Briefly identify the main sectors and key competitors making up the global pharmaceutical industry. Using Porter’s five forces model, analyze the industry’s competitive structure.
The pharmaceutical industry has undergone considerable revolutions as a result of requirements from key players and other regulators in this sector. The market in the pharmaceutical sector is more competitive than initially, unmet needs in the entire medical sector are being addressed and globalization is among the forces that are changing the industry. There are other more emerging markets in the world that are now posing a challenge to the already established markets in the pharmaceutical sector (Agrawal, 2000). All pharmaceutical manufacturing companies and sectors in the world have establishments that are involved in: manufacturing of medical and biological products.
They are involved in processing of botanical drugs and herbs, isolation of the active medical principles from the botanical herbs and drugs and also it is vital to consider the fact that there are those pharmaceutical products manufactured for external and internal uses. The external pharmaceuticals are used for application on the body, and they include, powder, ointments and solution forms while the internal pharmaceuticals can be in the form of capsules or tablets. This makes the pharmaceutical sector to be highly risky, be associated with many risks and competitiveness. There are also immensely strong purchaser’s pressure and strict government regulation that must be adhered to. This paper looks at the main sectors in the pharmaceutical industry and their competitive nature.
In the early nineteenth century, decision making on pharmacy lay primarily on the hands of the medical practitioners while the patient who were the consumers and the government had very little influence in the pharmaceutical sector (Wiggins, 2005). These practitioners controlled everything including pricing. A serious incident occurred in 1970. The sector experienced a thalidomide tragedy that resulted in birth defects. This made the government to put tight regulations and also prices were controlled.
Pharmaceutical companies have to cope with the enormous risks associated with the industry. Despite there being many risks, there are many companies that are in the sectors competing against one another. Government departments and agencies regularly scrutinize these industries to examine safety, purity and stability. Pharmaceutical companies must also demonstrate the value of their drugs to justify the prices they have set on their products. It is amusing to know that the cost required to generate a new drug is estimated to be over one billion dollar.
Many leading pharmaceutical companies in the 20th century were mainly situated in well established countries USA, Germany, UK and Switzerland. Currently, the major pharmaceutical firms are still located in these countries because pharmaceutical firms require complicated manufacturing techniques, high-cost and intensive R&D. The leading and profitable pharmaceutical firms are in developed and advanced economies. Despite the rapid growth in the pharmacy industry, the leading pharmaceutical firms are still dominating the market (Helms, & American Enterprise Institute for Public Policy Research, 2006).
Pharmaceutical industry is among multi-billion dollar industry that comprise of about 200 big companies operating in various parts across the globe. The most profitable pharmaceutical companies that dominate the industry include Pfizer with a market share of 8.70%, GlaxoSmithKline with a market share of 6.30%, and Sanofi-Aventis with a share 5.50% and Novartis with a market share of 5%. However, there has been a rapid increase in pharmaceutical firms in other countries across the globe particularly in India and China. The emergence of pharmaceutical firms in India and China has lead to stiff competition in the industry.
Development of a drug can take almost ten to fifteen years before it reaches out to the patient. First there is the discovery of the drug. It is first subjected to pre-testing, commonly animals are used. The drug then undergoes other four stages before it is approved. Any government finds it to focus on the quality of pharmaceutical produced in order to minimize the cost of health care.
Strategic planning is what distinguishes one pharmaceutical company from the others. The Porters model looks and gives a description of how a business unit can operate successfully in the pharmaceutical market. The Porters model describes five forces that significantly determine how successful a business will become. Once managers understand the competitive nature of the market, they are able to have robust plans that will have the best outcome.
Competition in the pharmaceutical industry has got five basic competitive forces: the bargaining powers of the buyers, the bargaining power of the supplier, and the threat of the substitute, the threat of the new entrant and the intensity of rivalry among the competitors. These five forces are the ones that are the one that help determine the profit that any pharmaceutical industry will make.
In the pharmaceutical sector, the patient is the buyer. Other buyers can include, tender boards, hospitals and pharmacists. The buyers affect the pharmaceutical industry as they will move to where the drugs are offered at a reduced price, the drugs are of high quality and where the service being offered are of high quality. Every pharmaceutical establishment must consider these factors. Buyers according to Porters model are powerful because they can buy the drugs in large volumes, can buy the same products from different firm at a reduced price and be offered better services. In addition, buyers have knowledge and will demand drugs based on their knowledge. It is necessary to note that powerful buyers will always seek costly services.
