2022/2023 Semester 1

MGMT 3002 Competitive Advantage

Thando Jesse Seuane-BB905942

IP FONG TENG-BB904604

DONG YIYANG-BB906249

FONG NGON SAM-BB604213

 CASE I:

PFIZER AND THE CHALLENGES OF THE PHARMACEUTICAL

INDUSTRY (A)

Introduction of the main Issues:

In this particular case, we are going to evaluate the series of incidents that happened after the U.S
President's tweet that commented on the pharmaceutical companies' raising drug prices for no
reason. The president also states that the pharmaceutical companies are merely taking advantage
of the poor and others unable to defend themselves, while at the same time giving bargain
basement prices to other countries in Europe and elsewhere.

Pfizer was also having other setbacks, such as a comprehensively planned merger with Allergan
Plc (Allergan) had to be stopped, and competitors were closing in on Pfizer’s leading position.
Drug patents were also about to expire, and the company’s entrance into new emerging markets
was creating many problems. It was also important to take into account that the pharmaceutical
industry as a whole was also having a lot of problems. Other corporations were recording
decreasing global average returns on investment (10.1 per cent in 2010 and 3.2 per cent in 2018);
they were also experiencing increased research and development (R&D) costs ($1.2 billion in
2010 and $2.0 billion in 2017). Furthermore, companies from other industries—such as the
electronic device producer, Philips—were entering the market, and some emerging-market
companies were becoming unexpectedly strong.

Taking all the factors above into consideration, the main issue in this report can be summarized
in the following questions: Do these changes mark a turning point for the whole industry? And
does Pfizer need to act, and if so, how?
Porter Five Forces Analysis:

Porter's five forces analysis belongs to the micro environment analysis in the external
environment analysis, which is mainly used to analyze the competitive pattern of enterprises in
the industry and the relationship between the industry and other industries

Current Rivalry(HIGH)
This is the force that evaluates how many competitors there are in the current market.For Pfizer,
its main competitors are abbvie, Novartis, Johnson & Johnson, Roche, BMS, Merck, Sanofi,
AstraZeneca, GSK. In 2021, Pfizer ranked second in the revenue ranking of pharmaceutical
companies, with J & J far ahead. (as shown in Figure 1)
And according to the information on the Internet, in order to be able to develop drugs of weight
level,All major companies have invested huge amounts of money in scientific research. Because
of their protection of the patent rights of drugs, once the research and development is successful,
it also means a high market temporary use rate and excess income.
Therefore, the competition in their industry is very fierce. If the competition is fierce, it will be
difficult for existing players such as Pfizer to make sustainable profits.
Threat of New Entrants( LOW-MED)
In this force, we analyzed the difficulty of entering Pfizer's industry. The analysis shows that:
According to the report on "Philips has changed from a trustworthy electronic brand to a medical
service company", through three years of transformation, Philips has transformed medical
diagnosis and provided personalized treatment tools. For Pfizer, it will not pose any threat to
Pfizer for the time being
First, it is difficult for pharmaceutical manufacturers to achieve economies of scale. This makes
it easier for enterprises producing large capacity capacitors to obtain cost advantages. This also
makes the production cost of new entrants higher.
Secondly, pharmaceutical manufacturers have strong product differentiation, and companies in
the industry sell differentiated products rather than standardized products. Customers also attach
great importance to and are trying to find differentiated products.
Finally, the demand for funds is very high, so it is difficult for new entrants to carry out business
because of high expenditure. Due to high R & D costs, capital expenditure is also
high,Moreover, it is difficult to develop new drugs, and there is a risk of losing money.
Threat of Substitutes:(LOW)
This force evaluates how many substitute products exist in the industry and, in the case of Pfizer.
Since the products provided by Pfizer are drugs, there is no substitute. More likely is "imitation
medicine". But in the face of health, I believe that all people will choose to buy high-quality
drugs instead of imitation drugs.So this is not a big threat to the pharmaceutical industry. It is
LOW.

