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Biotechnology can be generally defined as the use of living things to create products or to do tasks for human beings. Biotechnology or biotech is used in industry, medicine and agriculture to produce foods, medicine, and test for diseases and remove wastes. (Biotechnologyonline, n.d) As such, there are different types of biotech such as green technology, red technology, and white technology and Bio fuels.
In this report, we will have an insight into each of these branches of biotech and use various analytical tools to evaluate how knowledge management is playing a role in creating competitive advantage for companies in the sector. In so doing, we shall look at the Green biotech, Red biotech, White biotech and bio fuel respectively.
Green technology, otherwise known as plant or agricultural technology is a branch of biotechnology (biotech) which "involves the introduction of foreign genes into economically important species, resulting in crop improvement and the production of novel products in plants". (123biotech, n.d.).
To better understand the role of knowledge management in harnessing a competitive advantage in this branch of biotechnology, we will take Monsanto as case example. Monsanto is the world's leading green technology company ahead of rival such as DuPont. (SmartMoney, 2009). The company specialises in breeding (improving the genetic base through technology of crops thus increase yield and genetic engineering (by enhancing generic traits in crops such as insect resistance, herbicide tolerance and drought-tolerance). (SmartMoney, 2009 and Monsanto, n.d.)
As with its sister braches such as bioinformatics, white technology(industrial biotechnology), red technology(pharmaceuticals) as well as biofuels, green technology and companies associated with it like Monsanto, are not left unscathed by critics. For instance, Monsanto and its counterpatrs , through its use of plant technology has been criticised of endangering human, the environment and socio-economic.( Friends of the earth, 2006).
Significance of Green Technology
However, the following advantages are beign celebrated by its supporters:
Protection of Crops: for instance, the AT-DBF2 gene from Arabidopsis Thaliana crop injected into plants to enable them withstands Osmotic stress such as drought, salt and stress. (PNAS, n.d.)
Increase Crop yield: during the teething years of biotechnology in term of Genetically Modified Food, there has been a widespread criticism of GMO claiming that GM Crops do not increase crop yield, that on the contrary it, reduces it. (Truth about Trade and Technology, 2009). These claims were dismissed by the then USA president Jimmy Carter who stated that, "responsible biotechnology is not the enemy; starvation is." (Biotechnology Industry Organisation, n.d.)His favourable stance towards green biotechnology because of organisms like the Bacillus Thuringiensis used to produce the BT-corn. Introduces in 1996, the "Bt corn has the potential to simplify management and effectively control corn borers throughout the season" thus increasing its yield. (College of Agriculture, n.d.)
Improved Food Quality: an example of this was the invention of the Golden Rice by Prof Potrykus and Prof. Beyer of ETH-Zurich and University of Freiburg respectively. The Golden rice is believed to alleviate Vitamin A deficiency in young people especially in the developing world. (Golden Rice, n.d.) Another example is the Maltogenic Amylase used for "Retardation of staling in baked food", such as bread and cakes. (Food and Agriculture Organisation, 1997)
Having had an insight about how green technology functions, its pros and cons, it is now essential to discover how companies like Monsanto use knowledge management in harnessing and safeguarding innovation in order to create a sustainable competitive advantage against rivals like DuPont.
Knowledge Management as a competitive advantage vehicle.
To understand the role knowledge management in achieving competitive advantage for biotech companies such as Monsanto, let's apply the Resource-Based View of strategy coined by Grant (1991citied in Henry, 2008). This analysis seeks to analyse how a company exploits its resources to achieve a sustainable competitive advantage against its rivals in the industry. (Henry, 2008)
A resource-based view of strategy analysis
Consumer Confidence, First Mover Advantage, Tap blue Oceans,
Fund expensive R&D, New Product Development
Finances, Experts, Human Capital
Knowledge power, Experience curve
(Grant 1991 cited in Henry 2008)
Step 1: Resources: Biotech industries such as Monsanto go beyond the ordinary in Identifying and attaining young talent; because technology can easily be rendered obsolete, there is always the never-ending necessity to pool talent and innovate. Thus, biotech companies like Monsanto are in collaboration with renowned sciences universities like Truman State University to recruit outstanding students with sound sciences background. (Monsanto, n.d.).Furthermore, with their immense finance capability, they are able to fund and exploit these talents.
