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By using Five Force Framework, assess the threat of rivalry and threat of entry in the pharmaceutical industry:

Threats of rivalry. When we talk about threats of rivalry we should mention not only the rivalry at the industry but also at the product market level. Industry level The pharmaceutical industry has become increasingly concentrated during last 20 years. Guided by absence of proper R&D facilities, gradual expiry of patents and other reasons, there has been a number of mergers and acquisitions in the industry within last 20 years. This trend is currently shaping the internal rivalry among companies. The major reasons for that are opportunistic financial operations and the creation of synergy. It is worth mentioning that some companies would prefer to merge than to experience hostile takeover. Product market level: The two-tier structure has to be taken into account: patented original brands vs. generics. Original compete mostly on non-price benefits, especially as long as they are patent protected, whereas generic drug are generally driven by price competition. The threats of entry. The threats of entry into the pharmaceutical industry are extremely high. Still, it is considered to be very attractive for the new comers. As an evidence for that, 21 pharmaceuticals are featured in the Fortune 500 companies in return on sales. The pharmaceutical industry has big barriers to prevent new comers from entering this industry. The potential barriers can be identified as ● patents - the main incentive to engage in long-term research ● research and development investments ● marketing investments ● company’s reputation. ● Economies of scale - manufacturing, R&D, marketing, sales ● distribution product differentiation - established products, brands and relationships ● capital requirements for entry and financial resources ● access to distribution channels: preferred

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