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Strategic (SWOT, Five Forces) Analysis of Glaxosmithkline

| May 1, 2014

Abstract

GlaxoSmithKline is an English pharmaceutical, vaccine, biologics, and consumer healthcare company with its headquarters in Brentford, London. The establishment of this company was as a result of the 2000 merger between Glaxo Wellcome plc with SmithKline Beecham plc. Going by the 2009 prescription drug sales recorded across the nation, it is the fourth largest pharmaceutical company by ranking (Robson, 2013, p. 63). As of July 2012, it was ranked fifth among the FTSE 100 companies with a market capitalization of £74.8 billion. The company, also a constituent of the FTSE 100 Index, is also listed on the New York Stock Exchange (Anon., 2003, p. 785). The company has had to face ardent competition from such rivals as Pfizer and Sanofi especially following the July 2012 guilty plea to criminal incriminations in the USA due to the marketing of the company’s antidepressants- both Wellbutrin and Paxil- for unauthorized uses, failure to report safety data on Avandia and wrongful sales and marketing of Advair (BBC, 2012; Thomas & Schmidt, 2012). The total fine for these charges was an astounding $3 billion.

Introduction

Competition is an important aspect in the business world. Every organization wants to dominate the global market and become a market leader and trendsetter by beating its competitors through the production of higher quality, as well as superior, products. Market domination entirely depends on customers’ trust towards an organization and the services or products it offers. Various forces play a role in the determination of the success of an organization and the type of rapport that it creates with the clients and customers. Providing quality products at affordable prices should be considered in order to achieve advantage in the global market (Armstrong, 2011, p. 45). In addition, an organization needs to evaluate its strength and weakness for efficient operations. Such considerations and evaluations are imperative in the formulation of plans, goals and objectives since they aid in defining the successes or failures of a company in the market in relation to its competitors. This report is based on the SWOT and PORTER analysis of GlaxoSmithKline; considering its strengths and weaknesses that aid or hinder it from competing within its industry effectively.

GlaxoSmithKline SWOT Analysis

The SWOT analysis technique can be used to identify the internal strengths and weaknesses of GlaxoSmithKline (Armstrong, 2011, p. 46). The environmental opportunities and strengths facing GlaxoSmithKline can also be identified using the SWOT analysis technique. A good technique is one that maximizes on the company’s opportunities and strengths, and minimizes on its threat and weaknesses. Highlighting these key aspects of the company not only aids in the portrayal of it s market position, as wells help to explain on the reasons for this position, but also it provides a platform for the evaluation of the various steps and plans that can be effected to improve on market performance in terms of sales and revenues (Anon., 2011, p. 32).

Strengths of GlaxoSmithKline

The vast resources and funds available to the company enable it to employ a strong sales and marketing team. The strong sales and marketing infrastructure of GlaxoSmithKline positions it to be the marketing choice for customers. This is on the back of vigorous marketing and public relations campaigns undertaken by the company through print and tele-visual media. Apart from being one of the world’s top 5 pharmaceutical companies (Torun, 2007, p 2), it is also UK’s biggest funder and investor in research and development. It has dominated the chemistry industry through efficient resource utilization and manufacturing. It has over 97000 employees who effectively focus on and explore new markets (Healy & Palepu, 2010, p. 54). Consequently, this has continued to play as a major strength for the company, especially after the criminal charges faced in the USA, through which it has embarked on sales, marketing and public relations efforts.

Weaknesses of GlaxoSmithKline

Increased productivity leads to numerous cases of expired bulk-buster products. Issues of safety of drugs used by customers raise controversies for the company’s image. Research and development strategies may also fail to deliver the required expectation. These are no different problems that the company has had to battle through the years. Owing to the mass production it engages in, the company has, time and again had to call back some of the products due to quality, quantity or even expiry date issues (Anon., 2011, p. 58; Bass, 2008, p. 89). This has served a major blow to the company’s efforts by denting its record and public image.

