Analysis of industry using

Michale Porter five forces

model
Porter's five forces analysis of Pharmaceutical Industry

Khadija Shoukat
Student I’d 2022Y90400011
11-1-2022
1|P a ge Analysis of industry using Michale Porter’s Five Force Model

Porter's five forces analysis

A technique for examining the competitive environment in which a corporation operates is called

the Porter's Five Forces Framework. The five forces that govern the level of competition and, consequently,

the profitability of an industry are derived from industrial organization (IO) economics. Porter uses the term

"microenvironment" to describe these factors in contrast to the more all-encompassing phrase "macro

environment." They are made up of the external factors that have an impact on an organization's capacity

to provide for its clients and generate revenue. Given the general change in industry knowledge, a business

unit typically needs to reevaluate the market when any of the dynamics change.

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2|P a ge Analysis of industry using Michale Porter’s Five Force Model

Porter's five forces analysis of pharmaceutical industry

An industry is considered "unattractive" when the combined impact of these five forces lowers

overall profitability. An industry that is getting close to "pure competition" in which all firms' available

earnings are being pushed to average profit levels would be the least desirable.

Let’s see the how Porter’s five forces effect the pharmaceutical industry given below;

• New entrants

• Suppliers

• Buyers

• Substitute products

• Competitive rivalry

New Entrants

The concentration on the research and development section is what allows the pharmaceutical

sector to survive. Setting up and running a research and development unit has significant financial costs.

Along with this, the government's strict rules and regulations for the approval of new pharmaceuticals must

result in the creation of a significant barrier in terms of expensive capital expenditure. In addition to these

and other difficulties, the pharmaceutical business's market entry is constrained by issues including

developing appropriate distribution methods, choosing the correct goods for research and investment, and

foreseeing competition.

Many pharmaceutical industries are transitioning to a new mode of operation. The expensive

burden of drug discovery, clinical testing, and manufacturing is removed by this business strategy. One of

the main reasons for choosing this strategy was the expiration of patents on many different medications,

which is providing cheaper generic manufacturers with excellent chances in terms of increased market

access and inexpensive capital investment. Additionally, the government is putting more effort into

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modernizing healthcare facilities, which has placed pressure on the authorities to permit the early release

of affordable pharmaceuticals onto the market. As a result, pharmaceutical firms with preapproved facilities

and thorough knowledge of regulatory difficulties now have a great chance. Consequently, the shift in

business approach is responsible for the high threat from new entrant.

Suppliers

Suppliers have very little negotiating leverage in the market. A variety of organic compounds are

used in the pharmaceutical sector. Due to the longevity of the pharmaceutical sector, several suppliers have

restricted their ability to bargain for lower prices. The pharmaceutical sector views chemicals as a

commodity, which encourages frequent supplier turnover without incurring significant expense. But

supplies can choose forward integration and turn into a pharmaceutical business. These forward linkages

are exemplified by businesses like Sahsun Chemicals and Orchid Chemicals.

Buyers

The decision to purchase a product is dependent on two groups of people: the influencer and the

buyer. The end consumer of the product is separate from the influencer in the pharmaceutical industry,

unlike many other industries where customers and influencers are the same. Patients, family members, the

PBAC (Pharmaceutical Benefits Advisory Committee), the PBPA, finance departments, hospital boards,

tender boards, and the chief pharmacist, along with a variety of other buyers, depending on the specific

business, are among the buyers, while the main influencer is the doctor who is prescribing the medication.

As consumers are forced to buy what the doctor recommends, influencers play a crucial role.

In some circumstances, the purchasers have a major influence over the price. In situations in which

people make demands based on their expertise, such as when they make a large-scale purchase, when there

are several suppliers of the same good, or when they are knowledgeable In other words, customers can exert

power by negotiating lower prices and threatening to find alternative providers for their needs. Strong

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customers want expensive service. Consumers need current and pertinent medical information, another

pricey service, and the government needs in-depth assessments, which are required but are also expensive.

Substitute products

One of the pharmaceutical industry's greatest benefits is the availability of alternative products.

Pharmaceutical products are still in high demand, and the sector is thriving. The production of generic

products is quite inexpensive, so the pharmaceutical business faces intense competition in terms of

substitute items. If the patent on the original product has expired, customers can find a generic drug that

will work as a replacement. Customers, however, are limited in their options if the medication is new.

Generic medication producers will have fantastic opportunities to take advantage of volume and utilization

trends during the coming years. In order to reduce the cost of supplies, generic companies are increasingly

focusing on creating global operations, which poses an even greater threat to non-generic medicine makers.

Competitive Rivalry

Due to the potential for enormous profit if new drugs can be developed, the pharmaceutical sector

is generally quite competitive. The industry's rivalry is brought on by each company's desire to strengthen

its position in the market. This is the struggle between corporations over pricing, ad campaigns, and the

launch of new products.

Since the pharmaceutical industry adopted a new strategy, which must result in a very low entry

barrier, industry competition has intensified. Competition between companies can be fierce if they are vying

for market share, but competition is likely to be less fierce if the market as a whole is growing or if the

company's position is secured by patents. If they do not have a future "blockbuster" in the works, weak,

little businesses typically file for bankruptcy. The largest and most powerful pharmaceutical corporations

will purchase others who have important research or valuable assets.

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