Strategic Analysis of Pharmaceutical Sector Company - GlaxoSmithKline - Essay Example

Strategic Analysis Report on Pharmaceutical Sector Company: GlaxoSmithKline al Affiliation Table of Contents Table of Contents 2Executive Summary 3 Introduction 3 Industry Overview 3 Macro Environmental Analysis 4 Competitive Environment Analysis 6 Internal Company Analysis 9 Mission statement: 9 Diversity statement: 9 Life statement: 9 Values and behaviors 10 Evaluation of Business and Corporate Strategies 10 Identification of Major Strategic Issues Facing Organization 11 Conclusions and Recommendations 12 Reference List 14 Towse, A. 2014, “The UK Pharmaceutical Market”, Pharmacoeconomics, vol. 10 no. 2, pp.1425. 14 Executive Summary The UK pharmaceutical market is the sixth largest in the world. Being an open market, little regulation is usually witnessed. The pharmaceutical industry has become tougher and more competitive due to tighter regulations, raft of patent expiries and technological advancements. GSK, being one of the giant manufactures has found the market very attractive. However, there are certain strategic concerns that may hinder its operations. The company must, therefore, identify and remodel its key areas of operation such as R& D and marketing to ensure long term viability Introduction GlaxoSmithKline Plc. (GSK) is a British pharmaceutical multinational corporation dealing in various drugs, biologics and vaccines. The company has its headquarters in Brantford, London. In the year 2014, GSK was ranked number six among the world’s largest pharmaceutical company. It only trails Johnson & Johnson, Hoffmann La Roche, Novartis, Sanofi and Pfizer. This ranking was done in terms of revenue, making it one of the largest corporations in Britain. GSK came into existence in the year 2000 following a merger between SmithKline Beecham Plc. and Glaxo Wellcome (Anon, 2003). While disruptions in manufacturing and the unfavorable market conditions in key geographical areas have affected its performance, it has always taken necessary steps and strategies to ensure future success. Industry Overview The UK pharmaceutical market is the sixth largest in the world. The market is driven by over 35,000 general practitioners. This implies that it is an open market. However, the leading companies like GSK have stronger presence compared to the smaller companies. According to Towse (2014), the growth in the market has been decelerating in the last three years. Despite this trend, there is still a high worldwide demand for versatile and quality products. Climate has emerged to be a key issue in the industry, with stakeholders striving to come up with products that do not have detrimental impacts on health and the environment. Being an open market, little regulation is usually witnessed. The main economic regulation, however, comes through the Pharmaceutical Price Regulation Scheme (PPRS), which limits the rate of returns associated with medicine sales. The intended rate is that which is equal to the overall UK rate. The pharmaceutical industry has generally performed well and managed to preserve various incentives to invention. There are, however, some current issues that are facing the industry and having an impact on the overall performance. Macro Environmental Analysis Being a dynamic sector, various macro environmental factors affect the operations and performance of GSK. The pharmaceutical industry has become tougher and more competitive due to tighter regulations, raft of patent expiries and technological advancements. Those entities that are able to counter these issues are able to boost their performance and increase their market share. Below is a PESTLE analysis that reveals what is happening outside GSK. Political: The pharmaceutical industry in the United Kingdom has received increased political attention. This is due to the realization that it is a sector of great economic importance. In addition to this, it is an area that contributes to the overall well-being of the population. Increased social attention continues to be directed towards these sectors due to the increased social and financial burden of healthcare. An example has been the debate on the National Health Service, which has elicited divided political opinions. Economic: In the last ten years, UK has witnessed mergers between small and large pharmaceutical players. These are mergers that can be termed as high value ones owing to the economic implications they have. The global pharmaceutical market is estimated to have reached $ 500 billion in the year 2004.UK contributes hugely to this growth by virtue of having the sixth largest pharmaceutical industry. In 2013, the country’s pharmaceutical market alone grew by 15 % (Towse, 2014). Despite the decelerated growth, it still remains a very attractive sector in terms of returns and sales. Social: Pharmaceutical firms play a very key role in ensuring good health in the UK population. In the recent years, the effects of global epidemics such as AIDS and SARS have attracted a lot of media attention and scrutiny. This is due to the fact that such epidemics impact directly on personal and societal