Merck group, which is branded as Merck, is a German multinational company. The company was founded in 1668 and is headquartered in Darmstadt, Germany. The group comprises almost 250 companies, and its leading corporation is Merck KGA, based in Germany. It operates in three domains: Healthcare, Performance Materials, and Life Sciences. The group employs 58,000 people and has a presence in 66 countries (Merck group, 2021). The company has assumed a leading role in the advancement of health sciences. Merck’s pharmaceutical arm has help developed treatments for serious diseases; it helps people live an improved and fulfilling life. The company’s digital research platform helps the researcher in conducting their research and expedites the results. Merck also has a vital role behind many leading companies and advancing digital living. Merck has consistently promoted sustainability and its responsibility towards society; therefore, the company has aimed to achieve adequate access to healthcare for all people and has prioritized that goal. Porter’s five forces model is an appropriate analytical tool to evaluate the threats Merck’s faces and the opportunities it can potentially explore.
Competitive Rivalry in the Market
The industry exhibits perfect competition, and in this state, consumers sell almost identical products (in a specific domain). Marketing strategies are used to differentiate products. The pharmaceutical industry is expected to grow compound annual growth rate of 12.7% from 2021 to 2030 (Global News Wire, 2021). The major competitors of Merck are Johnson and Johnson (J&J), Pfizer, and Novartis. In 2020, Merck reported $20 billion with a profit of $2.3 billion (Forbes, 2021). J&J is one of the biggest pharmaceutical companies, 2020; they earned $14.7 billion and earned revenue of $82.6 billion (Forbes, 2021). Novartis recorded a revenue of $48.6 billion with a profit of $8.1 billion (Forbes, 2021). In the same fiscal year, Pfizer made a profit of $9.6 billion and a revenue of $47.6 billion (Forbes, 2021). The industry is in perfect competition.
Threat of Substitutes
The threat of substitutes is high when there is a better alternative is available for a better price. The pharmaceutical industry is for-profit; therefore, profit margins are significant. The market is saturated with companies selling the same products with little or no differentiation. The underlying chemical salts are similar, and companies differentiate based on product names and brand loyalty. The substitutes are available as a whole for industry; the primary alternatives to are homeopathic and herbal medicine, the choices are not limited to these. Often the terms complementary and alternative are used interchangeably. However, there is a difference between them (Lichtenstein & Waalen, 2002). Despite the rise in alternative medicine, especially in pain management and therapy, allopathic medicine is still the most effective means of treatment in most cases. Alternative medicine is effective and practiced across the globe. As of now, the threat of substitutes remains low to moderate.
Threats of New Entrants
When the industry is in perfect competition, the threat of entry is low; the pharmaceutical industry is in this state. However, other inherent limitations exist beyond the competitive condition, such as licensure, patents requirement, and capital requirement. There are strict requirements for licensure and drug approval, and these vary from country to country. Thus, it is virtually impossible to develop a single drug for global use (Sravika et al., 2017). There is considerable research and development cost required to create a new drug; for this, talent and technology acquisition is necessary to gain expertise. In addition, the pharmaceutical industry is capital intensive and needs huge capital for starting a venture. Therefore, despite the competitive state, the threat of new entrants remains moderate.
Bargaining Power of Buyers
The consumers’ power depends upon the underlying factors, including consumers’ concentration, the importance for the business, and competition. The consumer areas are not concentrated in history as individual buyers do not have much bargaining power. In the pharmaceutical industry, brand loyalty exists, and the consumers are less sensitive to price changes as the medicines are perceived to be vital. However, the same underlying salt can be available from the other brands and might prove to be more effective in price and efficacy. Consumers have options, but they stick due to brand loyalty and perceived brand value in the market, giving the user confidence. However, with the flow of information, consumers’ can advocate for treatment available in other parts of the world (Fox & Ward, 2005). Thus, giving consumers leverage in the process.
Bargaining Power of Supplier
Suppliers’ power depends on the situation of the industry and factors such as suppliers’ concentration, the importance of suppliers’ goods for the business, and the nature of products. In the pharmaceutical industry, suppliers are the providers of raw materials and the equipment for the processing of drugs. However, most of the material provided is a commodity in the chemical industry, and there are plenty of suppliers available. Multiple sourcing mitigates the risk of supply chain disruption and provides consistency (Tomlin, 2009). Moreover, the equipment used for processing and manufacturing drugs is readily available from several vendors. Therefore, suppliers hold low bargaining power. 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. Overall, suppliers hold low to moderate bargaining power.
References
Forbes. (2021). EMD Group. Available at: https://www.forbes.com/companies/emd-group/?sh=3ad9fb701a97
Forbes. (2021). Johnson & Johnson (JNJ). Available at: https://www.forbes.com/companies/johnson-johnson/?sh=252c74f34f91
Forbes. (2021). Novartis. Available at: https://www.forbes.com/companies/novartis/?sh=2d1d544c3b80
Forbes. (2021). Pfizer (PFE). Available at: https://www.forbes.com/companies/pfizer/?sh=435c75072d6b
Fox, N., & Ward, K. (2005). Global consumption and the challenge to pharmaceutical governance in the United Kingdom. Bmj, 331(7507), 40-42.
Global News Wire. (2021). Pharmaceutical Manufacturing Market Size Expected to Reach US$ 1,173.3 Bn by 2030. Available at: https://www.globenewswire.com/news-release/2021/01/19/2160795/0/en/Pharmaceutical-Manufacturing-Market-Size-Expected-to-Reach-US-1-173-3-Bn-by-2030.html
Lichtenstein, G., & Waalen, J. (2002). Distinguishing complementary medicine from alternative medicine. Archives of internal medicine, 162(8), 943-943.
Merck group. (2021). Who we are. Available at: https://www.merckgroup.com/en/company/who-we-are.html
Sravika, S., Bhavana, R., Sharmila, V., Anusha, S., Mounica, N. V. N., Reddy, D. N., & Nagabhushanam, M. V. (2017). A comprehensive study on regulatory requirements for development and filing of generic drugs globally. The Pharma Innovation, 6(4, Part C), 153.
Tomlin, B. (2009). Impact of supply learning when suppliers are unreliable. Manufacturing & Service Operations Management, 11(2), 192– 209.