Strategic Management Analysis of Biocon India
Nowadays, the pharmaceutical industry is among the most competitive industries in the world because of the constant demand for its products and services. However, not all companies can succeed in the industry. The story of Biocon India Group is the story of success achieved thanks to the properly prepared strategic plan of development pursued by its senior management team. The company has been advancing over the years, with shifting its focus from supplying the biopharmaceuticals with necessary enzymes to developing generic and innovator drugs. Moreover, the company is located in India, which provides it with access to a quality and relatively cheap talented workforce and other resources. Hence, the company under consideration is highly likely to accomplish its goal of becoming one of the top 10 biopharmaceutical companies in the world by 2020 if it continues implementing its current strategy. Besides, it is likely to realize its mission and vision, which consist in providing patients with affordable and innovative medicines worldwide, thereby improving their state of health and standards of living.
Biocon India Group is the largest biopharmaceutical company in India, which is among the largest and best-known companies in the world industry, offering a wide range of comprehensive and integrated services and products. The company has been operating since 1978 and, over the decades, it has grown from a small business focused on enzyme manufacturing into a mass producer and supplier of generic drugs, a popular subsidiary contract research organization and producer of innovative drugs (Kalegaonkar et al. 2008). Biocon has been so successful thanks to a number of factors, including a beneficial location, visionary practices of its leadership, dedication to quality and innovation, as well as a suitable policy of global expansion and growth in the biopharmaceutical industry.
Nowadays, the company under consideration positions itself as Indias largest fully-integrated, innovation-led biopharmaceutical company that offers differentiated products in more than 100 countries of the world (Biocon 2015). Biocon India Group is a large corporation that has eight wholly owned and two step-down subsidiaries, with the mother company located in India (Biocon 2016a). The best-known subsidiaries include Syngene International Limited, Biocon Research Limited, Biocon Pharma Limited, Biocon Academy, Biocon SA, Biocon SDN. BHD., and Biocon Pharma Inc. (Biocon 2016a). In terms of revenues, the company may be deemed to be successful and developing as its total revenue as of 2016 amounts to 3,570 Rs. Crores, which is a significant improvement from the 2015 financial year with the total revenues of 3,143 Rs. Crores, compared, for instance, to the 2012 financial year with 2,148 Rs. Crores (Biocon 2013). Over the decades, the company has been growing in line with the corporate philosophy of Earn as you learn and has been gradually expanding into the pharmaceutical industry (Kalegaokar et al. 2008). Peer analysis of the worlds largest biopharmaceuticals shows that Biocon is among the leaders in the market even though its exact market share is unknown; yet, it occupies the sixth place in terms of total revenues (Financial Times 2016). The company has declared its intention to increase the market share on insulin and its generics market, as well as in the markets dealing with cancer drugs and autoimmune diseases medications (Biocon 2015). Market capitalization of Biocon is $188.73 billion, while market capitalization of its largest subsidiary Syngene International Ltd. is $125.65 billion (Financial Times 2016). Its key competitors include Glenmark Pharmaceuticals Ltd, Torrent Pharmaceuticals Ltd, Alkem Laboratories Ltd, Jubilant Life Sciences Ltd, and Strides Shasun Ltd (Financial Times 2016).
