Strategic Management in Global Context: Pharmaceutical Industry

Strategic Management in a Global Context
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1.                                                                                                                                                                                                                                                                                                                                I.                        Contents

Executive Summary. 3 II.      External environment analysis using the Pestel model facing the global pharmaceutical industry. 4 i.       Introduction. 4 ii.      Political 4 iii.     Economical 5 iv.     Social 5 v.      Technological 6 vi.     Environmental 6 vii.         Legal 7 III.         Porter’s Five Forces Framework on the global pharmaceutical industry. 7 i.        Introduction. 7 ii.       The threat of new entrants. 8 iii.      Threat of substitutes. 9 iv.     The power of buyers. 9 v.      The Power of Suppliers. 10 vi.     Competitive Rivalry. 10 IV.         Porter’s Generic Strategies Analysis on Mars and Nestlé. 11 V.     Ansoff’s Matrix Analysis on Mars and Nestlé’s direction of growth. 14 VI.         Conclusion. 18  Executive Summary
Organizations operating globally strategically manage their businesses to remain competitive. Global businesses such as pharmaceutical and pet care industries have revolutionized influenced by the changes in technology. Strategic management enables such corporations to analyze the external and internal environment and develop frameworks for decision-making and operations. In this essay, we carry out an analysis of the external environment in the pharmaceutical industry using the Pestel model and Porter's five forces. Also, we shall analyze how Mars and Nestle's companies diversified into the pet care business and how they have grown strategically over the years using Porter’s generic strategies and Ansoff's growth matrix.
External environment analysis using the Pestel model facing the global pharmaceutical industry
Introduction
The pharmaceutical industry is responsible for the healthy development of communities across the globe. The global pharmaceutical market is one of the largest infrastructural sectors in the world which is worth over 300 billion dollars in a year. The top ten companies in the industry contribute to a third of the market in sales and profits. The industry has evolved rapidly over the years with the discovery of penicillin being the major growth that showed how research and development would impact the industry (Whittington et al., 2020). A Pestel analysis helps analyze the challenges that revolve around the industry such as the complicated R&D process, intellectual property competition, strict regulations from the government, and strong pressures from the purchases.
Political
Governments have established regulations across the globe, especially after the thalidomide tragedy an anti-emetic for treating morning sickness that brought defects in birth. As a way of ensuring accountability for pharmaceutical companies, government regulations have played a vital role in separating the personal interest of the companies in making money without putting the interest of patients, who are end users into consideration. For example, some of the regulations are the government being the only powerful purchaser and setting a fixed term for protecting patent rights (Whittington et al., 2020). Hence, the industry experiences political pressures when inventing a new drug since the R&D process is expensive and takes at least 20 years for the drug to get the necessary approval. Besides, governments in many countries have set pricing and reimbursement policies as a way of unifying the market and helping streamline the price of healthcare.
Economical
The major economic factor affecting the pharmaceutical industry is the expensive R&D process. Research and development phases are lengthy as the drug takes at least fifteen years before being used by lab patients. All the stages require resources and might end up unapproved. Developing a new drug may cost up to 1.4 billion dollars, also companies will need to protect the intellectual property from R&D (Whittington et al., 2020). The government also controls healthcare services to ensure affordability to patients which affects the revenues for the companies. Also, following the economic recession facing the world, the R&D process has become more pricy
Social
The governments have been unable to achieve balance in providing equitable medical resources to everyone regardless of their race color and ethnicity. Population growth such as the aging population, high obesity rates, and trends in health have influenced the changes in the pharmaceutical market. Some companies have acted irresponsibly, for instance, opioid abuse and addiction crisis in the USA through excessive prescribing caused over five hundred thousand deaths associated with Purdue Pharma among other companies (Whittington et al., 2020). The aging population has more health issues that require management which increases demand for pharmaceutical products straining the health insurance plans. Social life is also changing which has increased the chances of people contracting chronic diseases thus creating a demand for innovative therapies such as managing weight, vitamins, and diet supplements (Siddiqui, 2021). Some companies have adopted ways for reaching out to patients through utilizing ICT thus impacting customer expectations as a way to build awareness and maintain loyalty.
Technological
The aspect of innovation has impacted progress in the industry through research pharmaceutical companies have invented innovative treatments. For instance, blockbuster drugs have genuine advances and help penetrate the market deeply and fast, hence industry giants such as J&J have been able to generate revenue (Whittington et al., 2020). Technology has enabled the industry to discover new and more effective medicines and therapies. Through R&D technological adoption companies can now get solutions to barriers to clinical success through developing safe and effective drugs. The use of electronic health records has helped streamline workflows and improve patient outcomes as it reduces errors and helps understand diseases better. Pharmaceutical companies have partnered with external biotechs to help identify opportunities and contribute to companies' pipelines (Siddiqui, 2021). The COVID-19 pandemic played a role in the pharmaceutical industry adopting digital channels, consumers have installed health apps such as the Pear Therapeutics app that was approved to guide patients with addiction to substances.
