Strategic Management in Pharmaceutical Industry - Case Study Example

Strategic Management Introduction Pharmaceutical industry is gaining worldwide significance, and the industry’s chain supply structure is becoming extremely complicated. Contribution by size, the pharmaceutical industry is dominated by Europe, Japan, and United States. Led by these markets, the total global consumption in sales of pharmaceutical products has shown enormous growth. There are expectations that it would grow even more with population expansion in markets that emerge(Brems & Baeyens, 2001).The World Health Organization (WHO) defined a drug as: mixture of substances or any substance manufactured, offered, sold, applied in the diagnosis, mitigation, and prevents disease, treatment, unusual physical state or the symptoms thereof in animal or a man. From this definition, it is realised that the sensitive nature of drugs needs safe, consistent, high quality and effective products delivered to those who consumes. With the demand and supplying being extended across the globe, raw materials and sensitive products, and as the chain supply have many actors, for this reason, collaboration and quality measures are very essential. Pharmaceutical industry and enterprises compete and attempt to win in international markets by quality practices and integration along their chain supply. However, due to competition pharmaceutical industry is highly regulated. Regulations cover majority of operational areas that include quality, auditing, testing, manufacturing, final product specifications, packaging, and raw material specifications. Those pharmaceutical industries that succeed abide by these regulations and add their regulations as well. The main sources of regulations are the European, United States, and Japanese Pharmacopeias. These regulations require regular updates and are considered a reference for most drug manufacturers that serve worldwide markets(Oberholzer & Inamdar, 2004). One of the pharmaceuticals manufacturers includes Hikma Pharmaceuticals that was established in Jordan in 1978. Their initial operation was focusing on branded pharmaceuticals within the Middle East North Africa (MENA) region, but by the beginning of 1990s,Hikma had already expanded and its presence was felt in the US market. They acquired West-ward Pharmaceutical Corporation in New Jersey. Further, it also set up injectable pharmaceutical operations in Portugal and started exporting their products to Eastern Europe (Bishara, 2006). In the year 1996, Hikma became the first company from Arabic to receive FDA approval. Hikma began operations at Jazeera Pharmaceutical Industries in Saudi Arabia in 1999, and in2004, Hikma Pharma was established in Jersey. As a result, the paper would identify key strategic issues associated with HIKMA’s expansion strategy. These would be threats and challenges facing HIKMA. The paper would also apply PESTEL model to underpin and bring clarity, as well as focus in the analysis of the company. In the end, it would provide recommendations that HIKMA should take. Analysis of Current Strategic Issues, Justification and Evaluation of the Choice of Analytical Models There are various strategic issues that affect Hikma Pharmaceuticals, and some of them are beyond their control. One of them being, the pharmaceuticals regulators have become very strict. Due to the high highly public warnings and recalls of drugs, for instance, Merck’s Vioxx in 2004, the FDA appeared to have become extremely cautious in approval of new medicine. For example, despite a 33% growth in the applicants for New Molecular Entities’ to 28 in 2007, the United States drug approval trends showed that only 16 New Molecular Entities were approved (Caswell, 2000). However, this led to a decline in the rate in which new drugs are introduced to the market, holding back sales, and discouraging researching organization, who invests hundreds of millions researching in new drugs. Perhaps, the FDA has become increasingly stringent, banned the importing of some generic drugs as well as filing a permanent injunction, and this did not spare HIKMA. This prevented the company from manufacturing and exporting medicine until it obtains FDA approval(Ahmad & Sparks, 2009). Hikma opened up and extended its operational boundaries, by that, increasing competition. For instance, in the United States the ever rising competition from pharmaceutical organization in low-cost markets is resulting in price wars on generic medicine in the market, and this is consuming into pharmaceutical margins. In the United States and Europe market, HIKMA competes in the market filled with the government and other private sectors. It is based on quality, product range, price, and customer service, and overall through its ability to provide certain niche products. However, in the near future competition is expected to continue particularly from low-cost generic pharmaceutical producers in China and India(Deisingh, 2005). In addition, in the global markets where HIKMA operates, it has experienced significant pressure on price in recent years. Downward pressure on prices, driven primarily by rise in the number of competitors operating in the market, has affected the global generic market of HIKMA. However, the pricing pressures face the manufacturer from the governments, and health care users and this result to generic drugs and increasing competition as well. Lack of New Blockbuster Medicine and expiring patents would expose HIKMA to a sharp decrease in their revenues. In addition, the approvals of new drugs have been declining as a percentage of total approvals of pharmaceutical companies. HIKMA, being not exceptional, turned to drug remanufacturing in a bid to sustain revenues for expired or nearing-expiry patented medicine (Darwazah, 2010). For these reasons, the model that shall be used to analyze the threats facing the pharmaceutical company is PESTEL. Even though, the nature and conceptual structure of PESTEL analysis needs an approach that