The competitiveness of pharmaceutical industry in Saudi Arabia

The competitiveness of pharmaceutic pains in Saudi-Arabian-Arabian-Arabian ArabiaThe aim of this paper is to describe and analyze the competitiveness of the pharmaceutic assiduity in Saudi Arabia, what bleak companies sine qua non to read before entering this commercialise and evaluation of such investment. I go out discourse the boundaries of this manufacturing beneath I bear witnessament briefly highlight competitiveness of the Pharmaceutical industry at the global level.Boundaries of the industryThe scope of this analysis is the pharmaceutic industry where Key Products argon human drugs excluding vet drugs, medical devices and diagnostics. Key players in the grocery store be pharmaceutical companies, hospitals, distribution agents, chemical chain pharmacies and patients support groups. As Porter identifies an industry as the group of firms producing products that are close backings for each other (Porter, 1980, p. 5), I will take the perspective of the pharm aceutical companies.The geographic scope of this paper is the Kingdom of Saudi Arabia. However, large hospitals and institutions constitute entranceway to medications through and through external brokers (Business Monitor International, 2010) making the market open to planetary competition.Many pharmaceutical companies in the Saudi Market are internationalist companies (IMS wellness, 2010). Six out of the top ten pharmaceutical companies, as measured by their 2009 sales, in the Saudi Market are international companies basketb any team of them are Ameri cannister (IMS health, 2010).This leads to broadening the competition scope to take a global level as will be discussed. Also in that respect is a very high impact of supra-state organizations corresponding FDA and EMEA as Saudi Arabia considers guidelines and warnings issued by them as a reference (Business Monitor International, 2010). For example approval or suspension of a medication by those authorities impacts the busine ss of the drug in the Saudi Market (ibid). So changes at the global level are reflected on the market.Overview on the Saudi Pharmaceutical MarketThe total market size was around US$ 2.65bn in 2008 and due to the countrys wealth, novel patented drugs and expensive sensations are ontogenesis in take aim (Business Monitor International, 2010).One of the good tools to analyze the external factors affecting or force in the future affect the industry is PESTLE analysis (Armstrong, 2006). It is an acronym for Political, economic competitive, socio-cultural, technological, legal and ethical factors. face at the six dimensions, offer a good insight for strategic analysis (ibid).Political freshen (Insurance companies and equipment casualty pressures)Although the middle-east tends to be a politically unstable area, the political body in Saudi Arabia is comparatively stable (Business Monitor International, 2010). The political power lies in the hand of the king who faces new challenges including pressures from the United Sates to change the system (Shoult, 2006). Yet, with 25% of worlds oil reserves in the country, international powers, including the US, see stability of the kingdom in their save (Business Monitor International, 2010). much(prenominal) political stability could symbolise a motive for international pharmaceutical companies to invest in the kingdom. However political stability alone is not the only factor to consider for investment decisions. Other dimensions in the fol miserableing analysis will give a more than comp view of the industry.Economic Competitive ReviewWith the discovery of oil reserves in Saudi Arabia in 1930s, the country turned into a first-world economy (Shoult, 2006). Saudi Economy is ranked among the top ten to the highest degree competitive economies (Saudi Arabian General Investment Authority). Saudi Pharmaceutical market is the largest among the Gulf Cooperation Council countries with an estimated double soma annual ga in till 2019 (Business Monitor International, 2010). Such a high growth rate should represent an attractive prospect to foreign pharmaceutical companies especially at times of international slow down. just about companies analogous JJ consider Saudi Arabia as one for the international emerging markets along with Brazil, Russia, India and China that the union is willing to invest in to expand its business (Al-Abd, 2009).Socio-Cultural ReviewThe Saudi pharmaceutical industry like some(prenominal) other industries is reliant to a great extent on expatriate workers whether as pharmacists or physicians (Shoult, 2006). This increases bargaining power of suppliers to residency visas to pharmaceutical companies as discussed below.The Saudi glossiness is a very unprogressive one (ibid). Direct to the patient forwardingal activities although legal, might be a very risky trip especially in certain therapeutic areas like women and men health. That could mend the competition between ph armaceutical companies more aggressive at the level of prescribing physicians. More details about this will be discussed on a lower floor the 5 forces analysis below.From my generate, when it comes to patients support groups virtually of them are relatively newly established. Their role, so far, is limited to increase the awareness about illnesses and trying to minimize the stigma associated with slightly diseases like psychiatric illnesses and HIV. They dont present a real threat for lobbying or