Report on Pharmaceutical Industry

The pharmaceutical industry is a highly dynamic market which is leading towards innovativeness and creativity to ensure improvement and betterment of the industry. The pharmaceutical industry is a wider industry which includes medicines, drugs, and devices assisting medication process in the healthcare centers and hospitals. However, the dynamic market and changing requirement have also made the Pharmaceutical industry highly risky. Stringent government regulations, intense competition, and many other external environmental factors are influencing performance outcomes of the Pharmaceutical industry. Considering these factors, managers are required to conduct research in the market and develop plans for business operations in the light of environmental analysis. In the present work, a case study is used to understand the impact of external and internal environmental factors on the operations and business of the pharmaceutical industry. Present work will elaborate on competitive forces drawing impact on business outcomes. Followed by this external environmental analysis are presented in the form of PESTLE analysis.          

Case Overview of Pharmaceutical Industry

In this case study, the situation of the pharmaceutical industry is discussed in detail. The case study provides information about how the industry is changed and progressed over time. From past to now many methods are used to ensure control on the spending of the pharmaceutical industry. Various policies and strategies were used to influence consumer demand and relationship with suppliers. Price control strategies by the government cause to influence the overall profitability of the industry. Moreover, the case study also consists of details about key markets in which pharmaceutical sales is originated. According to the case study, the pharmaceutical industry requires innovativeness and creativity. Currently, the pharmaceutical industry needs to encourage signs that can deliver clinical benefits and financial advantages. Moreover, traditional methods used for sales and marketing are also required to be changed to meet new requirements and market demands. Apart from this case study has also manifold ideas about improved operational strategies, regulations, and R&D productivity expected in the future. The case study covers all important details about historical business operations, present situation, and future expected the performance of the pharmaceutical industry (Cardinal, 2001).      

PESTEL Analysis of Pharmaceutical Industry

PESTEL analysis represents the external environmental factor of the pharmaceutical industry. In this PESTEL analysis, six major factors are discussed which includes political factors, economic factors, social factors, technological factors, environmental factors, and legal factors. These factors can have a negative or positive impact on overall operational outcomes of the pharmaceutical industry. Therefore, the managerial staff of the pharmaceutical industry should consider these factors at the time of decision making.

1.      Political of Pharmaceutical Industry

The political factor is influencing Pharmaceutical industry by the development of price-cut strategies and controlling strategies against monopsony. According to the case study, the government is the only purchaser of pharmaceutical products in some countries. Political instability and conflicts about healthcare services and funds also contribute to influencing operational outcomes in the Pharmaceutical industry. Moreover, in some countries government and political forces are controlling pharmaceutical industries to control rising healthcare expenditures. The government is also influencing the pharmaceutical industry by insurance plans and stringent regulations. Thus, political forces and government are causing challenges for the survival of the pharmaceutical industry by price control strategies and expenditures related strategies. Changes in the political policies about international relations and trade between regional markets are also drawing an impact on the overall industrial performance of the pharmaceutical industry. Following the case study, political forces are now setting barriers of entry in the pharmaceutical industry to control the healthcare sector and its performance. Now working in the pharmaceutical industry is much more difficult than the past as now industry is regulated by the policies developed at the governmental level. While on the other hand, the public sector is unable to resist these changes. In the 1980s, the government directly started targeting the pharmaceutical industry to control healthcare expenditure. While before this, government forces had limited interaction and influence on the pharmaceutical industry and the healthcare sector (Ess & Szucs, 2003).

Furthermore, the external environment is very effective in the industry of pharmaceuticals as well as it can be a vulnerable business because many external factors, especially political factor is very effective on the business of the pharmaceutical industry. Sometimes, the government legislation, as well as the political pressure, will be put down on the company as well as the industry is forced to particular manufacturer medicines in the limited versions of the pressure from the government legislation will make some barriers to the production of the medicines on a large scale. The political factor is one of the most powerful factors which can be good or bad for the business of the company.

For instance, if a particular disease is spread out in a particular region of the country or in the state of the country as dengue infection due to mosquitoes is in the strength as well as almost all the state is infected by this disease, then many of the people will raise the sound for saving their lives in the government and that time the particular medicines are needed to be produced by the pharmaceutical companies. At that time, the government orders pharmaceutical organizations to manufacture the particular medicines for saving the lives of the people that are infected as well as orders the companies to produce an effective kind of prevention to stop such kind of infection. So, in such cases, the external political factor is very valuable for the company. The political factor can affect the workability as well as the productivity when the government finds any kind of pollution or identify any kind of unfair things in the production of the medicines; some strict rules can become into form to put some limitations on the production of the medicines. So the companies, as well as the overall industry, have to follow the rules of government due to some reason (Bátiz-Lazo, 2004).

