Assignment on Porters five forces analysis on Pharmaceutical and Textile Industry

Strategic Management MBA-550 Section-02

Prepared For: DR. S. N. HUDA

Prepared By: Md. Touhidur Rahman Miad ID# 0915002

Date of Submission: 18th October, 2011

Independent University, Bangladesh

Porters Five Forces Model:

The most powerful and widely used tool for systemically diagnosing the principal competitive pressures in an industry and assessing the strength and importance of each is the Porters five forces model of competition. This model is used to build the picture of competition in a given industry. Porter's Five Forces is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979.

Threats of Substitutes Products:

Competitive pressure coming from the sellers of substitute products.

Bargaining Power of Suppliers:

Competitive pressure stemming from supplier bargaining power and supplierseller collaboration.

Rivalry among Competing Sellers:

Competitive associated with among rival sellers. pressure jockeying

Bargaining Power of Buyers:

Competitive pressure stemming from buyer bargaining power and sellerbuyer collaboration.

Threat of Potential New Entrants:

Competitive pressure associated with the threat of new entrants into the market. Fig: Porters Five Forces Model Pharmaceutical Industry of Bangladesh:

At present, there are 262 Allopathic drug manufacturing companies in Bangladesh. The pharmaceutical sector of Bangladesh is one of the most developed hi-tech sectors within the country's economy. Firms within this industry develop, patent and distribute drugs. After the circulation of Drug Control Ordinance - 1982, the development of this sector was accelerated. The professional knowledge, thoughts and innovative ideas of the pharmaceutical professionals working in this sector are the key factors for these developments. Due to the development of this sector it is exporting medicines to 83 countries including Europe and America and other countries, such as Australia, Austria, France, Columbia, Vietnam, Greece, Sri Lanka, Malaysia, Finland, Sweden, UK, Netherland, Norway, Thailand, Brazil, Venezuela, Mexico, Philippines, Egypt, Pakistan, Ukraine, Russia, South Africa, USA, Iran, Japan etc. This sector is now aiming to minimize the import dependency on basic drugs by building up of own capability in the manufacturing of active pharmaceutical ingredients (APIs), base materials and other allied industry inputs. Some prominent pharmaceutical companies are Square Pharma, Beximco Pharma, Incepta, Acme, Novartis etc. The Directorate General of Drug Administration (DGDA) is the Drug Regulatory Authority of the country. This DGDA supervises and implements all prevailing Drug Regulations in the country and regulates all activities related to import of raw and packing materials, production and import of finished drugs, export, sales, pricing, etc. of all kinds of medicines.

Porters Five Forces Analysis on Pharmaceutical Industry:

1: Rivalry among competing Sellers : There are intense competitions among the pharmaceutical companies in Bangladesh. Here both local companies (Square, Beximco etc.) and MNCs (Sanofi Aventis, GlaxoSmithKline etc.) are competing to grab the pharmaceutical market. Weapons for battling rivals: Stronger product innovation: Pharmaceutical companies have

important economies in research and development. To get competitive advantage they need to introduce new and effective medicine before their rivals. Once an effective drug is developed, few, if any, alternatives to that drug usually are available. For this they need continuous research. Such as in 2011 already Square Pharma introduces 9 new products.

Higher quality and better performance: The medicines quality must be high and better to gain competitive edge.

Stronger brand image: After developing a new drug a company needs to patent it and develop a strong brand image to differentiate. The pharmaceutical companies need to build a reliable and trustworthy image about their drugs on the minds of Doctors and general people. Suppose in Bangladesh Square Pharma has very good brand image. Wider selection of drugs: To get competitive advantage, in a single generic category there should be wider range of drugs. Napa of Beximco is an analgesic & antipyretic used for the fast and effective relief of pain & fever and discomfort associated with headache, period pain, tension headache, colds and flu. Napa has many forms such Napa Tablet, Napa Syrup, Napa Suppository, Napa Suspension and Napa Drops. Rivalry in this sector is stronger because competing firms are heavily active in making fresh moves to improve their product lies and business performance. The numbers of competing firms are more and some are of roughly equal in size. The firms are racing to differentiate their products from rivals by offering better performance features or higher quality. When one firm produces new medicine with some components, existing firms forced to produce same type of medicine to exploit the opportunity. Such as- Square Pharma introduces Seclo of Omeprazole group to treat diseases for gastroenterology. Other companies like Beximco Pharma introduces Proceptin and Sanofi-Aventis has Xerosec. 2. Threat of New Entrants: This industry does not have significant production economies but it does have important economies in research and development. But this R & D needs huge investment. So high entry barriers due to costs associated with research and development of new drugs. Moreover years of investment in R & D for a drug may or may not work. High government regulation is also a barrier. Such as to enter into Europe drug market a company need to maintain GMP standard. In Bangladesh only Square and Beximco have this standard and only they can export drugs to Europe. Again for UK need MHRA and for USA need FDA approval to export drugs. Again it will be difficult and need more time for a new medicine company to make their drugs reliable.

