BY:TAHIRA SULTANA &

AISHA FAHEEM

Presentation on:

PORTER’S FIVE FORCESAnalysis of MERCK Pvt.

Ltd

MAJOR PLAYERS: Pfizer Novartis Sanofi Merck Glaxo Smith Kline Astra Zeneca

OVERVIEW OF MERCK: Leading science and technology in

healthcare. World's oldest pharmaceutical company. High profit margin. Profitability exceeding costs.

PORTER’S FIVE FORCE MODEL

PORTER’S FRAME WORK: Looks at the competitive arena in which

business operates.

Describes five basic competitive forces which directly impact on how successfully a business unit operates.

DETAILS OF PORTER’S MODEL ON MERCK:-

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.

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.

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.

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

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.

SUMMARY:-

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)

Thank You