Evolution of the Pharmaceutical Industry - Assignment Example

Strategic Management Name Institution Professor Course Date Introduction The case study is that to be used in answering this essay describes the evolution of the pharmaceutical industry and the unusual strategic environment in the industry. Great attention is drawn to the environmental pressures from the payers and the regulators. The case study has also discussed the key driving forces in the industry and this also includes the addressing of the unmet medical needs the important role played by innovation as well as the time to market as well as globalization. The case study have also discusses how the ever increasing hostile environment while combined with the decline in R&D productivity and this has led to the loss of jobs, consolidation in the industry, diversification and outsourcing. This essay therefore seeks to address the question below which includes the identification of the main environmental forces that affect the global pharmaceutical industry, analyses of the five forces framework, identification of the strategic groups within the industry, manner in which the strategic customers has evolved over time for the global pharmaceutical companies and lastly the identification and discussion of the prevalent ethical stance in the industry. Discussion Question 1a: Main environmental forces that affect the global pharmaceutical industry In assessing, the environmental forces that affect the global pharmaceutical industry the PESTLE analysis will be used. The PESTLE analysis in most instances assists the organization in the understanding in more details the status of the organization and industry as well as the external factors that are affecting them (Shabaninejad et al. 2014). Through the analysis, players in the industry can come up with strategies for the future and tackle the weak areas in the organization. i. Political factors Foreign and domestic policies implemented by the government in a way have a great effect on the industry as opposed to other factors (Shabaninejad et al. 2014). A major factor that can be noted is the great influence that the government has on the industry. Based on the case study the pharmaceutical industry is subject to a monophony in that there exist one powerful purchaser and that is the government. The government effect will greatly felt as since the industry is seen as an easy target in the government efforts to control the ever-rising expenditure in the healthcare sectors. ii. Economic factors Of late the pharmaceutical industry is less affects as compared to other industries that major on manufacturing. Some of the major economic aspects that affect the players in the industry are the taxes, interest, exchange rates in addition to inflation (Shah et al. 2015). Research and development seems to be a lengthy procedure and it has an economic effect on the players in the industry. This has led to mergers and diversification to allow the companies to develop new drugs and enter new markets. iii. Social factors The physical activities, the social life in addition to the level of health in the community also affects the industry in a great way. The changes in trends and social life mean a new direction in industry (IFPMA 2015). For instance, the elderly in the society needs more drugs as compared to the people in the same society and when combined with the epidemic of the chronic diseases there is a creation of an unsustainable situation. iv. Technological factors Technological innovations are said to play very crucial roles in the industry since there is a need for new and advanced methods for the manufacturing and development of drugs as well as the need for new ways on conducting research and invention (IFMPA 2016). The use of the advanced technologies will assist in the accurate characterization of the chemical compounds in the drugs and optimization. Technology will, also be beneficial in decreasing the time, efforts as well more and will leads to accurate drugs (Muzzio, Shinbrot, T & Glasser 2002). v. Legal factors The pharmaceutical industry is among the highly regulated industries. Most innovations in the industry are affected by regulation and this causes the delay in launching the products due to the lengthy approval time. vi. Environmental factors The environmental forces create real threats for the industry since they focus more on green environments and thus, companies in the industry need to limit the carbon and chemicals coming from their industries (IFMPA 2016). Therefore, players in the industry need to take on effective strategies such as proper consumption, wastewater treatment and public awareness and education to ensure a better environment for all. Question 1b: key drivers of change that will affect the global pharmaceutical industry in the future A major driver of change that will shape the industry in future is the cost advantages and the economies of scale. There has been an emerging trend of mergers exploiting the potential costs advantages that can be found in the aspect of R & D facilities servicing the global operations. This shows that R & D are and will continue being crucial aspects in the determination of the structure of the pharmaceutical industry. Another major driver is the interdependence, which encourages