The Competitive Environment Of Astra Zeneca Business Essay
As stated briefly in critical success factors (1.4) AstraZeneca has done quite well historically and analysis reveals that they are looking to position themselves strategically for the future. But in the pharmaceutical industry there is currently increased patent risks and low marginal product returns, pharmaceutical firms like AstraZeneca must reduce structural inefficiencies, cut costs which is required to enable them compete better in the changing global environment. Due to its enormous R&D push, AstraZeneca suffers a relatively high rate of discontinuation in pre-approval products; there is also a required to reduce resource wastage.
AstraZeneca’s balance geographical presence (the US accounts for over 60% of Pfizer’s market area) may be an advantage potential compare to other competitors geographic limitations and can help a good revenue growth should other competitors lag behind in expanding their territories.
1.2: Life Cycle Analysis
In this section, an analysis of AstraZeneca position in the life cycle has led the company to adopt some decisions which we made mainly in the last 5 years. I have defined the terms, explaining where AstraZeneca stands in the life cycle management and also the strategic implications for its possible in the stage where it is in. Supported by the evidence mentioned in the sections about
Fig 1: Industry Life Cycle
At the stage where AstraZeneca is the market is very competitive, and this trend continues into the early period of the maturity stage. Besides many more competitors offering their products, other companies continue the product-differentiation process which begun in the growth stage.
In the past 5 years there have been many competitors such as GlaxoSmithKline, Pfizer and Merck & Co. who were doing what AstraZeneca is doing, and this is one of the characteristics of the maturity stage. With the large number of firms producing products, the competition for customers becomes quite intense; the strategy for firms during the maturity stage becomes one of survival, as many competitors will eventually withdraw from the market. In this climate AstraZeneca has continued differentiating their models so that the market is aware of the differences in the company’s products and the competitors’ products.
1.3: Porter’s Five Forces Analysis
Five Forces Analysis – a technique which I have used to for identifying the forces which affect the level of competition in pharmaceutical industry
Fig. 2 Five Forces Diagrams
Overall, AstraZeneca shows a very strong position in the market. The company remains highly valued; there are favourable market positions with strong financial growth.
So far, its demand has been positive and despite increased competition and some of the patent expiry the industry still shows a continuing upward sustainable growth. Below is the analysis on what makes AstraZeneca success and survive in the internal competition with its rivals.
1.4: Critical Success Factors and Competitive Advantage
This section identifies key areas in which AstraZeneca must outperform other competitors in order to succeed. In the year 1990 “The Core Competence of the Corporation,” Prahalad and Gary Hamel painted to the potential for capabilities to be the “competitiveness,” source of new products, and foundation for strategy.
1.4.1: Research and Development:
AstraZeneca makes a major contribution to total UK research and development (R&D) expenditure and is amongst the most R&D-intensive companies in the UK. As discussed above in life cycle analysis, it invested an average of £749 million on R&D since 2004, which represents around 18% of turnover in 2007 alone and £1 in every £20 of all UK business R&D. Looking at AstraZeneca’s global business as a whole, it is now standing as the 13th largest investor in ranks in R&D in the world and ranked the second largest investor amongst businesses which are headquartered in the UK (Investing in UK PLC Article, 2004)
Research & Development is central to AstraZeneca’s business. It is vital to the identification and development of new therapies to advance human healthcare and of course a strong R&D base is also vital to the long term success of the Company. In 2004 AstraZeneca’s global investment was £1.9bn, making it the 24th largest investor in R&D in the world and ranked the second largest investor amongst businesses which are headquartered in the UK.
1.4.2: Knowledge Workers:
AstraZeneca employs a large number of scientists and researchers from a wide range of disciplines, as well as supporting the employment of others through its supply chain. At least 1,200 of AstraZeneca’s staff (or one in every 10 employees) have a PhD, whilst at least 600 have Masters Degrees. Therefore, at least 16% of AstraZeneca’s workforce is qualified to postgraduate level (this compares to 6% of all employees in employment in the UK with a post-graduate qualification).
Given AstraZeneca’s need for highly qualified scientific and technology graduates, it is an active sponsor of graduate and post-graduate studies. It funded approximately 110 graduate studentships in 2004 with an estimated value of £750,000, as well as funding significant levels of PhD students at a number of higher education institutions, either individually or through strategic agreements with Research Councils.
1.4.3: Science Base:
AstraZeneca also plays an important role in supporting the wider development of science in the UK through links with institutions at all levels. AstraZeneca is also an active partner in the development of UK science and education policy. AstraZeneca also supports development of the teaching of Science, Technology, Engineering, and Mathematics (STEM) skills in primary and secondary schools.
