Monsanto is an American agricultural biotechnology company, and it is based in Missouri, US. The company was acquired by Bayer, a German Pharmaceutical and Health Sciences Company. Bayer is one of the leading pharmaceutical companies in the world. It was founded in 1863 by Friedrich Bayer and is headquartered in Leverkusen, Germany. Monsanto has a global presence and operates in human and veterinary pharmaceuticals, consumer healthcare products, agricultural chemicals, seeds and biotechnology products.
Since its inception company has developed breakthrough drugs, its best-known and first product is aspirin. Moreover, the company has developed the antibiotic Cipro (ciprofloxacin); and Yaz (drospirenone) birth control pills and prontosil, the first widely used antibiotic and the subject of the 1939 Nobel Prize in Medicine. The company pursues sustainable growth, and its vision is “Health for all, Hunger for none, ” promoting equitable and inclusive growth (Bayer, 2021). Porter’s five forces model is a valuable tool for assessing Bayer’s opportunities and threats
Competitive Rivalry in The Market
The pharmaceutical industry is one of the highly competitive sectors in the world. The company has led the industry by innovation and successfully developed research products. Its biggest industry rivals are Novo Nordisk, Pfizer and Novartis. Bayer has reported annual revenue of $51.8 billion and a profit of $4.5 billion, with a massive annual gain of 128.9% in profits till October 2020 (Fortune, 2021). Novo Nordisk has reported $19.4 billion in revenues in 2020 and earned $6.4 billion with an annual increase of 6% in revenues (Forbes, 2021).
Pfizer reported a profit and revenue of $9.6 billion $41.9 billion, respectively, in 2020, and it is ranked at 77th place in the Global Fortune 500 companies (Fortune, 2021). Novartis recorded revenue of $49.8 billion in the same fiscal year with a profit of $8.1 billion, and the company is placed at 225th rank in the Global Fortune 500 companies in 2020 (Fortune, 2021). The pharmaceutical industry is highly competitive.
Threat of Substitutes
The threat of alternatives is moderate in the pharmaceutical industry. There are many alternatives available instead of allopathic drugs, and they vary from region to region globally. However, the closest acceptable alternatives are homoeopathic and other alternative medicines. Allopathic medicines are a vital part of the modern healthcare infrastructure, and imagining their non-existence is impossible.
They are used in almost all cases, from routine pain management to treating the most serious diseases. However, the acceptance of alternative treatments has increased in the last few decades. Surprisingly, Complementary and Alternative medicines are increasingly accepted in Western countries (Coulter & Willis, 2004). Despite the benefits on offer, allopathic medicines are the preferred choice for the treatment. Therefore, the threat of substitutes remains low to moderate.
The Threat of New Entrants
The threat of new entrants is low to moderate in the industry. However, there are limiting factors those act as obstacles for the newcomers. The few important factors are the following regulatory compliance, high sunk cost, and high technological cost. The pharmaceutical industry is regulated to protect the general population from unintended consequences and thus, is overly regulated. Moreover, there are strict compliance requirements, which increase the eventual cost. The drug approval process is rigorous and layered; therefore, new entrants are discouraged by higher than optimal drug approval standards (Ward, 1992).
There is a significant cost to be spent on setting up a research facility; this sunk cost is to borne by the business, which is recovered at some later stage in the company’s lifecycle. Moreover, companies may need to acquire new technology and incur costs to stay competitive. Therefore, the threat of new entrants remains low.
Bargaining Power of Buyers
Buyers have moderate bargaining power in the pharmaceutical industry; however, the buyers’ bargaining ability depends upon the following factors competition in the market, brand loyalty and switching cost. The individual customers have many options to choose the desired medicines from, but they are reluctant to switch the brand without consulting the doctor. There is mild brand loyalty after the initial purchase given if the patient is satisfied. Therefore, soft brand loyalty exists, which provide companies leverage.
In addition, the low switching cost is compensated with brand loyalty. Companies can capitalize on brand loyalty by ensuring the efficacy and quality of the provided medicines. Companies need to create brand equity in the competitive market, and these factors affect brand equity: brand loyalty, brand awareness, and perceived quality parameters (Panchal et al., 2012). Therefore, patients have moderate bargaining power.
Bargaining Power of Suppliers
Suppliers can exercise low to moderate bargaining power in the industry. That is due to the underlying factors that help in measuring suppliers bargaining power. The important supplies for the pharmaceutical companies are raw materials, manufacturing equipment and domain expert human resources. The raw materials are easily available as these are a commodity in the chemical industry.
Pharmaceutical companies can acquire equipment from anywhere on the globe. The availability of various sources reduces the dependency on a single source, and it is an effective strategy to do so (Tomlin, 2009). The experts such as specialized researchers and innovators are not in high supply, and their unavailability can disrupt the whole operations; therefore, they can exercise high bargaining power. Considering the factors mentioned above, overall, suppliers hold low to moderate bargaining power.
References
Coulter, I. D., & Willis, E. M. (2004). The rise and rise of complementary and alternative medicine: a sociological perspective. Medical Journal of Australia, 180(11), 587-589.
Bayer. (2021). Sustainability. Available at: https://www.bayer.com/en/sustainability
Fortune. (2021). Novartis. Available at: https://fortune.com/company/novartis/global500/
Fortune. (2021). Pfizer (PFE). Available at: https://fortune.com/company/pfizer/fortune500/
Fortune. (2021). Bayer. Available at: https://fortune.com/company/bayer/global500/
Forbes. (2021). Novo Nordisk. Available at: https://www.forbes.com/companies/novo-nordisk/?sh=6178c23b1960
Ward, M. R. (1992). Drug approval overregulation. Regulation, 15, 47.
Panchal, S. K., Khan, B. M., & Ramesh, S. (2012). Importance of ‘brand loyalty, brand awareness and perceived quality parameters’ in building brand equity in the Indian pharmaceutical industry. Journal of Medical Marketing, 12(2), 81
Tomlin, B. (2009). Impact of supply learning when suppliers are unreliable. Manufacturing & Service Operations Management, 11(2), 192– 209.