the globalization of the competitors. This can be best explained by the fact that some of the major pharmaceuticals are investors in the biotechnology companies. The other force is the transference of marketing among countries. This implies that the health products will be marketed to the consumers directly and this may entail the leveraging of the already established distribution channels while at the same time creating new ones. Question 2: Porter’s five forces framework The porters five forces model is termed as being an outside of business strategy tool that is used to get detailed information of the value of the industrial structure. The model deals with five major aspects and they include the threat of entry, threat of substitutes, bargaining power of the buyers, bargaining power of the suppliers and the competitive rivalry. Below is a discussion that porter’s five forces model of the global pharmaceutical industry. a. Threat of entry The threat of entry is termed as low and this is based on the fact that economies of scale and experience (Marin et al. 2015). In respect to these, acquisition is viewed, as been a more preferred strategy to increase the geographical presence of companies in the industry. New entrants are likely to face vigorous retaliation since players in the industry compete very closely. b. Threat of substitutes The threat of substitutes can be termed as medium to high this is based on the fact that some of the generic companies require less or no colossal costs that are associated with the research and development of new drugs. c. Bargaining power of the buyers The bargaining power of the buyers is high; most of the buyers are the tender boards, hospitals, patients and the pharmacies, while the governments are also great players in the industry. This model makes it easier for bodies such as the government to control the pricing of drugs. d. Bargaining power of the suppliers The bargaining power of the supplies is low and this is due to the fact that the suppliers are different from the supplier in other industries since the ingredients. This means that in instances when they price their products highly the buyers are likely to switch to others suppliers of similar products. e. Competitive rivalry The rivalry between competitors is extremely high and this is so because of competition, which is coming from the emerging markets. Another aspect that heightens the competition is the low level of differentiation. Question 2b: Do these forces differ by industry sector The forces differ based on the industry sectors this is clearly shown in the diagram below Competitive Force Generics OTC(over the counter drugs) Vaccines & Biopharmaceuticals Ethical Drugs Threat of new entry Strong Moderate High Low Bargaining power of suppliers moderate Strong Low Moderate Bargaining power of buyers Strong Strong Low Moderate Threats of substitutes Moderate Weak Low Strong Competitive rivalry Strong Moderate High Strong Question 2c: where would you place the different sectors in the industry life cycle? The diagram below shows the pharmaceutical industry lifecycle. Based on the lifecycle industries usually start from humble begging, followed by growth, shakeout, maturity and then decline (Ramasamy, Titchener-Hooker & Lettieri2015). Question 3: Strategic groups within the global ethical pharmaceutical industry The global pharmaceutical industry can be termed, as being a monophony and that there is intense competition when it comes to property right and R&D (Johnson, Scholes and Whittington 2014). The global pharmaceutical industry has about nine major competitors and the competitors are groups in terms of a number of factors that are revenue, market spending, and R & D activities. The diagram below groups the competitors based on their revenue The diagram shows that companies such as Sanofi, NOVARTIS, GSK, Pfizer, Roches and Merck are categorized in one group, ABBOTT & ASTRAZENECA fall into another group, while J &J fall into its own category based in the total revenue that each group company spends. The diagram below groups the players in the industry in terms of their total market spending The diagram shows that J & J is a market leader and it spends highly with a total of US$ 17.5 billion. The diagram also depicts a close clustering between GSK, SANOFI, MERCK and ROCHE. The three companies can therefore be termed as close competitors based in their spending (Porter and Heppelmann, 2014). Companies in the industry are also grouped based in the percentage of money they spend on the R & D activities as shown in the diagram below Based on the diagram, J & J spends less in terms as R & D activities while, MERCK, AstraZeneca and ROCHE spends the highest amount. Question 4: How the strategic customer has evolved over time for the global pharmaceutical companies The pharmaceutical industry has number of strategic customers and they include the business-to-business strategic customers and business to consumer strategic customer. In regard to the B2B customers, the strategic customers in the industry are the wholesalers, government agencies, pharmacies, hospitals, healthcare facilities, and the wholesalers. The companies in the industry deal with the customers and discuss the advantages of their drugs and offer any necessary information, dosage