Bargaining Power of suppliers (LOW)

The production base for most drugs consisted of fine chemicals. On average, companies in the
fine chemical industry are responsible for about half of the production of pharmaceuticals. Their
job is usually to produce raw materials or mass-produce products according to the requirements
of pharmaceutical companies. Most of the same companies can do it, so there is no dominant
chemical industry. The bargaining power of suppliers is low as pharmaceutical companies are
usually their largest buyers, and the production of finished products that are not substandard can
result in the revocation of product authorizations.
Bargaining Power of buyers (HIGH)
The pharmaceutical market can be divided into prescription drugs that can only be prescribed by
doctors and over-the-counter (OTC) drugs that can be purchased without a prescription. In
developed countries such as the United States, Canada, Japan, and France, the sales volume of
prescription drugs is higher than 80%. While hospitals, the purchase of drugs by clinics is largely
influenced by doctors, so the buyer group is mainly doctors.
When treating patients, doctors can freely choose drugs for patients to achieve good therapeutic
effects, so there is a stable market for higher-quality drugs. However, in order to control the
operating costs of medical institutions, many doctors also purchase generic drugs. These drugs
are similar in efficacy to brand-name drugs but at a lower cost. In many developing countries,
generic drugs are mainly purchased.
And other companies that have the ability to develop their own drugs, also have strong
competitiveness. In order to gain more market share, Pfizer's cost of sales has been much higher
than the cost of research and development. In 2017, the cost of selling innovative drugs was
45.36 billion USD, and the research and development cost is USD 7.63 billion. It can be seen
that the market competition is very fierce, and there are many medicines that doctors can choose.
Buyers have a variety of choices. Pfizer only has a stable market for a few innovative drugs
during the patent period, so buyers have strong bargaining power.
Recommendations:

For Pfizer, it now faces two industrial threats. Therefore, Pfizer needs different
strategies and actions for different industries.

For the emerging industry that Pfizer has entered, there are two main strategies:

● The first point is to innovate our own technology to establish a leading

position. At present, there are more and more drug companies in the world,
and most companies want to enter the emerging drug field first. In particular,
the emergence of many new viruses (such as novel coronavirus) has led to
the need for new industries such as biopharmaceuticals and preventive drugs
to seize more and larger markets with the times. The timely development of
new drugs requires more advanced technology. Therefore, having leading
technology is an important prerequisite for having a larger proportion of
emerging markets;

● The second point is to preempt strategically valuable assets. This is very

important for enterprises entering emerging industries. Because
preemptively completing the acquisition of existing capital in emerging
industries will greatly reduce the cost for Pfizer to enter and improve its own
emerging industries. It will not only reduce costs, seize assets with strategic
value in advance, but also greatly reduce the time of entering emerging
industries. The time saved will enable Pfizer to adapt to emerging industries
faster, so as to be in a leading position.

For the existing mature industries, Pfizer will also face two ways to improve the
problems:

● First, and most importantly, Pfizer must improve its existing products, both
in function and composition. Because of the unique nature of the
pharmaceutical industry, existing products are required to be constantly
updated. This is because people's requirements for the effectiveness of
medicine are constantly improving. Customers need better use experience,
which also promotes the continuous progress of the pharmaceutical industry.
For example, the most common influenza medicine industry in the
pharmaceutical industry, because of the continuous progress of products,
 people have changed from cold injections to taking one pill. This progress
will enable enterprises to have more customers in a certain number of
service groups, thus increasing enterprise income;
● The second point is to improve the process, including production process,
operation process and service process. Because for many mature industries,
the direct means of competition is to reduce product prices. Before reducing
product prices, the production industry should first reduce production costs
and operating costs without affecting product quality. And improving the
process will directly affect the cost, for example, changing manual
production to machine assembly line production. Due to the large number of
repeat customers, low innovation capacity and slow demand growth in
mature industries, if you want to make more profits in this industry,
improving the process is an important means.