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In this report I will explain about the pharmaceutical industry as a whole which would provide the analytical strategic review for the pharmaceutical industry, their competitive environment within the industry as well as outline the strategic issues which currently facing Regentspharmaceutica.
The Overview of the pharmaceutical industry
Regentpharmaceutica firm is operated in pharmaceutical industry which is very high competitive industry and continually in a state of dynamic transition. Extensive research and development and long production time needed to be invested on without a guaranteed succession of the product. Many countries continues to generate the highest growth in this industry according to an increase in drug development pipeline, increase in number of ageing population will lead to ongoing demand for the innovative drugs. This could be the driving forces behind this growth in the industry.
Environmental Analysis of Regentspharmaceutica
Since Regentspharmaceutica is a newly created investment company poised to enter the pharmaceutical industry. In order to understand the industry thoroughly, therefore they should analyse the pharmaceutical business environment.
PESTLE framework analysis will provide a comprehensive list environmental influences on the pharmaceutical business
PESTLE stands for Political, Economic, Social, Technological, Environmental and Legal which could affect the strategic development of a business. Therefore identify these influences is useful way of summarizing the external environment which a business operates.
There are increasing in political attention over the years according to the increase in recognition of the economic importance of the healthcare as part of the social welfare. The role of the governments towards the social welfare has been more strictly in recent year, the social and financial burden of healthcare has been increasing. For example, NHS ( National Health Service ) which is the government support. The patents laws for the pharmaceutical is very difficult to obtain
The possible economics factors are high in value of the mergers and acquisition in this industry. The degrees in which the price could be charged as well as the transfer pricing should need to be consider. The GDP rate also is very important as pharmaceutical market growth is aligned with the GDP growth rate.
The social influences are underlined as good health is important requirement for everyone and become the unique role of pharmaceutical products play the part in meeting society's needs. Recently the impact on various epidemics such as, HIV, SARS, bird flu, swine flu, has attracted the media attention on the pharmaceutical industry which affect the political attention as well as it resulted in increasing industry efforts in order to improve and maintain satisfactory communication between government industry and society. The increase in the number of ageing population affect the demand for the new drugs need to be discover as well as higher in patient expectations. This could be driving forces for the firms to compete fiercely in the market.
Since the modern scientific and technological advances in science has a driving forces in pharmaceutical industry players to adapt faster in order to evolvie environments in which they are participate. Therefore high spending on research and development are needed in order to encourage innovative products.
In the legal environment, as pharmaceutical industry is highly regulated and compliance enforce industry, thus there are intensive immense legal, regulatory and compliance overheads in which the industry has to absorb. This tends to restrict the dynamic of the industry as a whole. The increase in government regulation in order to prevent the discourage innovation in the global challenges senses from the external markets. The legistration was enacted to set a fixed period on patent protection which it typically took 20 years from initial filling.
The Structural Industry Analysis
This section provide the positional analysis of the pharmaceutical industry using Porter's Five Forces model
Source : http://blog.bootstrapbusiness.org/the-five-forces-model-18-02-2009.html
Michael Porter's five external environmental forces are as followed - barriers to entry, bargaining power of buyers, bargaining power of suppliers, the threat of substitutes and industry rivalry to the pharmaceutical industry as a whole as well as their profitability.
The Barrier to entry
There are very high barrier to entry into the pharmaceutical industry as the industry has a long new product lead times period thus very expensive research and development costs to enter the market and time consuming in the development process of the products. The regulatory requirement for this business is also very strict. All drugs need to be approved by the Food and Drug Administration (FDA) as subjected to rigorous regulatory. Patents has limitations for new firms to entry as it make the existing firm become differentiated and built up a strong brand name and image in the market.
Bargaining power of buyers
There are threats of buyers in pharmaceutical industry for example, the number of buyers in the markets, the differentiation of the product and the product significance of a buyer final cost. The buyers have low bargaining power in this industry because firms spend most of their research and development on new patent drugs. Since there are many buyers in this industry i.e. doctors, patients, hospitals, drug stores and pharmacists. The competition likely to occurs among the consumers. The industry does consist of many players and thus buyers are able to choose among many similar products. New patents drugs can overcome this problem and thus increase the competitiveness of the firm. However, generic products are become more preferable to consumers than brand name drugs as it is cheaper. Therefore large hospital or drug stores can pressure the firms to lower the prices due to large amount consumption and have more bargaining power than the small one. As if they are not willing to lower the price the large consumers may switch to the competitors and consume elsewhere. However if a certain pharmaceutical owns the patents to specific drugs then it made them monopolizes in the market and become a price setter.
Bargaining powers of suppliers
In pharmaceutical industry, the suppliers have low bargaining power as pharmaceutical companies usually own manufacturing plant so that suppliers can not charge unreasonable prices.
