PORTER’S FIVE FORCES AND PRODUCT LIFE CYCLE OF

PHARMACEUTICAL INDUSTRY

STRATEGIC MANAGEMENT

GROUP 1: -
140002 – ABHISHEK PANDEY
140042 – SUPRIYA JAISWAL
140017 – KUMAR SHIVAM
140028 – PRIYANKA SHRIVASTAV
140052 – ANISH KUMAR
140084 – VISHAL KUMAR
140067 – POOJA KUMARI
 ACKNOWLEDGEMENT

With the completion of our Porter Five Forces Model and Product life cycle on the

pharmaceutical industry Project, we express our earnest gratitude to Prof. Sayan Banerjee for

his superlative guidance and unflinching support throughout the project work. No

development would have been feasible had it not been for his excellent supervision, constant

encouragement, and careful perusal. His support was very important in the completion of our

report and give it to final shape.

We are immensely obliged to him for elevating inspiration and kind supervision wherever

necessary.
 CONTENTS

 Acknowledgment

 Executive Summary

 Introduction

 About Industry

 Porter Five Forces Model

1. Bargaining Power of Suppliers

2. Bargaining Power of Buyers

3. The threat of substitute

4. The threat of new entrants

5. Competitive Rivalry

 Product Life Cycle

 Conclusion
 EXECUTIVE SUMMARY

The porter five forces analysis of the pharmaceutical industry has been done to understand

the business strategy of that particular industry by doing porter five forces analysis. We also

gain a deeper insight into the pharmaceutical industry by measuring in to different five

parameters of porter's five forces. In our project, we take you through the introduction of

Porter's Five Forces and subsequently the overture of our taken industry to develop a better

understanding of the pharmaceutical industry. Thereafter, we discuss each parameter of the

Porter Five Forces in detail one by one and assigning rating from low to high. We have also

analyzed the pharmaceutical industry on the framework of Product life cycle with the help of

DDD or AAA triangular framework. The report helps to understand how to analyse a

particular industry before starting a business in that domain and last through the conclusion

we drop our comment for prospective businessmen on how this industry is for them.
 Porter’s Five Forces Model

This is depicted in further detail in the template below.

Source: www.imageoptimizer.net
Bargaining power of Supplier

 Consumers are more focused - than a few consumers with a significant market share.
Consumers buy a large portion of what they produce - product distribution or when the
product is good / selling. High cost of switching consumers - products are not rated and
the consumers are not easily switched to other products.

 Consumers may different - no consumers have a certain impact on the goods or costs.
Manufacturers provide key components of consumer input - distribution of purchasing
power Consumer Power supply (low). Also defined as a market for imported goods.
Providers of equipment, elements, and services (just like technology) in a company are a
source of power over the firm. Providers have power to refuse to work with firms, or e.g.,
charge very high prices for different services.

 Market providers have limited negotiating strength. Pharmaceutical products require a

variety of organic compounds. There are several chemical suppliers on the market.
Pharma companies don't need to spend a lot of money on chemicals; they can go from
one company to another. The high cost of switching suppliers is a major concern for
suppliers. Because powerful suppliers in the pharmaceutical industry have many
competing suppliers - quality products buy commodity products. A credible threat of
backlinks by consumers focused consumer weak customers.

There are mainly two types of suppliers: -

1. Traditional suppliers

2. Mega suppliers
AAA TRIANGLE SIMULTANEOUSLY

NOTE: - Pharmaceutical industry will come under Adaptation and Aggregation

Bargaining Power of Buyers

 Those industries where mass manufacturing is there, bargaining power of suppliers will
be more into those sectors.

 Three associated points: -

1. Availability of substitute (in pharmaceutical industries, easy availability of substitutes is

available)

2. Low cost

3. Imitability (More product inimitably, less consumers say)

Also, more tech complex of product becomes, less chance of imitability will be there.

But in Pharmaceutical industry, the chances of imitable is higher because of the less tech
complex product.

Note: - Less product cost, more Bargaining power to buyers.

 The product market or markets of output defined as Bargaining Power of Buyers (low).
The power of customers to put a company under pressure and it also affects the
customer's perceptivity to price changes. The customer has sufficient options to select so
they have less negotiation ability. The firms in an industry execute in two types of
markets: first in markets for inputs and the markets for outputs. In input markets
company buy raw materials, components, and financial and labour services. As, in the
markets for outputs company sell out their products and services to the customers. So,
transactions create value for buyers and sellers in both cases either Input market as well
as Market for output.

 Pharmaceutical manufacturers may sell drugs to wholesalers, which then sell on to

pharmacies, or to healthcare institutions such as hospitals. Mature markets are facing an
increase in healthcare costs due to aging populations and governments are therefore
putting increasing pressure on prices. Conversely, developing markets are growing in
potential and becoming more important for manufacturers. Generally, the bargaining
 power of buyers is moderate due to the following key drivers of buyer power in Global
Pharmaceutical Industry.

 Backward Integration

 Switching Costs

 Product Differentiation

 Buyer size

 Oligopoly Threat

 Buyer independence

Threats of Substitutes

 Threat of substitutes are more for those trajectories where process of arriving at process
innovation is getting delayed.

 Example: - like in automobile industries right now the sector is full of petrol and diesel
vehicles but suppose if cars running on batteries become more sustainable with time than
the existing industry will be very badly affected. Thus, here in this condition, battery
became a substitute for petrol and diesel so this is known as the threat of substitutes.

