Porter five force model analysis of merck
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This document analyzes Merck Pvt. Ltd. using Porter's Five Forces framework. It finds that competitive rivalry in the pharmaceutical industry is high due to many competitors. However, supplier power is low because suppliers are numerous and switching costs are low. Buyer power varies from low to moderate depending on the type of buyer. The threat of substitution is moderate to low, except for expired patents where generics pose a high threat. Barriers to entry are high due to regulatory hurdles and R&D costs.
Porter five force model analysis of merck
- 1. Presentation on: PORTER’S FIVE FORCES Analysis of MERCK Pvt. Ltd
- 2. Pfizer Novartis Sanofi Merck Glaxo Smith Kline Astra Zeneca
- 3. Leading science and technology in healthcare. World's oldest pharmaceutical company. High profit margin. Profitability exceeding costs.
- 5. Looks at the competitive arena in which business operates. Describes five basic competitive forces which directly impact on how successfully a business unit operates.
- 6. 1-Supplier Power (Low) Depends on several organic chemicals. Chemicals are largely a commodity. Many suppliers and the switching cost is low. They do not have much power to drive up prices. e.g: For patent drug, the cost of materials relative to selling price of the product is very low since cost of the drug is mostly coming from R&D. For generic drug, raw material cost constitutes more than 50% of the total expenses. Merck has economies of scale that can lower the bargaining power of suppliers.
- 7. 2-Buyer Power (Low to Moderate) End consumers are not very sensitive to price movements. No bargaining power for end consumers. Health care insurance company has the bargaining power to lower the price. Brand identity exists in the hand of medical practitioners. Highly fragmented market thus buyer concentration within the industry is relatively low.
- 8. 3-Competitive Rivalry (High) Highly competitive industry with many players. Trend for merger and acquisitions in recent years. Weak and small companies hardly survive without potential blockbuster drugs in pipeline. It is common for small companies with great potential drugs to be bought by big Pharma.
- 9. 4-Threat of Substitution (Moderate/Low) ------Patent drugs, substitution generally is minimal to non-existent. However, for expired patent, threat from generic competition is high. Generic companies are increasingly focused on global operations to minimize the cost, which is posing more threat to non-generic pharmaceutical companies. Biotechnology is also a threat to traditional synthetic pharmaceutical products
- 10. 5-Threat of New Entry (Low) Barriers to new entry are high. Industry is highly regulated and the new drug approval process takes a long time. Requires high working capital and need to invest heavily on R&D and marketing to receive high returns. Patent protection act as entry barriers for new firms to enter. Creating brand awareness among medical practitioners is the key for long-term survival.
- 11. One of the richest and attractive sector. Hard to access and compete in. Supplier Power > (Low) Buyer Power > (High / Low) Competitive Rivalry > (High) Threat of Substitution > (Medium/Low) Threat of New Entry > (Low)