It is not easy for pharmaceutical industry to change suppliers even when they are threaten to withhold supply. Labour can be significant supplier because holds immense power when inquiring for more compensation or reducing quality by working fewer hours.
The threat of substitutes
The threat of substitution is low in pharmaceutical with the patents but it can be medium when the patents had expired.
The appearance of 'Generic Brand medication' is the main substitute for the products produced by the pharmaceutical industry. As it has the same active ingredients as the original brand and compete on their prices. i.e. Allegra a treatment for hay fever , which lost 84 percent of US sales in 12 weeks following patent expiry in 2006.
Bio-tech pharmaceutical i.e. recombinant of insulin, the product is less vulnerable to generic competition as it has a very long product development cycle.
Branded OTC drugs demand direct-to-consumer marketing capability and vaccine companies. However, consumer brand loyalty may then provide the defence against generic competition and therefore prolong the product life cycle.
The industry rivalry
The pharmaceutical industry's rivalry consists of; highly competitive nature, strict government regulations, high spending in R&D and highly competitive products in the market. Most firms in this industry thus depend on investing in ideas that may pay off in the long-run. As a result it puts a lot of pressure on discovering new drugs and this causes companies to join together in order to gain competitive strength. The first movers in the market who have ownership of patents and specific rights sometimes neutralizes competition in the market. The government acts as the largest of the industries' hurdles, which is responsible for organization such as (FDA) to test product for safety and reliability. Government can also attract buyers by trying to regulate prices to keep them low. In order to stay competitive in this market companies need to use the foresight and plan based on educated projections positioning themselves for the success. The investment of the product has some level of certainty that might pay off in the long run, however there is no guarantee in the success of the investment they put in the R&D. With high cost of R&D and marketing, there is an existence of high entry barrier for this market. This environment is where only the strongest firm will survive in the market. However, the government regulates the way companies strategically pair, and that is the common standard in the pharmaceutical. This is has to be done to keep the market competitive in the long run by using the companies' innovation to increase the competition in order to fight with the buyers.
Overall, the pharmaceutical shows a positive position in its core markets. The industry remains highly valued. It also has the favourable market position with strong financial make-up and strong earnings growth. Its future potential demand trend is positive and despite increased competition the industry still shows a continuing upward growth momentum.
Strategic Issues facing the pharmaceutical industry
There are intense merger activity exist in this industry. All the majors multinational firms might possibly merged together which created the industry consolidation. This merger of acquisition could benefit by increase the commercialization strengths. However, they could face the long term consequences of monopolistic business.
Changes in Science, Innovation and technologies
Pharmaceutical business need to discover new drugs and the science and innovation of the pharmaceutical has changed dramatically. Science, innovation and technology provide the pharmaceutical with the opportunities for the new products and processes. Therefore it can increase the pace of the industry, thus as Regentspharmaceutica is a new business entering into this industry it need to be able to adapt with these changes in order to not become vulnerable and effective research and development is therefore very essential.
Increased the Pace of Competition
This could be a major issues facing the pharmaceutical industry, since the industry has high barrier for the new market entrants to enter this market, thus increased the competition among key players and industry consolidation. The market has already taken by the large-scale mergers or acquisations in the last decade. The Competitive advantage within the industry is being constantly redefined and to in order to maintain their presence, the key industry players are being forced to improve their organizational structure. This could then overcome the barriers in R&D, clinical trails, simply to ensure continuity and maintain profitability.
Changing in Consumer Expectations
The patient expectation for the product in the pharmaceutical has changed. As they are now better informed, and therefore have higher expectation on the industry to show that their product deliver better health and also greater economic value. In the past where the government become a major purchasers of the pharmaceutical products however, nowadays it show that the healthcare costs are being constantly shifted away from the government, which acted as the traditional social purchaser, over to health insurance companies and common individuals. This increases the price sensitivity of the common individuals and financial of healthcare agencies and health insurance companies is forcing firms in the industry to cut prices thus reducing profit margins. However if the government may have shifts more healthcare costs to the end consumer, it would lead the consumers to have to pay more in order to access to healthcare and medicines and this will further increase the price sensitivity and also peoples turn to consume the generic product as it is cheaper.
The ageing population has given the pharmaceutical the pressure as to reduce the price. In addition to the market requirement for the industry to improve the current new medicines and lower product costs is increase the pressure on industry to aggressively reduce its cost based without compromising the spending on their research and development which most firms require to maintain the competitiveness.
Change in Geo-Political Environment
According to the socio-political consequences of the healthcare and medicines, the pharmaceutical industry is facing increasing political pressure to reduce price and control costs. In certain geo-political areas, particularly in developing countries, the government are increasing pressure on pharmaceutical firms to act in the social interest and this is likely to intensify in the future.
