Strategic Management: Hikma Pharmaceuticals Plc - Case Study Example

Strategic Management: Hikma Pharmaceuticals Plc. Contents Contents 2 Introduction 3 Discussion 3 PEST Analysis for Strategic Planning and Growth of Hikma Pharmaceuticals Plc 5 Ansoff’s Matrix for Strategic Planning and Growth of Hikma Pharmaceuticals 8 VRIN Analysis for Hikma Pharmaceuticals Plc 9 Recommendations and Conclusion 10 Reference List 11 Introduction Strategy is referred to the long term planning done by top management to achieve organizational objectives, taking into consideration the internal as well as external uncertainties associated with a particular business. A business strategy strengthens the path for an organization towards its sustainability and progress, whereas strategic management indicates formulation and execution of the proper strategy through maximum utilization of its resources and capabilities. This paper aims at understanding the strategic gap of a well-known multinational pharmaceutical company, Hikma Pharmaceuticals and accordingly generates strategic recommendations so that the company can evolve as one of the best companies in global pharmaceutical industry. Hikma Pharmaceuticals is a London based pharmaceutical company that produces branded and non-branded pharmaceuticals products. The wide spread operations of the company includes more than 50 countries with 26 manufacturing plants and 7 research and development houses and it is the largest in MENA Region (Middle East and North Africa). Main operations of the company are segregated into three divisions. These are: Branded which consists of manufacturing, distribution and sales of more than 499 branded in-licensed patent products, Injectibles that include sale of more than 200 injectible products such as iron gluconate and argatroban and Generics such as oral generic products which are mainly sold in the US. In the next segment the strategic direction, strategic implementation and strategic management pattern of Hikma Pharmaceuticals will be studied to identify strategic direction of the company by implementing relevant theoretical concepts in order to formulate organization specific strategic alternatives. Discussion The strategic objectives of Hikma Pharmaceuticals are derived from the vision of the company which explains the company’s aspiration to build a world class pharmaceutical company through appropriate acquisition and organic growth. The standard and responsibilities of the company reflected through its vision can be attributed as the following concerns: To strengthen the company’s leading position in MENA Region The company’s strong position in MENA region is exclusive for its well expanded operations that include 17 markets and more than 1500 employees. In order to capture geographical reach, the company has made 8 acquisitions in MENA Region since it has made Initial Public Offering (IPO) in 2005. In 2012, the investment avenues were further leveraged for achieving a growth of 20% and for capturing further market of Egypt and Algeria and to enhance future profitability through fabricating high quality and contemporary product portfolio (Hikma Pharmaceuticals Plc, 2013b). Developing global product range in the incrementing therapeutic areas Diabetes is a growing problem in today’s world, especially in MENA region. Apart from the contributory factors for diabetes like ageing population and changing lifestyle, the Middle East, especially United Arab Emirates, Kuwait and Bahrain are among the 10 countries in the world which are experiencing the greatest increase in diabetes. Examining the trend of cardiovascular diabetes and metabolic therapeutic areas, the company launched a series of cardiovascular, anti infective, central nervous system and musculo skeletal products to address the increasing remedy of such syndromes and tap the scope for revenue generation from this segment (Hikma Pharmaceuticals Plc, 2013b). Extending our reach and diversity through partnerships Hikma aims to establish and strengthen strategic alliances with all its stakeholders for further reinforcing the health care value chain. Such effort helps the company to constantly launch innovative medical treatment in critical segments that may add value to the lives of patients and doctors. For differentiating the company from any other local companies in this segment, Hikma emphasizes on instituting long lasting relationships with each entity associated with medical communities through arranging scientific workshops, clinical studies and medical education programs. Increasing the scope for specialty Injectables business Understanding the sufficient scope for development in this market segment, Hikma has constructed a pertinent product portfolio and channels in Europe and United States as well. Another area of improvement identified by Hikma is the scope for research and development for positive contributions in oncology business. Leveraging the expertise and