2.      Economic of Pharmaceutical Industry

The economic condition of a country also influences the business of the pharmaceutical industry. In some poor countries, people are not capable enough to afford expensive medication and treatment for diseases. Low purchasing capability is a reason behind the poor condition of the pharmaceutical industry in these countries. However, in developed countries, the pharmaceutical industry is performing well as people can afford to purchase drugs and medicines for their treatment. Sales revenue of the pharmaceutical industry directly co-relates with the Gross Domestic Product of the country.  According to the case study, the worldwide economic recession of the 1990s is evidence of how economic factors influence the business of the Pharmaceutical industry.

The overall analysis of world economic conditions indicates that in many countries, the poverty level is increasing because of inequalities. Changes in the economic condition and uncertain economic risk factors are critical for the success of the pharmaceutical industry. Above all, consumer spending patterns are also changing in response to changes in the per capita income. Now in developed countries, people are also eager to purchase drugs and supplements to increase their physical strength. Such changing patterns are supportive of enhancing business profitability in the pharmaceutical industry. According to an article written on the future of the pharmaceutical industry conclude that labor market requirement will slow to rebound, but the overall industry will move towards growth. Economic factors will support the growth of the pharmaceutical industry (Businesswire.com, 2019).

3.      Social of Pharmaceutical Industry

Population growth rate, social values, age distribution, culture, education, and religious beliefs are the key social factors which have a direct impact on the performance of the pharmaceutical industry in a country. According to the case study, people having awareness and knowledge about diseases pay special attention to their treatment and medication process. While on the other hand, the country having the majority of population uneducated have low demand for proper medicines and other healthcare products provided by the pharmaceutical industry. Additionally, population growth rate and age also influence the business of the pharmaceutical industry. Ageing population require more medicines and healthcare facilities thus a country with an ageing population present high demand for pharmaceutical products. According to an analysis of the current global market condition, we can say that the obesity rate is currently growing. In the last few years, diseases rate caused by poverty is declined. While on the other hand, the obesity rate is incline and many diseases linked with obesity are getting common in our society. Increasing obesity rate will work as a positive change factor for the business of the pharmaceutical industry. Increasing obesity is increasing sales of drugs which works as a contributing factor for enhancing of revenue in healthcare and pharmaceutical industry.  Although, among young and middle-aged adults current trend of supplements use is also increased which is a supportive change for the business of the pharmaceutical industry (Shamsher, 2011).

Furthermore, the social factor is also the external factor which is considered also more powerful because the society is directly or indirectly involved which can cause the business of the pharmaceutical industry. It is effective because every medicine which is produced by the pharmaceutical company, is no so good because some medicines may have more side effects more than the benefits as well as it can harm the user of such kind medicines. So, in such cases when the actual side effects come in front of people, the values of the society as well as the lives of the people may be harmed. The people of the society will never accept such kind of products which can harm their personal lives as well as they can raise their voices against the production of such kind of medicines or the medical products. So that’s why the social factor can also every effective on the production of the medical products as well as can impose some limitations on the industry of pharmaceuticals (Hüske, 2015).

4.      Technological of Pharmaceutical Industry

Technological factors relate to development, understanding, existence, and availability of technology. The pharmaceutical industry also gets influence from technological factors. Following the case study, biotech innovation is increasing sales and revenue of the pharmaceutical industry. Biotechnology provides medicines manufactured with many biological sources. Biotechnology has made it possible to create meat alternatives from the sources of the plant as in some countries meat is considered as a source of health related problems. Such products are also increasing the revenue of the pharmaceutical industry. Thus the change in the biotechnology will also generate an impact on the future of the pharmaceutical industry. Modern technology has also supported the improvement of the supply chain (Mohamed, 2012).

In some countries, public acceptance of new technology is supportive of the stability and strength of the pharmaceutical industry. For instance, genetic testing and stem cells related technologies accepted in public promote sales of products relate to these requirements. Advanced information technology also supports research and development processes. Because of this, companies working in the pharmaceutical industry can better understand the key requirements of the market to produce the required products.     

The direct advertising system is also supported by the advanced and change of information technology. In the past, companies working in the pharmaceutical industry had limited opportunities and sources for marketing. Companies were only relying on print media marketing. Although, now advanced technology has made it possible for the companies to interact directly with the consumers and promote products at digital platforms.     

