Direct Competitor Comparison for GlaxoSmithKline - Essay Example

GLOBAL OPERATION AND COMPETITION STUDY OF GLAXOSMITHKLINE PLC 0 Introduction 1 Background and outline to the company GlaxoSmithKline (GSK) is aBritish multinational company that specialises in pharmaceuticals, biologics, vaccines and consumer healthcare products (quote). The major area of business attention of the company has however been dominant towards the pharmaceutical sector (quote). By revenue measure, GSK was in March 2014 rated to be the world’s 6th largest pharmaceutical company with annual revenue average of £25.602 billion. This figure is the outcome of an operating income of £7.771 billion, out of which £5.237 billion was reserved as net income (quote). Having over 99,000 employees, one unique feature of GSK is that fact that it came into existence only in 2000 through the measure of Glaxo Wellcome, SmithKline Beecham plc and SmithKline Beckman Corporation (quote). The table below outlines GSK’s key financials since 2009. £ million 2009 2010 2011 2012 2013 Revenues 27,985.148 28,002.33 25,932.32 24,323.55 24,546.5 Net income (loss) 5,456.299 1,664.55 5,134.7 4,865.4 5,266.7 Total assets 42,323.4 41,456.7 39,567.9 39,855.5 40,164.9 Total liabilities 31,532 31,965.5 31,642.7 35,445.8 34,242.9 Source: company filings 1.2 Rationale for selected company There are a number of reasons that the pharmaceutical industry and GlaxoSmithKline were selected very specifically. In the first place, the selection of the pharmaceutical is based on the very favourable growth projections that have been made for the industry from now till 2018. MarketLine (2013) forecasted that by 2018, the industry will have a value of £646.8699 billion, which is an increase of 26.8% since 2013 (see the figure below). This is an important projection that means that the pharmaceutical industry will be a major drive in global economic expansion. The rationale for selection is therefore based on the global economic hope that this unique industry gives. GlaxoSmithKline plc was on the other hand selected as a leader in the UK pharmaceutical industry to know how prepared the UK industry is to compete to be part of the global growth. Figure 1: Global pharmaceutical market value forecast forecast to have a value of 1.3 Research aim Compared to its major competitors, GlaxoSmithKline has not been able to command a leading market capital for the past five years. This is regardless of the fact that compared to key competitors GlaxoSmithKline has a very large employee size. As showed in the table below also, GlaxoSmithKline has a very good gross margin but with the lowest revenue quarterly growth (quote). All these information shows that there are some fundamental causes to the company’s competitive position other than most of the internal factor that come from the everyday management of the organization. The aim of the research is therefore to understand how the external environment of the company impacts on its global operation and competition. Table 1: Direct competitor comparison for GSK Source: Yahoo Finance (2014) 1.4 Approach to the project The project shall be approached as a qualitative correlational study where GSK shall be compared to its major competitors to find how well the company is placed for global competition. This means that the researcher will rely on several secondary data rather than primary data. 2.0 Comparative Analysis of the company’s competitive position 2.1 Porter’s five forces analysis There are several factors within the larger industry in which GSK does business that affect the company’s ability to compete and compete well. These factors found within the larger industry are what Porter puts them together as five forces (quote). The first of these forces which can be seen as directly influencing the competitive operations of GSK is threat of substitute products. In the pharmaceutical industry, quote (year) noted that there are several substitute products that customers fall on when their health is lacking in a way. Some of these include physical therapy and the use of herbal medicine (quote). The mere presence of these factors however does not put GSK at greater risk even though the presence of some threat cannot be denied. This is because under the threat of substitute product, there are several other factors that still put GSK at an advantage. An example of this is quality depreciation. This defines the level to which the quality of products from GSK depreciates, for which customers may want to switch to substitute products (quote). Meanwhile, GSK has been known for years as a trusted pharmaceutical name when it comes to quality (quote). The threat of new entrant is another force stressed by Porter (quote). Several factors also come under this force. One of them is the ease with which new competitive entrants can enter the market (quote). According to quote (year) such ease with which new entrants can enter a market depends on the market structure operated within the industry. As far as the pharmaceutical industry in UK is concerned, it can be found to operate a perfect market structure (quote). This means that new entrants are allowed to enter freely (quote). This is indeed a major threat for GSK. There are however ways in which the company may respond to the threat of new entrants to consolidate its competition. The first of these is through the continuous promotion of the GSK brand. Since GSK has been in the industry for long, it has gained some level of brand equity. Promoting its brand will therefore expand on this brand equity to ensure that its customers remain with it rather than switch to new entrants (quote). The bargaining power of buyers is another important force that confronts several industries, particularly those in the manufacturing sector like GSK (quote). Luckily for GSK, most of the prices of its products are industry determined. What this means is that all other registered or recognised manufacturers sell drugs at relatively the same price. Because of this, it is very difficult for buyers to put pressure on the company to cause a reduction in the prices of products to levels that may not be considered favourable for GSK (quote). Having said this, it is still important that the company will put some strategies in place to ensure that since its prices may be the same as competitors, it would still become the preferred choice of buyers. One way to do this is to add several customer loyalty promotions (quote). Such promotions would ensure that customers remain with the company and continue to do business with it instead of switching to other competitors. The pharmaceutical industry in UK is one that relies very heavily on suppliers (quote). In most cases, these suppliers are international suppliers from faraway places like India. The effect of this on GSK’s business is that it increases the level of bargaining power of suppliers. This is because the scarcity of suppliers and their importance to the business cause them to control prices (quote). The direct impact of this on production is that it leads to increases in cost of production (quote). Meanwhile when cost of production is high, the company is forced to have minimal returns especially as it is not in a position to charge very high for its products. Having said this, there are a number of ways that the company can minimise bargaining