Rivalry in the pharmaceutical industry
However, according to Infor, a global provider of enterprise business solutions to select manufacturing and distribution industries such as GSK, to survive in this competitive industry, pharmaceutical companies must cost effectively manage traditional production variables such as raw materials, formulas, inventories and production scheduling to produce products that generate profitable revenue.
Because of the sensitivity of the products, pharmaceutical manufacturers are particularly challenged by strict government regulations, potency requirements, retailer quality specifications, pack variations and allocation constraints on where products can be shipped. Due to the competitive nature of the pharmaceutical industry, a systematic industry analysis using Harvard Business School competitive strategy professor Michael E. Porter’s model of “Five Competitive Forces” which will shed light as to how to develop an edge over firms by understanding how the pharmaceutical industry operates.
This concept involves a relationship between the degree of rivalry of pharmaceutical companies, threats of substitutes, buyer power, supplier power and barriers or threats to entry. This model is followed from QuickMBA. com website: The intensity of the rivalry in the pharmaceutical industry is influenced by a large number of firms which must compete for the same customers and resources thus leading to a struggle for the market leadership. In the pharmaceutical industry context, GSK must compete with leading healthcare company such as Roche in providing healthcare solutions to its consumers around the world.
When it comes to prescription and over the counter drugs, GSK must compete with companies such as Pfizer. Another factor is the slow market growth which causes the firms to fight for market share in the expanding market. Since the firm must sell large quantity of product, high levels of production lead to fight for market share. Also, high storage costs or highly perishable products cause pharmacies to sell medicines as soon as possible. The competition also intensifies if the pharmaceutical companies unload their products at the same time.
The low switching costs also increases rivalry if products from one company are not that expensive as the other company’s brand which makes switching of brands easier. Here, brand recognition and loyalty is very important. Pharmaceutical companies must work extra hard to capture its market which can also heat up the rivalry. Diversity of rivals is also very important especially in countries which can produce its own brand of medicine such as in countries like China, Japan and India who have pharmaceutical companies for its own drug research and development projects.
Another factor which can increase rivalry is industry shakeout. This happens when there is a growing market which causes new firms to enter the market and old firms to increase its production. For example, if there is a growing market for anti-allergy products, new pharmaceutical firms will compete with old firms in the market. This can lead to an increase in supply since the demand cannot support the products of the new firms. In turn, the industry becomes crowded, creating a situation with too many goods chasing too few buyers. Due to price wars and intense competition, a shakeout happens. Read about variable costs for pharmaceutical companies