Porters of Pharmacy
Porter's Five Forces Analysis for the Pharmaceutical Industry
Degree of rivalry among existing firms (HIGH)
Pharmaceutical industry is one of the most competitive industries in the country with as many as 10,000 different players fighting for the same pie. The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% market share, and the top five players together have about 20% market share. Thus, the concentration ratio for this industry is very low. High growth prospects make it attractive for new players to enter in the industry. Another major factor that adds to the industry rivalry is the fact that the entry barriers to pharmaceutical industry are very low. The fixed cost requirement is low but the need for working capital is high. The fixed asset turnover, which is one of the gauges of fixed cost requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times. For smaller companies, it would be even higher. Many smaller players that are focused on a particular region, have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way. An important fact is that pharmaceutical industry is a stable market and its growth rate generally tracks the economic growth of the country with some multiple (1.2 timesaverage in India). Though volume growth has been consistent over a period of time, value growth has not followed in tandem. The product differentiation is one key factor, which gives competitive advantage to the firms in any industry. However, in pharmaceutical industry product differentiation is not possible since India has followed process patents till date, with laws favoring imitators. Consequently, product differentiation is not the driver, cost competitiveness is.
Bargaining Power of Buyers (MEDIUM)
The unique feature of pharmaceutical industry is that the end user of the product is different from the influencer (read doctor). The consumer has
Degree of rivalry among existing firms (HIGH)
Pharmaceutical industry is one of the most competitive industries in the country with as many as 10,000 different players fighting for the same pie. The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% market share, and the top five players together have about 20% market share. Thus, the concentration ratio for this industry is very low. High growth prospects make it attractive for new players to enter in the industry. Another major factor that adds to the industry rivalry is the fact that the entry barriers to pharmaceutical industry are very low. The fixed cost requirement is low but the need for working capital is high. The fixed asset turnover, which is one of the gauges of fixed cost requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times. For smaller companies, it would be even higher. Many smaller players that are focused on a particular region, have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way. An important fact is that pharmaceutical industry is a stable market and its growth rate generally tracks the economic growth of the country with some multiple (1.2 timesaverage in India). Though volume growth has been consistent over a period of time, value growth has not followed in tandem. The product differentiation is one key factor, which gives competitive advantage to the firms in any industry. However, in pharmaceutical industry product differentiation is not possible since India has followed process patents till date, with laws favoring imitators. Consequently, product differentiation is not the driver, cost competitiveness is.
Bargaining Power of Buyers (MEDIUM)
The unique feature of pharmaceutical industry is that the end user of the product is different from the influencer (read doctor). The consumer has