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    S2 T3 US Pharmaceutical Industry Analysis Using Porters Five Forces Model

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    Triet Huynh Minh
    The US pharmaceutical industry can be analyzed using Porter's Five Forces model. There is strong rivalry among existing competitive sellers due to the many large and small players in the highly competitive industry. The bargaining power of buyers is moderate as individual customers have little power while large buyers and brand loyalty provide some power. Suppliers have weak bargaining power as raw materials and packaging can be sourced from many providers. The threat of substitutes is weak to moderate from alternative medicines. The threat of new entrants is weak due to high costs and risks of R&D, manufacturing, approval processes, and established brand loyalty.

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    S2 T3 US Pharmaceutical Industry Analysis Using Porters Five Forces Model

    Uploaded by

    Triet Huynh Minh
    392 views3 pages
    The US pharmaceutical industry can be analyzed using Porter's Five Forces model. There is strong rivalry among existing competitive sellers due to the many large and small players in the highly competitive industry. The bargaining power of buyers is moderate as individual customers have little power while large buyers and brand loyalty provide some power. Suppliers have weak bargaining power as raw materials and packaging can be sourced from many providers. The threat of substitutes is weak to moderate from alternative medicines. The threat of new entrants is weak due to high costs and risks of R&D, manufacturing, approval processes, and established brand loyalty.

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    The US pharmaceutical industry can be analyzed using Porter's Five Forces model. There is strong rivalry among existing competitive sellers due to the many large and small players in the highly competitive industry. The bargaining power of buyers is moderate as individual customers have little power while large buyers and brand loyalty provide some power. Suppliers have weak bargaining power as raw materials and packaging can be sourced from many providers. The threat of substitutes is weak to moderate from alternative medicines. The threat of new entrants is weak due to high costs and risks of R&D, manufacturing, approval processes, and established brand loyalty.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    392 views3 pages

    S2 T3 US Pharmaceutical Industry Analysis Using Porters Five Forces Model

    Uploaded by

    Triet Huynh Minh
    The US pharmaceutical industry can be analyzed using Porter's Five Forces model. There is strong rivalry among existing competitive sellers due to the many large and small players in the highly competitive industry. The bargaining power of buyers is moderate as individual customers have little power while large buyers and brand loyalty provide some power. Suppliers have weak bargaining power as raw materials and packaging can be sourced from many providers. The threat of substitutes is weak to moderate from alternative medicines. The threat of new entrants is weak due to high costs and risks of R&D, manufacturing, approval processes, and established brand loyalty.

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    US PHARMACEUTICAL INDUSTRY ANALYSIS

    USING PORTER’S FIVE FORCES MODEL

    Threat of Substitute
    Products from
    Other Industries

    Weak (+) to
    Moderate (+/–)

    Rivalry among
    Bargaining Power Bargaining Power
    Existing
    of Suppliers of Buyers
    Competitive Sellers
    Weak (+) Moderate (+/–)
    Strong (–)

    Threat of Potential
    New Entrants into
    the Market

    Weak (+)
    Rivalry among Existing Competitive Sellers (Strong Force)

    The pharmaceutical industry is one of the most competitive industries in the world.
    Most of the players in the industry have been here for a long time and are well
    recognized globally. The profit margins are high, there are many small and large
    sized players, and strict government regulations make it a very competitive industry.
    There is no room for making errors. Another reason is the recent trend of mergers
    and acquisitions where large industries have absorbed the smaller players. While a
    drug is still in its patent period, there is only firm (or licensed firms) ae able to
    produce that drug. Once the patent period expires, however, several established
    players commence generic production of the drug. Technological advancements in
    biotech and generics have further increased the competition as firms have no option
    other than to adopt the new technologies. Thus, there is a constant pressure to
    innovate. Some of the major competitors are Sanofi, Pfizer, GlaxoSmithKline, Merck,
    and AstraZeneca. Thus, the overall competitive rivalry in the US pharmaceutical
    industry is a strong force.

    Bargaining Power of Buyers (Moderate Force)

    Patents of new drugs last for twenty years, allowing the manufacturer to dictate the
    prices for this time period. After which, generic production will begin and prices
    become more competitive. Similarly, large customers such as hospitals do possess a
    certain bargaining power but individual customers have very little to none. Another
    factor is the brand name. That further reduces the bargaining power of the buyers.
    Buyers today have access to the internet which allows them to further do research
    on drugs in addition to the prescription of their doctors, giving them more bargaining
    power. Thus, overall the bargaining power of the buyers or customers is a moderate
    force.

    Bargaining Power of Suppliers (Weak Force)

    The US pharmaceutical industry only requires the raw material for the drugs as the
    drugs are manufactured in house. The second requirement is technology for the
    manufacturing and production plants. The third element the suppliers provide is the
    packaging material (Gaudi, 2013). All of these are supplies that a number of
    suppliers are willing to provide. Thus, they are in no position to bargain or attempt to
    influence the market prices. Some of the suppliers include BASF Corporation, Nexeo
    Solutions, and Wako Chemicals (Pharmaceutical Resource Directory, 2017). Thus,
    the suppliers in the pharmaceutical industry in the US have very weak bargaining
    power.
    Threat of Substitute Products from Other Industries (Weak
    to Moderate Force)

    The main threat is alternative medicines and treatments to these drugs. This is more
    common in the eastern nations. These include yoga, meditation, and various other
    therapies. Also, homeopathic and herbal treatments are a substitute for drugs made
    by pharmaceutical industries. Promotion of a healthier lifestyle such as balanced
    diet, exercise, and other physical activities are substitutes to many drugs. Thus, the
    threat of substitutes is a weak to moderate competitive force.

    Threat of Potential New Entrants into the Market (Weak


    Force)
    The threat of new entrants is low for the US pharmaceutical industry. There are
    extensive costs associated with establishing a manufacturing set up, research and
    development, marketing sales, and distribution. There is also a high risk of no return
    on investment if a firm fails to produce the required new drugs on time, causing
    losses in millions (Sands, 2013). The existing players have developed economies of
    scale, leading to increased profits. Another reason is the lengthy process of approval
    from regulatory authorities. Established brands and product differentiation are also a
    cause of the low entry threat of new entrants. A new entrant will also have a tough
    time getting access to distribution channels. Most buyers go for drug brands they
    have already tried. So, a new entrant will have a tough time grabbing market share.
    Another reason is that most drugs are patented so new entrants will have to start
    from scratch. Thus, the threat of new entrants is a weak competitive force.

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