Pestel Analysis Of The Pharmaceutical Industry Economics Essay

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5/12/16 Economics Reference this

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The developments of the ethical industry are affecting by several factors such as development and production. In this course work, I am going to use the PESTEL and Five Force to get the idea whether the industry attractive or not, implication and what strategy is suitable for them operating in the future.

Factors that determine how and what degree a government can get involved in the industries. Governments often have great purchasing power and affect the industry most in political way and control the prices of the product in the industry. As major global pharmaceutical is located in key countries such as USA, they contribute over 80% sale to the global market, developing countries’ have dominate on manufacturing and increasing R&D investment. Those organizations tend to sell their product to high demand developing countries in higher prices.

Opportunities: More countries try to expand the industry. They tend to inject those pharmaceutical organizations. And they can deliver their medicine into emerging market. Furthermore, the social responsibility within the developing country may not offer significant market opportunities but they carry a corporate social responsibility such as strike the copy product.

Threat: As developing countries grow faster, they become the treats to key countries. Developing countries, like China and India, usually have a large amount of population; they tend to have a higher demand of medicine. That means they can produce their own medicine to fulfill different needs. And those global pharmaceutical organizations may have lesser profits in those countries.


It is same as macro-economic factors, such as different ratio. These factors give major impacts on how businesses operate and decision making.

The pharmaceutical market growth is linked with GDP growth. Fastest growing among key markets such as USA increases the sale force and help to increase the sale representative sale volume.

Opportunities: Technology development may change the economic factor. It means the demand of professional increases, declines the unemployment rate.

Threat: If the economic condition turns down, then the growth of the industry may turn down too. The case mentioned that in 2006, 46.6M citizens don’t buy insurance. It is because the funds are just enough the innovation, but can share benefit to population. Moreover, with a worse economic condition, the organizations gain lesser profits which in turn they have a limited research money allocation.


It includes cultural change, health problem, population growth rate etc. Social factors affect the demand of a company’s products and how it operates. According to the case, ageing population and Medicare is reformed, extended drug coverage for elderly.

Opportunities: As population is becoming older, it means the demand of medicine also increases. Nowadays, population raise, also require more medicine.

Threat: Provide drug care to employees, it makes the company cost of health increase, and decline the company business competitive power. Also, the ‘insurance funding system’ can offer the latest innovation, but can’t share the benefit of the increasing population. This tends to cease consumer to invest into the funding system. Companies may change various management strategies in order to adapt these social trends


It includes biotech and innovation, such as RHYPERLINK “”&HYPERLINK “”D activity, technology incentives and the rate of technological change.

Biotech is becoming the mainstream, though it has a very specific effect, complexity and little vulnerable to generic competition. In 2006, it contributes to a quarter of sale, leading the player developed and acquired biological capacities. In 2005, there was 700 publicly trade biotech in the worldwide. On the other hand, with a better technology, more advanced medicine can be produced with higher quality and higher effectiveness.

Opportunities: More innovation and re-develop can make people life live longer. It mean technological raise even population increase. The demand of medicine rise too. With a higher technology structure, higher quality medicine can be produced to compete with others.

Threat: R&D expenditure rises sharply. It is becoming more costly and more complex especially biotechnology. So the new product launched is turn down, it will affect the growth of the industry. In addition, the traditional R&D organization is outdated, as the technology environment is moving fast. It is difficult to reach the latest technology with current R&D structure. So, it is recommended to inject more external innovation and reorganize the R&D structure in order to share the new product licensing and medical knowledge.


Factors especially for green house issue, such as pollution and waste.

There are two issues in the pharmaceutical industry. The medicine producers have to find a way to solve the health problem due to that pollution. The environmental hygiene also effective, because more disease appear, people need more medicine to solve it.

Opportunities: With the environmental problem become more concerned nowadays, people are getting ill due to low quality of environment such as air pollution and water pollution. As a result, consumers rely on their development of new and current medicine to heal themselves. So, opportunities are there for them to earn more.

Threat: Bad environment increase the health risk of people. They rely on those pharmaceutical industries to provide better medicine that old day. In this way, industries have to invest more and more to the research department in order to provide better and advanced medicine. There is also a risk of research failure which results a lost of investment.


Factors include consumer law, employment law, and health and safety law.

Pharmaceutical industry is subjected to regulatory and the department will examine all the data to support the safety, efficacy and stability.

Pharmaceutical promotion is subjected to self-regulation. Representative requires passing all the examination testing of medical knowledge. Some countries, government require the agency to check if the promotional claim is consistency with the data.

Opportunities: Government regulation can help to increase the consumer confidence. Because exam the data ensure safety and stability. Also, the patent system help to protect the original brand, to predict the generic medicine attack.