Opportunities for GlaxoSmithKline

It has the opportunity to move into oncology market, biologics, segments and specific antibodies specialization. The opportunity to facilitate potential mergers and acquisitions through its strong cash flow position is highly advantageous. In addition, there has also been increased awareness and demand for healthcare solutions globally. The company was established through a merger of various smaller companies (Anon., 2011, p. 2). As a result, it has continued to develop top-notch laboratories while simultaneously amassing vast amounts of resources, funds and wealth. This serves as an epic opportunity for it to exploit to expand into new markets and products and also force through mergers, acquisitions, as well amalgamations for it to expand its operations and clients’ base (GlaxoSmithKline plc, n.d.).

Threats for GlaxoSmithKline

There is high risk of unsuccessful new products due to inadequate awareness of consumers. Environmental regulations have become more strict, precise and exacting nowadays. The possibility of economic slowdown in markets in European countries poses significant threats. The company has also been constantly facing the threat of new conventional forms of medicine, herbal medicine, which has been proven to be more effective and has lesser side effects (Jarvis, 2006, p. 14). The fact that the company has started exhibiting complacency in its operations due to the synonymous market leadership it holds also serves as a chief threat as explicated in the USA where new drugs were introduced without following all the rules (Robson, 2013, p. 55).

GlaxoSmithKline’s PORTER Analysis

The PORTER analysis constitutes five forces that can be used to analyze a company’s (for instance GlaxoSmithKline) framework and business strategy development. The five forces considered include bargaining power of buyers and suppliers, rivalry with competitors, and threats of substitutes and new entrants (Dhar, 2008, pp 17). These forces are imperative in the analysis of the existing competitive intensity in a market since a company, in this case GlaxoSmithKline, is able to determine how competitors are acting and thus the attractiveness of this market. For GlaxoSmithKline, the market is very lucrative as attested to by the huge number of profits raked in annually. This in turn implies that the possibility of new entrants into the market is very high and the company has to be constantly monitoring how it responds to competitors activities to maintain its market position (Torun, 2007, p. 34).

Threats of New Entrants for GlaxoSmithKline

The cost required to enter the pharmaceutical market is quite high due to extensive research and development needed in the industry. As a result, GlaxoSmithKline has limited worry due to threats of new entrants. The government impacts strict rules to companies wishing to enter the drugs industry. High chances of products expiry act as barriers to new entrants. GlaxoSmithKline has also established a strong brand name with customers thereby eliminating several competitors (Torun, 2007, p. 45). However, the profitability of this market has in the recent past attracted myriads of smaller firms into the industry. This has been mainly through the formation of bigger corporations through mergers, acquisitions and amalgamations of smaller firms. Eventually, GlaxoSmithKline will have to deal with these new developments in order to capitalize on the robust brand name it has built and counter the threat of new entrants into the market (Anon., 2011, p. 99).

Threat of Substitutes for GlaxoSmithKline

Generic brand medication is the main substitution for pharmaceutical companies like GlaxoSmithKline. Complementary Alternative Medicine (CAM) is one of the products substitute to GlaxoSmithKline (Reuters, 2010). These substitutes deliver same products to customers except that they use different brand names and prices. These new forms of contemporary medicine are a major threat for this company since they have been found to be much safer and cheaper in comparison to conventional medicine (Healy & Palepu, 2010, p. 77). For this reason, GlaxoSmithKline faces a major threat with the increased proliferation of this form of medicine.

Bargaining Power of Buyers in GlaxoSmithKline

GlaxoSmithKline spends most of its research and development techniques to produce high quality and transparent products. As a result, there is a small significant threat of buyers to GlaxoSmithKline. Major consumers of their products include patients, doctors, hospitals, pharmacists and other healthcare facilities (GlaxoSmithKline plc, n.d.). The power of buyers is small considering their numbers in the market. The fact that GlaxoSmithKline is also among the top pharmaceutical companies globally has cemented this fact by availing funds, latest forms of technology and manpower to the company. Buyers, therefore, do not pose any threat to the company for they have limited bargaining power. Being an oligopolistic form of market, sellers, such as GlaxoSmithKline, control the prices in the industry (Bass, 2008, p. 67).