exerting pressures on pharmaceutical companies. So or so companies perceive them as an opportunity to increase awareness about illnesses and grow the total market size.Technological reviewMost of the topical anaesthetic anaesthetic Saudi companies dont oblige the know-how of manufacturing high technological products like bio-technology products and anti-cancer therapy (Business Monitor International, 2010). So the market of those therapeutic areas is nearly totally controlled by in ternational companies (ibid). This should represent an opportunity for topical anaesthetic companies as the development of such qualification could be a differentiating advantage versus all local Saudi incumbents. Yet, developing such capabilities would require a very heavy sign investment (Bogner, Thomas, McGee, 1996). On average, it takes around US$ 700 million to develop a new molecule and thence around US$ 400 million for marketing activities (Leask Parker, 2007). One of the characteristics of the pharmaceutical industry is the slowness of diffusion of new technologies, where around 17 years is needful for the results of clinical trials to turn standard clinical practice (Porter, 1985, p. 406). This may be due to the legal and ethical issues related to the pharmaceutical industry, which brings us to the last element of PESTLE analysis.Legal and Ethical FactorsThe pharmaceutical industry is novelly under scrutiny like never before (Beller, 2008), especially when it comes to relations with health care professionals. With the Foreign besmirch Practices Act in the United States and the very aggressive penalties on the giant attach to Pfizer, $ 2.3 Billion by the FDA (The raw(a) York Times, 2009) nigh of the companies became very conservative. International companies, especially American ones, find themselves forced to follow Health Care Compliance Guidelines. This factor is not affecting local Saudi Companies, where such regulations are not in place (Al-Abd, 2009). For example, it is very common for local Saudi pharmaceutical companies to invite physicians and even leveragers for international trips with their families in a practice that is not controlled or regulated by Saudi Health government (ibid).This PESTLE analysis represents the outline of the playing ground. Competitive force and what is happening inside could be seen by the following 5 forces analysis.Five Forces AnalysisAs per Porter, the health care industry is very complex, super cus tomized and, unlike many other industries, con contenters have limited information (Porter, 1985). Porter identified five forces that can drive the competition in an industry (Porter, 1980). The following analysis will briefly go through the impact of each force in the Saudi pharmaceutical market.Threat of raw(a) EntrantNew entrant into an industry exerts pressure on incumbents prices and costs hence represent a risk in eroding their profitability (Porter, 1985). The colour of new entrants will depend on the ease of entering the market and Porter identifies seven factors that might represent an entry barrier (ibid).I find at least(prenominal) four of them to be applicable in Saudi pharmaceutical market, the relative high investment essential to establish a new pharmaceutical company, government policies that raised the cost required for registering new drugs (Al-Abd, 2009), the recent price cuts enforced by Saudi Ministry of Health (Business Monitor International, 2010), incumbe ncy advantage including know-how for manufacturing and unequal access to distribution channels. For example, many hospitals now have regulations that necessitate the removal of a drug from their formularies in bon ton to add a new one (Al-Abd, 2009). This makes doctors face tough decision upon requesting new medications. All of these factors are in favor of incumbent companies and might represent entry barriers. On the other hand the low switching cost is an opportunity for new entrants. From my sleep together, peddleing from a medication to an alternative or a generic doesnt cause any switching costs.Pharmaceutical companies in Saudi Arabia are not allowed to make special offers or special discounts (Al-Abd, 2009). They also cant explicitly state the disadvantage of a competitor. Such heavy regulation would minimize the impact of retaliation against a new entrant.The Power of SuppliersIn Saudi Arabia, foreign pharmaceutical companies dont have a legal entity as they must work th rough local Saudi agents (Shoult, 2006). Such agents are responsible for the distribution and act as a supplier of labor. My private experience is that, it can be a source of competitive advantage to companies as agents access to lobby visas depends on many factors including but not limited to their personal network with the governmental officials. Therefore some companies expansion plans might be put on hold due to deficiency in visas required for new workers.The Power of BuyersKey grammatical constituenticipants of the industry changed recently with the tendency of buyers to collate into central buying centers like NUPCO, a newly established National Unified Procurement Company for Medical Supplies for all Ministry of Health hospitals (NUPCO). The same applies for National-Guard hospitals which decided to issue a unified tender for purchasing drugs (National Guard Health Affairs). The authors experience shows that even private street pharmacies are dominated by chain pharmacies with central purchasing centers. The say reason behind