The AstraZeneca Education Liaison Programme and sponsorship of the Creativity in Science and Technology (CREST) Awards (through the British Association for the Advancement of Science) for project work among 11-19 year olds. AstraZeneca is a key in growing economy in the UK this is characterised by the recognition of knowledge as a source of competitiveness, the importance of science, research, technology and innovation in knowledge creation, and the use of ICT to generate, share and apply knowledge.
2. Key business strategies of the company over past five years.
Fig. 3: Bowman’s Clock
AstraZeneca has differentiates its products, it is often able to charge a premium price for its products or services in the market. Some general examples of differentiation include better service levels to customers, better product performance etc. in comparison with the existing competitors. Porter (1980) has argued that for a company employing a differentiation strategy, there is an extra cost that the company would have to earn. Such extra costs may include high marketing spending to promote a differentiated brand image for the product, which in fact can be considered as a cost and an investment.
Differentiation has many advantages for AstraZeneca because it makes use strategy. Some problematic areas include the difficulty on part of the firm to estimate if the extra costs entailed in differentiation can actually be recovered from the customer through premium pricing. Moreover, successful differentiation strategy of a firm may attract competitors to enter the company’s market segment and copy the differentiated product (Lynch, 2003).
2.1: Strategic Groups Analysis
This section of Strategic Group Analysis (SGA) aims to identify organizations with similar strategic characteristics, following similar strategies or competing on similar bases. As put by Porter, “A strategic group is the group of firms in an industry following the same or a similar strategy along the strategic dimensions” (Porter, 1980, p.129) For more details, See Appendix 1
3. resources, capabilities and business strategies in the past 10 years.
3.1: Resource Based View of the AstraZeneca
Below is the analysis of AstraZeneca’s unique resources and dynamic capabilities and how the company has managed to align its resources and capabilities to fit its business strategy. This analysis has supporting evidences that dates back 10 years.
Firstly, Physical resources: these types of resources can be assessed in the form of buildings, equipment. At AstraZeneca they have development facilities in several countries, there are 30 sites for manufacturing in 20 countries and among those SEVERAL are in the UK.
Secondly, there is human capital that is embodied in the skills and knowledge of employees of the firm, there is a large number of scientists who are employed by AstraZeneca. Financial capital these can be assessed through access to funds that can include the firm’s own revenue and borrowing power, AstraZeneca has generated £11.8 billion and produces an operating profit of £2.6 billion.
Fourth, there is intellectual capital, which carries the reputation, goodwill, corporate image as whole, through the world and UK in particular medicine made by AstraZeneca are recognized as world class or world leading treatments. Last but not least, Social capital also accounts in the way the company’s relations with buyer and suppliers and other stakeholders social capital, its two main sites act as significant link in the company’s global supply chain -north west of the UK
3.2. Dynamic Capabilities of AstraZeneca
Below is the analysis of AstraZeneca’s dynamic capabilities, this analysis has supporting evidences that dates back 10 years ago. Capabilities “can be thought of as routines that firms perform to conduct their business” (Nelson and Winter 1982). These are firm specific (non tradable), “Capabilities can be both explicit and implicit” (Conner and Prahalad 1996)
Firstly, AstraZeneca develops manufacturer and sells a range of innovative drugs and therapy to combat different medical conditions. Secondly, research and development carried out at 11 research and development facilities located in seven countries among them there are 6 in the UK. Also, manufacturer takes place at 30 sites based in 20 countries, and 9 are in the UK. Dynamic capability its location in the UK example company’s European business service office located in North West Chorlton-cum-hardy which is near the close to the centre of Manchester
On the other hand, AstraZeneca spends development stage of each medicine of cost over 500 million pounds, in additional to that AZ continue research and development treatments in the serious diseases. In additional to that, HR, marketing, sales are located at the same facility near satellite sites, Tytherington and Macclesfield, On the hand, the Brixham laboratory lab medicines and manufacturing process to ensure that they meet stringent environment safety and regulations requirement
3.3: Strategic Fit
Strategic fit expresses the degree to which an organization matches its resources and capabilities with the opportunities in the external environment or its existing business strategy. For AstraZeneca the benefits of good strategic fit include cost reduction, due to economies of scale, and the transfer of knowledge and skills.
In AstraZeneca position, the business fit between resources and capabilities creates a demand for opportunities that address specific strategic needs–opportunities that strengthen competitive advantage, that explore the use of new technologies, or create new markets and revitalize existing markets.
Based on the analysis of resources (3.1) and capabilities (in 3.2) on previous sub-chapter’s, I can compose a list of existing capabilities that support new objectives.
