The Pharmaceutical Industry with Reference to Key Strategy Theory, Analyse and Evaluate the Changing Nature of Competition Within the Global Pharmaceutical Industry
This essay will analyse the factors that shaped the competition within pharmaceutical industry. It will look at the key players in the market and try to answer how they obtained the competitive advantage over their rivals. Moreover his paper will also examine the main business models in pharmaceutical industry and look how the companies react to the changing nature of competition, by re-assessing their strategies.
According to the case, written by Holland & Batiz (2004), the pharmaceutical industry has its roots in 19th century but the R&D was firmly established during 1940s and 1950s. This means that throughout that time pharmaceutical companies acquired practise and experience which helped them to obtain a competitive advantage (Porter 1985). However, the market was full of companies producing “me too” drugs that did not have to risk lengthy and costly R&D due to no patent protection. Those companies were selling products that were not offering a significant benefits comparing with well known drugs. After all, governments imposed fixed 20 year patent protection that facilitated R&D companies firmly within the industry allowing abnormal profits and preventing new companies entering the market (Holland & Batiz 2004). From a strategy standpoint we can draw a conclusion that the competition within pharmaceutical industry was imperfect as small threat of new entrants allowed existing companies to keep prices at high levels which is typical for oligopolistic market. However, this situation could not last for very long as big margins are always attracting new entrants (Lynch 2006). The entry of new companies has profoundly affected the competition within industry, forcing R&D companies to review their strategies. Generics offered a product that is the same in terms of its ingredients and quality but much cheaper than the original brand. Moreover the new firms have managed to capture a vast share of sales of a particular drug just after the patent expired. This has
According to the case, written by Holland & Batiz (2004), the pharmaceutical industry has its roots in 19th century but the R&D was firmly established during 1940s and 1950s. This means that throughout that time pharmaceutical companies acquired practise and experience which helped them to obtain a competitive advantage (Porter 1985). However, the market was full of companies producing “me too” drugs that did not have to risk lengthy and costly R&D due to no patent protection. Those companies were selling products that were not offering a significant benefits comparing with well known drugs. After all, governments imposed fixed 20 year patent protection that facilitated R&D companies firmly within the industry allowing abnormal profits and preventing new companies entering the market (Holland & Batiz 2004). From a strategy standpoint we can draw a conclusion that the competition within pharmaceutical industry was imperfect as small threat of new entrants allowed existing companies to keep prices at high levels which is typical for oligopolistic market. However, this situation could not last for very long as big margins are always attracting new entrants (Lynch 2006). The entry of new companies has profoundly affected the competition within industry, forcing R&D companies to review their strategies. Generics offered a product that is the same in terms of its ingredients and quality but much cheaper than the original brand. Moreover the new firms have managed to capture a vast share of sales of a particular drug just after the patent expired. This has
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