such moves is usually increasing efficiency (NUPCO) (National Guard Health Affairs). As per Porters five forces for industry analysis, the main reason might be the wish to increase their bargaining power against pharmaceutical companies.The availability of me too products and several generics to non-patent drugs in the Saudi market (IMS Health, 2010) could turn many drugs into a commodity. As several alternatives become available, the bargaining power of purchasers increases (Porter, On Competition, 1985). This in turn could erode companies profitability. Therefore most of the international companies stop promoting their drugs once they lose their patents and shift their focus to new still patent protected drugs (Al-Abd, 2009).The Threat of SubstitutesPorter defines a substitute as something that performs the same or a similar solve as an industrys product by a different means (Porter, 1985, p. 17). With this definition in mi nd, a substitute to a pharmaceutical drug could be a surgery or an alternative practice of medicine. Alternative medicine is common in Saudi Arabia to the extent that an official National Centre for Alternative and Complementary medicine was established in 2008 (Business Monitor International, 2010). Yet, it would be difficult to quantify and measure this market and its impact on the Saudi Pharmaceutical market due to the lack of reliable statistics and the poor control on traditional healers (Al-Rowais, Al-Faris, Mohammad, Al-Rukban, Abdulghani, 2010).As key hospitals can purchase medications through international brokers, this exerts more price pressures on local operating companies. Such international brokers might be considered as a substitute to local pharmaceutical companies. Their impact might lead to forcing the local operating companies to reduce their prices in order to match brokers price which could lead to eroding profitability.Rivalry among Existing CompetitorsThis force analyzes how competitors are jockeying for puts (Porter, 1980, p. 17). It might be the most eventful force in the Saudi Pharmaceutical Market. The Saudi Pharmaceutical Market is fragmented among 271 companies (IMS Health, 2010). This might be one of the reasons behind the high intensity of competition. The leading company, GLAXOSMITHKLINE has a market share of only 9% followed by Pfizer 8% and then the local company SPIMACO 7% and the rest of the market distributed among the remaining companies. vehemence of rivalry increases in cases of Numerous or equally balanced competitors (Porter, 1980, p. 18). Yet the relative high growth rate in the market (IMS Health, 2010), could retain its attractiveness as possibility of reaching zero core group competition looks remote. Porter considers the competition in the health care system as zero sum (Porter, On Competition, 1985). This might be relevant only to the US market. The Saudi Market is not all the same mature given its high g rowth rates and the under awareness and under diagnosis in many therapeutic areas like HIV and ADHD (Business Monitor International, 2010). It might be a positivistic sum competition.From the authors experience, pharmaceutical companies in the Saudi Market can be classified into International companies with most of their products patents and local companies producing mostly generics. Some of the International companies like GLAXOSMITHKLINE and Pfizer work in different therapeutic areas and most of their products are patents so their main strategy might be differentiation. There are other international companies that are focused in one segment, therapeutic area, like Lundbeck in central nervous system and Novo Nordisk in Diabetes (IMS Health, 2010). Such companies are mainly utilizing a niche or focusing strategy. Then there are the Saudi companies producing generics and their main strategy could be cost leadership. The existence of many generics, me too products, increases the inte nsity of competition due to the lack of differentiation (Porter, 1980). Such competition is very clear as many buyers are relying on tenders (Business Monitor International, 2010) rather than direct orders to utilize such competition in their favor. monetary value war among generics companies can be understood with such lack of differentiation. This could be compounded with the high initial investment required as mentioned forward that might raise the exit barrier making companies more committed to the business.When it comes to competition between international companies and local Saudi companies, economies of scale are in favour of international companies as they produce and sell their products worldwide while local Saudi companies usually dont have access to European or American markets due to concerns on quality standards (Business Monitor International, 2010).Advice to a New Firm Entering the MarketFor a new firm entering the market, it needs to carefully business office itsel f. Comprehensive encountering of the industry value chain will be most-valuable for the company to position itself (Porter, 1985).Industry Value ChainIf this new company were a local Saudi one then it should rely on cost leadership. For example, the firm infra structure, like manufacturing facility, should be in a close location to the main consumers like the Ministry of Health in order to minimize the shipping costs. IT infrastructure and human resources all should be designed with cost leadership in mind. Currently most of the local companies purchase their row materials