Suppliers in the pharmaceutical sector could be providing raw materials, be intermediaries, manufactures, be on the production plant be somewhere along the supply chain. Every pharmaceutical firm has got different suppliers from the other. Suppliers can affect the profit levels of any pharmaceutical firm. They may threaten the industry by raising their prices or opting to lower the quality of their products. It is hence particularly crucial to check the bargaining power of the suppliers since the more power they have, the more they pose a greater threat to the pharmaceutical industry.
Decreasing the bargaining power of the suppliers is of immense benefit to any pharmaceutical company. An example is where a pharmaceutical industry is relying on only on supplier, and it is impossible to have another supplier. This supplier can opt withhold supply, raise the prices of the product or services or even decide to deliver sub-standard products or services. Such situations can have negative consequences on the industry and lead to lower profit margins.
New entrant in the pharmaceutical industry can bring in the competitive dynamic. They have new resources, ideas and the capacity hence they view the market as being attractive. The new entrants will seek to have a market share in the pharmaceutical sector. In the pharmaceutical sector, new entrants may encounter many challenges as they try to acquire a market share (Davies, 2007). Already established pharmaceutical industries may slow or prevent the new entrants from gaining a market share.
The new entrants in the market may be faced with challenges such as economies of scale which include marketing, sales, distribution and manufacturing. Product differentiation is another constraint while capital required has proved to be a considerable challenge to any new entrant in the pharmaceutical industry. Acquiring distribution channels is also a challenge to the entrants in the industry as they must comply with the regulations and standards that exist in the pharmaceutical industry.
They will also find it a challenge employee and train their staff. The cost of acquiring new equipment’s that are required will be too high for them. If there are many barriers as one seeks to venture into the pharmaceutical industry, the entry level will be low. It is therefore evident that in the pharmaceutical industry, there are many barriers while venturing the sector. Companies have a big market budgets which are intended to guard their products.
Substitutes in the pharmaceutical sector can perform the same task just like the product. Substitutes create competition as buyers might opt to buy the substitute to the product your pharmaceutical company is offering. Generic products can be substituted with original products.
Rivalry is common among pharmaceutical companies. Each firm is seeking to improve its position in the market. Pharmaceutical firms result in price competition and advertising. It is common where pharmaceutical companies are struggling for market share. This requires that firms use tactics that will favor them. Every pharmaceutical industry should be able to determine its strengths and weaknesses in the market and be in a better position to cope with the rivalry that exists in the pharmaceutical sector. Since the companies own the manufacturing plants, they should not let the suppliers be the ones to dictate the prices to them that might be a threat to the pharmaceutical firm. Normally, the competitive force in the pharmaceutical sector lies with the buyers; thus, is upon a pharmaceutical firm to have competitive strategies (Carroll, 2009).
Identify the key success factors, resources and competences required to achieve success and competitive advantage in the ethical drugs pharmaceutical industry.
The contribution of the pharmaceutical industry to a human being wellness and progress cannot be ignored. These companies have developed many drugs for treating various diseases. Hence these pharmaceutical industries have reasons for their success, must be competent and have to face the competition created by other firms offering complementary or substitute goods and services.
Pharmaceutical companies have social responsibilities. They must fight against epidemics all over the world by continuously manufacturing new drugs and improving their services. These firms must also ensure that their products and medical service are priced to promote affordable healthcare.
Pharmaceutical organizations must ensure that they fit in the environment where the firm is located and also their markets. This will enable the pharmaceutical firm create the best business plans and strategies that are based on the future. These companies can achieve greater success if they become innovative. Pharmaceutical companies can contribute to medical success by converting the fundamental research findings into innovative treatments that can be made available and accessible.
Pharmaceutical firms can also seek to venture the markets that have never been penetrated. This can be done by moving to those regions that the competitors have not accessed. In addition, pharmaceutical companies can also focus on new and better ways of sales and marketing. A pharmaceutical firm may decide to use a new marketing technique such as meeting face –to –face with doctors who can create a market for the firm’s drugs or medicine. Handing over free samples can be a new mechanism which can be applied to venture new markets.
