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Porter's Five Forces Model: 1. Threat of New Entrants - Moderate To Low

Michael Porter identified five forces that shape industry competition: threat of new entrants, bargaining power of suppliers and buyers, threat of substitutes, and rivalry among existing competitors. When applied to the Indian pharmaceutical industry, the summary found: 1) Threat of new entrants is moderate to low due to high R&D and regulatory costs. 2) Bargaining power of suppliers is low due to many alternatives. 3) Bargaining power of buyers is moderate as patients have little choice of medications. 4) Threat of substitutes is moderate to high from low-cost generics and alternative medicines. 5) Rivalry among existing players is high due to intense competition.

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656 views

Porter's Five Forces Model: 1. Threat of New Entrants - Moderate To Low

Michael Porter identified five forces that shape industry competition: threat of new entrants, bargaining power of suppliers and buyers, threat of substitutes, and rivalry among existing competitors. When applied to the Indian pharmaceutical industry, the summary found: 1) Threat of new entrants is moderate to low due to high R&D and regulatory costs. 2) Bargaining power of suppliers is low due to many alternatives. 3) Bargaining power of buyers is moderate as patients have little choice of medications. 4) Threat of substitutes is moderate to high from low-cost generics and alternative medicines. 5) Rivalry among existing players is high due to intense competition.

Uploaded by

138PATEL KHYATIMMSB
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Porter’s Five Forces Model

Overview:

Michael Porter, in his revolutionary article - "Five Forces


that Shape Strategy", observed five forces that significantly
impact a firm's profitability in its industry. The Five Forces
model is widely used to analyze the industry structure of a
company as well as its corporate strategy. The Porter Five
Forces are -

● Threat of New Entrants

● Bargaining Power of Suppliers

● Bargaining Power of Buyers

● Threat from Substitute Products


● Rivalry among the existing players.

Porter’s Five Force analysis for the Indian Pharmaceuticals Industry:

1. Threat of New Entrants – Moderate to low


The backbone of this industry is Research and Development, constant RnD efforts are needed to
maintain the position that a company enjoys in the market. The costs associated with RnD are
usually very high. Even if the company is focused on producing generics and not high-end
research, purchasing patents too is quite expensive.
In addition to this, the government has stringent guidelines and regulations that need to be
followed by the companies for approval of new drugs or treatments which acts as a high barrier.
Considering these factors, the threat by new entrants is moderately low.

2. Bargaining power of Suppliers - Low


There are various organic chemical requirements in the form of APIs or other formulations.
There are a number of suppliers present in the market, whereas the switching costs are relatively
low which doesn't give suppliers much bargaining power.

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3. Bargaining Power of Buyers - Moderate
The pharmaceutical industry broadly has two types of customers, bulk buyers such as hospitals
and patients. The hospitals have a variety of drug providers to choose from as there are many
companies in the market that provide similar products. They use this to pressurize the
pharmaceutical companies to keep the prices in check. However, medicines are prescribed by
the doctors to the patients which gives the patient little to no choice, not all patients are aware
or comfortable using generics which makes the overall bargaining power of the buyers
moderate.

4. Threat from substitute products - Moderate to high


As mentioned above, there are many generic medicines available in the market. The buyers tend
to choose the cheapest medicines. Generic manufacturers do not incur the high cost involved in
research and development and regulatory activities such as approval and clinical trials. These
are the reasons they can offer their product at a cheaper price. Apart from this, ayurvedic and
homeopathic medicines are also gaining traction due to their low side effects. This increases the
threat of substitutes.

5. Rivalry among the existing players - High


There already exist many well-established players in the market and the intense competitive
nature of the industry is very easily noticeable during the ongoing covid19 crisis. Most of the
global players are in the race to find the cure for the disease. Under normal circumstances too,
high working capital requirements and high bargaining power of buyers makes this industry
highly competitive.

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