CASE STUDY

Exploring Corporate Strategy: Case Study



Exploring Corporate Strategy: Case Study

Main Environmental Forces Currently Affecting the Pharmaceutical Industry

In the evaluation of the remote environment of the world pharmaceutical industry it appears that economic factors were broadly favourable, though changes in re-imbursement system could pose significant threats in the future as all types of health agencies impose tighter controls on drug spending. There are potentially serious threats among political factors as government regulation of the industry increases, but this is likely to be mitigated — as it has been in the past — by the well developed relationships between governments and the pharmaceutical industry, both at the level of the individual firm and through the agency of national industry associations. Social factors are also generally positive, though changing lifestyles may cause a move to the less profitable over-the-counter drugs. There is a major threat lurking below the surface: in most developed countries there are a wide range of special interest and pressure groups (e.g. animal rights) whose views are antipathetic to the commercial interests of the drugs industry (Johnson et al 2008 623). They are largely without influence at the present time, but this is an area that the industry must watch carefully. Technology factors are also favourable, particularly since the pharmaceutical industry has developed a deep involvement with the emergent biotechnology via acquisition, joint ventures, strategic alliances, and organic development (Gottinger 2008 583-5).

The pharmaceutical industry of UK plays a big role in the global health care. United Kingdom boasts the largest of world's pharmaceutical companies such as the GlaxoSmithKline. It also hosts four out of ten world's best-selling drugs (including the 'number one' spot). Some estimates show that about 65000 people are employed in the pharma sector, with feeder industries employing even more. UK industry is a large net exporter of drugs, accounting for a trade surplus in this sector of well over one billion pound sterling (i.e. of exports over imports). Growth in the pharmaceutical sector has rarely been below 10% per year and return on sales is invariably of the order 20% or higher (often much higher). Over 40% of the total workforce in the pharmaceutical industry is employed within the R&D.

The UK pharmaceuticals industry as a whole is fragmented, although the past decade has seen considerable corporate activity which has resulted even more powerful leading players, such as GlaxoSmithKline plc, AstraZeneca plc and Pfizer Ltd. However, the market is still able to support numerous small, independent manufacturers.

The world pharmaceutical industry is highly fragmented, with the large majority of the top thirty firms having a market share of less than 2 per cent. Based on 1988 sales revenue, the world's largest drugs firm (Merck) has less than 4 per cent of the market. The structure of the industry has changed significantly, with a number of companies merging in order to obtain economies of scale in R & D and marketing, the best known examples being the mergers of SmithKline with Beecham, and Bristol-Myers with Squibb (Jacobsen ...