The key markets in which the company operates include production, manufacturing, and supply of complex small molecule APIs to biologics, generic drugs, innovative drugs, as well as subsidiary contract research market (Kalegaonkar et al. 2008). Four innovator products with the largest market size globally offered by Biocon include rh-Insulin, Glargine, Aspart, and Lispro that are in different phases of trial in different countries (Team Corporate Communications & Trisys Communications 2016). In terms of structure, the group has one mother company that sets overall goals and subsidiaries that are rather independent decision-makers and are encouraged to exchange ideas and cooperate with each other. The leadership style, as evident from the company's overview given by Kalegaonkar et al. (2008), is participative since there is no strict hierarchy and all the employees are treated as equal team members who can access top management at any time to share ideas and discuss some issues. The industry in which Biocon India operates is quite competitive, highly profitable, and rapidly growing. Since the company operates not only in generic drug production, but also in clinical research and innovator drug production, its growth opportunities in the industry are promising. Besides, one of the important industry trends for Biocon is the tendency of Western pharmaceutical companies to outsource clinical research to developing countries, which makes Biocon uniquely positioned to benefit from this trend (Kalegaonkar et al. 2008). In order to compete effectively in the industry, the company needs to continue expanding its global reach and get approval for its innovator products in developed countries of the world. Furthermore, it should continue offering its CRO activities and build more innovative plants aimed at manufacturing and developing both generic and innovator drugs.
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Overall, the purpose of the present report is to provide a brief overview of Biocon India as one of the leading global pharmaceutical companies. In particular, the report will develop the mission and vision of the company in Section One based on the available information about Biocon India. Then, it will focus on a five forces analysis of the pharmaceutical industry in Section Two and evaluate the companys capabilities and resources with the help of the value chain framework in Section Three. Finally, in Section Four, the report will present some suggestions to the senior management team with a view to maintaining sustainable competitive advantage in the global pharmaceutical environment.
II. Section One Mission and Vision
Vision and mission constitute two essential elements of any companys strategy as they help to guide it and formulate all corporate policies. It has been empirically proved that vision and mission statements are the central elements of the companys direction that determine the relevance of its actions and policies, especially if the company wants to enjoy a sustainable competitive advantage (Anthony 2012). Although the company under consideration already has its vision and mission statements, the new ones are suggested below, based on its major goals and corporate philosophy. In fact, the main purpose of mission and vision statements is to describe the firms fundamental reason for existing; moreover, they have to be compelling, accurate, constantly reinforced and communicated clearly to all levels inside and outside the organization (Srivastava et al. 2013, p. 50).
The suggested vision for Biocon India is as follows: to make both innovator and generic medications affordable, high-quality, effective, and efficient for all patients and healthcare systems worldwide. Respectively, the suggested mission for Biocon India is as follows: to become and remain the leading biopharmaceutical enterprise in the world that provides the most affordable and high-quality products at affordable prices and is recognized as the best employer that fosters innovation through supporting its employees, valuing their ideas, and providing them with state-of-the-art technical and manufacturing capabilities.
The above vision and mission statements may support the development of Biocon Indias sustainable competitive advantage. The outlined vision clearly reflects what the company does, what it produces and aspires to produce in the future, and for whom it does that. In turn, the mission statement focuses more on the companys position in the market and provides a way of attaining and maintaining the position of a leader through valuing its workforce and improving its technological capacities. Besides, there are several factors that can assist with maintaining such advantage, including real intellectual property, a dynamic product line, cost improvement for cause (a breakthrough in technological processes or manufacturing), a proven team, a lock on the market and customer base, as well as a strong focus and differentiation (Zwilling 2010). The overview of the company shows that Biocon has all these factors as it has many patents on innovator drugs, also benefitting from the absence of patents on other companies' drugs as it can then produce generics. Its product line focuses on several key diseases and is differentiated and partially dynamic. The company constantly improves its technological and manufacturing processes as well as opens new plants worldwide. It has a proven team that drives innovation and growth, having a strong focus on the future. Finally, it has a lock on the market, in particular such segments as diabetes treatment and a loyal customer base that depends on its products. Therefore, Biocon has all the prerequisites for maintaining sustainable competitive advantage if it continues developing in its current direction and follows its vision and mission statements, as well as remains flexible and adaptable to constantly changing market conditions.
