Glaxosmithkline and Porters Five Forces

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.

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.

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. 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 they are one of only two firms on that list that are in the United Kingdom. Most are in the United States and this includes two of the top three, those being Johnson and Johnson and Pfizer.

Threat of Substitution

Yet another Porter force that must be taken seriously is threat of substation. As mentioned before, this can certainly come down to brand. There are not only brand name items that this can happen with, there are also store brand and generics that many people buy instead of the brand names. Even with GSK comes up with a novel and effective drug, they only have a monopoly on that drug's sales for a certain amount of time. After that, there will be firms like Teva that sell a generic, often for a fraction of the price (Teva, 2016). In other words, GSK not only has to worry about a customer choosing another brand, they also have to worry about generics to their prescription drugs being used. Of course, they often are. Beyond that, there are often multiple ways to treat a single sickness. Someone has a headache, for example, could use an NSAID or they could use acetaminophen. They could even use an aspirin. When it comes to the brand names, there are often two or three different drugs that are all prominent and are used to treat the same thing. To use a GSK example, Gaviscon is a heartburn treatment product that GSK produces. They also produce TUMS for more immediate treatment. However, there are many other brand name and non-brand name options including Prilosec, Nexium and others. Many of these used to be prescription-only but many are also now (or are on the way to becoming) over the counter (GSK, 2016).

Threat of New Entry

The final Porter force that exists is something else that GSK has to worry about, although not nearly as much as the others. Indeed, while the top echelon of pharmaceutical companies is crowded with no less than ten entrants, firms that wish to enter that fray will have a fairly hard time doing so just because of the sheer leverage and power that the already-present firms have. This is not to say that GSK and firms like it should rest on their laurels and just assume that they will be fine. Indeed, some firms come out of nowhere and over a fairly short amount of time, as typified by Amazon and Google (Sullivan, 2016). However, the market share that exists is very much eaten up by the existing top firms and any firm that wishes to horn in on that action is going to have a tough hill to climb, so to speak. Even with that being the case, the tug of war when it comes to brand presence and market share is never-ending and is tough enough just when dealing with and considering the top players in the pharmaceutical market. Beyond that, there are plenty of smaller firms that are each going to chip a little away at GSK's (and other firms') share of the market, even if it's a little sliver sliced away by each company. Even so, the market continually grows and GSK must make sure to keep (or improve) their market share as the industry grows and flexes (Mckinsey, 2016).

As is probably already clear given what has been discussed when it comes to Porter's Five Forces, GSK is certainly not the runaway leader in the pharmaceutical industry but they do quite well. Per third party sources outside of GSK, they are a "world leading research-based pharmaceutical company with a powerful combination of skills and resources" (Telegraph, 2016). In other words, they are not patent "vultures" that swoop in and feed off of the hard work and toil of other people or firms. They put in their own research, develop their own products and they do a very good job at doing so. Beyond that, they actively reward their investors and employees. When it comes o investors, they pay dividends on a common basis. When it comes to employees, they obviously and continuously value diversity. For example, their executive director is an Arab. Their list of directors and leaders is also representative of India and a lot of the rest of Europe (Telegraph, 2016).

As for other factors that clearly work in GSK's favor, their tangible assets are clearly growing by the year. In 2011, they had about $8.7 billion. That number has grown every single year since then and now sits at $9.6 billion. When looking at all assets, much the same thing is noticeable. They had $41.08 billion in 2011 but they now have $53.45 billion. In other words, GSK has a massive amount of assets and resources at their disposal and they have used and will continue to use these assets in a way that grows their brand, their market share and their reputation (Telegraph, 2016).

