competitive analysis of pharmaceutical industry

8/4/2019 Competitive Analysis of Pharmaceutical Industry

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Competitive Analysis Of Pharmaceutical Industry

Using

Porters 5 Force Model

& PEST Analysis



Presented By:

• Amaneet Singh Brar

• Gurmohit Singh

• Gurtez Singh• Kusum

• Saltanat



Pharmaceutical Industry

Introduction

• Global pharmaceutical companies are experiencing anever shifting landscape, ripe with challenges and

opportunities. In this challenging environment the pharmaceutical companies need to enhance their reachand at the same time leverage their competitiveadvantages.

• The Indian Pharmaceutical Industry today is in thefront rank of India’s science-based industries withwide ranging capabilities in the complex field of drugmanufacture and technology



Future Prospects

• The Indian pharmaceuticals market is expectedto reach US$ 55 billion in 2020 from US$ 12.6 billion in 2009. This was stated in a report title

"India Pharma 2020: Propelling access andacceptance, realising true potential" byMcKinsey & Company. In the same report, itwas also mentioned that in an aggressive

growth scenario, the pharma market has thefurther potential to reach US$ 70 billion by2020



Characteristics of Indian

Pharmaceutical Industry

• The Indian Pharmaceutical sector is highly fragmented withmore than 20,000 registered units.

• The leading 250 pharmaceutical companies control 70% of the

market with market leader holding nearly 7% of the marketshare.• The pharmaceutical industry in India meets around 70% of the

country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals

and injectable. There are about 250 large units and about 8000Small Scale Units, which form the core of the pharmaceuticalindustry in India (including 5 Central Public Sector Units).



KEY STATS FOR PHARMA

INDUSTRY

• Annual Turnover Rs. 226 b Growth rate 5.2% Exports Rs. 141 b• Future projections Rs. 1200 b (by McKinsey)• Share of World Pharma market 1.0% in value 8% in volume terms

• Global ranking 13th in value terms 4th in volume terms• Number of Generic Brands over 60,000 in 60 therapeutic categories• Number of units - 10,000 out of which approximately 300 in

organized sector • OTC market Rs. 35 b growth 18-20%

• Alternative medicine - Herbal / Ayurveda market Rs. 38 b• Per capita drug expenditure Rs. 220 per annum



Porter's five forces Model

• Porter's five forces helps to analyse the attractivenessof the industry where it uses concepts developedin Industrial Organization (IO) economics to derivefive forces which determine the competitive intensity

and therefore attractiveness (relative profitability) of amarket.• Porter's five forces include three forces from

'horizontal' competition: threat of substitute products,the threat of established rivals, and the threat of newentrants; and two forces from 'vertical' competition:the bargaining power of suppliers, bargaining power of customers.



THE THREAT OF THE ENTRY OF

NEW COMPETITORS

Profitable markets that yield high returns will draw firms. This resultsin many new entrants, which will effectively decrease profitability. Unlessthe entry of new firms can be blocked by incumbents, the profit rate willfall towards a competitive level (perfect competition).

• Brand value• Quality regulations by the government• Patents• High Competition• Easily accessible industry.• Consolidation• High working Capital Requirements



THE BARGAINING POWER OF

CUSTOMERS

• End user of the product is different

• No choice but to buy what doctor says.• Scattered Market



THE BARGAINING POWER OF

SUPPLIERS

Suppliers of raw materials, components, labour,and services (such as expertise) to the firm can be asource of power over the firm. Suppliers may refuse to

work with the firm, or e.g. charge excessively high prices for unique resources.

• Several chemicals

• Low bargaining power

• Low Switching cost for the manufacturer • Standard Inputs



THE INTENSITY OF COMPETITIVE

RIVALRY For most industries, this is the major determinant of the

competitiveness of the industry. Sometimes rivals compete aggressivelyand sometimes rivals compete in non-price dimensions such as innovation,marketing, etc.

• Number of units - 10,000 out of which approximately 300 in organizedsector

• Alternative medicine - Herbal / Ayurveda market Rs. 38 billion• High growth prospects.• Very low entry barriers.• Fixed cost requirement is low

• Need for working capital is high.• Indian Market has a wide variety of bulk drugs and exports sophisticated

bulk drugs.



THE THREAT OF SUBSTITUTE

PRODUCTS

The existence of close substitute products increases the propensity of customers to switch to alternatives in response to

price increases (high elasticity of demand).• Demand for pharma products continues and the industry thrivesattracting new entrepreneurs.

• No substitute for medicine

• Developments in Bio-technology

• Ayurveda and Homeopathy



Threat of New

Entrant

Very less barriersGovt. support

Govt. regulations

Patents

Brand value

Power Of BuyersEnd user is different

Motivated by the

influencer

Fragmented buyers

with no power

Threat of

SubstitutesNo substitute to

medicineGrowing

developments in bio-tech

Ayurveda

Power of

SuppliersSeveral suppliers

Low switching cost

Standard Inputs

Volume Benefits occur

Industry

CompetitionHighly competitive

Low fixed costs

High working capital



Pest analysis

To understand the implications of the environment on

pharmaceutical industry it is imperative to study the four

cardinal influencers on the industry namely political

,economic ,social and technological factors.Technological advancements , tighter regulatory-

compliance overheads ,rafts of patent expiries and

volatile investor confidence have made the modern

pharmaceutical industry an increasingly tough andcompetitive environment.



Political factors

• Diverse Political Thought

• Stringent Price Controls

• Chronically sick PSU segment• Special Economic Zones



Economic factors

• India spends very small proportion of its GDP on

healthcare (a mere1%), this has stunned the demand

and therefore the growth of the industry.

• Per capita income of an average Indian is low.• The incidence of taxes are very high.

• The number of registered medical practitioners is low

• There are only 5000000 medical shops adverselyaffecting the distribution.



• With time significant economic value is added

to the pharmaceutical industry because

majority of pharmaceutical sales originates in

U.S , European and Japanese markets.

• India is a highest rate regime. Therefore the

cost of funds is double that in America . This

adds to the cost of goods .



Social factors

• In recent times , the impact of various global epidemics e.g.

SARS, AIDS etc has also attracted popular and media attention

to the industry . The effect of the intense media and political

attention has resulted in increasing industry efforts to create and

maintain good government -industry –society communications.

• Increasing pollution is adding to the healthcare problems.

• Cattle –rearing encourage diseases communicated by animals .

• The use of magic /tantric/ozhas/hakims is prevalent in India .



• Poor sanitation and polluted water resources

prematurely end the life of about one million

children under the age of 5 every year .

• Smoking ,drinking and poor oral hygiene is

adding to the health care problem.



Technological factors

• Humano –insulin , hepatitis B vaccines , AIDS drugs

and many such molecule have given the industry a

pioneering status.

• Newer drug delivery system are the innovations of the day .

• Computerization has increased the efficiency of the

pharmaceutical industry .

• Ayurveda is a well recognized science and it is

providing the industry with a cutting edge.



Conclusion

Overall, the pharmaceutical industry shows an upwardtrend in its core markets. The industry remains highly valued,has a favourable market position with strong financial make-upand strong earnings growth. Its future potential demand trend is

positive and despite increased competition the industry stillshows a continuing upward growth momentum.

• The Pharmaceutical industry has a lot of yet untapped potentialand it will be interesting to see how the industry matures over the long term.

• Notwithstanding its strengths, complacency must be guardedagainst because smaller, agile and innovative firms are on the

prowl



THANK YOU

competitive analysis of pharmaceutical industry

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