Step 2: Capability: with their finance abilities, these biotech companies are able to fund rigorous Research and Development: Monsanto reported spend $2.6m dollars a day in research and development on "how breeding and genetic engineering could develop corn, cotton and soybean seeds that yield more bountiful and nutritious crops and protect against bugs and weeds". (SmartMoney, 2009)This paids off has the company as been able to develop leading brands such as Acceleron, Roundup Ready,Asgrow and Yieldgard for plant resistance to osmotic stress as well as De Ruiter Seeds,Dekalb and Deltapine(Monsanto, n.d.)
Step 3: Competitive Advantage: consequently, Monsanto is able to acquire a sustainable competitive advantage due to its ability to create Knowledge power and experience curve on producing competitive and fast selling products like its renowend leading brands like , Acceleron and Roundup Ready
Step 4: Strategy: as a result, Monsanto adopt a differentiation strategy. This diferentiation strategy is typical of biotech companies with exception to biofuel companies as they end result; fuel, once drilled and refined is standard worldwide.
Step 5: Bridging any resources Gaps: this calls for proactiveness from the part of the company as it involves identifying where the company is weak and formulating adequate strategy to address such weaknesses or resource deficeincies. For instance, tapping blue oceans or untouched markets to increase the company's economies of scale (Henry, 2008)
Knowledge Protection in Biotech
Use of copyright and licensing: to safeguard knowledge and innovation the company licenses seed germplasm or biotechnology traits to approximately 200 seed partners in the United States. (Monsanto, 2009)
In summary, it can be argued that because of the level of technological innovation that occurs in the biotechnology such as green technology, it's both a key and critical success factor for company to effectively and efficiently management knowledge by harnessing and protecting its knowledge thus maintain a competitive edge. This we have evaluated using the resourced-based view of strategy analysis coined by Grant (1991 citied in Henry 2008).
The term biopharmaceutical means that developing medicines from using living cells, proteins and nucleic acids. None of the two biopharmaceuticals can be same. Over the past decade world has seen enormous development in this sector.
The Value Chain
Human Resource Management
Post Sales Service
Marketing & Sales
Adopted from Micheal E. Porter Competitive Advantage: Creating and sustaining Superior Performance. (1985 p.37)
A lot of researchers like Porter (1985, p36) Henry (2008, p103) have emphasized the importance and application of Value chain analysis. We can assess the strength and weaknesses of any biotechnology company by looking at its resources. It expresses important information about strategy and focus of a particular company. By identifying key focus areas, companies can concentrate in achieving competitive advantages.
Biotech companies tend to elongate their value chains by getting into alliance with the business partners; this can either be done by incorporating the concept of upstream or downstream value. Henry (2008, p103) depicts the importance and benefits of adopting this strategy. By exploiting the resources of partners, a biotech company can maximize operational efficiency. This operational efficiency leads to achieve competitive advantage.
Each industry sector is unique in terms of function. Biotechnology industry, mostly being a manufacturing industry always works differently as compared to a service industry because of the fact that primary and support activities vary from industry to industry. Porter (1985, 38-40) also supports this fact. Like most of other industries, knowledge management plays a vital role in biotechnology sector and is considered to be a primary activity.
Prusak as cited in Young (2008, p5) states that knowledge management is all about the information that is in the brain of individuals as an asset and how it is used to leverage into corporate asset. In biotechnology, explicitly it can be transformed into a corporate knowledge paradigm. This idea is also supported by Gorelick, April and Milton. (2004).
In biotechnology sector, even if you look at any sub-sector of biotechnology, industry innovation is the foremost weapon to achieve competitive advantage. Cooke and Mayes (1996, p.13-15) also established relationship of innovation and competition. This mean that by innovation biotech companies achieve competitive advantage and in turns get increased market shares with higher growth rates. The innovation is leading to new effective products thus enabling biotech companies to achieve competitive advantage.
