What Is The Porter's Five Forces Model Of The Pharmaceutical Industry
The pharmaceutical industry mainly deals with drugs, medical equipments as well as products that are presented in various forms. Many industry players have distribution and retail operations in different countries but this is not an indication of their market dominance. However, there are major pharmaceutical companies that dominate different markets around the word. With many changes in the industry, many companies have been fighting to be in the league of ‘big pharma’ category which is associated with high returns. It is important to note that it is not the size that determines success in business but the strategies employed can determine the size of the business.
Started in Denmark over a century ago as a central nervous …show more content…
The disparity in the performance of different drugs in the market, it is important to focus on performance criteria or per capita drug consumption in identifying Lundbeck’s performance. To emerge as a ‘top pharma’ the company required to assess their performance (Nehru, 2007)
Porter’s Five forces model
The model above helps businesses in analyzing their strategic positions which also determines the competitive advantage in the market (Hunt, 2007).
Threat of competitors: unlike monopolies, every other business expects rivalry which is the strongest in the porter’s forces. Mega pharmas such as glaxo smith Kline, Pfizer and Johnson & Johnson among others dominate the market with strong financial muscle to flood the market with their products. In addition, there are the generic drug manufacturers that have low production costs and are able to sell at low prices. This is a high force in the market rivalry.
Threat of new market entrants: there was the threat of new products in the market which were more improved in relation to the market demands. In the Korean market there was the government regulations and easing of patent laws. Considering the nature of the new entrants, this was a real …show more content…
Generic drug companies cannot be compared with original drug manufacturers because they are cheap to produce.
Bargaining power of customers: customers are the main determinants in business growth and Lundbeck relied heavily on government and health care organizations as the major buyers. However, with the entry of generic drugs, they posed a threat to Lundbeck. Customers’ bargaining or buying power also fell under threat with the deteriorating economy in the early 2000s.
Bargaining power of suppliers: Considering the nature of the industry, this is not a major threat because manufacturers rely on specific suppliers for different raw materials. However, Major suppliers are chemical companies and they can harm the industry or manufacturer if they decided to hike their prices. A factor which turns out to be a favor to the drug companies is that brands do not have any impact but the quality of chemicals supplied.