GSK-Pfizer Joint Venture Analysis

GSK and Pfizer Venture

Any company has the desire to dominate the international market, and impose itself as the market leader and the pacesetter, by dominating over its competitors, in terms of producing goods of better quality, and having the largest market share. Such domination cannot be solely achieved by the organisation; rather it depends on the clients’ trust in the organisations and the products or services offered by the company. Different strategies and forces are used in determining the accomplishment of an organisation and the types of relationship it fashions with its customers. One of the most common strategies used by virtually all organisation is trying to provide quality products at an affordable price to a competitive advantage over its competitors and establish itself as a market leader. Besides an organisation ought to assess its strengths and weaknesses to improve its efficacy. Such thoughts and appraisals are imperious in the establishment of future objectives and mission because they help in defining whether an organisation is succeeding or failing in the market in respect to its competitors (Mittra 2007, p. 285). This analysis would be based on an assessment of GlaxoSmithKline’s (GSK) strategy to form a joint venture with Pfizer; considering the strengths and the weaknesses of this joint venture and what helps them or limits them from competing in the industry. Both GSK and Pfizer as distinct entities command a large consumer market globally, and therefore, a joint venture between the two is likely to lead to newer prospects, advantages, and opportunities. At the same time, as much as both of these entities have a significant market share and considered to be among the biggest entities in the pharmaceutical industry in terms of their market and an annual turnover (Reuters 2010). In December 2018, GSK made it official that it would form a joint venture with Pfizer and therefore, it is essential to asses such strategies in reference to business success or failure.

External Analysis

Opportunities

Both GSK and Pfizer have been global leaders in the pharmaceutical industry; this means that both entities have vast resources and funds to pursue any project or marketing campaign that the venture wishes to have. Secondly, the pharmaceutical and healthcare field is continually evolving and therefore, there is a need for pharmaceutical companies to undertake continuous research to develop products that are standardised with the market needs of the targeted client. Therefore, this venture would mean that both GSK and Pfizer would have excellent access to the necessary resources, which includes qualified personnel, laboratory equipment and funds to conduct pharmaceutical research projects, which would have otherwise been deemed as expensive if it were to be conducted by one entity. Besides, Gereffi (2017, p. 94) states that most marketing campaigns conducted by GSK are mostly concentrated in Europe, and America, while Pfizer has also concentrated in other unexplored markets such as in Asia and Africa. Therefore, the fact that GSK has a more significant market share in Europe and America, while Pfizer commands the Asian and African market, will give the venture access to new markets, that would have otherwise proved to be challenging to penetrate if each entity was to work on its own. Martin et al. (2018, p. 102) also argued that GSK has a vibrant sales and marketing structure, while on the other hand Pfizer is known to have a robust distributional channel; these two factors combined could give the ventures a competitive advantage over their competitors. Even with these positive factors, both entities have a reputation for forming a formidable and constructive partnership with their mergers, acquisitions, and joint ventures. With such a history, it is expected that the joint venture between these two organisations would last.

Threats to the Venture

As much as this venture seems to have a bright future, there are various threats that the venture would have to deal with. First, the faces the threat of unsuccessful new products, because of inadequate client awareness of the ventu11re. In such a situation, clients are likely to get confused on the manufacturer of the product, especially those clients who are loyal to one brand and have attached a sense of trust to one brand. Besides, as much as the venture would invest in research and development to produce quality drugs, these drugs could be subjected to counterfeit. Drug counterfeit is a massive problem in the pharmaceutical industry, and could lead to reduced returns or losses, primarily if the original manufacturer had invested a lot in the research and development of the product in question (Moss, G., 2001, p. 27). Unfortunately, both Pfizer and GSK cannot prevent such a situation, as it is beyond their authority. Secondly, liability laws are also a threat to the venture. Various countries have different liability laws which could hamper any new product developed by the venture. For example, currently, GSK is facing legal charges in the United States of America for introducing new products without the following the due process and procedures (Thomas and Schmidt 2012). The same can also happen in new markets that the venture is aiming to explore.

Industry Analysis

The study will use Porter’s five forces to conduct an Industry analysis with respect to the joint venture formed by Pfizer and GSK.

