Competitive Strategies for International Research-Based Pharmaceutical Company1

Competitive Strategies for International Research-Based Pharmaceutical Company

Wen-Chueh Hsieh Tung-Lai Hu Pei-I Yu (U. of Edinburgh)

ABSTRACT
The research is to explore the competitive strategy of international research-based pharmaceutical company on ethical drugs in Taiwan. Through in-depth interview with selected experts from the pharmaceutical industry and competitive strategic analysis from Delphi Method, the findings are as follows: First of all, product innovation and research development are key factors for companies to achieve a competitive advantage through obtaining patent. Secondly, having an excellent field force and developing full control of market channels will strengthen business performance. Finally, local government policy tremendously affects the importing strategy of the international research-based pharmaceutical companies.

Keywords: competitive strategies, competitive advantage, international research-based pharmaceutical companies

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I. INTRODUCTION
Medical care is always the most important issue to people, especially for people who care about drugs that could cure and prevent diseases. However, the advertising of ethical drugs is inhibited in Taiwan. The competitive strategies for many fields such as food, convenience store, ecommerce and so on, have been widely examined. However, only few attempts have so far been made at original ethical drugs. Thus, we would like to make a marketing research analysis to examine the pharmaceutical industry, and through this study we hope to understand what factors affect original ethical drug performance in Taiwan. The specific research objectives addressed in this study were the following: First of all, to realize what key factors would lead to international research-based

pharmaceutical company's ethical drug marketing success. Secondly, to determine how the international research-based pharmaceutical company's ethical drugs different marketing strategies are formulated. Finally, to explore what competitive strategies affected the international research-based pharmaceutical company's business performance. This study dealt with professional managers, because their work is most relevant to the pharmaceutical industry. The pharmaceutical industry includes multinational companies, distributors, and importers. Some of these have 100% investment in Taiwan from their parent company, with the research and development from the parent company. All of them have ethical drugs in Taiwans healthcare market.

II. LITERATURE REVIEW

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Competitive Strategies for International Research-Based Pharmaceutical Company3

2.1 Definitions of Ethical Drugs

According to the classification of product license from the Department of Health of the Executive Yuan Republic of China. An Ethical Drug is Supplied to the public on prescriptions only. An Instruction Drug is Sold through restrictions to licensed pharmacists & doctors. Cautionary labeling required. OTC, (Over-the-counter-Drug) is Supplied to the public with no restrictions, and most of OTC products will not be reimbursed by National Health Insurance Bureau. Prescribing in Taiwan is regulated by formularies, both at NHI (Taiwan National Health Insurance) level to restrict reimbursement and internally at the hospital level. The NHI maintains a central list of reimbursable drugs. Manufacturers can apply for listing after having negotiated a price with the BNHI (Bureau of National Health Insurance) and the list is updated every two or three month. Hospitals have their own drug and therapeutic, or formulary, committees which assess drugs for formulary listing. Most major hospitals have around 1,000 products on their formularies and many are currently trying to reduce that number. The definition in World Health Organi-

zation (WHO) of rational drug therapy is that application of an appropriate drug by a correct route in an adequate dose over a sufficiently long period of time. Additionally, Buetow et al (2000) argued that rational drug therapy is a process, but, adequate drug therapy should consider with outcome. Therefore, they gave a definition of adequate drug therapy that is The outcome of a process of decision-marking that maximizes net individual health gains within societys available resource. Huang (1996) mentioned that: there are four-stage launch process of new ethical drugs in Taiwan that supplied by original pharmaceuticals: pre-registration stage, registration stage, partial launch stage, and complete launch stage. This has been decided in accordance with the drug license issued by the DOH based on the application for registration trials, as well as the reimbursement price and guidelines for use issued by the Bureau of National Health Insurance. The three critical points related to this launch process include: Registration trials, Reimbursement price of new drugs used in the NHI and Hospitals' listing policies. Chi (1998) mentioned that: There were approximately two percent of medications prescribed would potentially cause harm to