wellbeing. As such, the industry is putting more effort in coming up with solutions to these problems. In addition, there has been a lot of effort towards the creation of a society- government- pharmaceutical sector communication. This is geared towards achieving lasting solutions to the rising challenges. Technological: Just like any other sector and industry players, the pharmaceutical sector has witnessed the impact of technology. Various players have embraced modern scientific as well as technological advances in order to adapt to the changing environments within which they are operating in. The advances have necessitated more spending on equipment and the staff who use these equipment. Funds have also been set aside for the sole purpose of promoting innovation in the sector. Legal Environment: Being a sector that deals with health products, the industry is highly regulated. There are several laws, regulations and guidelines that dictate various practices of the stakeholders. All these are envisioned to ensure that the products developed and sold are those that will not have a negative impact on the health of the general public. The government leads the way in enforcing these laws and regulations. This high regulated nature of the industry has, however, limited the level of activity. Never the less, the government strives to ensure that as it regulates the sector, it does not create obstacles that may challenge growth and hinder innovation. Competitive Environment Analysis The competition intensity in the environment where GSK operates in can be best understood by means of the PORTER Analysis. The five forces that are taken into consideration include the buyers and suppliers bargaining power, rivalry with competitors, the threat caused by substitutes, and the new entrants into the market. The five forces are impetrative in analyzing the existing competition intensity in the sector. GSK is able to determine how its rivals are performing and operating. The market has been very attractive for this UK pharmaceutical giant. This can be attested by the huge profits that the company continues to record on yearly basis. The firm has been able to monitor and respond to its rivals by understanding their operations and strategies. Due to the lucrative nature of the market, the chances of new players entering are very high and thus the company must keep monitoring the trends to ensure that it remains competitive. Threats of new entrants For a company to enter a new market, it must be able to come up with the initial capital costs. For the entry into the pharmaceutical sector, the cost is very high. This has prevented some companies from diversifying into this particular sector. The UK government also puts strict rules for those companies who wish to join the industry. This is done to ensure that only companies that are competent enough and capable of producing quality drugs are allowed to do so. Coupled with the huge startup costs, GSK has limited concerns on other companies coming into the market. It has created a strong brand over the years and eliminated some potential competitors through acquisitions. However, bigger corporations continue to be formed through amalgamations and mergers and this is something that must be of great concern to GSK. With time, it will have to face off with these new entrants in order to protect its brand and market share. Threat of substitutes Generic drugs are the major substitute for various pharmaceutical companies like GSK. According to Kasapi & Mihiotis (2011), one of the major products that have threatened items manufactured and distributed by GSK are the Complementary Alternative Medicine products. Such products are delivered to the consumer with only the brand name being different. In addition to this, they are known to be much safer and cheaper as compared to products manufactured by GSK and other conventional medicine companies. Based on this, the company faces a threat of its products being substituted by other alternative and brands. Bargaining power of buyers According to Griffin (2012), GSK allocates a lot of funds in research and development. This is done so that it can come up with high quality drugs. As a result, there is minimal concern over the bargaining power of the buyers due to their small number in the market. The major buyers of the GSK products include patients, doctors and hospitals. Since the company is a top pharmaceutical firm in the world, it has been able to avail funds and use the latest technology and qualified manpower. This limits the buyer bargaining power. The UK pharmaceutical market is oligopolistic in nature and this has further allowed the large corporations like GSK to dictate the prices of commodities and products in the market. Bargaining power of suppliers GSK’s main suppliers include those dealing with raw materials, labor providers, research and development staff, distributors, and marketers (GlaxoSmithKline Plc. 2014). This group may pose a huge threat to the firm due to the central role they play in its operations and performance. This can happen when they withhold or reduce quality of supplies. To check against this, the