Environmental Forces that Affect the Global Pharmaceutical Industry - Coursework Example

THE PHARMACEUTICAL INDUSTRY Name of Student Course Name of Instructor Institution Location Date CASE STUDY: THE GLOBAL PHARMACEUTICAL INDUSTRY Over centuries, the pharmaceutical industry has endeavored to provide answers to most of the world’s perplexing medical issues by researching on them and providing relevant antidote to the problem. However, the industry has currently been hit with various incessant challenges which promise to threaten the smooth operations of the industry. Most of the challenges are strategic based hence require esteemed business professionalism to be addressed. The analysis in this paper attempts to find out the factors affecting the efficient operation of pharmaceutical companies leading to consequential shrinking of the industry and making effort to address such emanating challenges accordingly. Environmental Forces That Affect the Global Pharmaceutical Industry Pharmaceutical industry is one of the best innovative and profitable industries across the globe reason attached to the high level of medical intellectuality within its sectors (Cox & Rawlinson, 2009 p144). The industry has vast opportunities despite the threats. The companies within the industry have shown exceptional interest in forming the external alliances such as partnerships which has indeed assisted the company market drugs efficiently, gain a robust bargaining power, reduce cost and compete effectively in research. As such, the demand for drugs is always high and the industry has the mandate to supply sufficient drugs to meet the demand. The industry has however been associated with some identifiable weakness. The financial support for clinical trials is dependent on the published results favoring the interests of the sponsors, which indeed is a central weakness requiring serious address (Abdi, Elliot & Edalat, 2016 p34). The threats experienced by the industry on the other hand include but not limited to the governments’ pricing legislations which compel pharmaceutical companies to sell drugs at exasperating low prices and short patent expiry for drugs. PESTLE model considers factors such as Political, Economic, Technological, Environmental and Legal factors affecting business operation. Some of the environmental factors include environmental movements which occasionally threaten to sue pharmaceutical companies on carbon and other pollutants’ emission (Land, Amjad & Nolas 2011, n.d). Pharmaceutical companies should ensure waste water treatment technology, proper sewage system, and expired drugs hold house amongst other factors. Technology plays an imperative role in defining the methods of research, development and manufacturing of drugs. The industry’s resolution to use advanced technology in drug production have resulted into more quality output and simplified processes. Economic factors that persist to affect the industry include interests, inflation, taxes and exchange rates. Lofty interests daunt investors from investing in the industry as high taxes levied on the industry’s products results into high production costs and inefficiency in operations (Narayanan & Fahey, 2015 p210). High import charges and tariffs discourage globalised trade. Scenario planning also identified as scenario and contingency planning is a strategy used to look into the future and how it can unfold and affect the organization. Scenario planning assists organizations to view microscopic business elements on economic lens and ascertain how such elements might turn up to affect the business in the long run (De Carolis 2003, p.33). Pharmaceutical organizations have the primary mandate to understanding and planning on health issues so as to evade their consequences in the future. On the same note, the companies within the industry have endeavored to plan according by ascertaining how their current problems might affect them in the long ran and how the anticipated future changes might affect the business so as to adjust accordingly to meet such challenges. Five Forces Framework The five forces framework purports that there are five major factors that affect the efficiency of business. Pharmaceutical companies are no exemption from this framework. Rivalry between existing competitors Competition among in the pharmaceutical industry remains to be stiff since most of them are multinational corporations and fight to lead the market (Scherer 2000, p.1301). With the highly fixed costs and patent policies, every company in all its efforts would strive to survive and control a major portion of the available mature market. Lack of proper strategies have seen great companies like Valiant, Altair Therapeutics and Ambrilia Biopharma fail and lose desperately to their competitors (Piercy, 2010 p353). Since industry’s products are less differentiated, each and every company in their capacities must ensure their products remain marketable lest they exit. This factor is most likely to affect the growth and maturity stages of a pharmaceutical company life cycle. Threat of entry Pharmaceutical companies experience low and controlled threat of new entrants. The industry has set high standards that act as barriers to those willing to join it. The Industry constitutes of companies with large economies of scale attached with highly fixed operation cost which cannot be afforded by starters (Bharathi 2008, p.691). Other factors set hurdles in joining the industry include difficult accessibility of raw materials and stringent government legislation on drug manufacturing and distributing. This factor is mostly deemed to affect the startup level of a company willing to join the industry. Threat of Substitutes Products from pharmaceutical firms are identical and less differentiated hence finding a perfect substitute is much strenuous, however, generic drugs have been used to substitute the original ones but mostly in third world countries where regulation is less strict compared to countries like the USA (Bierly & Chakrabarti 1996, p.129). This force is most likely to affect the declining stage of a pharmaceutical company. Bargaining power of buyers and suppliers Buyers are the immediate customers to a company’s products. Since buyers of pharmaceutical drugs are sparsely distributed across the globe, they have developed inferior bargaining power and they cannot dictate the prices of such products. However, suppliers have developed tremendous bargaining power since they are few in number and the inputs they supply are rare and difficult to find (Wang & Zhou 2008 p67). Suppliers therefore have high switching costs which relatively disrupts the manufacturing and distribution processes of such drugs. Bargaining power affects the growth level of a pharmaceutical company. Strategic Groups within the Global Ethical Pharmaceutical Industry Determining market segments in a pharmaceutical