Compare the recommendations resulting from an environment analysis and from a resources analysis for ‘Glaxo Wellcome’. Show the benefits and the limits of each. The pharmaceutical industry is one of the most dynamic and successful business sectors in the UK, with a healthy trade surplus and some of the largest and most successful participants on a global scale, in spite of its relatively small size.
The industry is research-driven and there are very high barriers to market entry – primarily the enormous costs and risks in both time and money to bring a new drug to the market, but also in the high degree of regulation both in the UK and abroad. Glaxo SmithKline is undoubtedly the biggest pharmaceutical company in the world with a market capitalization of i?? 140 bn. Even at the time of the Glaxo-Wellcome merger in 1995, where Glaxo took over Wellcome for i??
9bn it was the biggest pharmaceutical concern with the closest competition being AstraZeneca. Operating in the fiercely competitive environment of retail and consumer marketing Glaxo SmithKline Consumer Healthcare brings oral healthcare, over-the-counter medicines and nutritional healthcare products to millions of people. The company holds an impressive portfolio of over 28,000 products with approximately 2,000 new product launches every year – this accounts to about 6 new products every day.
Glaxo SmithKline is a leader in the worldwide consumer healthcare market. Based on 2001 Annual Results, GSK had sales of 20. 5 billion $29. 5 billion) and profit before tax of 6. 2 billion ($8. 8 billion) with over ten $100 million brands. Pharmaceutical sales accounted for 17. 2 billion ($24. 8 billion) with new products representing 22% of total pharmaceutical sales. Being present in 191 global markets translates as control of 7. 4% of the world pharmaceuticals market giving them the reputation of a market leader.
This not only gives them a competitive advantage but also means they enjoy strong brand equity and have extensive market reach. The environmental analysis explores factors external to the organisation and consists of using three tools, namely PEST (Political, Economic, Socio-cultural and Technological factors), Michael Porter’s five forces model and the Opportunity and Threat factors of the SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis tool. It is very important that an organization considers its environment before advancing into the market.
A scan of the internal and external environment is an important part of the strategic planning process. The SWOT analysis provides information that is helpful in matching the firm’s resources and capabilities to the competitive environment in which it operates. But while we use these tools to assess the position of Glaxo SmithKline in the pharmaceutical industry, we have to take into account the degree of turbulence within the market. When turbulence is low it may be possible to predict the future with a relatively high level of accuracy.
But with higher turbulence such predictions have little meaning. The PEST analytical tool provides us with a medium to explore the general environment of the factors surrounding the organization. The first part involves taking a look at the Political factors which include government legislation e. g. on taxation and employment conditions. Government ownership and attitude to monopolies also has to be taken into consideration while conducting an analysis. The pharmaceutical industry in the UK is very highly regulated.
Since 1972, in order to market a medicine in the UK a pharmaceutical company must obtain a licence from the relevant licensing authority. In the UK, this is the Medicines Control Agency (MCA). There is also a European body, the EMEA, which overlooks all the member states of the EU. Any licence granted by the MCA would provide cover for the UK only, and a company would have to apply for licences from the various authorities of the countries in which it intends to market the product.
Glaxo SmithKline suffered a blow recently when the High Court in London ruled that a version of the drug developed by Synthon, a small Dutch pharmaceuticals company, did not infringe its patents on Paxil, the Anglo-American drugs group’s best-selling antidepressant. Mr Justice Jacob said Synthon’s version of paroxetine, the active ingredient in Paxil and Seroxat, was not covered by the original patents filed by SmithKlineBeecham, the company that merged with Glaxo Wellcome to form GSK last year.
The vast majority of prescribed drugs on the National Health Service are prescribed by the public sector. This is completely dependent on government funding through general taxation. Changes of government and policies, or the introduction of new legislation, can significantly have an impact on the market. The Economic Factors encompass the financial side of the pharmaceutical market and affect the purchasing power of potential customers and the firm’s cost of capital.
In a profit-making organization such as Glaxo SmithKline a large proportion of decisions would revolve around the financial situation of the company. Glaxo SmithKline would have to look at factors such as consumer expenditure and disposable income, interest rates, currency fluctuations and exchange rates and investment by the state, private enterprise and foreign companies. As the vast majority of prescription pharmaceuticals are prescribed by the government-funded public sector, funding is highly dependent on the state of the economy and the NHS budget.
The OTC, or self-medication, market is independent of government funding but is highly dependent on individual wealth and disposable income. Global harmonisation and progress in mutual recognition agreements are facilitating trade with other countries. This is creating global competition, while the reduction in trade barriers is giving rise to parallel importing, where drugs are imported into the UK from a country in which prices are cheaper such as Spain, Italy, Belgium and France.
According to the British Association of European Pharmaceutical Distributors (BAEPD), the current annual value of these imports to the UK is 300m. Although the UK is a net parallel importer, it also parallel exports to countries such as Denmark and Germany, where prices are higher. The high costs and lengthy process of drug development create very high market barriers. As a result, the industry in recent years has been undergoing an unprecedented amount of merger and acquisition activity.
Merger and acquisition is an attractively rapid way to complete product portfolios and extend R&D pipelines, while economies of scale can lead to considerable cost savings. Changing trends in society are represented by Socio-cultural factors. They have a large impact on the types of medication that pharmaceutical companies produce and hence on the organisation’s strategy. Elements included under socio-cultural factors are shifts in value and culture, change in lifestyle, green environment issues, demographic changes distribution of income and education and health.