capacity in the US market The experienced and well trained sales and marketing team of Hikma has enabled the company to achieve the leading position in the matured market in US. The company has achieved this with the support of world class manufacturing facilities and commitment towards excellent customer services through committed representatives who are always available for the hospital customers. Maintaining World-class API Sourcing Capabilities The 12 manufacturing facilities provided by Hikma are superlative and all have passed the inspections regulated by multiple jurisdictions along with their excellent compliance report. Five of such facilities are FDA approved. Another key priority for the company is API sourcing, which enhances the company’s focus towards maintaining high quality, cost effective and uninterrupted supply of critical materials and providing continuous training for the overall improvement of talented workforce. In the next segment, strategic planning and growth of Hikma Pharmaceuticals Plc will be analysed through the strategic management tools such as PEST analysis (to evaluate external environment), Asnoff’s Matrix (to understand growth possibilities) and VRIN Framework (to analyze internal resource capabilities). PEST Analysis for Strategic Planning and Growth of Hikma Pharmaceuticals Plc PEST analysis is another strategic analytical tool that helps to analyse the Political, Economical, Social and Technological environment of a company in which it operates and the potential lying in the particular external environment that the company can capitalize for its future expansion and development (Cullen, 2011). Political Environment The political environment in which Hikma Pharmaceuticals Plc operates appears to be favourable in the US, Middle East and North Africa. However, as a result of the well expanded area of operations of Hikma Pharmaceuticals, the company has to comply with a number of political regulations for manufacturing and distributions in terms of tariff, quota and barriers to entry. Hikma has entered into several trade agreements such a NAFTA to accelerate regional trading. The company also faces different regulations regarding different patent and trademark and licensing prevailing in different markets. As a result of operating in such a vast political framework, the company also faces risk of political instability such as expropriation. In order to establish its global presence, the company afforded to achieved a series of global approvals from famous global agencies such as American Food and Drug Administration (US- FDA), the UK Medicine and Healthcare Products Regulatory Agency (MHRA). In this way, Hikma secured the justification of the manufacturing agencies in Jordon, America and Portugal (Dickov, Mitrovic and Kuzman, 2011). Economical Environment Being operated in more than 50 markets, Hikma Pharmaceuticals Plc, the company has to experience diverse market structure and economic differences. However, according to the company’s Corporate Vice President, Hikma’s initiative to act as a local player and taking a price strategy aligning with that, helped the company to gain protection from strict trade restrictions and decrease the economic risks. With a large number of strategic alliances and strong employee base, eventually the company has evolved as the only regional player that has the potential to compete with various multinationals. Hikma also puts emphasis to build local manufacturing units, keeping in mind the economic resources available and demand of the different markets such as in Egypt, Tunisia and Algeria to attract local consumers and to enjoy competitive advantages, derived from the customized operational strategies pursued by the company. The company also contributes sufficiently towards creating the employment opportunities in all the economies in which it operates, such as in Egypt, Algetia, Middle Ease and Jordon. Hikma appoints local people and tends to improve their experience and skills as per industry standards. Such contribution towards employment generation ascertains the economic viability of the company for operating in different economic region. However, being a US based company; Hikma had to counter severe market turbulence during the time of recession in 2008-2009 (Hikma Pharmaceuticals Plc, 2015c). Social Environment The prevailing social background of MENA region, United States and North America enhances the scope of operation for Hikma Pharmaceuticals and company in turn returns the favour to the society through employment generation and confirming employee well being. In MENA region the demographics is characterised by young population and the percentage of old populace is very less. However, with the growing tension in workplace, uncontrolled lifestyle and cultural complexities have made most of population, especially those who are in the age group of 27-35, victim of a series of diseases such as heart problem, diabetes