Porter Five Forces analyses of Pharmaceutical Sector Threat of New Entry:

The threat of new entrants into the pharmaceutical industry is very low because of high costs required to enter the industry, some of the factors are, a. Economies of scale: Economies of scale for production may not be very significant; to develop new drugs is a very costly and timely process that requires a lot of research and development. Along with high R&D costs, it is also difficult to achieve economies of scale for a new entrant into pharmaceutical industry because they have to import raw materials from (China, India and Korea). b. Product difference, switching cost and brand identity: Availability of huge number of companies, medicine and perfect competition do not discourage customer from switching. The established firms have differentiated from one another and constructed strong brand name with loyal customers, making it hard for new companies to build up a brand name. The established firms also have large budgets to spend on marketing to uphold their brand, just another cost necessary for a new entrant. c. Capital requirement: High due to heavy investments in land, plant and other fixed assets. d. Distribution channels: Accessing distribution channels is easy for new entrants products but they have to allow more rebates and discounts in order to excel in the market.

e. Government policies: Government requires licensing, and legal requirements for the approval of new entrant into the industry, all drugs and chemicals used need to be approved by (FDA). The standards are very strict, starting with preclinical testing by the FDA, then clinical (human) testing and finally the firm applies to the FDA for final approval. f. Cost and quality: Cost and quality may not be enjoyed by the entrant due to not much availability of too much material suppliers in local market, not specialized labor overheads, cost also increases as drugs are not approved by the FDA and money used to develop them are lost by the firm."

Substitute products:
Threat of substitute products is high because a. Many firms in the market are providing similar products at competitive price. Generally products are same but brand name and prices are creating differences, also herbal and homeopathic treatment is also in market.

Bargaining power of buyers:

Buyers do not pose a big threat to the pharmaceutical industry because firms spend most of their research and development on new patent drugs. In pharma industry major consumer are doctors, patients, hospitals, drug stores and pharmacists. Patients does not have too much bargaining power but big stores and doctors have some power, it all depend upon doctors to whom they prescribe the medicine.

Big hospitals or drug stores can pressure individual pharmaceutical companies to lower prices due to political pressure as they purchase large quantities and have a higher bargaining power. If a particular pharmaceutical company is not willing to lower its prices, big hospitals or drug stores are able to look for another firm willing to lower prices. However, if a certain pharmaceutical company owns the patent to specific drug, it monopolizes the market for that specific drug and it becomes the price setter. Low per capital consumption

Bargaining power of suppliers:

In the pharmaceutical industry, each supplier holds a certain level of power to be a threat, but it is not too high. Pharmaceutical companies usually own manufacturing plants so that suppliers cannot charge unreasonable prices on their own and it is doubtful that they will make threats to take their business somewhere else. Labor is not only a threat in the pharmaceutical industry, but also in most industries. Thus, the threat from suppliers in the pharmaceutical industry is not considered significantly higher than that in other industries as long as there is no considerable threat from the raw material suppliers.

a. Differentiation of input:
There is a little difference of inputs for ultimate product, so that lower the bargaining powers of supplier. b. Supplier concentration : The easy availability of suppliers in pharmacy industry in Pakistan lowers the bargaining powers of suppliers.

c. Forward integration:
There are only few firms in the market agree to go for forward integration.

Rivalry among companies:

Due to high costs in R&D and marketing there exists a high entry barrier for this market. This environment makes for rivalry in an environment where only the strongest will survive. a. Number of competitors: Degree of rivalry among existing competitors is high due to large number of companies working in industry. The pharmaceutical industry is a highly competitive and aggressive market with strict government regulations, high costs with research and highly competitive products in the market place. b. Operating and financial leverage: There is a low financial leverage large investment in research and development budgets banks and companies are not willing to take loan, due to huge investment in fixed high operating leverage. c. Competitive Prices: Product difference is low in pharmaceutical industry and hence the ultimate prices are same. Suppliers do not set the price for products, which takes a lot of the strength out of their hands companies the ultimate power. d. Shelf Life: Product shelf life is high rivalry among companies is low. The true in this industry is found in the innovation of ideas and the process of bringing new products and services potentials to the market. Overall, to excel a business in this country, it is essential to recognize the external forces in this market and differentiate itself and its products for the wide variety of buyers that exist.

PEST ANALYSIS Political Factors:

Political factors include government regulation and legal issues which rules under which firm must operate. Tax policy Employment Laws Environment Regulations Trade restriction and Tariffs Political Stability

Frequent changes in tax policies, political instability, growing political focus and pressure for healthcare NGOs, health awareness create pressures on government to stabile or reduce prices. Prices are fixed by ministry of health in Pakistan; Industry margin has been reduced due to price fixation policy. This price fixation in long term is a threat for industry.

Economic Factors:
Reduce the purchasing power of potential customer and first cost of capital. Economic growth Interest rates Exchange rate Inflation rate

Inflation and exchange rate fluctuation are important factors influencing pharmaceutical industry of Pakistan because raw material and supporting material is imported from China, America,

Korea which increase cost due increase inflation and exchange rate, this would create pressure on cost control functions and that firms should be operationally efficient. Global economic crisis, reduction in disposable income, reduction in growth in pharmaceutical due to increase in interest rates and industry is not willing to take loan from market.

Social Factors:
Include demographics and cultural aspects of external macro environment which effects customer need and the size of potential markets. These are the following factors, Health consciousness Population growth rate Age distribution Career attitudes Emphasis on safety

Population is increasing day by day; which increased demand of pharmaceutical products. Cross border relationships have also strong influences on pharmaceutical industry of Pakistan. Supporting material is imported from India and China. So cross border situations of Indian and Pakistan do matter. Terrorism and global alliance are also important factors stimulating the standing pharmaceutical industry of Pakistan. Diseases are increasing day by day to increase in population. Sales will be reduced due to cross border relationship and terrorism activities. Due to global alliance market share increases. Unfavorable cross border relationship and terrorism will have a threat on pharmaceutical industry.

Increase in population and global alliance are growth opportunity for pharmaceutical industry to explore further markets. Increase in population causes demand for pharmaceutical industry which can be explore through strong research and product development. Unfavorable cross border relationships and terrorism activities can cause reduction in profit which can be controlled through building strong business relationship with business partners. Global alliance is a growth opportunity which can be achieved by focusing on market capitalization strategies

Technological Changes:
Can lower barriers to entry, reduce minimum efficient production levels and influence outsourcing decisions, these factors include R & D activity Automation

Technology is changing day by day; pharmaceutical industry should acquire new and advance technologies to compete in the market. Massive production is possible through advance technologies by which they can achieve economies of scale. Customized treatment Direct patent advertisement