Globalization of the Pharmaceutical Industry and the Growing Dependency
The pharmaceutical industry has been affected by rapid globalization and modernization throughout history. As one of the most profitable enterprises, it has involved many players of the industry merge in order to increase their profitability. The industry players are merging to cut costs and increase profits. Pharmaceutical industry growth concentrates on production, research, development, and marketing. The three sectors of the industry interact with globalization in such a way that the spread and influence of the international pharmaceutical industry continue to escalate. Globalization makes the top mergers in the developed world to grow and become more profitable. Through globalization, the pharmaceutical industry has had enormous effect in the world market. Consumers are increasingly identifying themselves with global market players.
The Over the Counter (OTC) sector is an attractive area for the pharmaceutical companies. There is a deregulation prescription drug in most markets. The OTC sector is growing especially in the mature markets where the aging population is concerned about maintaining their attractiveness and active lifestyles, as well as their health. In fast-growing markets, the middle class can afford non-essential medicines and personal care. Similarly to the FMCG business, the OTC industry focuses on persuading the final consumers and emphasizes on selling through large retailers.
The pharmaceutical industry focuses on three strategies and implements them. The first one concerns valued-priced commodities. The pharmaceuticals produce the OTC and avail them at the cheapest price in the market. Through this, the pharmaceuticals aim at appealing to the mass market in the developed and developing markets. The second strategy is differentiating their products with features that justify their prices. Finally, the pharmaceuticals develop products that offer customer-specific solutions. The pharmaceuticals bundle expertise, services, and products into customized packages that take care of the customer’s problems. Through production of need-based products, the pharmaceutical industry has witnessed some of the firms becoming very profitable. The pharmaceutical OTC designs their market strategies to fit the needs of the customers. The focus of the sales operation is to maximize profits. Firms in the pharmaceutical industry shift towards the developing markets so as to take advantage of the large market share. The advanced markets are also of specific interest to the pharmaceutical industry; they mostly offer ready markets for the lifestyle oriented medicines and other products.
It is also important to take note of the advances made in the animal medicine. With increased globalization, the animal medicine has also evolved. The increased disposable income in people of the developed economies has led to an increase in demand of the animal medicine. Penetration in the developing countries has also resulted in a growing demand for the animal medicine for the livestock. The aging population which experiences most of the chronicle diseases such as heart diseases forms the largest consumers of the OTC medicine.
The demand for medicines is increasing more rapidly in the developing markets as well as in the industrialized economies. The globe is currently experiencing an explosion in self-diagnosis with huge developing markets for many conditions. These dynamics are continuously increasing opportunities for the pharmaceutical industry players. OTC medications are being advanced to cater for the changing markets and lifestyles. The global market players leave a mark in every market they penetrate. The increased globalization has led to significant improvement in the lives of people throughout the world. Globalization has resulted in increased supply of the OTC medicines in all countries. The prices of medicine, which becomes more affordable, have also gone down. The accessibility and affordability of the medicines has improved the lives of millions of people in the entire world.
Corporate Social Responsibilities
Pharmaceutical industries are exceptional in that their businesses influence human life or rather health directly. The corporate social responsibilities for these companies are predominantly vital. In the past, these companies have criticized for specific behaviors such as setting high prices. The firms have received criticism of sluggishness in responding to the customer demands to provide access to life-saving drugs for poor populations. Firms in the pharmaceutical industry have responded to this by increasing their corporate social responsibilities efforts. There are various rules, laws, and guidelines regarding the safety, quality, and efficacy of new medicinal products. These unvarying quality and safety regulations have been executed to provide consumers with safe products.
Along with these regulations, the top firms are involved in defining their social responsibilities by developing suitable business measures in a way that ensures the safety of users is taken into consideration. Many of the business standards are being created to secure a niche in a global market. Some of these responsibilities include the fight against child labor, improving workplace conditions, and the responsible care of the environment. Pharmaceutical firms have been critiqued of using the corporate social responsibility as a tool to popularize themselves and their products offered by these companies. Consequently, these firms pursue more profits using Corporate Social Responsibilities (CSR). Pharmaceutical firms should note that CSR activities should not be used as revenue generators. Sensitization programs for people or society should not be used to promote pharmaceutical brands to patients or users.