and many more. With the company’s attempt to research, innovate and manufacture injectibles, branded medical solutions, anti infective products and therapies for fighting with diabetes, oncology and cardiovascular problems helped the company to be socially accepted to a great extent. In this way, the company tries to increase the life expectancy of the youth population in order to create a sizeable elderly population. The company has also invented the treatment for iron deficient for the benefit of the society. The other social consideration for Hikma is to the management’s effort to understand the employees’ culture in different markets and accordingly decide upon procedures and regulations. However, no compromise has been made in the result oriented culture of the company (Biopharmaceutical Research Industry, 2014). Technological Consideration Strong research and development is very important for any pharmaceutical companies to survive in the industry and Hikma is no exception. The company’s strong research and development is the reflection of its technologically stable position. Hikma’s efficiency lies in its continuous investment and concentration to develop new and innovative drugs as per market requirements. Starting from researching for development of a new drug to its marketing and distribution, the total process takes almost 20 years to complete. This shows the company’s uniformity in their own business process. Genericization is another source of technological capability that Hikma practices for remanufacturing the same old product with some added pharmaceutical recipients, before the expiration of original patency. The company has gone through a large number of merger and acquisition to acquire the technological expertise of some other company. Such incidents became prominent when Hikma underwent strategic relationship with an Indian company Unimark and a Chinese company Haosun to get hold of the API capabilities of those companies. The company also focuses on generics rather than developing products (Hikma Pharmaceuticals, 2015b). Ansoff’s Matrix for Strategic Planning and Growth of Hikma Pharmaceuticals The growth and expansion model of Hikma largely follows the Growth Matrix proposed by Ansoff. The four components of the matrix are Market Penetration, Market Development, Product Development and Diversification. In the next segment, analysis will be done on how Hikma appoints this strategy into its own business model. Market Penetration Hikma enjoys core competencies in penetrating markets where the company senses the underlying potential. The company has wide spread business with subsistence in 50 countries worldwide including USA, Italy, Germany and Jordon. Hikma is also planning to expand its operations in the growing Pharmaceuticals market in Canada and Ethiopia. Understanding the prospect in MENA Region in 2013, the company has also taken the strategy to drive rapid expansion in this market segment to achieve 20% growth from this market only (Pharmacutical Technology.com, 2014). Market Development The company not only focuses on market penetration but it also put huge emphasis on market development. Continuous effort towards market development has enabled Hikma to achieve leading position in the matured market like the US. The company has also been able to capture substantial market share in the Middle East and North Africa as well through its continuous endeavour to confine, maintain and expand markets. Moreover, in 2013 the company had penetrated more than 50 markets worldwide (Biopharmaceutical Research Industry, 2014). Product Development Capacitated with 12 world class manufacturing units and 7 international standard research houses, the company strives to innovate new products according to market need. For instance, Hikma’s recent effort in product development has resulted in development of remedies and therapies for type II diabetes, cardiovascular disease, metabolic therapeutic, infections, nervous problems, musculoskeletal and oncology related diseases (Hitt, 2009). Diversification’ The diversification strategy of the company is also very high. The three separate business segments of the company ensure huge diversification efforts. The 499 branded products including Amoclan, Omnicef and Prograf, the injectibles such as fentanyl and phenylephrine as well as the Generics like cephalexin, doxycycline and methocarbamol shows the degree of diversification of the company’s product portfolio. VRIN Analysis for Hikma Pharmaceuticals Plc VRIO analysis portrays resource based view of a company that ensures strategic competitiveness of a company by using the internal resources, both tangible and intangibles. VRIO stands for Valuable, Rare, Imitable and Non substitute (Kotler and Armstrong, 2008). These four parameters will be analyzed from Hikma Pharmaceuticals Plc’s perspective to evaluate the strategic capability of the company for capitalizing its existing resources. Valuable