The Pharmaceutical Industry with Reference to Key Strategy Theory, Analyse and Evaluate the Changing Nature of Competition Within the Global Pharmaceutical Industry

Only available on StudyMode
  • Download(s) : 189
  • Published : April 5, 2011
Open Document
Text Preview
This essay will analyse the factors that shaped the competition within pharmaceutical industry. It will look at the key players in the market and try to answer how they obtained the competitive advantage over their rivals. Moreover his paper will also examine the main business models in pharmaceutical industry and look how the companies react to the changing nature of competition, by re-assessing their strategies. According to the case, written by Holland & Batiz (2004), the pharmaceutical industry has its roots in 19th century but the R&D was firmly established during 1940s and 1950s. This means that throughout that time pharmaceutical companies acquired practise and experience which helped them to obtain a competitive advantage (Porter 1985). However, the market was full of companies producing “me too” drugs that did not have to risk lengthy and costly R&D due to no patent protection. Those companies were selling products that were not offering a significant benefits comparing with well known drugs. After all, governments imposed fixed 20 year patent protection that facilitated R&D companies firmly within the industry allowing abnormal profits and preventing new companies entering the market (Holland & Batiz 2004). From a strategy standpoint we can draw a conclusion that the competition within pharmaceutical industry was imperfect as small threat of new entrants allowed existing companies to keep prices at high levels which is typical for oligopolistic market. However, this situation could not last for very long as big margins are always attracting new entrants (Lynch 2006). The entry of new companies has profoundly affected the competition within industry, forcing R&D companies to review their strategies. Generics offered a product that is the same in terms of its ingredients and quality but much cheaper than the original brand. Moreover the new firms have managed to capture a vast share of sales of a particular drug just after the patent expired. This has resulted in much intensive competition within pharmaceutical industry, being beneficial for the society as it led to innovation and increased R&D spending on pioneer drugs. Therefore it was necessary for every company to identify their opponents and outline an effective business strategy in order to achieve a competitive advantage ( Meyer & Wit 2010). One of good ways of starting analysis of any industry is Porter's Five Forces. These are five forces that determine the competitive intensity and therefore attractiveness of a market. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers (Porter 2008). From the analysis, we can draw a conclusion, that the competition within pharmaceutical industry is high as the companies compete intensively among themselves for intellectual property and innovative drugs (Johnson, Scholes & Whitington 2008). What is very characteristic for pharmaceutical industry is that buyers have enormous purchasing power. This is mainly government that impose regulations on pharmaceutical industry in order to control its spending on healthcare system. However, different business models are influenced by different customers, as prescription free drugs (OTC) are purchased mainly by society while drugs requiring prescriptions are bought by government. The competition in pharmaceutical industry is mainly taking place on the business level where the strategic issues about developing and sustaining a competitive advantage for the goods and services that are produced (Porter 1998). At the business level, the pharmaceutical firms formulate strategies in order to anticipate changes in demand and technologies and adjust their strategy to accommodate them. Moreover they influence the nature of competition through strategic actions...
tracking img