So because of these barriers the threat of new entrants is relatively low.

3. Threat of substitute products: In pharmaceutical industry there are generations of drugs. Such as first generation, second generation, third generation etc. So the third generation antibiotic may be a substitute for second generation antibiotic. For an example, Napa of Beximco is highly effective in relieving pain and fever. It has gained millions of physicians' trust and confidence and thereby became the number one selling brand by volume in Bangladesh pharma market. But Square has Ace Plus which has added feature caffeine, can be a substitute of Napa. Again the increased availability of generic, no branded drugs has threatened the profitability of some drug lines. So threat of substitute products is higher. 4. Bargaining power of Supplier: The pharmaceutical manufacturers in Bangladesh acquire raw materials (commodity chemicals) from various countries namely Germany, China, India, UK, France, Japan, Holland, Italy, Denmark, Switzerland, Austria, Hungary, Ireland etc. Bangladesh is currently not a major manufacturer of raw materials. Recently Active Fine Chemical Company produces API in Bangladesh. So, suppliers of raw materials of pharmaceutical companies do not have much bargaining power. Because, pharmaceuticals can switch their supplier if they start to bargain inappropriately as switching cost is low. 5. Bargaining power of Buyer: Basically the local buyers of drugs are Chemists (Pharmacy) and Doctors (by Doctors prescription general public buy medicine). The pharmaceutical companies of Bangladesh do influence medical practitioners, wholesale and retail distributive shops of pharmaceutical products to promote their own brands. Real consumers like us do not have much bargaining power. Because every company price their medicine almost relatively same level and medicine is the most important need for

people, the consumer has no choice but to buy what doctor says. So they do not have much bargaining power. When hospitals and other healthcare organizations buy in bulk quantities, exert pressure on pharmaceutical companies to keep prices in check. At last it can be concluding that one of the great advantages of the pharma industry is demand for Pharma products continue and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an on going concern, pharma industry seems to have an infinite future. The company, who can continuously innovate modern and effective drugs, will remain in the competitive edge over rivals.

Textile Industry of Bangladesh: Textile industry is the largest exporting industry in Bangladesh. Over 81% of the export earning comes from Textile & Textile related products. The last 20 years witnessed unparalleled growth in this sector. It has attained a high profile in terms of foreign exchange earnings, exports, industrialization and contribution to GDP within a short span of time. It contributes 13% to GDP. . It provides over 5.0 Million Jobs of which 80% are woman, mostly come from rural areas. Thus the industry helps in the country social development, women empowerment and poverty alleviation. It also plays a crucial role to promote the development of other key sectors of the economy like banking, insurance, shipping, hotel, tourism, road transportation, railway container services, etc. Around 40% of the total demand of Woven Fabrics for Export oriented RMG is supplied by the local weaving mills, 90% of the domestic fabrics and 100% yarn requirements of Knit Garments are met by Primary Textile Sector (PTS). The industry has developed rapidly with significant positive growth.

Porters Five Forces Analysis on Textile Industry:

1: Rivalry among competing Sellers : Bangladesh Textile Mills Association (BTMA) is the national trade organization of Primary Textile Industry i.e. Yarn Manufacturing, Fabric Manufacturing and Dyeing-Printing-Finishing mills of the country under private sector. BTMA is registered in 1983. Currently the number of Membership of BTMA is 1306 under: 1. Yarn Manufacturing Member Mills = 373 2. Fabric Manufacturer Member Mills = 703 3. Dyeing-Printing-Finishing Member Mills = 230 Over 4.00 billion EURO has been invested in these mills and about 4.00 million people are currently employed. BTMA fulfills:

100 % of the domestic fabric and yarn requirement. 50% of the cotton oven fabric requirement of export oriented garments sub-sector. Over 95% of the yarn and fabric requirement of export oriented knitwear sub-sector.