from India in order to reduce their costs.If the new company were an international company, then it would be virtually essential to have patent and differentiated new molecule entities. Such patents would enable the new company to avoid a price war with local generics companies and being differentiated could help in lieu its products against existing international companies. A deep and comprehensive understa nding of the Saudi Market and Saudi culture is also required. This level of understanding would depend on the new company background and whether it has previous experience in the Saudi Market, or not.For the new company to secure its supply of labor and expatriate staff, they need to develop a strategic partnership with a local Saudi vendor.ConclusionAs per Porter, the documental of industry analysis shouldnt be to declare the industry attractive or unattractive (Porter, 1985, p. 5). It should be to understand the drivers of profitability so that more informed decisions could be made (ibid).Future ChangesShift to privatization and private market, shift toward generics.If outsourcing the product from some other company, logistics and registration is the barrier. (You need to register the manufacturing facility which requires inspection by the Saudi FDA to the website a process that takes around one year. The registration process of the drugs itself will take around another one year . This will not limit the entry to the market but it slows down the new competition.Saudi Arabia requires local laboratory testingPay to delayTutor HintsThink about the different levels in the industry value chain, and the fact that the issues of competitiveness at those different levels may be driven by different sets of business environment and industry environment factors. They may also involve different sets of industry players, some of whom may be more extensively integrated across the industry value chain than others, operating different types of business models and competing on different bases and perspectives.Keep the focus firmly at the industry level, and not on individual companies. That said, comments on different companies competing one with another may form part of the analysis and argument.Obviously in choosing an industry and setting some boundaries within which to work, the nature of the industry is one of the factors to consider. Some industries are inherently more international than others. Some markets are more open to international competition than others.CompetitivenessDefine success in the competition, how do you score a goal? is it volume, share, profit, rat recognition? include extent, nature, features and character. And in terms of persuasion about success, once again it is worth thinking about how this is judged best and from whose perspective in any context.Basic analytical models (eg PESTLE, P5F, SW/OT) may depict a useful starting point or provide a basic overview of an industryMy Commentsoutside inPESTLE analysisUnder scrutiny like never before.Inside Out coalesce and acquisitionsImportance of Patents in PharmaAbout 80% of all pharmaceutical products and about 45% of all processes are patented (Arundel and Kabla, 1998).Overall, patent protection is particularly effective in this industry (Gambardella, 1995), playing an important role for preventing imitation (Levin et al., 1987). Typically, patenting occurs when new chemical an d potentially useful compounds are synthesized, applications for them are identified, and manufacturing processes are developed. (Sternitzke, 2010) descent between high innovative propensity and sustained superior profitability in pharmaceutical industry in the US is confirmed (ROBERTS, 1999)Advertising promotion in Pharma decreases price elasticity which means, the heavier the promotional activities, the higher the prices. (Rizzo, 1999)AbstractThis paper uses data on the majority of name-brand antihypertensive drugs marketed in the US during 1988-93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry. This is the first study to straightaway estimate the effects of drug product promotion on the price elasticity of demand in this industry. We find strong evidence of an advertising effect. In particular, detailing efforts (the salient means for product promotion in this industry) systematically lower price sensitivity. Give n the inverse relationship between elasticity of demand and price, it is likely that consumers pay higher prices as a result of the advertising that occurs in this industry. Our findings are thence consistent with Hurwitz and Caves, who find evidence that advertising inhibits entry into this market but in contrast to earlier research that found no anticompetitive effect.Advertising and Competition in the Ethical Pharmaceutical Industry The baptistry of Antihypertensive DrugsComment on referencingFor chapters of edited books the required elements for a reference areChapter author(s) surname(s) and initials. Year of chapter. title of chapter followed by InBook editor(s) initials and surnames with ed. or eds. after the last name. Year of book. Title of book. Place of emergence Publisher. Chapter number or first and last page numbers followed by full-stop.Smith, J., 1975. A source of information. In W. Jones, ed. One hundred and one ways to find information about health. Oxford Oxfo rd University Press. Ch. 2.Samson,C., 1970. Problems of information studies in history. In S. Stone, ed. Humanities information research. Sheffield CRUS, 1980, pp. 44-68.