Porter Pharmaceutical Analysis

Essay by nodnarb97202University, Bachelor's April 2004

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The drugs and pharmaceuticals sector consists of the following components: medicine and botanicals, pharmaceutical preparations, diagnostic substances, and biological products. Selling drugs has always been lucrative, but it will only become better. People are living longer (thanks in part to advancing pharmaceuticals) and spending many years of life in need of a cocktail of drugs creating the kind of demand for products that executives in other industries can only dream about. Rising standards of living in Latin America and Asia equal more money for the pharmaceutical industry. Healthcare is often one of the first improved sectors of developing nation's economies.


The supplied product of pills is relatively standardized considering the same chemicals and equipment are used by small firms across the board to produce them. Drug companies benefit from the free research which is publicly funded that takes place at the University level. With these factors the Pharmaceutical industry has much bargaining power amongst suppliers equaling a low cost for the product.


As any other industry buyers exercise their power with the dollar, buyers push prices down and play competitors against each other. The biggest factor in buyer power is when a drug company's patent on a particular pill runs out and cheaper generic pills flood the market that are just as effective as the expensive counterpart. A threat to the industry is the large scale purchases buyers make to save money which decrease profits for the industry. Government price control is also a threat, buyers and the government have considerable bargaining power.


Rivalry exists in the Pharmaceutical industry as firms compete by putting more money into research and development and by making strategic alliances. R&D sets their sights higher and higher one curing more complex diseases such as cancer, heart disease, AIDS, and...