Bangladesh is the 6th largest apparel and textile supplier in the US & EU market. It is shaping itself as a potential market player by providing the most quality with the cheapest price possible. Whilst the market is controlled by the bigger players like China and India, the role of Bangladesh is still important because of its cheap labor. It has been facing tremendous growth even after the alleviation of the quota from the US market. This is due close customer relationship and quality production. Bangladesh has this advantage against its rivals. Several firms have invested heavily in sophisticated manufacturing technology such as Square textiles, Bextex etc. The industry has numerous firms and the largest have less than 10 market share. So the rivalry in this sector is stronger. Textiles are not branded products. The volume and quality of textile industrys output are unable to fully meet the demand of the garments industry. Most of Bangladesh garments exports are made from imported textiles. But recently tariffs on some imported textiles have been implemented. So it helps local textile industry to grow and compete.

Weapons for battling rivals:

 Lower Prices: This industry need to keep price lower by using low cost labor force to attract foreign buyers. Higher quality: The products quality must be high and better to gain competitive edge. Wider selection of products: To get competitive advantage, there should be wider range of products. Suppose Bextex has wide collections of products - Yarn (Count, Fiber,CVC, Tc etc), Fabric (Poplins, Stripes, Wrinkle Free etc.), Knit (Jersey, polo etc), Denim (Chambray, Denim blue etc) and Unique Wrinkle-Free Product (Cortek-2000, Cotra DP 3.5+). Stronger capabilities to provide buyers with custom-made products: By providing customized, innovative, well designed products with higher quality, a firm can build long term relationship with its customers, especially foreign customers.

2. Threat of New Entrants: The greatest advantage that Bangladesh has right now is its cheap labor. So newcomers can expect to earn attractive profits. Thus it allows potential entrants to pose a threat to its growth. But one factor is important that, due to the unstable political scenario in recent years, investors and foreign firms are reluctant in investing in Bangladesh. Using this opportunity, countries like Sri Lanka and other small Latin American countries can steal away potential buyers from Bangladesh. Also because of power and gas crisis foreign investors are reluctant in investing here. Moreover labor strikes also a vital factor. So as being a cheap labor country Bangladesh is attractive for investment but because of some other factors mentioned earlier, many firms and investors are now hesitating to invest in Bangladesh.

3. Threat of substitute products:

Traditional fabric materials (such as cotton and wool) have recently been threatened by the development of alternative chemical- based materials (such as nylon and rayon). Although many textile companies have begun manufacturing with this new materials as well. On a country perspective, Bangladesh, as a substitute, plays both the roles of an affected and an opportunist. China and India are growing their customer base though their price is than Bangladesh. This is due to poor country branding, and less power to influence customers. Due to these reasons, customers sometimes prefer China or India to Bangladesh. 4. Bargaining power of Supplier: Most raw materials are widely available but Bangladesh has very few input or raw materials of its own. Most of them are imported. Although this leads to a problem by increasing the supplier power, Bangladesh still manages to acquire the inputs at world price from its suppliers. Bangladesh has a good reputation in terms of timely payment to the suppliers. This reputation is helping create a longer term relationship with the suppliers (foreign) and is also giving the local firms initiative to step into the supply chain. Bangladesh domestic suppliers power is increasing in a slow but steady manner as more and more local companies are stepping up to the task. They are creating an integrated system of supply channel management by which the manufacturer work load is reduced. And the favorable attitude of the government is also helping this growth. The back to back LC process was approved by the government to facilitate the growth of the industry. 5. Bargaining power of Buyer: There are numerous textile customers. But textile costs are usually a large percentage of their final products total costs. Many buyers shop around the world for the lowest textile prices. Local companies like Bextex, Square Textile are giving Bangladesh a look of the best outsourcing place in the world. Many of the reputed companies, brands are outsourcing their products in Bangladesh as they get the most quality in the cheapest price possible. As an example- Bextex Partners with Major Retailers & International Brands such as VanHeusen, CK, Springfield, Dkny, Zara, JCPenny, Levis etc.

Bangladesh has a good reputation for highest quality textile products with lowest possible cost. So it attracts foreign buyers. Bangladesh is providing a large space of choice to the provider in terms of quality and cost. Though Bangladeshi manufacturers realize that the buyer posses more power than themselves. Because China lead and India march to the top keep the Bangladeshi manufacturers below them. Due to high switching opportunities for the customers, Bangladesh has to perform or allow the customers to win in many cases. Bangladesh plans to use cost-effectiveness to present itself as the best option to the buyers. At the end, it can be concluded that Bangladesh is growing as a major player in the textile and apparel industry globally. Many countries are planning to use Bangladesh as a hub and buy the service to export under its label. That gives Bangladesh a comparative advantage against the buyers of its services.