Threats of New Entrants

Generally, entering the pharmaceutical and healthcare industry is an expensive affair. Therefore, the venture between GSK and Pfizer should not worry a lot because of threats from new entrants. The economies of scale for production is also significant, besides other barriers to entry; the fact that the two entities have formed venture means that they would be enjoying very low economies of scale, which would give them an advantage over new entrants. Lakdawalla (2018, p. 430) writes that it is practically a costly process to develop new products (costly in terms of the finances required and the time is taken), especially when the product requires extensive research to develop as in the case of pharmaceutical products. The government has also imposed strict laws on the administration of drugs and has set high standards for companies that wish to join the industry. The expiry of patent rights is also another significant barrier for the new entrants wishing to join the pharmaceutical industry, since the patents can only last for 20 years, and after that, the products can only be protected by their respective companies. Such policies and systems could discourage new players, who are trying to enter the market. Lastly, both GSK and Pfizer have independently established strong brand images and names, which ultimately leads to the elimination of competitors.

Threat of Substitutes

The venture will face a significant threat from generic brand medication in the industry, which in most cases, is perceived to the main substitute of the original product. Complementary Alternative Medicines (CAM), is also an alternative auxiliary for the products that would be produced by the venture. Both CAM and generic medications are delivered to clients as the same medication, apart from the fact that they have different brand names and are less costly as compared to the original product (Lee 2017). These substitutes area massive threat to the venture since they have also been found to be cheaper and safer as compared to conventional drugs. Due to these reasons, the venture is likely to face significant threats with the scaling production of CAM and generic medicines.

Bargaining Power of Buyers

Consumers are not a substantial threat on the venture since both entities have been known to spend much capital in research and development to come up with new products, which are patented; the venture is expected to continue with the same strategy since it is a common practice for both the entities. As a result, the bargaining power of consumers is compromised. Besides, when looking at the quantity of consumers in the market, the bargaining power of consumers is fairly minor. The fact that both GSK and Pfizer are pharmaceutical companies has also tiled the fact that availing resources, latest technology, and the qualified personnel to the market (Vyas, Narayanan, and Ramanathan 2012, p. 85). Thus, consumers are not a threat to the establishment, since they have constrained bargaining power. Since both GSK and Pfizer were among the largest competing entities, a joint venture between these two is likely to lead to an oligopolistic market form, such that the venture would be able to control the market prices.

The Bargaining Power of Suppliers

The leading suppliers in the pharmaceutical industry include employees (who are labour providers), raw material manufacturers, clinical officers, distribution and marketing channels. Suppliers can pose a significant threat to the venture, by suppression or reducing the quality of provisions. Both GSK and Pfizer have a record of respecting their suppliers by satisfying their needs and demands. Both companies also have a record of offering good salaries and wages to their staffs. As long as the venture would be able to maintain a clean record in satisfying the contractual requirements of their suppliers, then the bargaining power of suppliers would be limited (Condrat and Boboia 2012, p. 23). These developments have the capability of giving the venture a pole role in stipulating the terms with its suppliers.

Competitor Rivalry

The pharmaceutical industry is dynamic and aggressive; this means that there is always a constant struggle as to who should control the largest market share. Competitor rivalry in this field is exceptionally intense such that only the strongest can survive. The fact that the market is broad has enabled each entity to prosper without conflicting within the market. Besides, Pharmaceutical companies are known to proliferate thereby generating more revenue and eventually this will reduce competition (Torun 2007, p. 32). Therefore, if each entity was to be evaluated independently, then the threat of competitor rivalry could be high. However, the joint venture is likely to reduce competition due to the expected increased revenue, which would neutralise competition to some level.

From the analysis above, one can conclude that the venture between GSK and Pfizer is likely to lead to an oligopolistic market, that is characterised by brutal competition, and the dominant player in the industry would control the price; the venture is expected to be among these major players.

Internal Analysis

VRIO analysis of the venture between GSK and Pfizer will comprise of a resource-based analysis using the details by both GSK and Pfizer as independent entities. A resource-based premeditated examination is founded on the hypothesis that strategic possessions can allow the venture to establish a justifiable competitive advantage over its competitors in the Industry. The competitive advantage can assist the venture in enjoy more profits in the industry and prevent pressure from competitors.

Strategy Evaluation

This article will use the SAFe model to evaluate strategies deployed by GSK and Pfizer. SAFe is among the leading methodologies for scaling Agile across various enterprises. SAFe stands for, Sustainability, Accessibility and Feasibility. Therefore, this article will use analyse various strategies developed by the merger through the lenses of SAFe. There are various strategies pursued by the venture to gain more profit from the market. The reason both companies are leaders in the pharmaceutical industry is because of the different marketing strategies deployed. The first strategy deployed by the venture is market entry since it can lead to other new opportunities. The venture, embarked on market entry by collaborating with doctors, since doctors prescribe medicines. One advantage that the venture has that makes the venture’s market entry strategy sustainable is the fact that both brands have a strong brand image and can be trusted, which even makes it easier for doctors to prescribe it. The merger uses representatives such as salespeople to inform doctors, or any other interested party about their products, to persuade the doctor to recognise the product. The strategy has been effective so far because of recognition since, without recognition, it could be challenging to subsist in the market, since brand status is among the most valued possessions for each invention. On the other hand, clients will select the most respected brand due to their constancy and the satisfaction that the brand gives them. Therefore, this is the reason the venture uses doctors because it wants to establish itself as a dominant player in the market. For example, both Pfizer and GSK trains and evaluates more than 10,000 salespeople to succeed in conducting a successful sales campaign among the targeted stakeholders (Dubois, Gandhi, and Vasserman 2018). With proper training, the venture’s salespeople turn out to be among the most productive workforce in the industry.