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patient in Taiwan. Taiwans pharmacists should be more aware of the occurrence of any inappropriate prescriptions, as well as communicate to clinicians with an effort to minimize the occurrence of inappropriate prescriptions. Fang (1996) mentioned that a total of 302,266 prescriptions were dispensed by NHI contracted pharmacies from June 1995 to Dec. 1996 in Taiwan. During this period, there were 648 NHI contracted hospitals and clinics that had released prescriptions. Prescriptions from the top 50 NHI contracted hospitals and clinics accounted for 90.4% of the total released prescriptions. However, 192 health care providers released only one prescription at this time period, namely 29.6 % of the 648 NHI contracted hospitals and clinics. It is evident that the dispensing of those prescriptions has concentrated in certain pharmacies. Most of the prescriptions, i.e. 79.4%, were released from the private clinics. Some of the public clinics had achieved distinguished success, especially those in Taipei, Penghu, and Chiayi. As for the type of prescriptions, 93.9% of the prescriptions were the ordinary ones, the remaining 6.1% were the refillable prescriptions. According to the medical departments documented in the prescriptions, the top five departments in order were general practice (33.4%), internal medicine (29.3%), family medicine (17.3%), pediatrics (13.1%), and gynecology (2.4%). In

respect of the diagnosis, the major ones are respiratory diseases (38.3%), digestive system disorders (9.2%), hypertension (7.2%), bone, muscle disorders, skin, nervous system, and endocrine diseases.

2.2 First Mover Advantage Explore

Chen (2000) mentioned that a firm could achieve First Mover position by many ways : creating and producing a new product, using a new procedure for making a product and gettomg into a new market and obtain a good reputation. A first mover could possess Competitive Advantage due to Entry Barriers. Kotller et al (2003) argued that the major Entry Barriers include high capital requirements; economies of scale; patents and licensing requirements; scarce locations, raw materials, or distributors; reputations requirements; and so on. Some barriers are intrinsic to certain industries, and others are erected by the single or combined actions of the incumbent firms. Even after a firm enters an industry, it might face mobility barriers when it tries to enter more attractive market segments. Ghemawat et al (1999) mentioned: Research-based companies have been far more profitable on average, largely because they were protected by higher entry barriers. These barriers include patent protection, a new-drug development process that can cost

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hundreds of millions of dollars and stretch over more than a decade, carefully cultivated brand identities, and large sales forces that call on individual doctors. In contrast, the generic drug segment of the industry is characterized by a lack of patent protection, much smaller

substitution: brand competition, industry competition, form competition, and generic competition. There are many different views of strategic definition and content from scholars, thus these may cause difference views about

Competitive Strategies for International Research-Based Pharmaceutical Company5

requirements of capital and time for product development, weak to nonexistent brand identities, and distribution efforts that focus on serving large accounts that purchase in bulk at low prices.

2.3 Key Success Factors

Grant (2001) has argued that two key factors condition a firm success and subsistence, That is, a firm should provide the products, which are customers needs and a firm should discuss two questions for subsistent competition: What is our customers want? What we have to do for subsistent competition? Porter (1998) has described the Key Success Factors in competitive advantage in the Five Forces: the degree of rivalry, the threat of entry, the treat of substitute, buyer power, and supplier power.

strategic levels. Hofer & Schendel (1985) pointed out: for a corporate, the strategy can be separated into three levels: corporate Strategy, business strategy and functional strategy. Regarding competitive strategy, Porter (1998) mentioned three general position strategies: Three-winner strategy, one-loser strategy. That is, overall cost leadership, differentiation and focus.