By looking at the value chain analysis of biotech industry we come to know that the most valued activity is innovation and knowledge management. That is why biotech companies invest heavily in research and development (R&D). For biotech industry R&D part of value chain is much more focused and valued. In biofuel, biofood and bioagri the value chain is more or the less same, but when we look at biopharmaceutical and bioinformatics, the value chain tends to alter itself a little bit. The activity that also affects biophrmaceuical is that the phase of clinical trial demands a lot of time, capital and management.
Human Resource Management
Post Sales Service
Marketing & Sales
A typical value chain for biopharmaceutical company.
Knowledge is a scarce resource and that is why there are very few biotechnology companies in the market.
Adopted from Tzokas, N. and Saren, M.
By looking at the above figure it is clear that knowledge management is difficult to achieve. Companies transform their knowledge-based and skills-based information with equipment-based knowledge to create competitive advantage. Theses factors build an organizational culture of innovation and the stake holders like employee and customers force company to come up with new ideas
We need to investigate about the potential contribution of each stakeholder-based knowledge pool to the strategic investments, plots and projections undertaken by the biotech firms. The long term development effort needs trust relationship from stockholders that the deliverable of R&D can result in to a competitive advantage.
This can be done by making multidimensional plans linking knowledge requirements and knowledge pools, thus evolving a knowledge space in which the strategic issues of the firm and its stakeholders can be positioned. As such knowledge space and associated distances can be used as navigational instruments for knowledge utilization.
Biotechnology is now used as a very wide term, but we can say that in general term that it the use of organisms by human . In recent years and past also researchers all over the world got new techniques and ideas to develop biotechnology and changing the future. the most known invention of biotechnology is cloning of animal as well as of name. This amazing technology works at visual as well as molecular level.
Industrial biotechnology is recognized everywhere in the world weather to prepare consumer goods, material, chemical.( www.liebertpub.com,12:04) " Industrial Biotechnology is the premier forum for this critical field and the only publication bridging biotechnology R&D with later-stage commercialization for all industrial and environmental applications" . it include fooding items ,textiles, automobiles, pharmaceuticals, cosmetics and body care products and many other products which we use in our daily life. The growing companies in many countries are taking help of biotechnology. By this companies make promise to the public to deliver new and improved products to their customers.
Industrial biotechnology is of two types red and white. Red technology is now ignored by the companies and very less companies are dedicated with white biotechnology.
The first and the foremost factor to go through in pest analysis is the political factor. Researchers has emphasizes a lot on this factor. One such researcher is Jobber (2007, p79) who is of the opinion that Political and Legal issues can influence marketing decisions by setting the rules by which business can be conducted. Union Laws, Collusion, Abuse of market dominance, acquisitions and mergers, state aid and national laws are few of the political factors that reshape the companies.
This factor includes all the political effects which affect the company or an organization. In some business political issues are much higher than any other companies but in case of industrial biotechnology government supports it and make policies to amend it or to improve it so that the future of a country can get improved and standard of living can be increased. All those organizations which do experiments on different methods of industrial biotechnology, government gives rebate from taxes pass legislations and create new departments to look at their working procedures.
Strong legislation makes the
Through legislation biotech companies are getting their products and processes patented. The biotech companies usually invest heavily in R&D and come up with innovative products; these deliverables are end result of knowledge management. By getting the patent biotech companies make sure that their intellectual property right is secured and hence they achieve competitive advantage as no other company can imitate that.
In the case of biopharmaceutical, the main governing body is FDA (Foods and Drugs Administration, USA). FDA
Economic environment is the second most important factor in PEST analysis.
"Factors that affect consumer buying power and spending patterns" Kotler et al (1999, p158)
As evident from the various researchers, monetary policy, interests and exchange rates, income distribution, change in purchasing power, change in spending patterns, availability and rising cost of energy, labor and raw material has lead to significant changing in business world.