            Although the technological factor is one of the most powerful factors in the external factor for the pharmaceutical industry, the information technology, or the social media or any kind of media which is used for making communication between the persons or among the groups of people, are very effective because the social media or the telecommunication, as well as the broadcast media, is playing the very effective roles to provide the information about anything to anyone. The technology can affect the productivity of the pharmaceutical industry as well as the workability of the company because every kind of information, whether it is small or big, fake, or actual, will be published as well as broadcasted to inform other groups of people. If the company of the industry is suspected of performing any kind of illegal or unethical approach, the technology may broadcast that kind of issue on the news channels as well as on the web applications of social media, which will definitely affect the whole workability of the company (Nitihardjo, 2016).

5.      Environmental of Pharmaceutical Industry

Environmental regulations regulate the business outcomes of the pharmaceutical industry. Companies working in this industry have to follow up some specific regulations and standards. Following the case study, environmental pressure about product standards and ethical responsibilities encourage or discourage operational plans of the pharmaceutical industry. Moreover, focus on green production and reduction of chemical use in pharmaceutical products also changes the profitability and market position of companies in the pharmaceutical industry. Just a past few years ago, a charter was developed in the US for a better environment and a clean environment, which changed the outcomes of the pharmaceutical industry. Now in the world, people are more concerned about increasing land and water pollution. Even companies are paying attention to pollution control measures as corporate social responsibility (CSR). Production sectors are using excessive controlling use of chemicals and materials, which contributes to the increase of land pollution.

6.      Legal of Pharmaceutical Industry

The legislation brings changes for the companies in a market. According to the case study, legislation for the safety and health of human beings influences the pharmaceutical industry and its products. In the past, a generics legislation was introduced in the market, which had a major impact on the overall performance of the pharmaceutical industry. In 2004, sales were controlled by US legislation for entry into the pharmaceutical industry. Such legislation was expected to influence sales by 30 billion dollars a year. Law and acts regarding employment, production level, import and export, and market operations also contribute to influencing the operational environment of the pharmaceutical industry. Tax law and tariff influence the pharmaceutical industry negatively when percentages are set high. According to the analysis, the pharmaceutical industry is now becoming a legal matter. The legislation is controlling pharmaceutical products from packaging to the advertisement. Changes in the legislation directly influence the performance and operation of the pharmaceutical industry. For instance, changes in the law of monopoly have also changed the business of the pharmaceutical industry. Following the case study. US justice department is taking an interest in the marketing crimes and pricing strategies to control monopoly system in the markets. A monopoly produces a negative impact on the pricing strategies of companies and also creates problems for consumers. Thus changing legislation regarding monopoly is a positive indicator for the future of pharmaceutical industries.                      

Porter Five Forces Analysis of Pharmaceutical Industry

Porter's five forces analysis provides information about the competitive environment of a company. In this section, the porter five forces model is used to grab an understanding of the strength and level of strength in the competitive forces to influence the operations or profitability of the selected pharmaceutical industry. Five forces are Bargaining Power of Suppliers, Bargaining Power of Buyers, Threats of New Entrants, Threats of Substitute, and Industry Rivalry.

1.      Bargaining Power of Suppliers of Pharmaceutical Industry

The bargaining power of suppliers is high in the pharmaceutical industry. Supplier’s demands and control on business operations are controlled in many countries after setting negotiated prices. According to the information presented in the case study, various methods are used in the past and can be used in the future to control suppliers. Some of these include setting reference pricing, developing the positive and negative list, average pricing, and constraints on wholesalers. A centralized system can reduce supply-side control on business. Countries in which companies have demand-side control supplier’s power automatically decreases as negotiated prices are set for products in such markets. Changes in the global demand for the supply of pharmaceutical products draw impact on the bargaining power of the supplier. When demand increases for the pharmaceutical industry, suppliers set their own commission and agent costs. However, when suppliers are required to sell out pharmaceutical products in the poor and low-income countries, then commission and their charges reduce as such operations are usually executed from the not-for-profit organization. In such a situation, the bargaining power of suppliers becomes lower (Porter, 2008).            

2.      Bargaining Power of Buyers of Pharmaceutical Industry

The pharmaceutical industry usually does not directly serve consumers. Patients buy and use medicines or pharmaceutical products, which are suggested by their doctors and healthcare services providers. Therefore, excessive marketing cannot increase sales of pharmaceutical products unless it is suggested by the medical experts. Considering this and information shared in the case study, it can be said that the bargaining power of buyers is very low for the pharmaceutical industry. Consumers purchase medicines at offered prices after very limited negotiation for discounts. However, when a highly demanded medicine or solution at a large scale comes in the market, then buyers can bargain for prices and quality. Global changes in consumer behaviors regarding supplement and drug use have increased the bargaining power of buyers in the global market. Consumer loyalty with brands is also increased because of modern practices of companies to interact with consumers and direct marketing. Following the case study, consumer brand loyalty is a shield used by the companies to deal with the competitive forces. However, consumer brand loyalty also reduces their bargaining power as a satisfied and loyal consumer even pays higher for the purchase of pharmaceutical products.