III. METHODOLOGY
3.1 The framework of the research
The framework of the research starts from industrial analysis. Four environment factors examined are industrial situation including industry development and characteristics, operation situation, that is, sales style and business resolution, industry environment including population, economic and local policy and industry trend including enterprise development, market development, and competitive trend. Next we conclude four

2.4 Competitive Strategy

Kotler (2003) proposed four levels of competition based on the degree of product

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key success factors are innovation, outstanding salesman, parent company investment, and elasticity response to the local law. On the basis of the factors above, competitive strategies, product patent obtaining, outstand field force, market controlling through possessing patent, and ability to actively responding law will lead to performance.

pharmaceutical industry. Frequently the Professional Medicinal Salesman is addressed as Propa(which is the Chinese translation) in Taiwan. 4. Investment of Parent Company The pharmaceutical industry is a higher entry barrier industry compared to others; many international research-based companies invest a great deal in clinical trials before a new drug is launched and after the launch. The studies rely heavily on long-term clinical trials to find out the new indications or complete new research papers that will help the

3.2 Research Variables

1. Product Innovation The pharmaceutical industry is a higher
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entry barrier industry compared to others; many international research-based companies have an established reputation for developing new products, and they spend heavily on longterm research to discover innovative new drugs. As long as they create a new product, and obtain the patent, this new product can be a leader in the market and monopolize whole market 2. First Mover Advantage Regarding Ethical drug, First Mover is innovative. Further, this new drug has patent protection and is speedily launched into the market. 3. Field Force Field Force has the same meaning as salesman or sales representative in the

promotion of current products on the market. In addition, international research-based companies invest in extensive training for staffs, and they provided excellent education for local employees.

3.3 Data Collection

The sampling unit of this study is the expert group consisted of country managers, sales managers, marketing managers of pharmaceutical companies and pharmaceutical distributors. This study is qualitative research, and adopted the Delphi Method to collect data. The Delphi Method uses expert groups concerning specific criteria at a specific time period to make conclusions about operational decisions. This study gathered the opinions of

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an expert group, which consisted of representative managers and industry executives. They all have a lot of experience in the pharmaceutical industry. In the final stage, this study combined the expert group's opinions, and interviewed each expert again to gather individual results for the final report.

Being a first moving dominant company can push others out of competition, and achieve majority market share and profit. Therefore the introduction of monopolistic, patented products is an imperative strategy.

Proposition 2:

IV. DATA ANALYSIS AND PROPOSITION

This study adopted the Delphi Method to collect information, and experts provided many answers for each question. Top 8 to 16 items selected were identified from the experts total ranted scores. Experts gave scores to each item by importance. Finally, the study sums up all the scores and give a

Having an excellent field force and developing full contro of market channels will strengthen business performance. The character and management style of the pharmaceutical field force and managers play an important role in sales promotion. A pharmaceutical company should possess an excellent field force, operating in coordination with good management, to create outstanding business performance.

Competitive Strategies for International Research-Based Pharmaceutical Company7

rank. Through a literature, review and through implications, drawn from a collective vision of some of the issues to be faced by the industry, this study has developed four propositions. The proposition is as follows:

Proposition 3:
The more parent companies invest in local companies, the more ability they have to control the marketing. Support of clinic paper, employees training, incentive providing, information tools upgrading and headquarters' management, even the negotiation with local government all were important issues to ethical drugs marketing in a local country.

Proposition 1:
Product innovation and research development, to obtain patents helps companies become a market leader (first moving) and achieve a business advantage.

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Particularly, a well-developed research paper for ethical drug is an essential competitive strategy for the pharmaceutical company, Also, if the parent company invests more resources into the local company, it will give them more power to control the market.

5.1 Conclusions
This study is based on ethical drugs in Taiwan, and consists of qualitative research about the pharmaceutical industry's Key Success Factors, and Competitive Strategies. After choosing the pharmaceutical industry which includes multinational pharmaceutical companies, pharmaceutical distributors and pharmaceutical importers, this studys author conducted in-depth interviews with selected experts. Main findings are as follows: First of all, product innovation and research development, to obtain a patent, helps companies become a market leader (first moving) and achieve a business advantage. The introduction of monopolistic, patented products was imperative strategy. Secondly, having an excellent field force and developing full control of market channels will strengthen business performance. The character and management style of the field force and managers play an important role in effectiveness of a sales promotion. Thirdly, the more parent companies

Proposition 4:
Local government policy tremendously affects the importing strategy of the international research-based pharmaceutical industry. To protect the rights of people for medical care, or, to reduce economic burdens to serious deficit of Bureau of National Health Insurance, and to deal with how the diseases evolve and influence peoples health, local government always amends the law relevant to ethical drugs. Thus, actively responding to and influencing government policy is a very important issue at present. In the future, a corporate public affairs campaign focused on government policy will rise and develop in
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Taiwan.

