Please Review The Required YouTube Video Five Competitive F
Please Review The Required You Tube Video Five Competitive Forces That
Please review the required You Tube video "Five Competitive Forces That Shape Strategy," regarding Porter’s 5 forces. In the video, Mr. Porter discusses how Porter's Five Forces Analysis is an important tool for assessing the potential for profitability in an industry. As an example, Mr. Porter applied these 5 forces to the airline industry.
Think of another industry where profitability is low. In a response of no less than 250 words, apply the 5 forces to your chosen industry and demonstrate how those forces can lower profitability. The Five Competitive Forces That Shape Strategy [Video file]. (n.d.). Retrieved from
Paper For Above instruction
Porter's Five Forces framework provides a comprehensive approach to analyzing the competitive environment of any industry, highlighting factors that influence profitability. Applying this model to the pharmaceutical industry, which often exhibits low profit margins due to multiple competitive pressures, reveals how each force constrains profitability.
Firstly, the threat of new entrants in the pharmaceutical industry is relatively high, especially with the rise of biotech startups and generic drug manufacturers. While high regulatory barriers exist, the potential for innovation and market access encourages new competitors, increasing market saturation and reducing profit margins for established firms (Fosfuri, 2008). These newcomers often operate at lower costs or focus on niche markets, intensifying competition.
Secondly, the bargaining power of suppliers, particularly raw material providers and patent holders, can influence profitability. Limited sources of key active pharmaceutical ingredients (APIs) grant suppliers significant power, often leading to higher input costs (Manning & Reiner, 2017). Patent laws, while initially limiting competition, eventually expire, allowing generic manufacturers to produce cheaper alternatives, thus diminishing profits for original drug companies.
Thirdly, the bargaining power of buyers, including governments, insurance companies, and large hospital networks, is substantial. These purchasers exert pressure for lower prices, especially in countries with government-controlled healthcare systems, squeezing profit margins further (Cohen et al., 2019). The rise of generic drugs increases competition and reduces revenue streams for branded drugs.
Fourthly, the threat of substitute products is a significant concern. Traditional pharmaceuticals face competition from alternative treatments such as herbal remedies, lifestyle changes, and emerging biotechnologies, all of which can undermine the demand for existing drugs (European Commission, 2018). As substitutes increase, the industry’s profitability diminishes.
Lastly, industry rivalry among pharmaceutical companies is intense. Companies compete fiercely through innovation, marketing, and pricing strategies. Patent cliffs and product pipeline failures escalate rivalry, often leading to price wars and significant R&D expenditures, which pressure profits (Powell & Phillips, 2018). The constant race for breakthrough drugs and market share limits the ability to maintain high profit margins.
In conclusion, the pharmaceutical industry exemplifies how Porter's Five Forces collectively suppress profitability by heightening competition, reducing pricing power, and increasing operational costs. Understanding these forces allows firms to develop strategies to mitigate competitive pressures and improve profitability.
References
Cohen, J., Mulinari, S., & Osei-Kusi, S. (2019). The bargaining power of buyers and their impact on pharmaceutical prices: A systematic review. Health Policy and Planning, 34(8), 583–595.
European Commission. (2018). Innovation in the pharmaceutical sector: Challenges and opportunities. European Union Publication.
RAND Journal of Economics, 39(4), 935-956.
Manning, D., & Reiner, R. (2017). The influence of supply chain dynamics in pharmaceutical industries. Supply Chain Management: An International Journal, 22(2), 133–146.
Powell, W. W., & Phillips, D. J. (2018). Strategic rivalry in the pharmaceutical industry. Strategic Management Journal, 39(4), 955–975.