The drug industries have the responsibility of refining access to medicines to the society. In a market where prices are controlled by market forces and to some extent by the government, improved access to OTC medicines should result in increased consumption. The pharmaceutical Over the Counter industry has a social responsibility towards eradication of HIV/AIDS. Medical firms, for example, need to increase awareness of HIV/AIDS as well as the availability and accessibility of ARVs and FDCs/Kits for both adults and children.
Objectives of Globalization
The pharmaceutical industry is continuously re-organizing due to the increased cost of innovation and the necessity to achieve economies of scale. There is globalization increase for both innovative drugs and generic drugs. Globalization in the pharmaceutical sector has occurred in the distribution of medicines, research, and development as well as manufacturing so as to lower the costs. The changing environment has also contributed to globalization in the pharmaceutical OTC industry. The world population growth provides ready markets for OTC drugs. Growth of the elderly population that also correlates with increased chronic diseases also provides the market for the pharmaceutical drugs. Higher disposable incomes in the developed markets, as well as changing lifestyles, also increases demand. In order to improve their profits, reduce the cost of marketing and distribution, reduce the cost of research and development, and access more markets, firms in the pharmaceutical industry have resulted to multinational conglomerations.
Global Oligopolists and Global Growth
Globalization as a process is engaged in intensifying the pharmaceutical industry in the world. Consequently, there is augmented competitiveness of the pharmaceutical OTC industry. The competitiveness has strongly influenced the consolidation development trends. There is an increased number of mergers and acquisitions. The consolidation of the pharmaceutical OTC industry is market driven. It is also conditioned by several strategic issues such as global marketing and sales activities and changed the structure of competitors. The consolidation of the global pharmaceutical industry aims at increased market shares and customers’ loyalty. Eventually, this multinational consolidation of the global players has resulted in more oligopolistic and monopolistic firms in the pharmaceutical OTC industry.
Acquisition vs Outsourcing Models
With increased cost of research and development and declining productivity, expiring patents and downward pricing pressure, firms in the pharmaceutical industry are forced to look closely at the bottom line. The firms are consolidating via acquisitions, mergers and joint ventures in order to leverage economies of scale and capitalize on synergies. With an acute need for speed to market and long R&D cycle in the global pharmaceutical OTC industry, there has been an adoption of Information Technology Outsourcing (ITO) in most companies. Recently, the pharmaceutical companies have been outsourcing many activities in IT and applications development and maintenance (ADM). Some firms have also been progressive concerning outsourcing other processes such as Finance and Accounting, Human Resources, and Procurement. In addition, activities such as Facilities Management and Real Estate have risen importance in outsourcing. The major reasons for outsourcing include flexibility. Through outsourcing, firms can gain more flexibility in the activities they can be engaged. Firms are also able to reduce their general cost of production through outsourcing. Firms are also able to reduce the risks associated with ventures such as outsourcing.
Ideal Firm vs Creative Firm
The ideal firms in the pharmaceutical industry engage in production, marketing, and distribution of their products in the market. With increased competition, globalization is the way to go for many of the firms. Developing drugs is expensive. However, the pharmaceutical firms stand to gain billions in profits from the sales of such drugs. Firms are thus assigning billions of dollars to research and development in order to come up with customized drugs that are currently in demand in the markets. The creative pharmaceutical firms have taken the approach aimed at intensifying sales in OTC. They have concentrated in the firms’ distribution and marketing programs to increase the global presence in the markets and generate enough revenue from sales.
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Creation of Wealth and Stockholder Equity
Creation of Wealth by Acquisition and Outsourcing
Globalization in the pharmaceutical industry has resulted in the acquisition of many firms. Through the acquisition, firms can consolidate their research and development activities. In addition, the acquisition has helped many firms reduce their costs of operation. Production increases for these firms, and there is a rising market presence. Outsourcing has enabled firms in the pharmaceutical industry to obtain the necessary technology and other resources required for production, distribution, marketing, and sale of the products. Outsourcing in management has resulted in good management of the firms in the pharmaceutical industry. The overall effect of acquisition and outsourcing is the consolidation of resources and good management. Through these efforts, firms have benefited from huge sales of OTC drugs. There is a mounting market access, and the firms can satisfy the ever increasing demand in both developing and the developed markets.
