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Jahangirnagar University, Savar, Dhaka- 1342

Using the Porter's Five Forces Tool

Mr. Shahriar Kabir
Course Instructor
Strategic Management

Md. Yusuf Mahmud-292
Muqtadir Fattah Nayeeb-297
Dewan Khaleed Saleheen-304
Md. Rafiqul Islam Razu-309
MBA Program

The Porter's Five Forces Tool
The Porter's Five Forces tool is a simple but powerful tool for understanding
where power lies in a business situation. This is useful, because it helps to
understand both the strength of any organizations current competitive position,
and the strength of a position that the organization considering moving into. With
a clear understanding of where power lies, organizations can take fair advantage
of a situation of strength, improve a situation of weakness, and avoid taking
wrong steps. This makes it an important part of organizations planning toolkit.
Conventionally, the tool is used to identify whether new products, services or
businesses have the potential to be profitable. However, it can be very
illuminating when used to understand the balance of power in other situations.
Porter's 5 Forces are named after Michael E. Porter, this model identifies and
analyzes 5 competitive forces that shape every industry, and helps determine an
industry's weaknesses and strengths. The forces are,

Competition in the industry

Potential of New Entrants into Industry
Power of Suppliers
Power of Buyers
Threat of Substitute Products

Pharmaceuticals Industry of Bangladesh
Bangladesh is a country of emerging economy. The reason of the countrys rising
economy is high growth rate of industrialization and investment in different
sectors. One of them is healthcare sector. Pharmaceuticals industries are the
heart of this sector. Comparing with other sectors it is the most technologically
advanced sector of Bangladesh. The Pharmaceuticals industries have grown and
developed surprisingly in the last two decades. During these decades
pharmaceutical sector achieved an exalted position in international and domestic
Pharmaceutical companies fulfill more than 97% of local demand of medicines
and about 30 companies export a significant quantity of medicines to 107
countries, including Germany, USA, France, Italy, UK, Canada, Netherlands and
Denmark. International regulatory authorities like UK-MHRA, Australia-TGA, EU
have already certified some pharmaceutical companies and soon some others
are going to be certified and approved by US-FDA.
In case of earning foreign currency, pharmaceutical sector has become the 2nd
largest potential sector of Bangladesh and this sectors contribution to the GDP is
growing rapidly.

History of Pharmaceuticals Industry of Bangladesh
Prior to the Liberation war of 1971 there was hardly any pharmaceutical
company in Bangladesh, even after the liberation war the new government could
not allot enough budget for health sector and the sector was prominently
dominated by Multi-National Companies. The MNCs possessed more than 75% of
market share and some 133 local companies controlled rest of the market share.
The sector started to improve from the 80s and has grown in the last two
decades at a considerable rate. The National Drug Policy (NDP) in 1982 and 2005
has prime influence in the prosperity and outgrowth of the Bangladesh
pharmaceutical industry. After the annunciation of Drug Control Ordinance -1982,
the sector started to expand vertically. As the local Pharmaceutical companies
were the beneficiary of NDP, they started to expand their business. Meanwhile,
the MNCs sold their business shares to local companies. According to the
Directorate General of Drug Administration (DGDA), the market shares of the
locally produced drug was 175 crores in 1981 that increased to 325 crores by







Pharmaceutical is one of the highest priority sectors in Bangladesh. The
Bangladesh pharmaceutical industry is growing from BDT 138.81 bn (USD 1.78
bn) in 2013 to BDT 154.74 bn (USD 1.99 bn) in 2014; +11.5%in local currency
terms and +12.1% in US dollar terms. With an annual two-digit growth rate the
Bangladesh pharmaceutical industry is now heading towards self sufficiency in
meeting local demand. There are more than 300 small, medium, large and
multinational companies operating in the country producing around 97% of the
total demand. The sector is the second highest contributor to the national exchequer after tobacco and it is the largest white-collar intensive employment
sector in Bangladesh.
The pharmaceutical industry is one of the most technologically advanced sectors
currently in existence in Bangladesh. It has grown in the last two decades at a
considerable rate. The skills and knowledge of the professionals and innovative
ideas of the people involved in this industry are the key factors for these
developments. About 300 pharmaceutical companies are operating at the

moment. Only 3% of the drugs are imported, the remaining 97% come from local
companies. Positive developments in the pharmaceutical sector have enabled
Bangladesh to export medicine to global markets. At present, Bangladesh's
pharmaceutical industry is effectively exporting their products to 79 countries
across the world, and this number is expected to increase in coming years.
The pharma industry of Bangladesh is now on the verge of entering highly
regulated overseas markets like USA and Europe. In this connection, several
pharma manufacturers have already made huge investments in their new state
of art manufacturing facilities. A number of companies have already obtained or
in the process of obtaining UKMHRA, EU, TGA, AUSTRALIA and GCC certifications.
The future of pharmaceutical exports from Bangladesh is bright. After the
inclusion of the Doha declaration in WTO / TRIPS Agreement, each and every
country belonging to the LDC Category has the option not to opt for pharma
product patent until year 2,016; which means, they can now legally reverseengineer patented products and sell in their markets and can export to other
LDCs, too. This generates huge export opportunities for Bangladesh, as among
all 50 LDCs, Bangladesh is the only country which had a strong pharma
manufacturing base. Besides direct export operations, there is also a huge
opportunity for the Bangladeshi companies to go for the Contract Manufacturing
and compulsory licensing. The good news is; the leading pharma exporters of
Bangladesh have already started availing these opportunities.