World economy is in recession, so is the case of UK's. Unemployment ratio has gone up; people's purchasing power is going down with a less savings. People are naturally focused more on spending towards necessities. Incomes are low.
In this case consumer will move toward those products which saves their money and bio-products are one of those products which are cheap and reusable without damaging the envoirment and causing pollution. Envoirment issues are to be considered when it comes to shopping point of view and traveling.
Banerjee, (1998) as cited in Charter and Polonsky (1999, p31), states that The threat of tougher legislation and the rising costs of complying with environmental regulations are possible motivating factors for firms to incorporate environmental concerns in their strategies.
Tougher legislation can affect a firm in two ways: first the cost of compliance becomes prohibitive, second, legislation can require substantial changes in product or package design or distribution channels. (Taking back used thing)
Another important reason for firms to develop an international orientation and strategy is the rise in public concern for the environment. There are literally hundreds of opinion polls on the environment conducted in Europe, Asia and USA. Charter and Polonsky (1999, p32)
The need to maintain a good public image and respond to public concerns can lead to firms adopting corporate environmentalism. Charter and Polonsky (1999, p33)
Need for competitive advantage
There are numerous cases where the installation of new environmentally friendly technologies has reduced costs for firms Charter and Polonsky (1999, p35)
Social / cultural factors include Demographics forces, World Population growth, Age distribution, household structures and social factors.
According to Kotler et al (1999, p153) the European and American societies are evidencing huge demographic shifts.
Kotler et al. (1999, p165) "Forces that create new technologies, creating new product and market opportunities". Those companies which have good knowledge about the new products can develop those and can attract new and existing customers. By this method apart from new technology awareness among public will also able to increase. Companies with better knowledge will develop new products in order to spread awarness among all sectors of consumers.
"Biotechnology is the use of biological processes, organisms, or systems to manufacture products intended to improve the quality of human life". Biotechnology is an important innovative tool to attain
The target the various levels example Bio fuels Bio informative, Bio medics, agriculture Biotechnology proficiency can serve to increase biomass yield, improve crop quality, and convert agriculture waste into bio fuels. (whatistechtarget n.d)
It is also knows as agro fuel, these fuels are mainly derived from Biomass or Bio waste. It's often derived from plants and animals. Bio fuel is used faster growing modern technology for transporting sector. Liquid form of fuel is required for most vehicles is this convenient for storage and delivery, hence the bio mass is converted to liquid form. Bio fuel plays a virtual role in modern fuel manufacturing as they are renewable source of energy. Ethanol is the most commonly used Bio fuel in the world particularly in Brazil's and largest exporters Asia, Europe and America are the some major producer of bio gases Lleading fuel companies like Bp's and Shells company they involved in research and development in bio fuels. (biofuel,n.d)
Porters alter the system by reducing its down to three best strategies.
Overall Cost leadership
Focus strategy strategies
Overall cost leadership:
A firm produced standard product by low cost and also take responsibility of economic scale and experience curve effect. market share is advantage.
A company is aimed at broad market. the product must some special feature like advance technology, brand image, etc
In this focus strategies a firm concentrated in market and particular group of consumer.
Overall cost leadership ?
Bio fuel are the cheapest form of fuel you can ever get they don't need big investment in new distribution system but just the basic establishing plant is enough to produce them bio fuel mostly involves in long term investment. Hence Initial investment is very crucial. It's been assessed that share holders all over the world show keen interest in investing huge amount of money in this upcoming promising sector.
Bio fuel is renewable source of energy unlike others fuels they have less emission of air pollutants. Hence they are environment friendly; they are very low cost so they can match all the price of leading fuels. The impact of Hybrid cars and green cars with play a massive role in decreasing global warming.