Consolidation of the pharmaceutical industry at the global level will boost the industry and increase their productivity. When these pharmaceutical industries merge, they share their ideas and resources which result in strong growth strategies. Merging will help pharmaceutical industries have a global commercial reach.
The management team in the pharmaceutical sector needs to: collect, analyze and compile data on the competition from other pharmaceutical companies. Learning and interpreting this data is useful as it will the firm in strategic planning. It is essential if pharmaceutical companies establish close relations with their buyers who in this case are the patients, hospitals and tender groups. Pharmaceutical firms need to have a clear knowledge of the needs of their customers. This will enable these industries identify their target market more easily and hence deliver pharmaceutical products that are of high quality.
Pharmaceutical industries require employees who have high skills and training. Companies need to adopt strategies attract and develop of high quality that will add value and lead to the growth in the pharmaceutical industry. Success is a continuous process in the pharmaceutical sector. It is therefore essential that firms continuously improve on their products and services in the pharmaceutical industry. Pharmaceutical companies can motivate their worker to improve their skills and competence either by attending trainings or increasing their level of education. Pharmaceutical industries can include in their budget estimates provisions for seminars and trainings.
Developing good communications skills with customers is particularly crucial for success in the pharmaceutical sector. Building rapport with the customers will not only enable the firm win the trust from the customer, will also ensure that the company sustains the customers.
Identifying the most efficient and profitable way to conduct the business is vital in the pharmaceutical industry. Pharmaceutical companies can be innovative and increase their profit margins. Instead of incurring heavy costs while advertising, they can use the social media which are relatively cheap and have a wide reach.
Good ethics in the pharmaceutical sector can be achieved by collaboration of firms in the industry. Ethical standards on healthcare can be achieved by ensuring that the health of the patient is given the first priority. The pharmaceutical industry, government, Non-governmental organizations, the medical practitioners and academicians have proposed that comprehensive research on drugs, clinical trials, drug pricing, marketing and advertising as the key ethical issues in the pharmaceutical sector. The government, non-governmental organizations and doctors should share their views on the most fundamental moral and ethical issues facing the pharmaceutical sector.
An ethical issue that needs to be observed is the ensuring that physicians are paid reasonably and promptly. This will boost their morale and improve their service delivery. Reasonable pay to the physicians will ensure that the pharmaceutical firm is on the path to its set goals and targets. Pharmaceutical manufacturing companies need to ensure that they provide drugs and services that aim at improving the health of the patient (Howlett, Michels, & Jonnard, 1999). The drugs that are sold to the patients need to have undergone testing in order to identify the drug related problems that the drug might be having.
Sometimes pharmacists are in a dilemma on whether to inform their patient on the negative health effects of a drug or a service. Once the patients realizes of the negative effects of the drug, they may opt not to use the drug due to social or cultural factors. An example is where a patient is not told of the negative consequences of chemotherapy so that they do not refuse to be treated. The patient needs to be given the information on the effects of chemotherapy, but the physician may not be sure how the patient will respond once provided with the information (Espejo, 2012).
A pharmacist may refuse to tell parents about the health of their children. It requires that pharmacists be confidential. An example is where a daughter is taken to the hospital by her parents. The pharmacist may find it hard to tell the parents that their daughter is using birth control pills. Parents have of helping and protecting their children from harmful behaviors. Sometimes pharmacists are faced with the challenge of determining the type of drug that is going to be used in a particular hospital. This may be caused by particular pharmacists having vested interests.
Inefficiencies and high costs of medical drugs and services results to ethically bad behaviors. The pharmaceutical sector should strive to promote healthy ethics in the pharmaceutical sector. Pharmaceutical companies can engage their customers in ethical debates.
In conclusion, there are many sick patients who are in need of health-based services. It is therefore essential that healthcare facilities exist. If there were more sick people and everyone was feeling well, then doctors could not be having any patients to attend to and the pharmaceutical industries could not be selling their products and services. They would be forced to look for alternative professions. Pharmaceutical companies need to be open and transparent to their clients. They should strive to ensure that the of quality healthcare override the commercial interests in order to improve healthcare globally.