 The threat of substitutes can be linked to products that are available outside of the
industry. This danger arises when the demand for a product is influenced by the price of
a substitute product. In his model, a porter explains that the threat is usually caused by
price competition.

 Generics, Biosimilars (also known as follow-on biologics), and natural remedies are the
main alternatives to branded medications. Because they depend on the efficacy and
safety information provided by the original product and do not need to undergo costly
clinical trials, generic medicine manufacturers can provide the same medication for a
significantly lower price. Generics are a good substitute and have a cheap switching cost.
Factors of Threats of Substitute Products: -

 Product compare favourably to possible substitutes

  Aggressiveness of substitute products in promotion
 Switching cost
 customers loyal to existing products

Threat of New Entry

Every time when we talk about threats of new entry, we will have to keep in mind the cost of
entry and exit associated with it.

There are two types of innovation associated with it: -

1. Product innovation: - It is about the novelty and the idea of a product.

 It always proceeds the process innovation

2. Process innovation: - It is about lowering the cost.

 Mostly Japanese company are master in process innovation.

Note: - The sectors in which product innovations are being done on a regular basis , Cost of
product will never be going to reduce. And there arises the threats of new entrants more.

Example: - Intel Makes the microprocessor chips and gets it patented, hand companies like
Lenovo, Dell and, HP pay royalty to Intel so that they can use its microprocessor within their
system.

Note: - cost of entry and exit is related to economy of scale

 In Porters five forces, threat of new entrants alludes to the danger new contenders’
posture to existing rivals in an industry. Consequently, a beneficial industry will draw in
more contenders hoping to accomplish benefits. Assuming it is simple for these new
contestants to enter the market – assuming passage boundaries are low – then, at that
point, this signifies a perils to the organizations earlier struggling in that market. More
contest – or spreading creation limit without simultaneous expansion in buyer interest –
signifies less profit to go around. As per Porter's 5 forces, peril of new contestants is one
 of the powers that shape the cutthroat design of an industry. In this way, Porter’s threat
of new entrants’ definition reimagined the manner in which individuals take a butcher at
fight in an industry.

 The danger of new entrants Porter established to control the serious climate for the
present contenders and affect the capacity of current firms to accomplish benefit. For
instance, a high peril of passage implies new contenders are probably going to be drawn
to the benefits of the business and can enter the business effortlessly. New contenders
entering the commercial centre can either compromise or decreasing the piece of the pie
and benefit of existing contenders and may bring about difference to existing item quality
or value levels. A picture of the danger of new contestants' watchman contrived exists in
the visual computerization industry: there are exceptionally low obstructions to section.

 A high danger of new entry can both construct an industry more aggressive and decrease
profit potential for existing contenders. Then again, a low danger of section makes an
industry less jesting and expands benefit potential for the present firms. New contestants
are prevented by obstructions to section.

 A few variables decide the level of the danger of new contestants to an industry. Besides,
large numbers of these elements fall into the classification of obstructions to section, or
passage hindrances. Hindrances to passage are considers or conditions the cutthroat
climate of an industry that make it hard for new organizations to start working in that
market.

 Generally, the threat to new entrants is low due to the following factors

 Capital Entry Requirements

 Regulation and Legal Framework

 Legislation and government action

 Restrictive formalities

 Intellectual Property

Competitive Rivalry-
 The degree of rivalry is very strong. Pharmaceutical industry continues to witness fierce
competition; there are a lot of big Multinationals, a lot of Mergers and Acquisitions,
strategic alliances, network building, and niche-based acquisition taking place.

 In conclusion, the pharmaceutical industry is not an attractive industry to enter for new
players as its highly competitive, the incumbents are well established multinationals who
have invested heavily in Research and Development, are enjoying economies of scale.
However, Porter’s Five forces model has its limitations (refer to Appendix VII) hence it
needs to be applied with some caution.

 These firms face intense Rivalry from both small-scale production and among each other.

 Firms in this situation focus on gaining competitive advantage by using different ways
which includes: -

 Change in price

 Product differentiation

 Creative channels of distribution.

 Rivalry within an industry is common when multiple firms are targeting same customer
but in order to penetrate deep and acquire more market share firms need to think different
and introduce new changes.

How Porter’s Five Forces differ per pharmaceutical industry sector

PHARMACEUTICAL INDUSTRY SECTOR LIFE CYCLE

GENERIC (MATURITY)

Competitive Rivalry - Strong: The existence of major, international companies along with

high fixed and exit costs slightly raises the level of competition in the generics market.

Strong Bargaining Power of Buyers is backed up by the fact that consumers don't have a

strong brand loyalty and have access to a wide range of options. However, when it comes to

producers of APIs, the capability of forward integration into the production of generic

pharmaceuticals boosts the power of the supplier.

Moderate Threat of Substitutes: The primary alternatives to generic medications are

patented medications and complementary therapies. As with holistic therapies and more

expensive patented medications, the value of such alternatives for consumer use is hotly

debated.

Strong Threat to New Entrants: In comparison to the pharmaceutical business as a whole,

entry barriers to this market are often lower. New entrants must compete with well-

established companies that take advantage of economies of scale, the current market players.

References:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3926255

https://esource.dbs.ie/handle/10788/2990

www.imageoptimizer.net

https://en.wikipedia.org/wiki/Pharmaceutical_industry