The pharmaceutical industry in Bangladesh is one of the most developed








pharmaceutical ingredients (APIs) and a wide range of pharmaceutical products,

covering all major therapeutic classes and dosage forms, to 79 countries. In this
part the Pharmaceutical industry of Bangladesh will be analyzed on the basis of
Porters five forces analysis tool.

1. Competitive Rivalry between Existing Players

There are intense competitions among the pharmaceutical companies in
Bangladesh. Here both local companies (Square, Beximco etc.) and MNCs (Sanofi

Aventis, GlaxoSmithKline etc.) are competing to grab the pharmaceutical
Rivalry in this sector is stronger because competing firms are heavily active in
making fresh moves to improve their product lines and business performance.
The numbers of competing firms are more and some are of roughly equal in size.
The firms are racing to differentiate their products from rivals by offering better
performance features or higher quality. When one firm produces new medicine
with some components, existing firms forced to produce same type of medicine
to exploit the opportunity. Such as- Square Pharma introduces Seclo of
Omeprazole group to treat diseases for gastroenterology. Other companies like
Beximco Pharma introduces Proceptin and Sanofi-Aventis has Xerosec.
Weapons for battling rivals in Pharmaceutical Industry are:






important economies in research and development. To get competitive

advantage they need to introduce new and effective medicine before their
rivals. Once an effective drug is developed, few, if any, alternatives to that
drug usually are available. For this they need continuous research. Such as
in 2011 already Square Pharma introduces 9 new products.
Higher quality and better performance: The medicines quality must
be high and better to gain competitive edge.
Stronger brand image: After developing a new drug a company needs
to patent it and develop a strong brand image to differentiate. The
pharmaceutical companies need to build a reliable and trustworthy image
about their drugs on the minds of Doctors and general people. Suppose in
Bangladesh Square Pharma has very good brand image.
Wider selection of drugs: To get competitive advantage, in a single
generic category there should be wider range of drugs. Napa of Beximco
is an analgesic & antipyretic used for the fast and effective relief of pain &
fever and discomfort associated with headache, period pain, tension
headache, colds and flu. Napa has many forms such Napa Tablet, Napa
Syrup, Napa Suppository, Napa Suspension and Napa Drops.

2. Threat of New Entrants

This industry does not have significant production economies but it does have
important economies in research and development. But this R & D needs huge
investment. So high entry barriers due to costs associated with research and

development of new drugs. Moreover, years of investment in R & D for a drug
may or may not work.
High government regulation is also a barrier. Such as to enter into Europe drug
market a company need to maintain GMP standard. In Bangladesh only Square
and Beximco have this standard and only they can export drugs to Europe.
Again for UK need MHRA and for USA need FDA approval to export drugs.
Again it will be difficult and need more time for a new medicine company to
make their drugs reliable. So because of these barriers the threat of new
entrants is relatively low.

3. Threat of Substitutes
In pharmaceutical industry there are generations of drugs. Such as first
generation, second generation, third generation etc. So the third generation
antibiotic may be a substitute for second generation antibiotic.
For an example, Napa of Beximco is highly effective in relieving pain and fever.
It has gained millions of physicians' trust and confidence and thereby became
the number one selling brand by volume in Bangladesh pharma market. But
Square has Ace Plus which has added feature caffeine, can be a substitute of
Again the increased availability of generic, no branded drugs has threatened the
profitability of some drug lines.
So threat of substitute products is higher.

4. Bargaining Power of Suppliers









(commodity chemicals) from various countries namely Germany, China, India,

UK, France, Japan, Holland, Italy, Denmark, Switzerland, Austria, Hungary, Ireland
etc. Bangladesh is currently not a major manufacturer of raw materials. Recently
Active Fine Chemical Company produces API in Bangladesh.
So, suppliers of raw materials of pharmaceutical companies do not have much
bargaining power.

Because, pharmaceuticals can switch their supplier if they

start to bargain inappropriately as switching cost is low.

5. Bargaining Power of Buyers
Basically the local buyers of drugs are Chemists (Pharmacy) and Doctors (by








companies of Bangladesh do influence medical practitioners, wholesale and retail

distributive shops of pharmaceutical products to promote their own brands.
Real consumers like us do not have much bargaining power. Because every
company price their medicine almost relatively same level and medicine is the
most important need for people, the consumer has no choice but to buy what
doctor says. So they do not have much bargaining power.
When hospitals and other healthcare organizations buy in bulk quantities, exert
pressure on pharmaceutical companies to keep prices in check.
At last it can be concluding that one of the great advantages of the pharma
industry is demand for Pharma products continue and the industry thrives. One
of the key reasons for high competitiveness in the industry is that as an ongoing
concern, pharma industry seems to have an infinite future. The company, who
can continuously innovate modern and effective drugs, will remain in the
competitive edge over rivals.

The pharmaceutical sector of Bangladesh is the second largest export earning
sector after RMG. The country has built a solid base for this sector to emerge as
a potential sector in the upcoming days to support our economy. The
pharmaceutical companies are successful in local market with huge import
substitutions and now flourishing in the international market mostly due to the
opportunity of patent exemption by the TRIPS (Agreement on Trade-Related
Aspects of Intellectual Property Rights) until 2016. To boost up this sectors
elevation the government is offering cash incentive to the medicine exporters
and Export Promotion Bureau (EPB) is planning to arrange international trade fair
to attract the foreign buyers. The companies are also trying on their own to
expand business in new countries. BAPI is arranging visits for the experts to
foreign countries so that they can adopt modern technology and implement it in
the local factories. In spite of taking many steps, there are still lots of scopes for