Decreasing consumer influences
The unique feature of the pharmaceutical market is that the final consumer has little or no say in the choice of medicines and treatments. Doctors, practitioners and pharmacists usually act as agents of the final consumer as they are responsible for the consumer purchasing decisions. This will result as pharmaceutical companies' direct a sizable proportion of their marketing effort at these agents. With the high technologies the internet world increase the consumer enlightenment to increase the capacity to erode the influence of the medical agents as the consumers have easier access to medical information and treatment online.
2) Critically analyze the strategic position, choices and actions facing Frog's Pub.
"Strategic Management includes understanding the strategic position of an organization, strategic choice for the future and managing strategy in action. It underlines the importance of managers with regard to strategy. The strategies do not happen just by themselves. It involves peoples, especially managers who decide and implement strategy. "(G. Johnson, K. Scholes and R. Whittington 2008)
In this essay I will be critically analyze the strategic position, choice and actions that facing Frog's pub.
There are main impact on the external environment which Frog's pub are facing. The Political impact could be the role of government of the rules in which opening the pub in France maybe different as the one in U.K. In term of Economic, the exchange rate maybe influences as sometimes there are high in variation in the currencies euros and sterlings, Paul and Thor need to concern about the economic growth rate in France whether it is the right time to entering a new market or start up a new business ventures in Paris. The current trends in the beer market were encouraging . The demand in France for these beers was increasing steadily. Social terms it seems that the young professional in Paris usually meet up after work and this can be spotted as their market opportunities to introduce them into an traditional English pub. There are many permanent population from U.K as well as the expatriate and te visitor from U.K who will be very attracted to the English pub.
The strategic capability of Frog's Pub outlined the main strengths and weaknesses both Paul and Thor are facing.
Paul has experience working at the college bar before when he was at the college. Thor grew up in Paris so he know the culture and the Parisian's social lifestyle well. Since both of them are British they know what does the customer expecting for a beer in an English Pub thus, it became the competitive advantage against their competitor. Paul has marketing and sales experiences, so he will be better off focusing on dealing with the public image of the frog pub, while Thor is very good in financial and administrative. According to their market research, there was no place in Paris where one could buy a real English Ale. In 1970's French Brasseries had stopped on-site brewing. On the other hand, the French consumption of ordinary beer had flattened, the current trend in the beer market were encouraging. And also there is rising in demand steadily for English beer. This could be a huge opportunity for them in entering into this market at this time. They both had MBAs degree which can ensure them to cope well with starting up this pub. Their market research they conducted tell them that there was no place in Paris where one can buy real English Ale yet even Kronenbourg the large French brewer doesn't provide the same basic qualities required by the British consumer. Very fortunately that all their French classmate could help them responsed and help them gain more understanding the French impressions of an English Pub. Their research on prices, customer spend, ,frequency of purchase and the qualitative assessment of the customer's perception of traditional English pub could help them gain more insight in what customer's expectations. In additional to their understanding of the customer's needs it is good as they bring the comparative operating information from some small English breweries and pubs in England which they verify the actual costs in French market. However they should be taken into account of the inflation, exchange rate in both U.K. and France. They assumed that having microbrewery on the premises would allow them to make and sell traditional English Real Ale. And their target customer would be the British expatriates and also Parisian Customer
The products they sell has its own differentiation of being natural beer and present essentially in artisanal process, while the brewery itself reinforce the craftsman-like nature of beer with wooden-clad vessels and copper bell tops. They will be making the brewing process visible to public. This can make the customer feel the different and thus become more attractive to the new customers. The competitor Kronenbourg, the large French brewer, however they did not have the basic qualities require by the British Consumer.
However, there are number of weaknesses Frog's pub have capabilities of as followed.The idea of opening an English Pub in Paris was just came out of nothing before they decide to work for their forthcoming new ventures course at their MBAs. It is only one of their business plan in their MBAs course thus, they did not know at first if it really something they want to do, they choose this project on English pub because they think it is more feasible and they did not know in detail of the brewing industry and also running a pub. Their organization did not have the clear structure of which jobs they belong to, perhaps it is because the real business operation did not start yet as the pub has not open.
The assumption that this English pub would only be attracted to the English consumers as their targeted customer would be permanent population from U.K which research said there are around 100,000 peoples living in Paris. It does not means that all of them would like to consume them and and it and some visitor which they might not came all the way to consume English Beer. It is depend how large the scope they will want the Frog's pub will be. It may be concern in the future when they want to expand their business once it has successful.
