The impact of competition on the product-market strategies of entities in the pharmaceutical industry
There can be little doubt that competition in the pharmaceutical industry has increased considerably over the past few years. Growth in the pharmaceutical industry in South Africa has been affected adversely in recent years by the increased competition from generic drug manufacturers. As soon as a drug comes off patent, competitors are ready with generic copies, resulting in price drops. Pharmaceutical companies are therefore forced to continually evaluate their existing strategies, to ensure that their financial performance remains at the desired level. This study aims to determine the importance that entities in the pharmaceutical industry attach to competition during the strategy-formulation process. The study will also attempt to provide an understanding of how entities have adapted their product-market strategies, as identified by Ansoff, over the past five years. As an ancillary objective, this research aims to determine whether the level of competition in the industry has adversely affected the financial performance of the entities competing within the industry. Entities within the pharmaceutical industry consider the level of competition in the industry to be very high, and, accordingly, it is one of the major factors that they consider when determining which product market strategy to adopt. Because of this, the product-market strategies adopted by entities in the pharmaceutical industry have changed substantially over the past five years. No strategy is, however, dominant. Over the past five years, most of the entities in the pharmaceutical industry have displayed improved profitability, risk and cash flow-ratios, as well as growth in revenue, net profit and net asset value. This improvement in financial performance is despite an increased level of competition. It can therefore be concluded that the level of competition in the pharmaceutical industry is not reflected directly in the overall financial performance of companies in the industry.