Bargaining Power of Suppliers in GlaxoSmithKline

The main suppliers include raw materials and labor providers, study staff, clinical officers, and investigators of production, distribution and marketing (Jarvis, 2006, p. 87). They can easily impose huge threats to GlaxoSmithKline by withholding or reducing the quality of supplies. GlaxoSmithKline has a clean history of treating their suppliers well by meeting their demands. The company also offers excellent remuneration to it employees. The company maintains a clean record in meeting all contractual requirements and terms with its suppliers (Griffin, 2012, p. 45). This has rendered it in pole position in dictating terms with its suppliers. Thence, suppliers wield minimal bargaining power, quashing the threat of altogether.

GlaxoSmithKline’s Rivalry with Competitors

Government policies and regulations in pharmaceutical industries are strict thereby limiting number of competitors. The large industry size enables GlaxoSmithKline to prosper without necessarily stealing the market from other competitors (Bass, 2008, p. 23; Thomas & Schmidt, 2012). Pharmaceutical industries grow rapidly thereby generating quicker revenue and in the long run reducing competition. Due to this, GlaxoSmithKline uses planning and foresight to position itself for long term success in the world of competition. Furthermore, pharmaceutical industry requires costly extensive research and development techniques which limit number of competitors (Torun, 2007, p. 32).

Conclusion and Recommendations

Gaining advantages in the world of competition requires high quality product delivery using appropriate techniques. GlaxoSmithKline, for example, should focus to eliminate its weaknesses and threats so as to achieve competitive advantages. They should do this by improving their strengths and taking great advantages in their opportunities.

They should organize several campaigns that address issues of security and safety of drug use through media and internets. Production of adequate (but not excess) products reduces high chances of products expiries. Highly qualified personnel in the field of research and development will ensure required expectation in researches. To combat the problem of Europe’s economic slowdown, they should focus on global production by extending their market all over the world. The cost used to improve these recommendations can easily be recovered from high profits achieved from sales of new improved products. To summarize, GlaxoSmithKline should add these recommendations to their strategies hence enable them compete effectively in the pharmaceutical market.

Reference List

Anon., 2003. About GlaxoSmithKline. Nature, 422(6933), pp. 783-800.

Anon., 2011. GlaxoSmithKline Case Study Through Mergers & Acquisitions to Success.. 1st ed. S.l.: Datamonitor Plc.

Armstrong, M., 2011. Armstrong’s handbook of strategic human resource management. 5th ed. London: Kogan Page.

Bass, A., 2008. Side Effects: A Prosecutor, a Whistleblower, and a Bestselling Antidepressant on Trial,. 1st ed. Chapel Hill, NC: Algonquin Books of Chapel Hill.

BBC, 2012. GlaxoSmithKline to pay $3bn in US drug fraud scandal. [Online]
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GlaxoSmithKline plc, n.d. What we do. [Online]
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Griffin, R. W., 2012. Fundamentals of management. 6th ed. Mason, OH: South-Western Cengage Learning.

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Jarvis, L., 2006. BIOPHARMACEUTICALS GlaxoSmithKline Forges Into Biologies. Chemical & Engineering News, 84(51), p. 14.

Reuters, 2010. FACTBOX-The 20 largest pharmaceutical companies. [Online]
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[Accessed 10 February 2014].

Robson, K., 2013. Service-ability create a customer centric culture and gain competitive advantage. 1st ed. Chichester, West Sussex, United Kingdom: Wiley.

Thomas, K. & Schmidt, M. S., 2012. Glaxo Agrees to Pay $3 Billion in Fraud Settlement. [Online]
Available at: http://www.nytimes.com/2012/07/03/business/glaxosmithkline-agrees-to-pay-3-billion-in-fraud-settlement.html?_r=0
[Accessed 10 February 2014].

Torun, F., 2007. Novartis – an internal scanning of a pharmaceutical company. 1st ed. München: GRIN Verlag GmbH.

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