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The Five Forces Framework

Competitive

rivalry

Potential

entrants

Buyers

Substitutes

Suppliers



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



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



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.



The Industry Life Cycle



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



History of global pharmaceutical Industry

Origins of global pharmaceutical industry

New discoveries

Growth in pharmaceutical sector



Industry evolution

The drug development process

Creating new pharmaceuticals.

Business environment



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.



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.



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.



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.



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.



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.



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



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

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