growth has not followed in tandem.The product differentiation is one key factor, which givescompetitive advantage to the firms in any industry. However, in pharmaceutical industryproduct differentiation is not possible since India has followed process patents till date, withlaws favoring imitators. Consequently, product differentiation is not the driver, costcompetitiveness is. However, companies like Pfizer and Glaxo have created big brands in overthe years, which act as product differentiation tools. This will enhance over the long term, asproduct patents come into play from 2005.Bargaining Power Of BuyersThe unique feature of pharmaceutical industry is that the end user of the product is differentfrom the influencer (read doctor). The consumer has no choice but to buy what doctor says.However, when we look at the buyer's power, we look at the influence they have on the pricesof the product. In pharma industry, the buyers are scattered and they as such does not wieldmuch power in the pricing of the products. However, government with its policies, plays animportant role in regulating pricing through the NPPA (National Pharmaceutical PricingAuthority). Bargaining Power Of SuppliersThe pharmaceutical industry depends upon several organic chemicals. The chemical industry isagain very competitive and fragmented. The chemicals used in the pharmaceutical industry arelargely a commodity. The suppliers have very low bargaining power and the companies in thepharmaceutical industry can switch from their suppliers without incurring a very high cost.However, what can happen is that the supplier can go for forward integration to become apharmaceutical company. Companies like Orchid Chemicals and Sashun Chemicals werebasically chemical companies, who turned themselves into pharmaceutical companies.Barriers To Entry19| P a g e
Pharmaceutical industry is one of the most easily accessible industries for an entrepreneur inIndia. The capital requirement for the industry is very low, creating a regional distributionnetwork is easy, since the point of sales is restricted in this industry in India. However, creatingbrand awareness and franchisee amongst doctors is the key for long-term survival. Also, qualityregulations by the government may put some hindrance for establishing new manufacturingoperations. Going forward, the impending new patent regime will raise the barriers to entry. Butit is unlikely to discourage new entrants, as market for generics will be as huge.Threat Of SubstitutesThis is one of the great advantages of the pharmaceutical industry. Whatever happens, demandfor pharmaceutical products continues and the industry thrives. One of the key reasons for highcompetitiveness in the industry is that as an on going concern, pharmaceutical industry seemsto have an infinite future. However, in recent times, the advances made in the field ofbiotechnology, can prove to be a threat to the synthetic pharmaceutical industry.