industry is dependent on the criterion used. Geographically, the industry has divided its markets into three major groups consisting of The United States of America, Europe and Japan which in totality accounts for 80% of the globes pharmaceutical drugs destination (Bianchi et al. 2011, p.29). The regions which precisely can be verified as developed economies are the strongest markets by total market spending of drugs from pharmaceutical industry. However, scientists anticipate that in the near future, the undeveloped nations shall become the world’s biggest markets for pharmaceutical drugs. Such assertion is based on the reality that the inhabitants of such regions currently depends on traditional drugs which are soon becoming inexistent reason attributed to the changing climatic conditions and ceasing biodiversity (Deka, 2016 p23). The market segments can also be classified by where the products are directed. Under this category, there are two segments constituting of primary care and specialists. There exist distinct classes of drugs which forms part of strategic groups. Ethical drugs are drugs that have to be prescribed rather than over the counter drugs which do not necessarily have to be prescribed. The patented drugs are known as branded drugs as the non-patented ones are determined as generic drugs (Weissman 2016, p.271). Pfizer is one of the fundamental pharmaceutical companies which have experienced tremendous growth over the past few years. However, before 2008, the company experienced a series of challenges which threatened the closure of the company due to patent expiries mostly for their outstanding product Lipitor (Wang & Zhou 2008, p.88). Out of the $12.4 billion revenue that accrued to the company in 2008 28% was attributed to Lipitor. Due to the persistent threat of closure in 2008, the company had no option but to buy growth. As a result, Pfizer sought for a merger with Wyeth which would dilute sales decline and assist the company surge forward. The result was an increase of sale from $43.4 billion in 2008 to $56.4 billion in 2011 which was indeed a good indicator for a better financial health of the company (Land, Amjad & Nolas 2011, p.21). Evolution of Strategic Customer in Pharmaceutical Industry Initially, the pharmaceutical industry had no well planned customer based strategy since it was believed that it was the customers’ duty to seek for drugs from the manufacturer. The need to focus on the customer arose in the early twentieth century when numerous pharmaceutical companies begun to emerge (Sapienza 2009,p.293). The series of evolution began with the blockbuster era where sales and marketing capabilities were deemed crucial in gaining competitive advantage. During the period, corporate success was tied to the willingness and ability of the pharmaceutical company to develop a long lasting contract with the customers so as to maximize returns and avoid unsuccessful expiry of patent periods (Kesič 2011, p.261). Under this strategy, a pharmaceutical company had to appoint a team of certified marketing and sales representatives who had the duty of approaching medical practitioners, offer them drug samples and persuade them to purchase the company products (De Carolis 2003, p.41). In that case, the sales representatives had to understand the use and implications of each drug hence assessment, training and testing was necessary in ensuring success in the marketing process. The primary care products were traded to office-based health practitioners as specialist products were channeled to hospitals (Piercy 2010, p.353). As a consequence, in the late twentieth century, the pharmaceutical companies developed a ‘Direct-To-Consumer’ strategy which would eliminate sales representatives in the distribution channel (Ewelukwa, 2015 p203). This strategy was aimed at cutting cost by the greatest amount possible so as to maximize on profit. A splendid case is of Celebrex launched in 1999 netting $1 billion within 9 months of operation by using the DTC strategy as a marketing tool (Cox & Rawlinsonm2009, p. 149). Prevalent ‘Ethical Stance’ in the Pharmaceutical Industry Pharmaceutical industry has shown its splendid ethical stance in ensuring public health and universal health safety. Figure 1:Stakeholders map In the 19th century for instance, life expectancy in developed countries stood at an average of 45 years which currently have been improved to 75 years thanks to modernized pharmaceutical industry (Scherer 2000, p.1321). The industry should make it their primary objective to do research on health issues and innovating on them accordingly so as to solve the perplexing health issues with finality. Currently, pharmaceutical companies have been working diligently towards finding solution to pandemics such as HIV/AIDS and Cancer. Thus, this industry should be the number one company which utilizes research and development in ensuring quality and human-health accommodative products (Jardine, & Hemerly, 01, 2012 p65). However, some companies within the industry play a significant role in diminishing its renowned ethical standards. For instance, GSK in 2012 was pinpointed to have performed the largest healthcare fraud in history. As a result of indictment, the company paid $3 billion as fine. The company pleaded guilty for distributing uncertified drugs (Weissman, 2016 p260). Pharmaceutical companies have endeavored operating on balanced scorecards. The companies aim at maximizing their returns, ensuring quality drugs for quality healthcare, delivering them to customers as and when required and enhancing research and innovation. To meet performance targets, the companies are using strategic maps approach to set the targets. In pharmaceutical industry the target has always been to increase output and minimal costs meeting the set standards concurrently (Bianchi et al. 2011,p.27). In conclusion, companies have indeed played a fundamental role in changing the world through promising better responses to most of the word’s devastating health problems. Through its property protection schemes, the industry has managed to conquer in the research and development sector which indeed have offered it the strength to budge forward improving the globe’s health conditions as well. However, there exist numerous external forces which persist to threaten the efficiency of the industry. Such threats need perfect resolutions to allow the industry to proceed with its mission of making the world a better place to live in. Pharmaceutical companies should be supported in their endeavors of improving the world. References Bianchi, M., Cavaliere, A., Chiaroni, D., Frattini, F. and Chiesa, V., 2011. Organisational modes for Open Innovation in the bio-pharmaceutical industry: An exploratory analysis. Technovation, 31(1), pp.22-33. Bierly, P. and Chakrabarti, A., 1996. 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