3.      Threats of New Entrants of Pharmaceutical Industry

New entrants increase competition in the market. New entrants influence pricing strategies and quality standards of the companies. In the pharmaceutical industry, new entrants come in the market with new innovative solutions supported by scientific research. Such solutions can be threats to the survival of existing companies in the pharmaceutical industry. Case study analysis suggests that threats of new entrants are moderate in the pharmaceutical industry. Environmental standards, low-profit margins, and large scale investment requirement work as barriers for new entrants in this industry. Furthermore, intellectual property, customer equity, and integrated healthcare are also barriers to entry in the pharmaceutical industry.

Global changes such as advancement in science and technology have increased the chances of new entrants. Introduction of new formulas for the treatment of diseases and health issues encourages scientists and medical students to enter in the pharmaceutical industry. Thus, some global changes in the pharmaceutical industry have increased threats of new entrants in this industry. Moreover, market entry threats are controlled because of environmental standards. Thus conclusively, threats of new entrants are high in the market where environmental standards and legislation system is not really strict for companies working in the pharmaceutical industry.               

4.      Threats of Substitute of Pharmaceutical Industry

Threats of substitutes are low in the pharmaceutical industry. There are limited alternative and substitute options available in the market. The patient requires medicines and other pharmaceutical products for their treatment and better health. In fact, offered products of the pharmaceutical industry are need-based product rather than luxury products. Therefore, compromise or alternative solutions are difficult to accept decisions by the targeted market.      

5.      Industry Rivalry of Pharmaceutical Industry

Analysis present that industry rivalry is very low for companies working in the pharmaceutical industry. The intensity of rivalry presents how much pressure a firm can put on another firm in the same industry to limit profit or bring changes in the quality standards. In many countries, the government is regulating the pharmaceutical industry and price-based monopoly is controlled by legislation. While environmental standards are controlling the quality standards of pharmaceutical products produced by different companies. Thus, a firm's control over another firm is very limited in this industry. Low industry rivalry force is a supportive factor for the business of pharmaceutical companies (Alrawashdeh, 2013).     

Conclusion  of Pharmaceutical Industry

The whole discussion concludes that the pharmaceutical industry is changing over time. External environmental analysis based on PESTEL and Porter five forces analysis summarizes that the pharmaceutical industry is mainly regulated and influenced by the legislation, environmental standards, and political policies. Political factors such as political strategies and policies are influencing the pharmaceutical industry. Economic factors such as per capita income, GDP, spending behavior of consumers, and the overall economy of the country also draw an impact on the pharmaceutical industry. Technological factors also contribute to influencing overall profit outcomes and business of the pharmaceutical industry. Moreover, low bargaining power of buyers and low industry rivalry are the supportive factors for the increase in the business and its profit outcomes.        

References of Pharmaceutical Industry

Alrawashdeh, R. (2013). The Competitiveness of Jordan Phosphate Mines Company (JPMC) Using Porter Five Forces Analysis. International Journal of Economics and Finance, 191-200.

Bátiz-Lazo, S. H. (2004). The global pharmaceutical industry. General Economics and Teaching, 1-24.

Businesswire.com. (2019). Research and Markets: The Impact of Economic Factors on the Pharmaceutical Industry - Where the Next Five Years Will Take Us. Retrieved from www.businesswire.com: https://www.businesswire.com/news/home/20110614006403/en/Research-Markets-Impact-Economic-Factors-Pharmaceutical-Industry

Cardinal, L. B. (2001). Technological innovation in the pharmaceutical industry: The use of organizational control in managing research and development. . Organization science, 19-36.

Ess, S. M., & Szucs, S. S. (2003). European healthcare policies for controlling drug expenditure. Pharmacoeconomics, 89-103.

Hüske, E. G. (2015). How stakeholder shape innovation in controversial industries: the biotechnology industry in Germany. uwf UmweltWirtschaftsForum, 77-86.

Mohamed, K. A. (2012). Strategic responses to environmental changes in the Pharmaceutical industry in Nairobi Kenya. . Unpublished MBA Project, University of Nairobi.

Nitihardjo, E. O. (2016). Selecting Regional Postponement Centre Using PESTLE-AHP-TOPSIS Methodology: A Case Study in a Pharmaceutical Company. Global Business Review, 17(5), 1250-1265.

Porter, M. E. (2008). The five competitive forces that shape strategy. . Harvard business review, 25-40.

Shamsher, M. N. (2011). A study on the impact of PEST analysis on the pharmaceutical sector: the Bangladesh context. Journal of Modern Accounting and Auditing, 1446.