organization has a record of treating its suppliers excellently. It offers good remuneration packages for its employees. In addition, it has a record of meeting its contractual agreements as well as the terms of the contracts with the numerous suppliers it deals with. This has given it a top position in dictating the terms for the suppliers. As such, the suppliers wield insignificant bargaining power and this quashes the threat they pose to the performance of the firm. Rivalry with competitors According to Anon (2003), the strict government regulations in the sector have ensured that only a few companies are able to be in the market. This in turn limits the number of GSK competitors. The industry is large enough that the company is able to operate and expand without being threatened significantly by other manufacturers. Growth in revenue in the sector takes place very rapidly thus reducing competition intensity. GSK relies on planning and foresight in order to position itself for both long term and short term success. This is an industry that also requires a lot of investment in research and development. Such undertakings are normally very costly; hence, limiting the number of competitors. Despite this being the case, the top five pharmaceutical multinationals provide stiff rivalry to GSK in the world market. Pfizer remains GSK’S main challenger and just like GSK, it engages in discovery, development and manufacturing of human and animal drugs. Being the second largest company in the world, it poses a very huge threat to the performance and profitability of GSK both in Britain and in the world market.PPPWWBottom of Form Internal Company Analysis Mission statement: GSK’s mission is to improve the quality of human life by guiding individuals through its products to do more, feel better and live longer. In order to achieve this, it has undertaken its entrepreneurial journey with a lot of enthusiasm. The company is constantly searching for innovative products that will help it in its quest of improving human life (Healy & Palepu, 2010). It pays a lot of attention to its performance and also ensures that it carries out its activities with passion. All these are identified as being key in developing quality products. Diversity statement: This statement was basically created to enable the company give its employees a dignified working environment. Its employee base is very much diversified and plays a very core role in the achievement of the objectives of the firm. With this diversity comes different backgrounds, cultures and views. This enables the company to understand the potential patients and users of the products better. The company has always been in the right position and track in ensuring that genuine equality is ensured at work. It monitors all its operations and the performance of its employees at all levels around the world and a report is given back at the headquarters. This aids in ensuring that there is compliance and commitment to diversity. Life statement: GSK is always committed to ensuring that the workers do their best in their various undertakings. As a result, a great emphasis is placed on the overall wellbeing of the work workface. They are the most important asset of the company. When meeting the needs of the business, the company ensures that the personal needs of the employees are also met. This way, they can concentrate on their task thus increasing overall productivity and efficiency. Anon (2011) points out that this is a strategy that has enabled GSK to remain a global leader in the pharmaceutical industry despite the existence of other big multinationals in the market both in UK and in the world at large. The company gives flexible working a lot of importance. These flexible working arrangements are intended to better the lives of the employees while also ensuring that the needs of the business are met. The policies and arrangements cover all members of staff at all levels of employment. Values and behaviors Due to the changes being experienced in the pharmaceutical and health care sector, the company has always seen the need to alter its business model to create a customer centered and innovative model. Having such a model is normally very key to overall performance and revenue. According to Healy & Palepu (2010), firms that rely too much on their old models of business even with the emergence of new trends are at risk of losing ground to their competitors. To be able to comply with the Corporate Integrity Agreement, GSK has established a compliance committee tasked with oversight of the full implementation of the requirements. It takes itself as an “integrity champion” with each unit expected to comply. Moreover, it has a code that has been put in place to ensure zero tolerance to corrupt or inappropriate activities. This underscores the importance that is given to the values and ethical practices at GSK. Evaluation of Business and Corporate Strategies To remain among the leading pharmaceutical corporations, GSK has employed several approaches and strategies that are used for different goals. The first one is growing a diversified worldwide business. The company has over the