III. Section Two Industry Analysis
In order to understand how the company can maintain its competitive advantage over its rival companies and maintain its current market share with the likelihood to increase it, it is necessary to conduct the microenvironmental analysis with the help of the Porters Five Forces framework. The model shown in Figure 1 below has been in use in the business environment for many years now; however, it has not lost its topicality and usefulness for companies. According to Porter (2008, p. 25), Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack. Hence, it seems important to apply the model to the pharmaceutical industry in India with a particular focus on Biocon.
As seen from Figure 1 above, the first force to be considered is the threat of new entrants. This may be a significant problem for existing companies since new entrants strive to gain the market share and put a cap on the potential profit of the companies in the industry (Porter 2008). There are seven major barriers to entry that make the threat of new entrants low in the industry, including demand-side benefits of scale, supply-side economies of scale, customer switching costs, incumbency advantages independent of size, capital requirements, unequal access to distribution channels, and restrictive government policy (Porter 2008). The pharmaceutical industry is among the most competitive in the world, with more than 10,000 companies of all sizes competing internationally (Equitymaster.com 2004). In turn, Indias pharmaceutical industry is among the largest in the world and is expected to grow at 15% annually from 2015 to 2020, which means that it is expected to grow to $55 billion by 2020 (India Brand Equity Foundation 2016a). It also means that new entrants may be willing to enter the market to take advantage of this growth. However, they face several significant barriers, including the fact that existing economies enjoy economies of scale both from the supply and demand side. Besides, even though capital requirements to enter the market may be low from the legal perspective, new entrants need substantive funds to compete with the existing companies and build their R&D capacities. Moreover, the existing companies have access to distribution channels, while new entrants may be driven out of the market because of the distributors being unwilling to lose their large clients. Thus, this threat is medium in the Indian pharmaceutical industry.
The second force is the bargaining power of buyers, which consists in the consideration whether buyers can force down prices and influence producers (Porter 2008). It is also necessary to consider whether the buyer group is price sensitive. With respect to the pharmaceutical industry, the bargaining power of buyers is low, as buyers are represented mostly by patients, who are forced to buy drugs prescribed by doctors. This way, doctors perform the function of influencers and mediators in the industry. However, neither patients nor doctors have any significant influence over prices. The third force to be considered is the power of suppliers who may increase the cost of production, limit quality, or shift costs to industry participants (Porter 2008). In Indias pharmaceutical industry, this power is medium as most companies depend on chemical producers; yet, this factor is not really influential in case of Biocon as the company produces all the compounds and elements it needs in its own factories. The fourth force to consider is the threat of substitutes. In the industry in general, this threat is low since the demand for pharma products is not likely to decrease as patients need medications at all times. In fact, it is believed that the main reason for high competitiveness in the industry is that as an ongoing concern, pharma industry seems to have an infinite future (Equitymaster.com 2004). Nonetheless, the threat is higher for Biocon as 70% of all pharmaceuticals are generic drugs produced by different companies, which is why the company has recently diversified its portfolio and started patenting innovator drugs (India Brand Equity Foundation 2016a). The fifth force is rivalry among the existing competitors. As mentioned above, the industry is highly competitive, but there are not many large pharmaceutical companies that can compete with Biocon, with most of them focusing on particular segments of the market. For instance, the largest Indian rivals in the industry include Serum Institute, Biocon, Glenmark, and Sanofi (India Brand Equity Foundation 2013). With respect to the production of medications, Sanofi is the main competitor of Biocon as they are functioning within the same health sector of diabetes treatment. In turn, Serum Institute produces vaccines, while Glenmark is focused on the discovery of new molecules and generics production. Irrespective of the competition, Biocon is the largest biotech company. Nonetheless, this threat may be considered as high in the industry in general.