information, clinical data and new studies but promotion in this industry is highly regulated (Johnson et al. 2014). In regard to the B2C customers, the industry is marketing their products directly to the consumer. To enhance the sales the pharmaceutical industry aims at advertising directly to the consumers as opposed to marketing to the healthcare personnel (Kaplan 2015). In the past, the healthcare providers influenced a great number of decisions made in the industry since the government and the insurance companies had limited involvement. However, this has changed greatly due to globalization and technology and at the same time the government is currently taking a leading role when it comes to the controlling the industry. It is crucial to note that the wholesaler in the industry acts as the strategic customers and their role is bound to continue as well as the role that the government is playing. The consumers are also likely to bring their influence through the rise of the B2C aspects. Question 5: The prevalent ‘ethical stance’ in the pharmaceutical industry There exist a number of issues when it comes to the ethical stance of the pharmaceutical industry in the globe, the stakeholders as well as the society in large. One such issue relates to the property rights, after the property rights expiries the competitors are usually keen to develop drugs which they sell cheaply in the market and this is not beneficial to the owner of the rights since they tend to be on the losing end at all times. This is because that they may not have even recovered an equivalent amount of the money they had spent on the research and development of the drugs. The other issue relates to the being in the public eye as being a consumer of goods that are manufactured and being the provider of the health products. based on this the pharmaceutical have to be cautions all the time so as it offers the right medicine and thus they have a responsibility to conduct business in the most ethical way possible since they are dealing with human lives and a small mistake can ruin the players in the industry and mostly the manufacturers of the drugs. The other issues relates to the R&D, pursuit of ailments in some of the emerging markets in addition to the budget constraints. Conclusion Based on the above analysis of the global pharmaceutical industry, innovation will be essential aspects in forging the way forward in the industry. This will be augmented by the fact that there needs to be some differences with every new product that is developed for companies to charge a premium price. Additionally, companies’ needs to come up with new drugs and more so to cure diseases that are usually ignored. Companies also need to be consistent in their approach and they need to be constant in the innovation of new drugs. References International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) 2016, Facts and Figures 2015, The Pharmaceutical Industry and Global Health, viewed 15 March 2017, http://www.ifpma.org/fileadmin/content/Publication/2015/IFPMA_-_Facts_And_Figures_2015_web.pdf International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) 2016, 2015 Pharma by Numbers, The Pharmaceutical Industry and Global Health, viewed 15 March 2017, http://www.ifpma.org/fileadmin/content/Publication/2015/IFPMA_2015_Pharma_by_Numbers.pdf Johnson, G, Whittington, R, Scholes, K, Angwin, D and Regnér, P 2014, Exploring Strategy Text Only, Pearson Education, Edinburgh. Kaplan, M 2015, B2B Ecommerce Growing; Becoming More like B2C, viewed 15 March 2017, http://www.practicalecommerce.com/articles/85970-B2B-Ecommerce-Growing-Becoming-More-Like-B2C Marin, A, Boanţă, L, Hadăr, A, Badea, D, Vlăduţ, G, Bucur, D, Ciocănel, B, & Ivan, I 2015, 'business models and competitive advantage for technology transfer Entities', Romanian Review Precision Mechanics, Optics & Mecatronics, 48, pp. 103-109. Muzzio, F, Shinbrot, T & Glasser, B 2002, ‘Powder technology in the pharmaceutical industry the need to catch up fast’, Powder Technology, vol. 124, pp. 1-7. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.460.9492&rep=rep1&type=pdf OTC Pharmaceuticals Industry Profile: Global 2015, Market Line, pp.1-39. EBSCOhost, viewed 15 March 2017, http://eds.a.ebscohost.com/eds/pdfviewer/pdfviewer?sid=9b27d47e-d1ce-4ee8-a3f0-93f20ef0b57c%40sessionmgr4005&vid=6&hid=4203 Porter, M. and Heppelmann, J 2014, How Smart, Connected Products Are Transforming Companies, Harvard Business Review, viewed 15 March 2017, https://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition Ramasamy, S, Titchener-Hooker, N, & Lettieri, P 2015, 'Life cycle assessment as a tool to support decision making in the biopharmaceutical industry: Considerations and challenges', Food and Bio-products processing, vol. 94, pp. 297-305. Shabaninejad, H., Mehralian, G.H., Rashidian, A., Baratimarnani, A. & Rasekh, H.R 2014, ‘Identifying and prioritizing industry-level competitiveness factors: evidence from pharmaceutical market’, DARU Journal of Pharmaceutical Sciences, Vol. 22 No. 35, pp. 1 – 17. Shah, S, Jamil, R, Shah, T and & Kazmi, A 2015, "Critical Exploration of Prescriptive and Emergent approaches to Strategic management: A review paper", International Journal of Information, Business and Management, vol. 7, no. 3, pp. 91-100. Read More