power of suppliers. One of these is for the company, through its size and market capital to set up its own laboratory and materials centre that can supply some of the company’s raw materials. Doing this will minimise the reliance on external suppliers and thus reduce the threat that comes with bargaining power of suppliers. The last force is intensity of competitive rivalry. This force tends to describe the relative extent of strength of all companies within the industry (quote). As far as the UK pharmaceutical industry is concerned, its intensity of competitive rivalry can be said to be very high. This is because of the extent of standard of practice and the fact that price propensity is relatively equal (quote). Because of these factors, it takes some of the very little and sometimes easily neglected customer satisfaction programmes for a company to be competitive (quote). In order for GSK to become competitive therefore, it is strongly recommended that the company will constantly focus on customer satisfaction activities. These customer satisfaction activities will help in setting the company apart from its competitors and ensure growth (quote). 2.2 Bowman’s Strategy Clock Bowman’s strategy clock is described by many as an advanced form of the Porter’s generic strategy as it seeks to expand on the latter further (quote). The clock is made up of eight (8) competitive positions that a company may align itself with. Of the eight, there are two that can be seen to apply very perfectly in the case of GSK. These are differentiation and focus differentiation (quote). Most of the other competitive positions are not considered to work well for GSK because they are price and value related. Examples of these are monopoly pricing, low price. Low added value, low price, hybrid, and increased price/standard product. The reason these may not apply to GSK is because of earlier point made that the prices of most pharmaceutical products are predetermined at the industry level. The possibility of charging lower or higher is there virtually absent (quote). When it comes to value, any form of value reduction will affect the company negatively, a reason low value positions are also excluded (quote). In terms of differentiation however, this competitive position will ensure that GSK is able to add more value to its products and services (quote). Even if the company may not alter what goes into the manufacturing of its drugs for legal reasons, it is still possible that the company will add value to most forms of finished products such as packing. Using high quality and attractive packages may be a way to attract customers to the company (quote). This is because packaging is considered a very important factor in the pharmaceutical industry, especially when it comes to the preservation of quality and durability of products (quote). What is more, the company can add value to the services it offers to customers. Customer satisfaction was noted to have very direct relation with customer loyalty. For GSK to secure the loyalty of its customers therefore, it is strongly recommended that the company adds value to its service to customers. Focus differentiation looks into the combination of differentiation as described earlier with the targeting of specific segment of the market, where the company can be focusing its sales (quote). As far as focus is concerned, it is highly recommended for the company to go into business to business segmentation, as well as government procurement segment. This is because these two areas command very large portion of the customer base for the pharmaceutical industry (quote). The reason that can be given to the dominance of this customer base is the fact that they make their purchases in bulk (quote). GSK is therefore admonished to look to such institutions as hospitals and other healthcare providers as a focus group. Some of the differentiation that can be added to these market segments can be customised packaging of products. The availability of special payment arrangements can also help in ensuring that the company gains the endorsement of these target groups (quote). 2.3 PEST Analysis In this paper, the PEST analysis is conducted as a way of understanding the competitive position of GSK from a country level perspective. As a UK based country, there are some factors that GSK is presented with that makes the company either advantaged or disadvantaged. From a political perspective, quote (year) stressed that the presence of regulatory bodies that ensure the quality production of pharmaceutical products puts the company at a major advantage. This is because most UK pharmaceutical companies including GSK have global endorsement as producers of quality products. This situation makes it easier for them to enter any international market with their standard. From an economic perspective, a seemingly lack of government support for large multinational companies seem to be a demerit for GSK (quote). Looking at the economic outlook of UK, quote (year) noted that the government is more focused on the growth and promotion of small and medium scale enterprises (SMEs) as against multinationals. This is because SMEs have greater challenges with setup and financial capitalisation (quote). But as often as these SMEs receive government support, they become empowered to compete against the multinationals such as GSK. With this said, the currency strength of the British Pound puts GSK at an advantage when doing international trade. The social dynamics of UK that seem to favour GSK is the high level of literacy and minimal number of people within the core poor level of socioeconomic status. This is because quote (year) stressed that the more learned people are, the better the understanding they get on the need not to self medicate or use non-prescription drugs. Meanwhile when customers decide to use non-prescription drugs or buy from unapproved sources, it becomes a negative competitive that affect genuine and recognised companies such as GSK. The same argument can be made for countries where there are so many people in the poor and core poor level of socioeconomic status. Most of these people do not have the means to purchase quality products and are therefore tempted to buy from inferior companies producing inferior drugs. In terms of technology, UK’s technological infrastructure can be said to be at the highest level at international standards (quote). This helps manufacturers in the pharmaceutical industry with most of their works. Examples of these are research and development (R&D), which require that companies like GSK have a deeper and thorough understanding of disease dynamics and the effects of materials on drugs (quote). The presence of technological platforms also makes it possible for the company to engage in electronic commerce more easily and also to be part of the globalisation phenomenon, which has a very heavy dependence on technology (quote). 3.0 Creating Social Impact 3.1 Existing social activities (300 words 3.2 Balancing social responsibilities with corporate activities (500 words) 3.3 Applicable theories of social engagements (1000 words) 4.0 Enhancing business through theories 4.1 Enhancing business through theories of comparative analysis (500) 4.2 Enhancing business through theories of social responsibilities (500) 5.0 Conclusion (400 words) Read More