The cultures different may be an issue as Parisian social scene always take place in brasseries and they have stopped selling on-site brewing thus French consumption of beer had flattened, however, current trends in the beer market were encouraging as they seemed to like special beers that imported and contain higher alcohol content.
Both Paul and Thor invested their saving into the business and assumed they could survive with no income until December but they did not have alternative plan of the consequences that might happen if case the assumption did not happen.
Entering the pub industry in Paris is a diversification as both Paul and Thor. Their training at Worchester with a brewer ensure them of knowing how to brew but the most important resources they need in order to open the pub is the site and it is not easy to find a good site in Paris. For my opinion, I think they did not put enough effort in order to get the site at Rue Monsigny as they could have agreed with more reasonable for both parties of increase the price as it is very necessity to start up their business. Although high cost may incurred but they can make sure they can get their pub open. Even though, they wanted to start a new business rather than buying one as they can benefit from a substantial French tax benefit. But in order to be successful in the business they should have the alternative plans.
The site at Rue Monsigny is the perfect sites they are looking for, as it was opposite the Theatre as after peoples went to watch a movie they can go and relax in the pub and get a drink before they go home.
In term of their capital, fortunately as good connection they had among their classmates, professors, businessmen, some of them indicated a potential interest in investing as equity investors. However, since Paul and Thor have no existing relationship with French bank, it could be difficult to get in touch with them.
However, at the end just before they decide to give up when all the opportunities have finally found them, firstly the French Bank BNP offered a finance with the lease financing for equipment purchase. Second opportunities is when David Bruce who was successful businessmen who set up the first brew pubs in England, agreed to be a shareholder and prepared to share his experiences and knowledge on this project. Paul and Thor could benefit from his proven reputation in this industry and also he brought in another investor to the company. The main issues they are having at that moment is because they have no sites. No matter how much money the investor wanted to invest in but if they did not go on with the site agreement then the pub cannot be built, and no money can be make. They could negotiate with the owner of the site over the deal but they keep thinking they need to get best possible deal. This is why their business is not successful.
Kitty O'shea which sold more beer than any other bar in Paris with revenue of 2.46 millions euros, they could be a good example of the business Paul and Thor were trying to start, thus paying them a few visit can point them some useful directions
In conclusion Its strong brewing and existing customer were key resources for defending its position. Frog Pub was struggling with its purposes to make decision toward the hypothesis of the sites.
The strategic choices of Frog' Pub
Paul and Thor have to choose how they will operate their business i.e. as the beer is natural and unpasteurized which does not fit for distribution from U.K. ,their alternative moves is to produce it in France, set up a brewery and sell it to bars in Paris but there could be problems regarding the quality control and wastage point-of sale. In the end they came up with setting up a real English pub that brews its own beer and sells it directly on its premises. This could save the distribution cost and
The strategic choice typically in term of pricing and differentiation strategies and decisions about how to compete or collaborate with competitors. As they have been visit many different kind of pub and did market research on prices, customer spend, and frequency of purchase as well as qualitative assessment of the customer's perception of the traditional English Pub and their differentiation strategies of reinforce the craftman-like nature of the beer, with wooden-clad vessels. Making the brewing process visible to public can be their substantial asset in establishing a distinct image.
The relationship between separate parts of the business and how the corporate adds value to its constituent parts. There are no clear intructions of which jobs are separated among partners since they all have their own strengths of area. Most of the firms in order for them to survive they need to innovate, which in the Frog' pub case is the first mover into the beer and as an English pub in Paris. The product need to be based on the customer's expectation as they are new to the markets and in order to develop a successful product to a customers they need to follow. They have good choice of funding however, bad decision on their site especially it is the most important resources to start up the business. As Paul and Thor agree to grow their business organically by building new businesses with their own resources, however when problems raised they should reconsider their decision.
Strategic in Action in Frog Pub
Their response toward the owner of the site was too slow to unanticipated the opportunities they have on their capital and their valuable shareholders David. In order for the pub to be successfully open they need a clear structures on what roles entitled to each particular one, and the processes should be defined as well as their relationship at the end seem to be very poorly, when doing business the relationship between business partner have a very strong influence on the performance. They can employ resourcing strategies such as hire more peoples as the business expand
Reference and Bibliography
Johnson G., Scholes K. and Whittington R., Exploring Corporate Strategy 8th Edition, published 2008, Pearson Education, ISBN 978-0-273-71191-9
Carpenter M. A., Sanders G., Strategic Management A dynamic Perspective Concepts, 2nd Edition, Pearson Education, ISBN 978-0-13-504443-8
David F. R., Strategic Management concepts, Global Edition, 13th Edition, Pearson Education, ISBN 978-0-13-703498-7
http://blog.bootstrapbusiness.org/the-five-forces-model-18-02-2009.html Accessed 25 October 2010