Student Name: Zein Khalaf Student No: 1095045

Instructor Name: Dr. Grace Khoury

Course Name: Strategic Management for MBA studies

Assignment 2:

Porter's Industry Analysis applied to the

Palestinian Pharmaceutical Industry
A. Threat of New Entrants

Threat of new entrants is weak due to the following reasons:

1. Entry Barriers: Israeli government does not allow importers to import

pharmaceuticals from foreign pharmaceutical companies, unless its registered
in the Israeli Ministry of Health. The Israeli government has high regulations
and prohibitions of registering imported pharmaceuticals in order to protect its
local pharmaceutical industry

2. Capital Requirements: requires substantial financial investments in

machinery, manufacturing facilities and well educated human resources. In the
last 7 years, the industry as a total spent nearly $ 50 Million on GMP quality
facilities and systems alone.

3. Government Policy: there are many government requirements (such

as GMP, ISO…etc) that must be approved before allowing a pharmaceutical
factory to operate. In addition, there are continuous and vigorous inspections

B. Rivalry among Existing Firms

1. Highly Competitive. There are 4,500 Palestinian, Israeli and foreign

pharmaceutical products. Palestinian pharmaceutical products are viewed as
low in cost (compared to Israeli and foreign companies) and good in quality.

2. Number of Competitors: there are only 5 currently active

pharmaceutical companies and all are generic drug manufacturers. (Jerusalem
Pharmaceuticals, Birzeit Pharmaceuticals, Middle East Pharmaceuticals,
Pharmacare, Jordan Chemical Lab).

3. Because the market is mostly domestic and limited in size this makes
competition in the local market is very tough.

4. These 5 pharmaceutical companies hold 55% of the Palestinian drug

market share. Therefore, very competitive. While Foreign companies hold
30% and Isreali companies hold 15% of the market share, according to the
WHO.

5. Product In-differentiation: all 5 local pharmaceutical companies

produce relatively the same products which are similarly positioned in the
market, making it more like a commodity.

6. Doctors tend to prescribe brand names of drugs rather than scientific

names of drugs, increasing brand competitiveness in the market.
 7. Although the market is highly competitive there is huge room for
growth through product differentiation. And indicator of such is that the local
pharmaceutical companies cover only one third of the Palestinian Essential
Drug List.

8. Capacity: local companies are working under capacity by 25%

according to the WHO. Manufacturers could increase their capacity by
creating new export markets. This is currently the trend of local
pharmaceutical companies, but this requires international quality certifications

C. Threat of Substitute Products

This is one of the highest advantages of the Palestinian pharmaceutical industry is that
the Palestine. While Alternative Medicine (such as herbs..etc) may be viewed as a
substitute to medicine, it's not highly supported by medical research. Furthermore,
there is a strong patient demand and medical profession which tends towards
irrational use of drugs and over-prescribing of medicine, as categorized by WHO.
Although this is a major public health issue that needs to addressed by regulatory
bodies, in the meantime, it is a business advantage for pharmaceutical companies.

D. Bargaining Power of Buyers

:There are two channels of buyers

1. End Consumer through an Influencer such as a doctor or pharmacist.
2. NGOs and Public Sector through Bids and Tenders

.End Consumer through an Influencer such as a doctor or pharmacist .1

(of the total market size of medicine is distributed over the private sector 71%)

• Buyers have a weak bargaining power as the end user is different

from the influencer. Influencers are the doctors who prescribe the medicine
and the pharmacists who dispense the product. Pharmaceutical companies
thereby market heavily mainly through doctors and pharmacies and not end
users.

• Palestinian pharmaceutical companies have undifferentiated

products (relatively produce the same type of medicines) which could make it
easier for the buyer or influencer (pharmacist) to switch from one brand to
another, but the Association of Pharmacists has strict guidelines that prohibits
pharmacists from substituting doctor prescriptions without taking the doctor's
approval first. However, this guideline is not heavily regulated.
 • End Consumer Price or the Shelf Price is moderately competitive
among pharmaceutical companies as they mainly concentrate on providing
incentives to doctors (not related to prices) for prescribing their medicines and
to pharmacists (through bonuses) to carry their products. In addition,
pharmaceutical companies must register their shelf prices with the Ministry of
Health in order to keep pharmacy prices regulated. This also reduces the
sudden of "price wars".

NGOs and Public Sector through Bids and Tenders .2

and 9% of market size of medicine is distributed to the public sector and NGOs 2%
consecutively.It's very competitive pricing when local pharmaceutical companies bid
for tenders with NGOs and Public Sector, unlike with the private sector (end
.(consumer

E. Bargaining Power of Suppliers

The pharmaceutical industry depends on the organic chemical industry. Since

Palestine is not active in this industry, organic chemicals are imported from abroad.
Universally the chemicals used in the pharmaceutical industry are largely a
commodity. The suppliers have very low bargaining power as companies in the
pharmaceutical industry can switch from their suppliers without incurring very high
costs.

D. Other Stakeholders:

1. Palestinian Ministry of Health

2. Union of Palestinian Palestinian Pharmaceutical Manufacturers
3. NGOs (Unrwa, Oxfam…etc)
4. Palestinian Medical and Pharmaceutical Suppliers Association
5. Associations of Pharmacists
6. Pharmacists Bar
List of References

1. "The Current Status of Industrial Sector in Palestine", USAID.

Retrieved on Feb 11, 2011 available at
http://www.pfi.ps/site_images/file/Final%20PFI-Carana%20Industrial
%20Sectors%20Study.pdf

2. "Drug Situation Analysis for West Bank and Gaza Strip", World
Health Organization. Retrieved on Feb 11, 2011. available at
http://apps.who.int/medicinedocs/en/d/Js6155e/7.8.html