On the other hand, Development of differentiated product and technology alternatives, this recognises that AstraZeneca have used technology advancement to enhance their R&D in conjunction with differentiated product. Development of differentiated product profiles and business plans, this has been generated as a result of enormous amount of money which is spent on research and development as describes in previous topics.
AstraZeneca is a key in growing economy in the UK this is characterised by the recognition of knowledge as a source of competitiveness, the importance of science, research, technology and innovation in knowledge creation, and the use of ICT to generate, share and apply knowledge. This advantage is couple with sponsorship of different education programmes in school to produce knowledge based company. AstraZeneca is the as UK’s third pharmaceutical company and a lead in R&D of medicine; this capability has successfully carried it to a wide range of medicines and drugs.
Finally, AstraZeneca’s actions a resource/competence based analysis of its instinctive capabilities, those characteristics that give AstraZeneca distinct competitive advantage over its industry rivals.
3.4: AstraZeneca – SWOT Analysis
AstraZeneca since its merger in 1999 (Astra and Zeneca) has grown a global enterprise with over 64,000 employees on six continents. AstraZeneca has increasingly focused its efforts on R&D and this remains its core business strategy. AstraZeneca’s strengths lie in its strong as a knowledge based organisation and strong marketing capabilities. AstraZeneca’s performance is characterized not only by size, but also by growth. In 2007, AstraZeneca achieved 18% revenue growth. AstraZeneca has also set records in each of the past seven years to 2007 with the biggest investment in R&D.
AstraZeneca strength in R&D, marketing, and sales has made them a partner of choice for many companies in the pharmaceutical industry and they are involved in a wide range of research collaborations and a large number of licensing agreements with universities, institutes and organizations.
Strength:
R&D advance with a broad therapeutic exposure
Wide geographical coverage and therapeutic areas
Existing Patent protection for a number of years on key products
Weakness:
Discontinuation of products in the latter stages of development
Increased size and operational complexity makes AstraZenecaa less responsive company
Opportunity:
reducing development time through complimentary R&D collaborations
globalisation for new products/drugs/medicine
Marketing agreements with companieswishing to capitalize on AstraZeneca’s marketing Strengths,providing AstraZenecarevenue growth in the process
Threats:
Patent expiry in 2009 and other due this year 2010
Competition from products similar to AstraZeneca’s in R&D that reach the market close to or before AstraZeneca’s products
The new economic emergency in China, India and competition in diverse regional markets.
4. References:
4.1: Websites
http://www.csuchico.edu/mgmt/strategy/module8/index.htm
http://ir.lib.sfu.ca/retrieve/2190/etd1838.pdf
http://www.astrazeneca.com/investors/strategy/
http://college.hmco.com/hjinstruct/powerpt/ch03/sld020.htm
http://university-essays.tripod.com/porters_generic_strategies.html
http://www.marketingteacher.com/Lessons/lesson_bowman.htm
http://ivythesis.typepad.com/term_paper_topics/strategy_clock/
4.2.: Journal Article
http://www.mindtools.com/pages/article/newSTR_93.htm
http://lexicon.ft.com/term.asp?t=strategic-fit
Nair, A. and Filler, L. (2003) Strategic Management Journal, 24, 145-159.
Puerta, J. (2004) British Journal of Management, 15, 219-245.
4.3: Books
Porter, M. E. (1976) Interbrand Choice, Strategy, and Bilateral Market Power, Harvard University Press, Cambridge, Massachusets.
Porter, M. E. (1980) Competitive Strategy. Techniques for Analyzing Industries and Competitors, Free Press, New York.
Warren, K. (2002) Competitive Strategy Dynamics, John Wiley &
Sons, Chichester. Zuniga-Vicente, J. A., Fuente-Sabate, J. M. d. l. and Rodriguez-
5. Bibliography
Oster, S. M. (1994) Modern Competitive Analysis, Oxford University Press, New York.
Porac, J. F., Thomas, H. and Baden-Fuller, C. W. F. (1989) Journal of Management Studies, 26, 397-416.
Porac, J. F., Thomas., H. and Baden-Fuller, C. W. F. (1994) In Strategic Groups, Strategic Moves and Performance (Eds, Daems, H. and Thomas., H.) Elsevier Science Ltd, Oxford, pp. 117-137.
Redwood, H. (1988) The Pharmaceutical Industry: Trends, Problems and Achievements, Oldwicks, Felixstowe.
Taggart, J. (1993) The World Pharmaceutical Industry, Routledge, New York.
6: Appendices:
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