years of its existence put a lot of resources in diversifying its portfolio. It has moved away from the over reliance on traditional products like the white pills. It is also investing in the key growth areas as well as the emerging markets different countries like Japan. Vaccines and consumer healthcare businesses are just some of the avenues that have been used for diversification and global growth. The other strategy is delivering products that add value to the lives of consumers. GSK aligns its policies and operations with the goal of producing a leading pipeline of products that are highly valuable in the healthcare sector. The company’s R& D is modeled around the best available science. It externalizes research in order to achieve the best value and improve returns on investment. According to Stankard (2008), GSK has also simplified its operating model as a strategic approach to sustainability and profitability. This has played a very big role in ensuring efficiency and reducing the overall operation costs. A marketing mix strategy has also been created and used in making vital market decisions. This is based on the key areas of product, place, process and promotion (Robson, 2013). In terms of products, each brand is created targeting a given segment of the market and for a certain value. When it comes to prices, GSK strives not to set charges that may not be affordable to a larger market. This way, a wider population is able to benefit from the products and discoveries. The places where the items are sold and distributed are determined based on research and the brand awareness. The marketing mix also entails promotions that are intended to create more awareness on the company’s products and increase sales in the long run. Identification of Major Strategic Issues Facing Organization From the analysis, it is evident that despite GSK being a global giant in the pharmaceutical market, it is still faced by several strategic issues. One such issue is on the government regulations. Being a highly sensitive industry, the UK government has imposed regulations that affect the activities of the company thus hindering innovation. The second concern is how to deal with the limited approval of the New Chemical Entities (NCE). NCEs are normally approved by the appropriate drug and food agencies and the decline in approvals interferes with innovation and product diversification. The third strategic concern is on the generic competition. The generic drugs are a big challenge to the company; hence, effective approaches are required to deal with them. The fourth major concern is competition from other pharmaceutical giants. Being the sixth largest player in the world, GSK has to compete in the world market with the top multinationals. In new markets, approaches meant to ensure that it is able to stand up against the rivals are required. The decelerated growth in the overall market is another major issue that GSK faces. The final one is the reduced inventions. Reduction in new inventions is attributed to the overall regulatory pressure which limits the firms R& D activities. Conclusions and Recommendations The pharmaceutical industry is a very lucrative sector that has experienced growth over the last couple of years. GSK, being one of the largest companies in the industry, has been able to employ various approaches that are intended at making it a global leader. The company uses these strategies to come up with new predicts and also compete with the rivals. However, the regulatory requirements, generic competition, limited approval of NCEs, decelerated growth and reduced inventions are some of the strategic issues that it faces. To be able to deal with these challenges, this report recommends that the company identifies and remodels its key areas of operation such as R& D and marketing to ensure long term viability (Stankard, 2008). In addition, GSK should rely on commercial aspects of the industry in changing its business models and setting so that it can achieve future success. Reference List Anon, B. 2003, “About GlaxoSmithKline”. Nature, 422(6933), pp. 783-800 Anon, B. 2011. GlaxoSmithKline Case Study through Mergers & Acquisitions to Success. Datamonitor Plc, London. GlaxoSmithKline Plc. 2014, Annual Report 2013. Pureprint Group, Middlesex. Griffin, R. W. 2012, Fundamentals of Management. 6th ed. South-Western Cengage Learning, Mason, OH. Healy, P. M. & Palepu, K. G. 2010, Business Analysis and Valuation. Hampshire, Cengage. Kasapi, A. & Mihiotis, T. 2011, Management as Applied to New Products Penetration in the Competitive Environment of Pharmaceutical Industry. Interdisciplinary Journal of Research in Business, vol. 1, no. 10, pp.73- 85. Mahajan, S. 2006, Concentration Ratios for Businesses by Industry 2004. Office of National Statistics, London. Robson, K. 2013, Service-Ability Create a Customer Centric Culture and Gain Competitive Advantage. Chichester, John Wiley & Sons, West Sussex. Stankard, M. 2008, The Art and Science of Process Improvement, Context, Strategies and Tools. Hampshire, Cengage. Towse, A. 2014, “The UK Pharmaceutical Market”, Pharmacoeconomics, vol. 10 no. 2, pp.1425. Read More