Birzeit University |
Strategic Management |
Porter’s Analysis: Pharmaceutical Industry |
Submitted to Dr. Grace Khoury |
By: Asem Masri. Student No. 1125420 |
Porter’s Five Forces Analysis 1
Threat of new entrants 1
Rivalry among existing firms 2
Threat of substitute products 2
Bargaining power of buyers 3
Bargaining power of suppliers 4
Relative Power of other stakeholders 4
The pharmaceutical industry in Palestine is one of the most profitable industries, with the Palestinian companies owning 55% and 30% market share of the private and public sectors respectively, and ...view middle of the document...
2. Capital requirements: The pharmaceutical industry in general requires substantial financial investment in machinery, facilities, R&D, distribution and human resources. The financial investment requirements in facilities was 3.9 million US dollars as of 2005. For example, total assets of Al-Quds pharmaceutical industry is 24.9 million dinars, while for Birzeit Pharmaceutical Co, it is 18 million dinars.
3. Access to distribution channels: The Palestinian pharmaceutical companies usually establish preferred arrangements with pharmacies, hospitals, medical centers and doctors. This will make it very hard for a new entrant to compete or break such arrangements.
4. Political situation: The Israeli government put limitations and regulations on importing pharmaceuticals and chemicals from foreign pharmaceutical companies, to enforce buying from its own pharmaceutical companies rather than importing from the outside.
5. Government Policies: The government requires that the pharmaceutical company meets quality and procedural standards, and that they must acquire a license and register all their products at the ministry of health which is most of the times a costly and lengthy process. The ministry of health also regulate and audit the companies, their products and the manufacturing process.
Rivalry among existing firms
The rivalry among existing pharmaceutical firms in Palestine, is considered to be high due to the following reasons:
1. Number of competitors: There are currently 5 operational pharmaceutical companies in Palestine (Birzeit Palestine pharmaceutical company, PharmaCare, Jordan Chemical Laboratory in Beit Jala, Middle East pharmaceutical and cosmetics, Jerusalem pharmaceutical company). Since these competitors are few in number and roughly equal in size, they watch each other carefully to make sure that they match any move by another firm with an equal countermove.
2. Commodity form products: Since all companies produce almost the same generic products, using the same formulas and effective materials, their products take the form of commodities and as such the competition among the companies takes high rivalry. Although PharmaCare currently has its own original research undergoing, this will not lower the high rivalry until it results into differentiated product which are protected with patents.
3. Market size and rate of growth: Since the companies mainly server the local market through almost 100% commodity products, the market is very limited, which will increase the rivalry of the firms, especially that these companies has a market share of 55% of the private sector and 30% of the public sectors, and have to compete with other Israeli and foreign companies over the rest of the market.
4. High exist barriers: The high exist barriers in the pharmaceutical industry mainly come from the fact that most of the facilities, machinery, R&D work, and other assets have few or no other uses if not used...