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The Five Forces Framework
Competitive
rivalry
Potential
entrants
Buyers
Substitutes
Suppliers
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The Threat of Entry: Barriers to Entry
Why Are Substitutes a Threat?
Scale and experience
Access to supply and distribution channels
Expected retaliation
Legislation or government action
Differentiation
Substitutes can reduce demand for a
particular class of products as customers
switch to alternatives.
Price/performance ratio
Extra-industry effects
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The Power of Suppliers
Degree of Competitive Rivalry
The Power of Buyers
Are buyers concentrated?
What are the costs of switching?
Does backward vertical integration exist?
Are suppliers concentrated?
What are the costs of switching?
Does forward vertical integration exist?
Competitor balanceIndustry growth rate
High fixed costs
High exit barriers
Low differentiation
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Managerial ImplicationsWhich industries should we enter or leave?What influence can we exert?
How are competitors differently affected?
Issues in a Five Forces AnalysisDefine the right industry
Determine whether industries are converging
Identify complementary products
What is Hypercompetition? Hypercompetition occurs where the frequency, boldness and
aggressiveness of dynamic movements by competitors accelerate to
create a condition of constant disequilibrium and change.
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The Industry Life Cycle
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Strategic GroupsStrategic groups are organisations within an industry with similar strategic
characteristics, following similar strategies or competing on similar bases.
Characteristics for Identifying Strategic GroupsScope of activities
Extent of product diversity
Extent of geographic coverage Number of segments served
Distribution channels
Resource commitment
Extent of branding
Marketing effort Extent of vertical integration
Product quality
Technological leadership
Organisational size
Benefits of Identifying Strategic GroupsUnderstanding competition
Analysis of strategic opportunities
Analysis of mobility barriers
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History of global pharmaceutical Industry
Origins of global pharmaceutical industry
New discoveries
Growth in pharmaceutical sector
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Industry evolution
The drug development process
Creating new pharmaceuticals.
Business environment
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Globalization or US Dominance ?
International convergence of medical science and practice
under the influence of modern communications technology
and increased travel and information exchange are the factors
that contributed to industry globalization.
*well-fundedUS universities and hospitals generally lead their
fields, while US congress provide the most prestigious
platforms for new discoveries.
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Globalization or US Dominance
*The doubling of number of blockbuster brands
between 1998 and 2004 provides further evidence of
globalization.
*In 2005, the leading global industry players originated
predominantly from the USA and Europe
*Strong US market growth from 1994 to 2004 enabled
US companies to grow faster than competetitors.
But In the longer term, US dominance may be under
threat from china and India.
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Sales and marketing
Sales and marketing capability become an increasinglyimportant source of competitive advantage.
*The traditional focus of drug marketing was the
personal detail.*Pharmaceutical promotion was a subject to industry
self regulation.
*Important differences in the marketing of primary
care and specialist products.*Growth in DTC (direct to consumer) advertising in theUSA, where spending reached $4.5billion by 2006.
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Health- conscious consumers
*In the USA, up to 75% of those that search for
health- related information are likely to
discuss that information with their health care
providers.
*Consumers are even beginning to purchase
across borders.
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Corporate social responsibility
During the twentieth century average life expectancy indeveloped countries increased by over 20 years.Much of thisimprovement can be attributed to pharmaceutical innovation.
*Some companies damaged the industry reputation and paid
fines for pricing and marketing crimes.
*The industry also faced condemnation of its response to theenormous unmet need in developing countries.
* The CEO of GlaxoSmithKline Jean paul Garnier, helpednegotiate the industry and establish clear principles of operation adopted by many companies to supply critical drugto poor countries on a no- loss, no profit basis.
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Industry Consolidation
*Pharmaceutical industry was consolidating at
the global level.
*The acquisition of Warner-Lambert gave pfizerfull marketing right to the cholesterol lowering
agent Lipitor, which pfizer then built into the
world best selling drug with sales of $12
billion in 2005.
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A Five Forces Analysis on the Pharmaceutical
Industry
Industry Rivalry
competitive and aggressive market
Threat of Substitutes what are the main substitutes for products
Threat of New Entrants
The threat of new entrants is very low
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A Five Forces Analysis on the Pharmaceutical
Industry
Bargaining Power of Buyers
Buyers do not pose a big threat to the pharmaceutical
industry
Bargaining Power of Suppliers
labor can be considered as a supplier to industry
Conclusion