Like most firms, GSK uses debt to leverage their assets and help grow their business quicker. However, firms need to be careful because too much debt can be crippling and debilitating. It is all about a proper balance that allows for some quick borrowing so as to get good and quick return on investment. In this regard, Glaxo perhaps owes more than they should, but theya re not in a danger zone. For example, there is nearly a $9 billion difference between their assets ($53 billion) and their liabilities ($44 billion). So long as they maintain their healthy 20% profit margin, these base figures should serve them well. Their profit for the most recent year was $8.372 billion. That number did dip a bit in 2014 due to a swoon in operating profit. However, 2015 showed a return to solid performance and they have not lost money for at least the last five years (Telegraph, 2016).

Something else that greatly helps GSK's long-term future is that they proactively identify and elevate people that will clearly help their firm. Indeed, they have what The Telegraph refers to as an "elite post-grad scheme." They have a number of programs that contribute to the greater whole and one of them is the Esprit R&D program. This allows for future leaders, both from college and from within, to be identified and then developed using the culture and norms that GSK holds dear. Rather than having to pull in new people all of the time and get them in line with the GSK doctrine and way of doing things, they can literally build these leaders from the ground up or they are already dealing with people that have been concerted and coached to move within the process (Matthews, 2016). Much of the rest of what makes GSK an industry giant is mentioned within the Porter Forces section.

As noted throughout this report, GSK is making heavy use of Porter's Five forces and they are most certainly a company to be reckoned with in the pharmaceutical industry. Even so, the firm needs to remain vigilant and on top of things. Market share will ebb and flow and the industry will keep growing. GSK needs to remain committed to organic growth and aggressive, yet careful, development of their brand and products. They seem to be on a great course and it is easy to presume that they shall remain that way. With that being said, there are firms among them that are bigger, more powerful and more profitable. Those firms would be more than happy to steak GSK's market share or purchase them outright.

References

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GSK, (2016). Gaviscon For Fast-Acting, Long-Lasting Heartburn Relief - Gaviscon. [online] Gaviscon.com. Available at: https://www.gaviscon.com/ [Accessed 30 Nov. 2016].

Matthews, V. (2016). A post-grad's progress: future leaders fly high with GSK. [online] The Telegraph. Available at: http://www.telegraph.co.uk/education/stem-awards/healthcare/elite-post-grad-work-scheme-gsk/ [Accessed 30 Nov. 2016].

McKinsey, (2016). Rapid growth in biopharma: Challenges and opportunities. [online] Mckinsey & Company. Available at: http://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/rapid-growth-in-biopharma [Accessed 30 Nov. 2016].

MindTools, (2016). Porter's Five Forces: Assessing the Balance of Power in a Business Situation. [online] Mindtools.com. Available at: https://www.mindtools.com/pages/article/newTMC_08.htm [Accessed 30 Nov. 2016].

Morin, A. (2016). Fedex vs. UPS. [online] Supplychaindigital.com. Available at: http://www.supplychaindigital.com/logistics/2924/Fedex-versus-UPS [Accessed 30 Nov. 2016].

Morningstar, (2016). GSK: Glaxosmithkline PLC ADR Top Competitors and Peers. [online] Financials.morningstar.com. Available at: http://financials.morningstar.com/competitors/industry-peer.action?t=GSK [Accessed 30 Nov. 2016].

Mukherjee, S. (2016). How Glaxosmithkline Is Changing the World. [online] Fortune. Available at: http://fortune.com/2016/08/18/glaxosmithkline-change-world/ [Accessed 30 Nov. 2016].

Sullivan, B. (2016). Amazon, Microsoft, IBM, Google Grow 30% Faster Than Next 20. [online] Silicon UK. Available at: http://www.silicon.co.uk/cloud/cloud-management/amazon-growing-30-percent-faster-195869 [Accessed 30 Nov. 2016].

Telegraph, (2016). Glaxosmithkline - Fundamentals - Shares & Markets - Telegraph. [online] Shares.telegraph.co.uk. Available at: http://shares.telegraph.co.uk/fundamentals/?epic=GSK [Accessed 30 Nov. 2016].

Teva, (2016). Why Teva Generics. [online] Teva Generics. Available at: https://www.tevagenerics.com/ [Accessed 30 Nov. 2016].