Glaxosmithkline and Porters Five Forces Essay

Total Length: 2743 words ( 9 double-spaced pages)

Total Sources: 12

Page 1 of 9 that are much more profitable than others. Per data from the BBC, there are two industries among five major ones that stand out (Anderson, 2016). Indeed, when looking at pharmaceutical firms, banks, car manufacturers, oil/gas refiners/sellers and the media, the first two of that list are clearly the best. The media does decently at about 12%, oil and gas does about 8% and carmakers are at about six percent. On the other hand, banks and pharmaceutical companies are both quite close to 18% and many firms within that realm do even better. Indeed, Pfizer does 43% in terms of profit.

Whether one focuses on the pharmaceutical company in particular or not, however, Glaxosmithkline (GSK) is clearly in its own echelon of performance and adeptness. They are very much in the "pack" when it comes to their profit level as many pharmaceutical companies hover around twenty percent. However, many others are further down the line with 10 to 15%. GSK is also among the best when it comes to revenue, their investment in research and development, their sales/marketing mix and overall profit amount in terms of dollars.

This level of performance by GSK is clearly emblematic of their belief in, and executive of, Porter's Five Forces. This will be explored and illuminated with specificity throughout this report. The other major point of analysis that will be explored in this report is how GSK is leveraging its resources and competencies so as to achieve and maintain a leading position in the pharmaceutical industry, both in the United Kingdom as well as around the world. Of course, GSK cannot become lackadaisical or otherwise complacent because this would endanger their status as an elite pharmaceutical firm.

Profit from the Use of Five Forces

Before getting into the nuts and bolts of what makes GSK an elite firm as it relates a Porter's Five Forces, it would perhaps be wise to define and review what those forces are and how they work. This will help to focus later in this report on what GSK is doing to adhere to and follow these business lessons that have been proven and vetted over and over again. Porter's Five Forces are, in the order they will be mentioned, Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution and Threat of New Entry. Like all firms of its size, GSK must deal (and has dealt) with all of these to one degree or another. Each degree will be explained and there will immediately be a correlation to what this means and how it relates to GSK.

Porter's Five Forces Reviewed

Supplier Power

All firms face this Porter force to some degree. Even people that work solely on computers and practice law, just to name two example, need printer paper, toner, new equipment now and then and beyond. Of course, firms that manufacture anything rely on suppliers even more and GSK is certainly in this realm. There are the drug components and such that they need, the materials for their bottles, the supplies and such for keeping up their machines and the supplies they need to keep their back office working well. Regardless of what is being supplied to GSK, it is important that they keep their suppliers in line and ensure that all needed items are delivered when they are needed. GSK has leverage in this regard but suppliers have their own and they most certainly use it (Mukherjee, 2016). With the consideration being that supplies and materials will be delivered timely, correctly and in a professional way, suppliers have the power to be selective over who they serve, what they charge and so forth. GSK has their position and they surely make it known.

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However, suppliers know that a symbiotic relationship has to exist so the flow of goodwill and benefit has to be bidirectional. Even if the suppliers are not the companies on the front page of the newspapers and so forth, they are very much a huge part of what keeps firms like GSK going and moving. Just like Fedex and UPS, to name two package supply firms, are relied upon to get packages to where they go, GSK does the same with its suppliers. Even with that being said, GSK obviously has standards and deadlines they have to meet and thus suppliers and the companies being supplied have to work together to come to a mutually beneficial conclusion (Morin, 2016).

Buyer Power

This is a Porter force that works in favor of and, in a way, against GSK. As just intimated above, the suppliers of GSK have power in that they need to make a profit and otherwise do well at their job. As such, GSK cannot just bully or put demands on these other firms. Also as noted before, GSK still has power and they are a behemoth within the pharmaceutical industry. As such, suppliers will tend to want to work with firms like GSK and thus this gives GSK buyer power. However, the way that GSK has buyer power working the opposite way is the people that buy their drugs. They expect the drugs to be safe, effective and well-tested. If any of that is amiss, there will obviously be consequences that GSK must face. Beyond that, there are definitely other firms within the pharmaceutical realm that GSK competes with and GSK has to understand that people will absolutely "vote with their wallet" if it comes to that, in the mind of the consumers. For example, Pfizer is a firm that does extremely well, given their 40% profit margin. However, when there was an apparently miscue with some of their birth control pills and it led to the labeling of inert and active pills being inverted, this obviously created a huge potential problem for Pfizer and consumers surely reacted based on the news of this mistake.

Competitive Rivalry

When it comes to the aforementioned "voting with their wallet" paradigm, there are multiple ways that this can manifest. Whether it be brand image, brand presence, product safety or other issues, competition can create a lot of back and forth between differing firms. Even if GSK does very well for itself, the pharmaceutical landscape is indeed rather crowded and GSK surely knows that there are plenty of those firms that will gladly attempt to fill any voids, perceived or otherwise, created by GSK and their actions or inactions. Coming back to the BBC competitor/statistic list referenced earlier, there are ten companies in the greater pharmaceutical realm (Anderson, 2016). Every single one of them has at least 18.8 billion in revenue and many have double that or more. Indeed, Johnson and Johnson has $71.3 in annual revenue. Beyond that, every single one of the firms on the list invests at least $4.3 billion in research and development except for Abbvie, who only does about 2.9. Lastly, all of the firms have marketing budgets in the billions with Abbvie also being the smallest there with $4.3 billion. In short, if GSK stumbles, there are plenty of other firms that are giants of industry that will gladly step in. These include Astrazeneca, Eli Lilly, Merck, Sanofi, Pfizer, Novartis and Johnson & Johnson (Morningstar, 2016). As omnipresent as GSK is, they are in the middle of that proverbial pack in many ways and….....

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