Using appropriate theory, critically analyse the macro environmental factors that have influenced the development of the global pharmaceutical industry

by duckyduck90 (student)

University Degree Business and Administrative studies

Using appropriate theory, critically analyse the macro environmental factors that have influenced the development of the global pharmaceutical industry during the period covered by the case

The macro environment “consists of broad environmental factors that impact to a greater or lesser extent on almost all organisations” (Johnson, Whittington, Scholes pg50). The macro environments looks at the behaviour of the whole economy and focuses on unemployment, economic growth and inflation. The macro environment can also be referred to as the PEST framework: political, economic, social and technological. The contents of the above four categories will affect the strategy an organisation will adopt. In this essay, the factors which influenced the development of the pharmaceutical industry during the period covered by the case, will be critically analysed.

Patents in a strategic context are used by organisations to ensure their new ideas and products are protected against copycats. “Owning a patent gives you the right to stop someone else from making, using or selling your invention without your permission” (Entrepreneur Media Inc). Patents are essential for large scale firms such as the pharmaceutical industry as they rely on them to not only secure income from inventions but to also block new entrants creating generic medicines at a lower cost with the same ingredients.

Companies are becoming increasing aware of the competitive advantage a well developed and strong portfolio of patents can offer However, when legislation was introduced that put a time limit on the patent of 20 years, it placed pressure on the industry to speed up the development process which led them to narrow their areas of focus and move towards a network-based approach. To do this, organisations will have to change their business model to ensure their products do not become overshadowed by this new entrant. The availability of substitute products can place a ceiling on prices for a companies products which in turn will decrease profit levels and will cause the company to amend their strategy.

Filing and maintaining a patent is costly and subject to procedural legislation. It can take up to 12 months for the product to be tested by the FDA. This takes up a substantial amount of resources and time making it harder for the company to recover their costs. To overcome this problem, “companies must show that the benefits of new branded drugs are clinically desirable and quantifiable and that they perform better than any existing drugs” (Johnson, Scholes pg118).

The pharmaceutical industry is a monopsony industry and therefore the government is the ...