is integrated into the analysis but the technical framework of PESTEL does not support such an approach adequately. PESTEL analysis, as it is, mostly offers general ideas about the macro-environmental situations and conditions of a company. Critical Analysis of Expansion Strategy and Application of the Chosen Model Globalization and advancement in technology have increased the potential for interaction among people living in diverse geographic regions. Within this change, national boundaries lose their relative significance in terms of everyday economic activities. Currently, the essentiality and value of services and goods that are produced outside national politics and geographies have risen. For this reason, this is how Hikma Pharmaceutical products have reached the global markets in different nations in North Africa, Europe, United States and Middle East. As a result, this process of rapidly change differentiates the structure of the continually changing and broadening environment in which companies carry their operations (Brems & Baeyens, 2001). HIKMA has failed to consider the macro environmental factor. This factor was less significant in the past to achieving the goals and objectives of a company, but today, it has become increasingly essential. For instance, concepts and new phenomena such as environmental protection, health, accountability, and transparency have become essential parameters that require to be taken into account in commercial activities. In broad context, change in boundary and environment as affected the structure, decision-making, business method of the company, and carrying out its actions. Currently, it is not possible for a company to survive in the long term without taking consideration of this dynamic process. HIKMA did make a mistake of carrying out its operations and activities in highly unstable and expanding environment without adequate data and information. As a result, transacting its operations, a company must ensure it has taken into account the environment within which it undertakes its activities. In order to meet such needs, organization decision-makers should adopt a strategic approach to occurrences, operations, and macro environmental events. Strategic analysis, is the beginning of the basic process of strategic management, and involves the analysis of trending factors useful to the environment within which the organization is carrying out its activities. In general terms, the environmental concept involves far, near and internal environments, including all factors that relates to the activities of the organization. The internal environment involves the capabilities and resources of the company. The external environment involves factors beyond the control of the company, but which, nevertheless, are relevant to and affect the company (Shah, 2004). With its high commitment to quality, the HIKMA industry incurred minor recalls and almost all issues being encountered were caught before they reached the customer. Some of the issues this Pharmaceutical industry prevents include final product contaminated, contamination with packaging material, high level of impurities in the raw material, mixed raw material, manufacturing issues and mislabelling. The industry succeeded in preventing almost all major issues that face it through vigorous testing. This is a costly way to perform. However, it guarantees the high level of quality and eliminates the chance for recalls but it only the external environment problems that they have failed to prevent(Shah, 2004). Perhaps, it is difficult for HIKMA Pharmaceutical Company to direct and control factors from an external environment. The external environment comprises the sectoral environment and macro environment. The sectoral environment is where the company supplies the manufactured drugs, sells its clients the services and goods it produces; and where it as competition with rivals who generate similar goods. On the other hand, the macro environment of a company comprises of the political, socio-cultural, economic, technologic, legal factors, ecologic, that indirectly or directly affect the activities of the company. Moreover, the threat of the competition that HIKMA endures is due to inadequate environmental analysis conducted by the company. Environmental analysis is essential, for a company such as the HIKMA, to develop sustainable competitive advantages; spotting opportunities and threats, and providing opportunities for productive co-operation with other companies. Reviewing of the literature reveals that diverse techniques and approaches were used for the analysis of macro environment. The model that can be applied today is Political, Economic, Socio-cultural, Technological, Environment and Legal (PESTEL) analysis. The earlier form of PESTEL was Economic, Technical, Political and Social (ETPS) leaving out environmental and legal factors. Besides the technique for strategic analysis, PESTEL analysis started to be applied in different fields. The global pharmaceutical manufacturer failed to apply certain quality policy, for instance, Total Quality Management (TQM), to work all good practices mandated by global health authorities. In such policy, the HIKMA would have mandated certain tests to be done by the suppliers or their manufacturing facility. These tests are typically great in number, and not all tests have valid reasons. By performing ideality analysis of all supply chain activities and within all entities they would have produced relevant information for each entity such as cost of quality validation and cost of harm. This information can be used to minimize test costs, harm and increase the ideality. The association analysis can be used to assess the level of collaboration in the entire supply chain. This action combined with reliable information sharing system can be a powerful tool used to reach ultimate collaboration levels in the quality actions throughout the supply chain(Walter & Johns, 2001). In terms of Researching and Development (R&D) to