The resource is said to be valuable for a company only if it has the potential to contribute substantially to the company’s value creation strategy. The most valuable resource for Hikma is its strong potential to carry out research and development. Another aspect should be highlighted in this regard is that the company’s ability to generate sufficient positive cash flow to sustain long term research process and its ability to engage into strategic alliances to acquire a specific product line or ongoing research capability. All these factors appear to be really valuable for Hikma Pharmaceuticals (The Global Pharmaceutical Industry, 2007). Rare Hikma’s global presence and being a regional player, its capability to compete with multinational companies are really rare in any pharmaceutical companies. Moreover, the country specific internal guidelines and the company’s ability to customize its production and distribution process is also an unusual instance which has helped the company to become more result oriented. Imitability Hikma Pharmaceuticals Plc invests substantially to upgrade its research and development unit. Apart from expanding the potency of its own research houses, the company strives to acquire or merge with other research bodies in order to strengthen the innovation capability of the own company and superior quality management. Maintaining such research and development is favourable for the company due to its huge market acceptance. However, for any other company in the pharmaceuticals industry, imitating this research standard is really inimitable and cost ineffectual. Non Substitutable Though there are a number of substitutes present in the branded segment of pharmaceuticals industry such as Pfizer, Novartis, GlaxoSmithKline and Abbott Laboratories, in the therapies and injectibles segment the scope for substitutability is very less. Recommendations and Conclusion Considering the present strategies adopted by Hikma Pharmaceuticals Plc, it can be inferred that the company puts huge emphasis in penetrating new market. However, such effort leads the company to face many economic and political challenges in terms of international trade restrictions, adoption of different business approaches in different market structures and complying with country specific regulations for successful business operations. In many times, such effort becomes cost ineffective for the company. Instead, Hikma may standardize their production and distribution process in the areas of expansion rather than adapting it. This will help the company in cost savings which they can further invest in research and development. Apart from this, the global presence is not very prominent for Hikma Pharmaceuticals. The company has the potential to compete with the market leaders such as Pfizer, Novartis GlaxoSmithKline and many more. However, the US pharmaceuticals industry is characterised by huge price war for the purpose of capturing market share and generate huge profit. Hence, in order to ensure its global presence, the company should shift its concentration to tap the lucrative opportunities in emerging markets. The efforts taken by Hikma Pharmaceuticals Plc for product diversifications, research and innovation and market development are very high. If the company slightly alters its strategies related to market penetration and can control the political and socio economic environmental issues related to its market expansion, Hikma Pharmaceuticals will definitely be able to prove its global presence in near future. Reference List Biopharmaceutical Research Industry, 2014. Key Facts, 2014. [PDf] Retrieved from: < http://www.phrma.org/sites/default/files/pdf/2014_PhRMA_PROFILE.pdf> [Accessed 21 January 2015]. Cullen, P., 2011. Strategic international management (5th Ed.). Sidney: South-Western Cengage Learning. Dickov, V. T., Mitrovic, D. and Kuzman, B. M., 2011. Analyzing Pharmaceutical Industry. National Journal of Physiology, Pharmacy and Pharmacology, 1(1), pp. 1-8. Hikma Pharmaceuticals Plc, 2013a. Our Approach to Sustainability. [PDf] Retrieved from: [Accessed 19 January 2015]. Hikma Pharmaceuticals Plc, 2015c. Our strengths. [Online] Retrieved from: < http://www.hikma.com/about-hikma/our-strengths.aspx> [Accessed 19 January 2015]. Hikma Pharmaceuticals, 2015b. Our strategy. [Online] Retrieved from: [Accessed 19 January 2015]. Hitt, A., 2009. Strategic Management Competitiveness and Globalization. Edinburgh: Nelson Education Ltd. Kotler, P. and Armstrong, G., 2008. Principles of Marketing. New Jersey: Pearson education Inc. Pharmacutical Technology.com, 2014. The top 10 biggest pharmaceutical companies of 2014. [Online] Retrieved from: < http://www.pharmaceutical-technology.com/features/featurethe-top-10-biggest-pharmaceutical-companies-of-2014-4396561/> [Accessed 21 January 2015]. The Global Pharmaceutical Industry, 2007. The Global Pharmaceutical Industry. 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