The competitiveness of pharmaceutical industry in Saudi Arabia

The competitiveness of pharmaceutic sedulousness in Saudi ArabiaThe aim of this paper is to describe and analyze the competitiveness of the pharmaceutic constancy in Saudi Arabia, what raw(a) companies need to consider before entering this market sit and evaluation of such investment. I leave discuss the boundaries of this industry nether I will briefly highlight competitiveness of the pharmaceutic industry at the global take aim.Boundaries of the industryThe scope of this analysis is the pharmaceutic industry where assign away Products argon human drugs excluding veterinary drugs, medical devices and diagnostics. Key players in the market are pharmaceutical companies, hospitals, distribution agents, range of mountains pharmacies and patients support groups. As ostiary identifies an industry as the group of firms producing products that are close substitutes for individually separate (Porter, 1980, p. 5), I will take the perspective of the pharmaceutical companies.The geographic scope of this paper is the dry land of Saudi Arabia. However, large hospitals and institutions catch access to medical specialtys through transnational brokers (Business over check into International, 2010) making the market open to international rival.Many pharmaceutical companies in the Saudi Market are international companies (IMS Health, 2010). Six out of the top ten pharmaceutical companies, as measured by their 2009 sales, in the Saudi Market are international companies five of them are American (IMS Health, 2010).This leads to broadening the competition scope to take a global level as will be discussed. in like manner there is a very high impact of supra-state organizations like FDA and EMEA as Saudi Arabia considers guidelines and warnings issued by them as a reference (Business Monitor International, 2010). For example eulogy or suspension of a medication by those authorities impacts the business 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 procure drugs and expensive ones are growing in demand (Business Monitor International, 2010).One of the good tools to analyze the external factors affecting or dexterity in the incoming affect the industry is crunch analysis (Arm inexpugnable, 2006). It is an acronym for Political, economic competitive, socio-cultural, technological, legal and ethical factors. Looking at the six dimensions, offer a good insight for strategic analysis (ibid).Political Review (Insurance companies and price pressures)Although the middle-east tends to be a politically unstable area, the political organization in Saudi Arabia is copulationly 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 democratize 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 favour (Business Monitor International, 2010). much(prenominal) political stability could hold 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 following analysis will give a to a greater extent comprehensive view of the industry.Economic Competitive ReviewWith the discovery of oil reserves in Saudi Arabia in 1930s, the country dour into a first-world economy (Shoult, 2006). Saudi Economy is ranked among the top ten more or less competitive economies (Saudi Arabian General Investment Authority). Saudi Pharmaceutical market is the largest among the Gulf Cooperation Council countries with an estimated double digit annual growth till 2019 (Business Monitor International, 2010). such a high g rowth rate should represent an attractive probability to foreign pharmaceutical companies especially at times of international slow down. Some companies like JJ consider Saudi Arabia as one for the international appear markets along with Brazil, Russia, India and China that the federation is willing to invest in to expand its business (Al-Abd, 2009).Socio-Cultural ReviewThe Saudi pharmaceutical industry like many 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 finish is a very conservative one (ibid). Direct to the patient promotional activities although legal, capacity be a very risky move especially in certain therapeutic areas like women and men health. That could make the competition between pharmaceutical companies more aggressive at the level of prescribing physicians. More details closely this will be discussed under the 5 forces analysis below.From my experience, when it comes to patients support groups most of them are relatively newly established. Their role, so far, is limited to increasing the awareness closely illnesses and trying to besmirch the stigma associated with some diseases like psychiatric illnesses and HIV. They dont present a real threat for lobbying or exerting pressures on pharmaceutical companies. So most companies perceive them as an opportunity to increase awareness about illnesses and grow the total market size.Technological reviewMost of the local anaesthetic Saudi companies dont have 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 almost totally controlled by international companies (ibid). This should represent an opportunity for local companies as the development of such capability could be a differentiating vantage versus all local Saudi incumbents. Yet, developing such capabilities would require a very morose initial investment (Bogner, Thomas, McGee, 1996). On average, it takes around US$ 700 one thousand million to develop a new molecule and then 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 required for the results of clinical trials to become standard clinical practice (Porter, 1985, p. 406). This whitethorn 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 honorable FactorsThe pharmaceutical industry is recently under scrutiny like never before (Beller, 2008), especially when it comes to relations with health care professionals. With the Foreign Corrupt Practices Act in the United States and the very ag gressive penalties on the giant company Pfizer, $ 2.3 Billion by the FDA (The New York Times, 2009) most of the companies became very conservative. International companies, especially American ones, run into 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 purchasers for international trips with their families in a practice that is not controlled or regulated by Saudi Health Authorities (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, highly customized and, unlike many other industries, consumers have limited teaching (Porter, 1985). Porter identified five forces tha t 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 New EntrantNew entrant into an industry exerts pressure on incumbents prices and costs hence represent a risk in eroding their favorableness (Porter, 1985). The intensity of new entrants will depend on the ease of entering the market and Porter identifies seven-spot factors that ability represent an entry barrier (ibid).I aim at least four of them to be applicable in Saudi pharmaceutical market, the relative high investment required to establish a new pharmaceutical company, government policies that raised the cost required for registering new drugs (Al-Abd, 2009), the recent price cuts obligate by Saudi Ministry of Health (Business Monitor International, 2010), incumbency advantage including know-how for manufacturing and unequal access to distribution channels. For example, many hospitals now have regul ations that necessitate the removal of a drug from their formularies in order to add a new one (Al-Abd, 2009). This makes doctors face tough decision upon requesting new medications. All of these factors are in estimate of incumbent companies and efficacy represent entry barriers. On the other hand the low switching cost is an opportunity for new entrants. From my experience, shifting 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 through local Saudi agents (Shoult, 2006). Such agents are responsible for the distribution and act as a supplier of labor. My personal exper ience is that, it can be a source of competitive advantage to companies as agents access to residence 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 participants 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 determined 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 declared reason stool such moves is usually increasing efficiency (NUPCO) (National Guard Health Affairs). As pe r Porters five forces for industry analysis, the main(prenominal) 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 telephone number 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 keep back promoting their drugs once they lose their patents and shift their taper 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 function as an industrys product by a different means (Porter, 1985, p. 17). With this definition in mind, a substitute to a pharmaceutical drug could be a surgery or an alternative 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 positions (Porter, 1980, p. 17). It might be the most important 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 quiet of the market distributed among the remaining companies. Intensity 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 sum 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 yet mature assumption its high growth rates and the under awareness and under diagnosis in many therapeutic areas like HIV and ADHD (Business Monitor International, 2010). It might be a positive 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 generally 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 conception of many generics, me too products, increases the intensity of competition due to the lack of differentiation (Porter, 1980). Such competition is very clear as many buyers are relying o n tenders (Business Monitor International, 2010) rather than direct orders to utilize such competition in their favor. Price war among generics companies can be understood with such lack of differentiation. This could be compounded with the high initial investment required as mentioned earlier 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 submission the MarketFor a new firm entering the market, it needs to carefully position itself. Comprehensive understanding of the industry value chain will be important for the company to position itself (Porter, 1985).Industry Value Chai nIf 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 nearby 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 almost 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 positioning its products against existing international companies. A deep and comprehensive understanding of the Saudi Market and Saudi culture is also required. This level of understanding would depend on the new company background and whether it ha s 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 objective 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 another(prenominal) company, logistics and registration is the barrier. (You need to register the manufacturing facility which requires inspection by the Saudi FDA to the site 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 research lab testingPay to delayTu tor HintsThink about the different levels in the industry value chain, and the fact that the issues of competitiveness at those different levels whitethorn 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. manifestly 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 co mpetition, how do you score a goal? is it volume, share, profit, brand recognition? imply extent, nature, features and character. And in terms of thinking 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 provide a useful starting point or provide a basic overview of an industryMy CommentsOutside inPESTLE analysisUnder scrutiny like never before.Inside OutMerge 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 artificial (Levin et al., 1987). Typically, patenting occurs when new chemical and potentially useful compounds are synthesized, applications for them are identified, and manufacturing processes are developed. (Sternitzk e, 2010)Relationship 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) generalizationThis 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 directly 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. Given the inverse blood between elasticity of demand and price, it is likely that consumers pay higher prices as a result of the adverti sing that occurs in this industry. Our findings are thus 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 Case 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 publication Publisher. 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