is not so much under threat. However, there are a lot many players in this industry and the buyers could easily shift among similar drugs as in the case with Generics for lower cost. Internal Rivalry: Pharmaceutical industry is as such that it requires the companies to set its strategies as such that it pays off in the long run. For this purpose mergers and acquisitions are quite common in this line of work, which on one may neutralize competition in the market place to some extent, but on the other it still boosts new avenues for higher level of competition (The pharmaceutical industry). The company’s ability to attract buyers primarily depends on the demand it exhibits. In pharmaceutical industry, the rivalry is as such that with all the production and R&D costs along with the strong regulatory bodies, makes an environment that imposes the rule of survival of the fittest. For this purpose, the companies in turn, use foresight and plans based on educated projections along with continues innovation to stay at par with the other players in the market. Industrial Scenario: When it comes to pharmaceutical industry, we see that it comprises of various industrial sectors, each of which requires a different strategic approach for its survival and striving for gaining a competitive advantage. For example, for a company operating in the ethical drugs line would need to focus more on rationalizing the number of production sites, giving incentives to restructure manufacturing, placement in strategic locations with tax or cost advantages. Another category is that of biopharmaceuticals, the line of which has become quite main stream over the past few years. It is an extraordinarily diverse and innovative sector, with equal amount of risks as its opportunities which have to be balanced out. Then, they also rely on defending their intellectual property in specialized fields and gaining funds and deals to stay on top of everybody else. Then, we also have the OTC medicine line which may be categorized as being costly but can prove to be profitable based on consumer brand loyalty. So building upon this factor of consumer oriented marketing, through designing the strategies accordingly, becomes the primary factor to stay on top of the market. Lastly, we have the category of vaccines that characterizes another sector for the pharmaceutical industry. Now, this sector has a whole different set of benchmarks for the strategic implementation of its business processes based on the fact that it requires a lengthy research and development expenditures, specialized set of skills for manufacturing and ultimately high barriers to entry. As all the sectors require such diverse line of approaches in their strategic implications for sustainability, hence, even if a company is operating under various sectors of this industry, it would still have to construct a different strategic structure for each of its operational sector. Geographical Scenario: The strategies also differ on geographic classification of the key markets, necessitating a different strategy to be opted by the industry players accordingly. In US market place the scenario is as such that it is fuelled by rapid growth prospects which in turn, has also impacted the market dynamics of the pharmaceutical industry. The line of action taken by the companies then had to be designed as such that it took into consideration the cost control measures along with promoting innovation through promoting optimal over cheap care (Lewis, 2010). For Japan, the scenario is slightly different where the domestic companies dominated the market. Here the market growth came to a halt following recession in the 1990’s resulting in price cuts and stringent of price controls. In such an environment it becomes hard for the entity of competition to thrive. In case of European markets, the government plays quite a vital part when it comes to cost containment plans, as a result of which the operational planning of companies become quite unpredictable and has to be moulded accordingly. While, the European expansion provides the companies with increasing opportunities, it is also resulting in all the more challenges and competition in terms of generics and low priced imports. Similarly, when it comes to the Asian markets, one major factor of competition was the copy products, which have eventually been started to dealt with through intellectual property reforms. Along with all such challenges of varying degrees being faced all around, the factor of emerging markets has also provided ample opportunities of expansion and thriving, in terms of new levels of unmet needs that need to be catered for, providing the pharmaceutical industry in particular with significant long term potential (The Global Pharmaceutical Industry, 2007). Role of Innovation and other factors: Pharmaceutical industry is a line of field that requires continues innovation and keeping up with the latest advances in the field of technology. The key factor that serves the companies in pharmaceutical industry as a solid plus point is their ability to take and pursue innovation down to the practical implementation and execution of it. The key factor that determines the companies’ competitive advantage now, is their Research and Development abilities (Clover & al, 2002). In today’s age and time, a highly profitable category of this industry is that of blockbuster drugs. While, on the plus side it provides the company with rapid and deep market penetration; on the other hand, it presents the company working in such a high stakes industry with great levels of risk. Over the past few years, the Research and Developments productivity has been on a decline with the development time span on a steady rise. This, combined with the complexity and costs of clinical trials, has resulted in an exponential rise in the Research and Development expenditure. The companies in this pharmaceutical industry now have to strive for being creative and efficient at the same time. The company can either opt for an internal strategy for gaining advantage for example strong team work and knowledge management etc, or it can work on its external capabilities such as flexible operations and outsourcing. However, the subject matter of successful levels of Research and Development as being sustainable or not is still subjective (Ramrattan, 2006). In addition to that, the companies can also gain an advantage through effective investments on the marketing side, opting for strategies based on whether they pursue primary care or specialist products, which in turn determine their course of action for skills required, sales volume and marketing spend. Another factor that has gained quite recognition in the twentieth century is that of Corporate Social Responsibility. The companies all around now, also have to maintain a corporate image and position itself as such that it projects an image of it being socially responsible and considerate. Same is the case in the pharmaceutical industry where the companies also have to maintain a positive and constructive facade to maintain their competitive position. Works Cited Clover, G., & al, e. (2002, March 19). Competition in pharmaceutical market place. Retrieved February 18, 2011, from Statement Phrma: www.ftc.gov/opp/intellect/020319gregoryjglover.pdf Lewis, J. (2010, November 26). Pharmaceutical industry issues in US. Retrieved February 17, 2011, from eHow: http://www.ehow.com/list_7402439_pharmaceutical-industry-issues-united-states.html Pharma: Through Porter's Eyes. (2004, August 27). Retrieved February 17, 2011, from rediff.com: http://www.rediff.com/money/2004/aug/27pharma.htm Ramrattan, L. (2006). Global competition and the United States pharmaceutical industry. American Economist . The Global Pharmaceutical Industry. (2007, April 15). Retrieved February 17, 2011, from http://www.duke.edu/web/soc142/team2/trade.html The pharmaceutical industry. (n.d.). Retrieved February 18, 2011, from Federal Trade Commision: http://www.ftc.gov/reports/pharmaceutical/drugexsum.shtm What is CAM? (n.d.). Retrieved Feburary 18, 2011, from NCCAM Publication: http://nccam.nih.gov/health/whatiscam/ Read More