Bio fuel industry will create a big employment opportunities all over the world and helps the country's economy to develop as well. They provide jobs at all levels even form farmers to scientists. This industry has been welcomed by all countries and they are trying to be innovative to improve this sector all over the world. Most government offer discount and tax reduction on green cars thus encouraging people to buy them. This difference makes the bio fuel market to be more competitive in the fuel market. In forward planning about the global warming all nation now concentrate on bio fuel as they play a vital role in helping to control the pollution.
APPLICATION OF PORTER'S THEORY TO BIOTECHNOLOGY INDUSTRY
Biotech industry has a varied range of applications like in agriculture, molecular biology, health care, pharma sector, chemical industry, environment related and so on.
Porter's five forces theory helps us to understand and interpret the business processes. This knowledge can be translated to gain a competitive edge over the competitors. This theory is also used to assess the profits that can be generated in the proposed business scenario or the services or products.
According to this theory, the five forces that decide the competitive power of the firm in the industry are as follows,
Threat of new entrants
In the biotech industry, intellectual property is the most important asset. The firms in this industry are heavily dependent on funding to sustain the research and development activities. And very negligible revenue is generated by the firm till the product is developed. So finance is one of the major barrier that keeps away new entrants from the industry.
Another barrier that deters the new entrants is the want of specialized knowledge in the area of research or development. Patent rights and proprietary rights also act as barriers to some extent.
In some cases where knowledge and patent rights are easily overcome, many small players come into the picture. Although entry is easy for smaller companies, sustenance would be very difficult in this industry.
As discussed earlier, intellectual property is the most important asset in this industry. The biotech firms usually do not heavily rely on the suppliers. The tools, kits, equipment, chemicals and all other requirements are highly specialized.
However small companies who either fail to explore new channels of distribution or who cannot afford the traditional channels of distribution, are at a loss, as they are compelled to enter into marketing alliances.
The power of buyers is not uniform throughout the biotech arena. Earlier, the pharma companies were not affected by the buyers as the customers did not have or had a very little say about the product. The pharma companies had marketing alliances with the hospitals, pharmacists and agents. So the buyer power was less.
In case of firms where the major purchasers are the governments or the hospitals, the buyers are strong. But now the health care companies, insurance companies and common man have entered the arena. The increasing price sensitivity of this new group of buyers is forcing the biotech companies to cut the prices and therefore the profit margin is becoming less.
In addition to this, governments in some developing countries are pressurizing the biotech companies to take some social responsibility. ( as in the case of providing vaccines for epidemics at an economical price.)
So there is a clear shift and the buyer's power is increasing.
The availability of substitutes also depends on the kind of bitech firm/product.
If the knowledge and patent rights are not properly protected, the investment in Research and Development (R & D) cannot be recovered. If the patent can be easily overcome, some other company can simply copy the formula/application to offer the product at a much cheaper price. So the formulae/knowledge are to be carefully guarded through patenting and Intellectual Property (IP) rights.
In some cases, cheaper chemical product alternatives may be available to the sophisticated and more accurate biotech products.
The competition rivalry is too intense in the biotech industry. Market analysis shows that only 1% of the biotech firms manage to make a profit. Biotech industry is largely dominated by few large firms although there are hundreds of smaller companies. All the firms are struggling to translate their R&D efforts into a breakthrough innovation/product. This innovation could potentially change the fate of the firm overnight. So the Intellectual Property is carefully guarded and the rivalry is extremely high in this industry.
For example, In U.S, 82 % of biotech firms make 0 % profit, 76 % of firms have less than 50 employees and only 30 companies have more than 300 employees.
Porters five forces theory certainly helps in understanding the pros and cons, the opportunities and threats in the business situation. This theory definitely aids in evolving a business strategy. but this theory may not be of great help in assessing the degree of ease or difficulty or profitability in dealing with the business situation.
In this context, this theory does not consider the following strategic influences like,
Industry merges and acquisitions have become the norm of the day and the consequences of such deals cannot be assessed and is not taken into consideration.
Research and innovation has the potential to dramatically change the face of the industry. As new discoveries/innovations occur, many new threats/opportunities spring up. This makes the biotech industry a highly vulnerable one. This aspect is left out by the theory.