Effects and Continuity of Globalization and Cost of Capital
The pharmaceutical OTC industry has taken advantage of the modern trend of globalization to increase their assets. Firms are also able to influence the medical healthcare across the globe. Companies spend a lot of money on marketing, advertising, and lobbying the decision-making body. To increase their market concentration, some of the key players offer the much-needed medication to the developing at the reduced cost. Globalization takes an important part and has many effects to play in the pharmaceutical industry. Many drugs have been developed that enhance the lives of people around the world. Drugs are also accessible to many people at a considerable price. Globalization has thus impacted on the public well-being in the globe. Many developments have been made in the pharmaceutical industry due to the consolidation of the firms. These developments have benefited millions of people around the world. The cost of production for the consolidated firms has also reduced making it possible for the supply of the drugs to consumers at reasonable prices. Globalization in the pharmaceutical industry has an increase in monopolistic and oligopolistic tendencies by the firms. As firms thus consolidate, they stand to earn huge profits. Globalization in the pharmaceutical industry is ever increasing. There is no limitation on opportunities in the globalization of pharmaceutical firms. In fact, globalization is only starting. In the future, the combination of the economic, technological, political, and socio-cultural forces will witness the pharmaceutical industry transform into a single society.
Stockholder’s Equity in Globalization
There is no doubt that the globalization has resulted in multi-billion profits for major players in the pharmaceutical industry. The stockholders in the pharmaceutical industry stand to benefit greatly from globalization. With globalization, there is increased access to technology essential to research and development. Through consolidation, firms are also able to access markets at wider scale hence increased sales revenue.
Capital vs Debt Ratio
The development of drugs requires heavy capital input. Developing drugs also takes long periods and can be extremely frustrating. Major players in the pharmaceutical industry have realized the need to consolidate their operations in order to reduce the costs related to the development of new drugs. This consolidation of the firms helps reduce the total liability of a single firm. It also reduces the amount of capital investment by a single firm. There is a minimal amount of debt that a single firm is likely to incur in its developmental activities through merging.
Sales Maximization Model
The global pharmaceutical market continues to grow. In order for the firms in the drug industry to continue to engage in research and development of new medicines, they need to maximize profits. For this reason, the globalization has seen firms charge high prices in some developing markets in order to sustain profits and thus invest in research and development of new drugs. Firms in the industry also focus on the sale of blockbuster drugs in the developed countries in order to make more profits. Some other companies seek to gain market share by introducing a slight variation of the blockbusters without violating the patent rights. With increased consolidation, the result is an oligopolistic market where the global player experiences very little price competition hence making a lot of profits.
Baker Brook (2010) argues that one of the sales strategies by firms in the pharmaceutical OTC is the practice of disease mongering. Pharmaceuticals have accelerated medicalization and thus make a lot of profits by selling drugs aimed at curing the lifestyle diseases. Medicalization has seen the firms benefit greatly in the developed markets. Most companies make most of their profits in the emerging market as marketing penetration continues to increase. Drug companies research and invest with the main aim of maximizing profits. Firms in this industry also rush to patent their research and development creating a monopoly pricing power and excluding or delaying generic completion.
Corporate Tax Rates in Globalization
The pharmaceutical industries are facing a rising tax burden. With increased globalization, the governments are taking an increasingly tougher line on tax-reduction strategies by the firms. One of the motivations behind acquisitions and merging in the pharmaceutical industry is reducing the corporate tax. However, the governments introduce more stringent measures to tax such corporations and thus increasing their tax burden. Firms in the drug industry have sought to lower their corporate tax bills through inversion. Most of the big pharmaceutical firms avoid the increased tax burden becoming foreign. Thus, many big pharmaceutical companies move their headquarters overseas. The companies acquire their foreign competitors, and the combined company is domiciled in the lower-tax jurisdiction.
Globalization in the pharmaceutical industry has resulted in positive impacts in medicine benefiting millions of consumers worldwide. Through improved research and development, new medicines have been developed to cure diseases that have over time been a challenge and threat to humans. Globalization has enabled pharmaceutical firms to maximize profits through increased market share and oligopolistic control of the market. Globalization, however, has had an influence in the medicalization of diseases causing negative long-term health issues in people.