Threat: Although the patent system can make sure the medicine being protected. But some generic products with same heal effect but lower price can then enter in the market and compete with those patented medicine. That means patent can help to protect but also allow more competitors. Industry needs to ensure that they are following the government regulation. If fail to follow, they may have penalty or sue. More seriously, if the medicine is harmful to consumer health or make someone death, they may remedy large amount of money.

Key driver of change affecting future of the pharmaceutical industry

It can identify as the high impact factors likely to affect the success or failure of the strategy.

According to the above analysis, the PESTEL factors all are important but the technological factors have the highest impacts to the industry. Industries have to face on innovation medicine in the future because of area of high unmet medical need, such as cancer and deliver meaningful benefit for unmet medicine. However, it creates pricing pressure, because they are facing the slippery business of science creative.

Five force frameworks

Five force frameworks are developed to assess the attentiveness of different industries.

1. The threat of entry

Threat of entry depends on the barriers to entry. Higher barriers entry means it can protect them from new competitor. But it also makes potential competitors harder to access the industry.

The pharmaceutical industry have high R&D cost, they spend a large amount to develop their medicine. Furthermore, the government wants to ensure the quality of the medicine, they will exam of that data, to support the safety. According to above, it show that it have a medium impact on the industry, because new entries maybe expensive to match them. They may need a large amount to investigate, and need more professional help. However, nowadays technologies develop faster, this kind producer maybe easy for new entries to catch up.

2. The threat of substitutes appear

Substitutes offer similar benefit to an industry, but in different ways. It can reduce the demand of product as customers can switch to the alternative.

The government set the legal patent to protect the original brand. This leads to appear a phenomenon of “Generic Medicine” which contain same intergradient as the original brand and compete with it. Because the patent expiry will affect the medicine sale, the generic products help to save cost, so new entries almost select to produce generic product. The impact on the industry is low.

3. The power of buyer

Buyer can have higher bargaining power that their suppliers are hard to make profits. In 2006, the Medicare is reformed which extent the drug coverage for elderly. Government becomes the largest purchaser in the market. It gives a high impact on the industry, because the purchaser buys medicine lower than other market such as Canada.

4. The power of supplier

We found that there are a lot of different suppliers in the market such as USA, European and Asia. Also, there are more than thousand pharmaceutical companies provide medicine. So, there have a wider selection for buyer to select. If there is not only one supplier within the organization, the impact on the industry is low.

5. Competitive rivalry

It is easy for customers to move to substitute products then again rivalry will be high. Due to this reason, lots of similar medicines appear in the market. These “generic medicine” provides same performance as the original product. The Allegra make the original brand loss 84% sale. If there is little differentiation between the products sold between customers, the impact to the original product company will be high.

Key Implication:

Whether the industry is attractive or not depends on the force. If the force has high impact, it is not attractiveness. As we can see from the pharmaceutical industry, as we all know, every people will sick. So medicine is necessary for us. Moreover, there a lot of new virus such as H5N1 or SARS, we still don’t have an appropriate solution for those viruses. As mentioned, human life is becoming longer than before due to the higher quality of health care. This makes the demand of medicine raise too,there is a high demand in the market. However, the main problem will be a lot of similar product surrounding the market. It relies on the management strategies. Manager can build barrier of entry by raise advertisement spending to improve customer loyalty or buy competitor. In conclusion, the pharmaceutical industry is attractiveness, but management has to change their strategies to fulfill the environment change.

Within the pharmaceutical industry, the key opportunities and threat are identified as follows

Opportunities: The demand of medicine rises as the ageing of population and increasing of the population. Moreover, developing countries provide a lot of chance, they require a large amount of medicine. Furthermore, scientific advance develop various type of medicine, consumer education, which increase their ability to choose the most suitable for themselves and unmet medicine have infinity demand in the market.

Threat: The government controls their effort on the health cost, such as imposed price cut. The R&D cost rise sharply, because of more complex development. Productivity decreases and the product life cycle is shortened too. Pricing, product approval and promotion are subjected to onerous regulations. They may need to spend a lot of time to regulate.


Scenario analysis offer the business environment might develop in the future and it typically is start from the key driver change.

Base on the above analysis, the most key driver change is the technological factor which has highly affect for the future strategy. Investigation requires high cost to develop, company is suggested to co-operate with government and share the benefit.

Biotechnology is another future strategy that the organizations should keep investing. As biotechnology is becoming a mainstream, which means they will become another key medicine researching method in the future. It also means who control the biotechnology, who will lead the industry in future.

Inject more external innovation, which can also make the development time shorter, so they can launch the medicine faster than the competitor. Reorganize the structure of the R&D, divide it into small unit, can make the R&D more effective and efficiency. Consumers require different type medicine, company need to provide variety medicine to sufficient the market need. Advertisement can also be made to increase the consumer loyalty.

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