GSK, a merger too far? Essay Sample

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1- Derive three opportunities and three threats for GSK by first making the PESTEL analysis of the macro-environment surrounding the pharmaceutical industry. (9 points)

* PESTEL analysis of the pharmaceutical industry:

Political: Since the creation of healthcare insurance, companies have to conform themselves to two kinds of systems: 1) The universal system applied for example in France, with less demand in new technologies. 2) The very selective anglo-saxon system which is looking for high technologies, excluding people who can pay for treatments. As we know the industry have to work on growing political focus on healthcare. Indeed, global governments are looking for healthcare savings especially in this time of economic crisis. Furthermore, as the European Union is trying to harmonize healthcare between its 27 members, pharmaceutical companies will have to introduce reference in pricing and to deal with increasing pressure on pricing.

Economic: Due to the context of global economic crisis, the main threat for the industry stands in the reluctance of consumers to spend on healthcare. Like most of the sectors, pharmaceutical industry copes with a reduction in its growth, even if the market perspectives are positive. To emphasize: pharmaceutical growth is following the GDP growth.

Social: As the over-65’s consume 4 time more than other citizens, the aged population represents an opportunity for the pharmaceutical companies which will have to respond to increasing demand from this part of the population. Moreover, patients are more and more aware of treatments and diseases and are expecting more transparency about drugs and price policy. Thus, the companies will have to face with pressure on customer service. Eventually, the market is likely to grow with increasing health concerns like the obesity issue which has become crucial in Western countries for the past decade.

Legal: The market lives with many regulatory and legislative restrictions, particularly about ethics. Companies also tackle with the issue of intellectual property rights and the generic drugs. Moreover, they have to cope with the increase of trial within patients are involved. Eventually, it’s hard to rationalize the market because of the two-system organization of the demand.

Environmental: As the global environmental agenda is growing up, pharmaceutical companies have the opportunity to include eco-objectives within their strategy and create Corporate Social Responsibility programs. Indeed, the recent world community awareness permits to companies anxious to respect even more the environment to improve their corporate image.

Technological: Thanks to new technologies, the pharmaceutical industry has many digital opportunities concerning treatments or communication with patients. It allows direct to patient advertising and requires responsive service facilities. Furthermore, companies will go on focusing on new technologies like the biotechnologies. the macro-environment surrounding the pharmaceutical industry. PESTELEXAMPLES

•Harmonization of healthcare systems across Europe
•Pressure from government regarding companies that try to make savings on the production of healthcare products Ethical pharmaceutical companies want to reduce the ratio of the cost structure allowed to manufacturing of goods as it represent 25% and increase the ratio of sales and marketing.

•Global Economic crisis
•Mergers and acquisition have become common practice in many industries
•Reduction in the average income
•Population changes: aging, increase in obesity in western countries/ under nutrition in developing countries, etc.
•Customers are better informed (internet, etc.)
•Emerging markets are becoming more and more important
•Differences between health insurance owners inside a country and between different countries (access to different services)

•New technologies for both communication and equipment
•Possibilities of customized treatment
•Complexity of new drugs’ development: 15 years in average

•Development of the “green-market”
•People awareness about ecology is growing

•Changes in patents and international laws
•growing culture of litigation in many countries.

Threats :
The pharmaceutical industry is one of the most competitive industry in the world. Mergers, generics and better medicines are responsible for this situation. GSK has done further mergers, which help the company being more and more influential. But in this competitive environment, mergers are not sufficient. Indeed, generic products and new drugs that are considered better are getting more popular and tend to be more appreciated by the customers. GSK should thus think about its product range in order to fit the market demand.

Law regulation:
The controls, restrictions and pressures are really important in pharmaceutical organization in many countries such as France, USA, Japan, etc. Some governments are directly involved in the price control of pharmaceuticals products. It is impossible to foresee whether controls, regulations or buyers’ pressure will increase, or if new controls or regulations will be created in any area where GSK is present. The pricing strategy is actually essential, especially in the pharmaceutical industry, as it is a budget that cannot be cut down by customers. People belonging to lower class will always prefer low price drugs.

At GSK, 14% of sales are invested in developing and researching new products. Developing new products in the pharmaceutical industry is time taking (15years average), it requires money, and you can never be sure that the product will be commercialized. Indeed, many phases are required and 1 products over 5000 will finally be selected and a new molecule or drug tested by GSK can fail at any stage. The risk of R&D is one of the most important threat. Moreover, a product that appears really promising can be a commercial failure even if a lot of money, time and employees effort were used.

Nowadays, customers can access information about medicines, practices and treatments much easier than before… Maybe GSK should improve its communication about its product in order to strengthen the customers’ confidence to urge them into buying GSK’s goods instead of those of its closest competitors. They should make this information completely transparent and should develop a forum where GSK’s advisers could answer to customers’ questions. This could be an occasion and an easier way for customers could share their problems.

Emerging countries:
While western countries are used to consuming drugs to fight against illness, emerging countries are not as fortunate and do not have enough financial means to do so. Not to mention that the pharmaceutical industry is not developed and this clearly represents an all time opportunity for GSK. Indeed, emerging countries have to fight against illness as well as malnutrition. Positioning a company on a new market is a real advantage. In this way it is rewarding to increase its profit but also to educate a population, to increase life expectancy of people and thus to increase its brand image.

New technologies:
With the development of new technologies and new technics, GSK can have huge advantages over competitors. Using new sciences such as specially antibodies, oncology or genomic-based drugs in order to develop more efficient drugs with less side effects and personalized drugs will definitely improve GSK competitivity. Moreover, the development of new marketing and commercial technics would help GSK in increasing their sales.

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