I. ENVIRONMENTAL FACTORS AFFECTING INDUSTRY1
I.1. PESTEL ANALYSIS1
I.2.FIVE FORCES MODEL3
II. IMPLICATIONS OF CHANGING BUSINESS ENVIRONMENT4
III. USE AND LIMITATIONS OF TOOLS APPLIED5
III.1. USE AND LIMITATIONS OF PESTEL5
III.2. USE AND LIMITATIONS OF FIVE FORCES MODEL6
The origin of the modern pharmaceutical industry can be traced to the late 19th century. There are five broad types of industry players: Ethical, Generic, Biotech, OTC, and Vaccine companies. Ethical drug is key sector with 80% of market share by value and 50% by volume. Key markets are USA, Japan, The EU, China, and Mexico. Companies with consistently high levels of R&D spending and productivity have become industry leaders. Pfizer (USA), GlaxoSmithKline (UK), Sanofi-Aventis (France), Novartis (Switzerland), Johnson & Johnson (USA) are leading global pharmaceutical companies. Purpose of this report is to identify main environmental forces that are currently affecting the pharmaceutical industry and to provide reader the understanding of possible effects of this changing business environment on pharmaceutical firms. It also evaluates advantages and limitations of tools used to analyse pharma industry. In this process, author first applies PESTEL framework to the pharmaceutical industry to derive environmental factors from macro layer. Then he evaluates industry’s attractiveness by applying Porter’s Five Forces model. In the next part of the report author evaluates use and limitations of PESTEL analysis and Porter’s Five Forces Model.
I. ENVIRONMENTAL FACTORS AFFECTING PHARMACEUTICAL INDUSTERY
To identify the factors which affect the industry, we have to apply PESTEL framework to macro-environment and Porter’s Five Forces Model for industry layer. There are three layers of the business environment- the micro-environment, industry or sector and, competitors and markets (Johnson et.al.2005). See appendix 1.
I.1 PESTEL FRAMEWORK
General layer of the environment is macro environment which consists of factors that impact on almost all organisations. Strategists must understand how changes in the macro-environment will have impact on their organisations. Johnson et.al. 2005 propose PESTEL framework which categorises environmental influences into six main types such as, Political, Economic, Social, Technological, Environmental, and Legal. PESTEL framework is a tool to identify environmental forces that affect any industry. We will now apply PESTEL framework to pharmaceutical industry to search which main environmental factors are currently affecting the industry at macro level. We should bear in mind that these environmental factors are dependent on each other (Johnson et.al. 2005).
I.1.1 Political and legal factors influencing pharmaceutical industry:
This could be referred to various factors relating to political situations in any country and around the globe. For example, changes in government and resultant policy changes. Legal factors consist of laws that are followed in the industry (Evans & Richardson, 2007) In 1960s there was permanent patent protection for intellectual properties of drug manufacturers and regulatory controls were light. In 1970s, thalidomide tragedy led to tight regulatory controls on clinical trials. Now there is a law which states that the period of patent protection is only for 20 years. Governments around the world focus on pharmaceuticals as a politically easy target in their efforts to control rising health care costs. Many have introduced price or reimbursement controls. Some government have forced organisations to cut their prices. Some have started to make patients to pay some of the price of the drug. Canada has strict and inflexible pricing criteria and in contrast its neighbouring country USA has not such formal...