IV. Section Three Resources and Capabilities
All primary activities presented in Figure 2 below from the value chain model, including inbound logistics, operations, outbound logistics, marketing and sales, as well as service are carried out by the mother company Biocon India with input from some of its subsidiaries. Although they are undeniably important, they do not seem to be the most significant ones with respect to improving value to customers. In turn, two of the supporting activities, in particular HR management and technological development, are the most value-adding components in the value model chain in case of Biocon India. In fact, Biocon India attributes its current successful position in the market to its culture and people, thereby proving the significance of this value chain model element (Kalegaonkar et al. 2008). Hence, its HR management is built on the principles of openness, trust, and collaboration, and, thanks to these principles, there are no boundaries and hierarchical distance between the senior management and lab employees (Kalegaonkar et al. 2008, p. 5). Due to these corporate values and respective HR management, the company has come up with some of its innovator drugs and improved the process of manufacturing its generic drugs. Hence, these principles span the entire Value Chain with capabilities ranging from discovery to manufacturing (Biocon 2012, p. 6).
Fig. 2. Value chain model (Jurevicius 2013)
These values are also important for the technology component of the value chain model in general and R&D activities in particular. The goal of the company is to provide patients with innovative and affordable biopharmaceuticals. In order to do that, the company pays significant attention to research and development, as well as ensuring that its employees have access to state-of-the-art manufacturing capabilities (Biocon 2016c). Figure 3 below shows the view of Biocons management on the R&D element of the companys value chain. The R&D element provides the company with the main competitive advantage over its rivals as it allows developing, producing, and supplying high-quality drugs at a lower cost, which also adds value for customers. As evident from Figure 3, the company values its culture and talent, considering them to be its strengths. Thus, the most value-adding components in Biocon are two of the value chain supporting activities, including HR management and technology.
V. Section Four Business and Corporate Strategies
Although it is traditionally believed that pharmaceutical companies will always be able to generate profits because of the present and even further increasing demand for their products, there have recently emerged some trends in the global pharmaceutical industry that the Senior Management Team of Biocon India Group should take into account in order to support its position in achieving sustainable competitive advantage. Hence, some of these trends include the following: the patent cliff, power shift from doctors to payers and patients, cost-containment to curb healthcare deficits, and empowerment of patients (Management Centre Europe 2012). The major implications for the company include the need to improve market access, increase of research and development programs, creation of partnerships, and adoption of the patient-centric approach (Management Centre Europe 2012). Based on these trends, Biocon India Groups Senior Management Team should pursue further its current strategy aimed at turning the group into one of the ten leading pharmaceutical companies globally.
Thus, the company is in a unique position to develop the global competitive advantage thanks to the patent cliff trend as it has specialized in developing and producing generic drugs. At the same time, the company should continue pursuing its strategy of research and development, in particular its nine molecule lines that are being at different stages of development and commercialization. Besides, the Senior Management Team should further pursue its patient-centric approach, which consists in making drugs affordable for patients globally. The company should improve its commercialization and marketing strategies directing them at patients and payers rather than doctors. To increase its customer base, it may also be reasonable to expand the market from about 100 countries it currently supplies with products to encompass more markets. This will also help the company to reach its goal of providing one in five patients diagnosed with diabetes with Biocons insulin products (Biocon 2016e). Besides INSUGEN, BASALOG, BIOMAb-EGFR, CANMAb, and ALZUMAb, Biocon should take the other of its key products from discovery to commercialization. Nonetheless, despite the need to expand its R&D capacities, Biocon India Group is not recommended to establish another overseas manufacturing facility until BioXcell proves to be profitable. Overall, the Senior Management Team of Biocon India Group is recommended to continue implementing its current policy and further expanding overseas in order to retain its competitive advantage globally.
Biocon India Group is among the largest biopharmaceutical companies in the world that possesses all the required resources and capacities to accomplish its goal of being top 10 in the industry by 2020. The senior management of the company has timely realized changing trends in the highly competitive industry, in particular the ones relating to the increase of R&D activities, adoption of the patient-centric approach, and marketing targeting patients. This way, the company has enjoyed significant competitive advantage in the industry over its rivals and is likely to retain it if the management team continues pursuing the present strategy of development.