V. CONCLUSIONS AND SUGGESTIONS

invest in local companies, the more ability they have to control the market. In addition, local government policy tremendously affects the importing strategy of the international research-based pharmaceutical industry.

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Competitive Strategies for International Research-Based Pharmaceutical Company9

In summary, Taiwans pharmaceutical industry does not really conduct research and have innovation, but only develops generic drugs. To ensure the quality of medicine and the future of the Taiwan pharmaceutical industry, health authorities should establish an effective drug utilization review system in order to improve this situation. Taiwans healthcare market is still in good shape and it will provide strong commercial opportunities for innovative companies in the future. Local companies will experience success, but that success will also depend on multinational companies providing investment and much of the technical innovation needed to sustain future growth. Thus, working with government to bring about adoption of international standards on harmonization, combining expertise and investment from international research-based companies and modernization of the local industry will all build a sustainable future for Taiwans healthcare industry.

only, future researchers could select competitive strategy with sales performance, to make a causal research project based on this study.

REFERENCE
1. Buetwo, S A, Sibbald B, Cantrill J. A, and Halliwell S. (2000), Appropriateness in health care, application to prescribing, Social science and medicine, 45-261. 2. Chi, Cheng Lain (1998), Assessment of Outpatient Prescriptions in a Teaching Hospital, Unpublished Dissertation, Medicine College of Taipei, Taipei. 3. Chen, Hsiu-Shu (2000), A study of competitive strategies of brand name athletic footwear in Taiwan, Unpublished Dissertation , National Univ. of Taiwan, Taipei. 4. Day, G. S., and R. Wensley (1998), Assessing Advantage: A Framework for Diagnosing Competitive Superiority, Journal of Marketing, 52(Apr), 1-19.

5.2 Suggestion
This study formulates the following two suggestions: first of all, in the future, we suggest using several more doctors for the expert group to provide additional input and opinions with regard to ethical drugs. In addition, because this study examines Key Success Factors and Competitive Strategy

5. Fang, Chih-Hui (1996), A Study on Prescriptions Released from NHI Contract Hospitals Taiwan. 6. Ghemawat, Pankaj, Collis David J., Pisano Gary P. and Rivkin Jan W. (1999), Strategy and The Business Landscape, Addison, and Clinics, Unpublished Dissertation, National Univ. of Chen-Gong,

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Wesley, Longman Inc. 7. Grant, Robert M. (2001), Contemporary Strategy Analysis: Concepts, Techniques, Application, Publishers. 8. Hofer, C. W. and Schendel D. (1985), Strategy Formulation: Analytical Concept, Weat Publishing, New York. 9. Huang, Chung-Ming (1996), A Preliminary Study on the New Drug Launch Process of International research-based Pharmaceuticals and the Protection of Intellectual Property Rights, Unpublished Dissertation, National Univ. of Chen-Gong, Taiwan. 10. Kotler, Philip (2003), Marketing Management, Upper-Saddle River, NJ: PrenticeHall, Inc. 11. Lia, Chung-Chen and Cebedo, Perri, (2000), Selling Ethical Pharmaceuticals: a Professional Medical Representatives Guide to Selling Ethical Pharmaceutical Products, Business Week Publishing Inc., April, Taiwan. 12. Porter, Michael E. (1998), Competitive Strategy New York. Techniques for Analyzing Industries and Competitors, The Free Press, Malden, MA: Blackwell

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