Another method used by the venture for market entry is to seek for the consumer’s opinion by conducting a focused group discussion. Focused Group Discussions (FGD) are more effective since they allow the venture to interact with the consumers directly, and learn what consumers want from first-hand sources. The venture also uses direct consumer advertising as its market entry strategy. The venture has deployed various advertising strategies, which has given clients the freedom of interpreting the message in their way and internalising it. Such campaigns aim at conveying two essential messages which are, first consumers, do not have to visibly sick to use drugs, they could use drugs for preventive measures or enhance their lifestyle. Secondly, these advertisements aim at pursuing consumers to go for check-ups and know their health (Barney 1995, p. 58). The efficacy of this campaign would majorly depend on how consumers receive the message in a serious term; this is because consumers who are concerned about their well-being are likely to know their conditions much better as compared to those who do not.

Sustainability

Sustainability revolves around the question of whether the company will achieve its goals through the strategy or not. Sustainability is examined in various ways that are particularly significant to the business or company such as environmental appropriateness, and the capability to conduct it. Using these metrics to evaluate the market entry strategy deployed by the venture, then one can conclude that it is sustainable. For a fact, both Pfizer and GSK have the financial capability to per take the activities related to community entry without feeling overburdened by such costs. Secondly, the activities directly involve the consumer, and therefore the venture can learn more of the consumer needs and what they ought to improve in their products.

Acceptability

Acceptability measures the stakeholder reaction to a specific strategy and the return risk. Returns can be evaluated based on the benefits that stakeholders expect from the strategy, which does not necessarily mean financial benefits, while return calculation can be performed calculated through various methodologies. Since the venture has not been in existence for more than six months calculating return benefits could not possible. However, so far, the expectations of the stakeholders such as increased market share, and profitability are being met through this strategy, which renders it acceptable.

Feasibility

Feasibility concerns itself with whether the business in question has the resources, ability, and aptitude to implement the chosen strategy, which is key to its success. This means that financial feasibility ought to be assessed through forecasting and analysing cash-flows, among other financial tests. In terms of financial assessment, both Pfizer and GSK have been recording an annual turnover of more than 100 million USD from 2005 (Pfizer 2019). Therefore, without further analysis, the venture has enough financial capabilities of pursuing a market strategy it so wishes. In terms of the resources and the ability, GSK is known in the industry as an entity with the best marketing strategies, while Pfizer is renowned for its outstanding distributional channels. Besides, these two entities have the best personnel in the industry in every department, which gives them the capability of conducting an effective market entry strategy and influencing the relevant stakeholders.

References

Barney, J.B., 1995. Looking inside for competitive advantage. Academy of Management Perspectives, 9(4), pp.49-61.

Condrat, M. and Boboia, A., 2012. Mergers and acquisitions as strategies of business expansion in the pharmaceutical industry. Actas do VIII Colóquio de Farmácia, pp.17-26.

Dubois, P., Gandhi, A. and Vasserman, S., 2018. Bargaining and International Reference Pricing in the Pharmaceutical Industry.

Gereffi, G., 2017. The pharmaceutical industry and dependency in the third world (Vol. 4964). Princeton University Press.

Lakdawalla, D.N., 2018. Economics of the pharmaceutical industry. Journal of Economic Literature, 56(2), pp.397-449.

Martin, K.D., Josephson, B.W., Vadakkepatt, G.G. and Johnson, J.L., 2018. Political Management, Research and Development, and Advertising Capital in the Pharmaceutical Industry: A Good Prognosis?. Journal of Marketing, 82(3), pp.87-107.

Mittra, J., 2007. Life science innovation and the restructuring of the pharmaceutical industry: Merger, acquisition and strategic alliance behaviour of large firms. Technology Analysis & Strategic Management, 19(3), pp.279-301.

Vyas, V., Narayanan, K. and Ramanathan, A., 2012. Determinants of mergers and acquisitions in the Indian pharmaceutical industry. Eurasian Journal of Business and Economics, 5(9), pp.79-102.