get data to identify the causal problems or fundamental opportunities, is lacking in within the company. Determination of the problem being attempted to be solved is the actual problem that confronts the organization. The pain being caused by the problem is the response to an opportunity and evaluating how the opportunity fit the organization’s strategy and strategic execution factors. In the identification of a problem, it is imperative for HIKMA to gather data from as many sources and people as possible and feasible. In summary, the imperative to get the root problem or opportunity and to understand it within the organizational context is the main challenge (Walter & Lancaster, 2008). Recommendations and Conclusion There is a need for Hikma pharmaceutical company to develop and survive in the worldwide sector and boost their revenues and quality of their products. This can only be achieved if it would consider continuing investing more in Researching and Development (R&D) in order to keep maintaining its efficiency as well. R&D is mandated to develop new and innovative medicine that consumers might require. Developing new drugs might take 9 -14 years to complete. Drug registration and launch might take up to two years in each market. There is also need for Hikma to adopt drug patents that would protect the company from generalization, and after the expiry of patents, the generalization stage starts. Generalization is a constant feature of the pharmaceutical industry which is a process for remanufacturing or developing the same drugs. In addition, adding other pharmaceutical recipients after the expiry of the original product patency would be useful (Oberholzer & Inamdar, 2004). PESTEL analysis has two basic functions for an organization. The first is that it allows identification of the environment within which the organization is operating. Another important function is that it provides information and data that would enable the company to predict circumstances and situations that might be encountered in the future. PESTEL analysis is, for this reason, a precondition analysis, which Hikma should adopt and utilized in their strategic management. However, this model would assist the company to reduce or enable them to avoid the threats they face or they might be facing in the future. HIKMA needs to identify possible solutions to the current challenges that it is facing. It should cast abroad net to develop diverse possible courses of action, keep their options open and collect information. People understand the time they are being sold a bill of goods, so there is no need to put on a show for others and go for substance. People buy things they feel they have had input into, even if it was just the opportunity to express ideas or be involved in a fact-finding meeting or part of any data-collection process. Communication is fundamental. People want to understand whatever is going on in the organization. During the initial phases of the process, many managers attempt to keep things under wraps while they develop a comprehensive strategy. They attempt to keep everything a secret until all the answers are known. What happens when management stays quiet is that the rumour mill kicks in to supplement the information void. People in the organization hear conflicting reports of what is going on, good people start to look at options, and morale takes a nosedive. Management is naive if it thinks anything can be kept a secret because the organizational grapevine will provide people with speculation and answers. At times, they get it right. As a result, the Pharmaceutical company needs to spend as much time communicating to its customers all over the world(Lynch, 2009). Due to the increased regulatory requirements, the reduced numbers of blockbuster productions and the rising costs of R&D, the company should alter their strategies towards acquisitions and license. The HIKMA Company should consider strategic alliances between pharmaceutical companies and small biotechnology companies in an effort to cut R&D expenses. Offshoring R&D to lower-cost countries such as China and India is a trend that is becoming increasingly evident in the global market. A comparison of the relative costs of R&D in these countries proves the cost benefits of alliances with research institutions. In conclusion, due to these limitations, it can be suggested that certain strategic alternatives are typically more appropriate for a pharmaceutical company. HIKMA need to involve the development of close customer relationships and product adaptation. In the precise language of Ansoff’s Matrix, it is suggested that the most appropriate strategies are market development and product development as well. References Ahmad, N. A., & Sparks , L. (2009). Developement of a Service Quality scale for pharmaceutical. International Journal of Pharmaceutical and Health Care Marketing, 3(1), 26-45. Bishara, R. (2006). Cold Chain Management- an Essential Compound of the Global of Pharmaceutical Supply Chain. American Pharmaceutical Review, 6(1), 105-109. Brems, Y., & Baeyens, J. (2001). Expanding World Market of Generic Pharmaceuticals. Journals of Generic Medicine, 8(4), 227-239. Caswell, J. A. (2000). Analyzing Quality and Assurance. Agbioforum Journal, 3(2), 225-230. Darwazah, S. Y. (2010). Building a Global Success. New York: Hudson books NewYork. Deisingh, A. K. (2005). Pharmaceutical Counterfeiting. Analyst, 13(4), 71-79. Lynch, R. (2009). Strategic Management. England: Pearson Educational Limited. Oberholzer, G. F., & Inamdar, S. N. (2004). Pharmaceutical Strategic Perspective. The New England Journal of Medicine, 351(17), 147-149. Shah, N. (2004). Pharmaceutical Supply: Key Issues and Strategies for Optimization. Computer Chemical Engineering, 4(7), 92-94. Walter, D., & Johns, P. (2001). Value in Health Care. A Quality Management Perspective:TQM Magazine, 13(7), 319-332. Walter, D., & Lancaster, S. N. (2008). Implementing Value Strategy: Management Decision. 38(7), 160-178. Read More