Environmental
As global production increases, more environmental challenges arise especially with the growth in the pharmaceutical industry. Companies are required to comply with environmental management systems by adopting practices that are environmentally friendly, healthy, and safe. The practices should not alter the quality of the drugs but should help minimize the carbon footprint (Belkhir, & Elmeligi, 2019). The companies should be able to manage the biotechnological pollutants and waste products that arise from the production of drugs through disposing of them as required.
Legal
Government regulations have helped in closing the gaps between the public and private interests. A new drug has to undergo the required process of research and development which is not only expensive but takes time before approval. Technology has contributed to the invention of counterfeit products that put the lives of patients at risk. According to WHO, out of ten medical products one of them is either fake or substandard. Therefore, the government regulates this by enforcing traceability and authentication measures on drug manufacturers and distributors (Heled et al., 2020). The government also controls market penetration through negotiating bodies such as the National Institute for Clinical Excellence (NICE) in the UK. The body ensures that payers provide evidence of cost-effectiveness before approving funding for developing new drugs thus a value assessment control. Also, the government has set up agencies that evaluate for risk to ensure drugs are safe for use even after approval.
Porter’s Five Forces Framework on the global pharmaceutical industry
Introduction
Porter’s five forces framework is a strategic management plan that organizations apply to determine how attractive an industry is before making investment decisions. Companies in the global pharmaceutical industry analyze the industry competitiveness using the model and then apply the necessary changes to remain competitive (Henry, 2021). In the pharmaceutical industry, the threat to new entrants is low given the expensive and lengthy research and development. The threat of substitutes is high as the industry experiences a lot of generic products despite regulations by governments. Buyers and suppliers have a low control and the competition for existing firms is strong.
The threat of new entrants
The barriers to entry are high given the existing government regulations, the challenges before getting approval for new products, and the expensive research and development process that is also lengthy (Whittington et al., 2020). Most drugs at least 80%, that get the approval and reach the market do not earn returns to recover the expenses on R&D since the government regulates the market through pricing or reimbursement controls. A new company should prepare to invest billions as R&D expense for one drug is estimated to be 1.4 billion dollars and will take a period of twelve years thus huge capital investment with great risks. Therefore, the threat to new entrants is low as the economies of scale are large giving existing big companies the advantage to compete (Mathur et al., 2021). For instance, the EU has penetrated Denmark and accounts for 25% of the pharmaceutical sales in the country which makes a small startup business fear to compete with.
The industry ethical companies have strong R&D capabilities besides medical education, marketing, and sales that all incur a lot of finances reducing the profit margins for new entrants. Thus the industry is attractive to existing players who can withstand the regulations and renew their intellectual property after twenty years. Contrary, the vaccine sector is easy to penetrate as compared to other conventional medicines, and the market was dominated by four companies in sales but came to lose control after the COVID-19 19pandemic. Pre-pandemic period, the barrier to entry for conventional vaccines was high since it required specialized skills in manufacturing and involved large clinical trials and managing programs for surveillance.
Threat of substitutes
A patent right expires after a period of twenty years, and most companies in the industry will manufacture generic products rather than renewing them. Counterfeit drugs have a similar form to real drug and sells at a cheaper price since they are made from poor-grade materials that harm legitimate products' reputation (Siotis et al., 2023). Generic medications are mostly sold over the counter and without a prescription and have contributed to the high financial revenues from their sales. Also, in developed countries, there are substitutes for consumer health products available that are growing consistently (Whittington et al., 2020). Also, counterfeit products sell more than 200 billion dollars in a year despite the health risks associated with them. Biosimilar products are manufactured with less risk as compared to generics and are easily approved, for instance, in 2015 Sandoz received approval for a biosimilar product in the US. Biosimilar products have managed to penetrate 50% of the pharma market within one year and are expected to earn 100 billion dollars in savings by the end of the year 2025. The threat of substitute is moderate and render the pharma industry unattractive.
The power of buyers
The primary buyers for this industry are the government while patients who are the end users do not influence the prices. Additionally, medical prescribers cannot decide on the price and physicians cannot make profits through selling drugs. Insurance companies do not have power on pricing either as they might choose not to cover treatments that are expensive to their scheme. Initially, the government and insurance companies did not influence decision-making in the industry, and medical practitioners made the decisions (Whittington et al., 2020). After the thalidomide tragedy, the government formulated controls on clinical trials. Spending on pharma products is controlled therefore by the government and insurance companies through rewarding genuine advances and monitoring the levels of reimbursements. Public Healthcare fund in most developed countries has deteriorated leading people to private healthcare and insurance-based care. Patients are now likely to gain more purchasing control with the adoption of technology in the sector that advocates for direct-to-customer advertising. Hence the bargaining power is likely to increase as patients get more informed and engaged through health-related websites.
The Power of Suppliers
The suppliers in the pharmaceutical industry have low power with so many sources supplying raw materials for manufacturing drugs. A majority of manufacturers already have the required equipment for manufacturing and research processes leaving suppliers to only provide raw materials and interm...