Ranbaxy Porter's Five Forces Model

COMPETATIVE RIVALRY This is the most obvious form of competition. The head to head rivalry between pharmaceutical firms producing similar products and selling them in the same market. Rivalry can be intense and cut-throat or it may be governed by unwritten rules : gentlemens agreement which help the industry to avoid the damage that excessive price cutting, advertising and promotion expenses can inflict on profits. Competition can be restricted to one dimension (e.g. price) or many (e.g. service, product quality, retail outlets, advertising, etc.) Similarly, RANBAXY a pharmaceutical company has also to face various competitive rivalries among the other pharmaceutical companies like CIPLA, GLAXOSMITHKLINE, etc.

Rivalry is usually intense where some of the following conditions are in evidence -: 1. As a number of competitor increases and as they become more equal in size and capability. 2. When demand for the product is growing slowly. 3. When competitors are tempted by industry condition to use price cuts or other competitive weapons to boost unit volume. 4. When competitors products and services are so similar that customers incurred low cost in switching from one brand to another. 5. When it costs more to get out of a business than to stay in and compete. 6. Rivalry becomes more volatile and unpredictable the more diverse competitors are in terms of the strategy, personalities, corporate priorities, resources and countries of origin. 7. When strong companies outside the industry acquire weak firms in the industry and launch aggressive, well-funded moves to transform the newly acquired competitor into a major market contender.

THREATS OF ENTRY It is easy to get into an industry then, as soon as profits look attractive, new firms will enter. If demand for the industries products doesnt rise to match the increased capacity that entry has cost then prices, and with them profits, are likely to fall. So the threat of entry places an upper limit on an industrys profitability. The most common barriers to entry are: 1. Economies of scale. These are cost advantages that accrue through having large scale operations. 2. The existence of considerable cost benefits to be gained from experience. Here the advantages stem not from large scale facilities but from the experience gained through repeatedly producing the product or service many times. 3. Brand preferences and customer loyalty making it difficult for a new entrant to prise customers away from their existing suppliers. 4. Capital requirements. Just the sheer up-front costs of entering the industry as a deterrent (e.g. aerospace, oil refining). 5. Cost disadvantages independent of size. These might be due, for example, to access to cheaper labor or raw materials. 6. Access to distribution channels. If you cannot reach the customers as effectively as the incumbent firms then it will not be your product or services that are sold. 7. Government actions and policies: legislations, tariff and non-tariff barriers, patents, etc.

THREAT OF SUBSTITUTES For our purposes a substitute is something that meets the same needs as a product produced in the industry. If the substitute becomes more attractive in terms of price, performance or both, then some buyers will be tempted to move their custom away from the firms in the industry. If substitutes pose a credible threat, then, firms in the industry will be prevented from raising their prices or from failing to develop and improve their products/services. When we think of substitutes we must start really to understand the need that an industry satisfying. For example, why do people buy any pharmaceutical products? Obviously for medical treatment. So when we look for where threats from substitutes might come from we need to cast our net quite wide and unless sellers can upgrade quality or reduce price via cost reduction they may risk low growth in sales and profits because of the inroad that substitutes may make. The competition from substitutes is affected by the ease with which buyers can switch to a substitute. A key consideration is usually the buyers switching cost(the cost facing the buyer in changing from one product to a substitute product).

POWER OF BUYERS Powerful buyers can bargain away potential profits from the firm in the industry. They can cause firms to undercut each other in order to get the buyers business, and they can use their power to extract other benefits from firms like quality improvements, credit, etc. Buyers are powerful in following situations:1. 2. 3. 4. When customers are few in number and they purchase in large quantities. When customers purchases represent a sizeable percentage on the selling industrys total sales. When the selling industry compromises large number of small sellers. When the item being purchased is sufficiently standardized the customers can both find other suppliers easily and switch to them at virtually zero cost. 5. When the item being bought is not an important input. 6. When it is economically feasible for customers to purchase the input from several suppliers rather than one.

POWER OF SUPPLIERS In a similar vein to buyers, suppliers of vital resources to the industry can exact high prices, leading to a squeeze on profits through higher input costs. Such suppliers would include suppliers of raw material, power, skilled labor, components, etc.

Suppliers are powerful where: 1. The input is, in one way or another, important to buyer. 2. The supplier industries are dominated by a few large producers who enjoy reasonably secure market positions and who are not beleaguered by intensively competitive market conditions. 3. Suppliers respective products are unique to the extent that it is difficult or costly for buyers to switch from one supplier to another. The concept of supplier can be extended to include the supply of management expertise, skilled labor and supply of capital. Clearly this vital resources are rarely in abundance, and firms are often required to minimize the dependence on outside sources of supply through developing their own managers, training their staff and by financing expansion through retained earnings.