AstraZeneca Case Study Solution
Introduction:
In 1998, the competition in the medical industry was at its peak, as a result of this many pharmaceutical companies merged with other companies and various pharmaceuticals giants acquired subsidiaries in same and different sectors to achieve economies of scale. AstraZeneca is also formed in that period with the merger of Astra AB Swedish Company and Zeneca a UK based company. The merger of these companies was undoubtedly the largest merger at that time. The combined company is managed by an enthusiastic CEO named David Brennan, the combined company headquarter is located in London, and the research centers of the company are located in various locations around the globe. The senior management always consults with the doctors in bringing new developments in their medicines. The company is keen regarding the developments of new drugs and continuous improvement in their products. AstraZeneca is owned 46.5% by the shareholders of Astra and remaining 53.5% is held by the shareholders of Zeneca. After the merger, the company explored the following core areas such as cardiovascular, respiratory, gastrointestinal, oncology and local and general anesthesia.
Before 2000, the pharmaceutical industry is achieving good growth, after 2000, the global pharmaceutical industry has not grown rapidly, and the industry is achieving stable growth. Increased competition, stringent laws and regulations and global economic recession affected the pharmaceutical industry drastically. To improve the performance of the organization, the senior executives are considering various changes in the organizational structure and acquire further companies in the sector. AstraZeneca also increases the research and development expenditure to support the development of the products.Various health care reforms were also made by the government in that period which also decreases the profitability of the sector. In the year 2007, the company faced some terrible situations when many of its key drug patents were about to expire, to tackle this situation AstraZeneca acquired various companies and their pipelines.
SWOT Analysis:
Strengths:
AstraZeneca is considered a high-quality pharmaceutical company; it can be argued that AstraZeneca is relatively a young company as compared to its main rivals and it is still competing with the industry giants such as GSK and Novartis. The main reason for this competitive advantage is the quality of the products and medicines of AstraZeneca. The customer considers the products of AstraZeneca are up to the mark regarding quality.
Another Strength of AstraZeneca is the management that is associated with them;it can be said that the management is very committed to their work and responsibilities. Not only this all the management is on the single platform to sustain and enhance the long-term growth prospects of the company.
As AstraZeneca is one of the biggest players in the pharmaceutical industry, it can be assumed that it has substantial reserves which can be sufficient for fulfilling the expansion requirements. Additionally, for the expansion of the operation AstraZeneca can quickly obtain new finance due to its lower gearing level and availability of high financial reserves.
Weaknesses:
By analyzing the performance of AstraZeneca, it can be said that the investors do not have enough confidence on AstraZeneca. This can be due to the ambiguous and unclear policies of the management, in the past, the company has made several policies regarding the expansions of its operations, but the plans were unable to achieve the desired results. Despite the high growth prospects of the company, the company was unable to convince the market regarding the achievements of the growth aspects.
The company has faced severe legal proceedings and allegation such as being accused of mistreatment of their anti psychotic drug. These trial resulted in bad publicity of AstraZeneca and the company faced aconsiderable reduction in sales and investors confidence due to negative publicity. Furthermore, the history of AstraZeneca indicated that the firm is finding it difficult to manage the drug patents. Failure to add the patents in its portfolio may result in the further reduction in the earnings and revenues.
Opportunities:
AstraZeneca has the opportunities to acquire more companies in the same sector, and they can also buy companies outside the industry. There can be many benefits of acquiring the companies, firstly, AstraZeneca can take advantages of the expertise of the target company, and they can also bring the patents of the acquiring company in their patent portfolios. Furthermore, they can obtain economies of scale by combining the administrative work of different companies. Acquiring companies from the other industries may be beneficial for AstraZeneca, such as they can acquire a company which has a very robust delivery and IT system.
AstraZeneca can relocate their production plants to poorer countries where the availability of cheap labor and cheap factories are high. Now a days, many manufacturing giants establish their production facilities in the developing nations to gain advantage from the cheap resources. On the other hand shifting the factories to underdeveloped countries may have negative ethical and operational consequences. In many under developed countries, the political instability is high which might bring hurdles in the production. Similarly, customers might perceive it as unethical to shift the factories to other nations because the local employees might be made redundant and the unemployment will be increased in their country.
Threats:
As AstraZeneca is operating in a very sensitive industry which involves high public interest and the interest of regulatory authorities are also high because a little error can cause severe damages to the public. The company also has to comply with various strict laws and regulations, failure to comply with these stringent rules will result in harsh fines and penalties, noncompliance can also hit the going concern status of AstraZeneca because even their license of operation might get canceled due to any severe noncompliance.
The competition in the pharmaceutical sector is way too high, and several large competitors have adopted aggressive marketing strategies to capture the market share from other players.
Strengths - Opportunities:
The main strength of AstraZeneca is the vast availability of financial reserves. Furthermore, the investors now have a lot of confidence in the management of AstraZeneca, and they can quickly obtain new finance because the risk of investors is very low in case of large and reputable companies. AstraZeneca can use this strength to take advantage of the opportunity. By utilizing the funds, the management can expand their operations in the less developed countries. It requires high capital investment in shifting the production plants to other nations, AstraZeneca should have to incur redundancy costs and training costs. Easy access to anew source of finance and availability of financial resources could make the process smoother.
Weakness – Opportunities:
The policies of AstraZeneca fail to increase the confidence of shareholders and market, despite the good profits of the company the confidence of investors is still undermined. AstraZeneca can ac quire many companies which can further enhance the profitability position of the company. The decision to acquire other companies may result in several benefits to the AstraZeneca, by taking advantage of these opportunities might underpin the confidence of shareholders and the market.
Strength – Threats:
As the competition in the pharmaceutical industry is too high, AstraZeneca can take advantage of its strength to reduce the threat. AstraZeneca’s quality is its one of the biggest strength; it can position itself as a high quality manufacturer of medicines which might mini mise the competition of AstraZeneca with other competitors because customers might purchase the products of AstraZeneca due to the highest quality, thus, reducing the competition.
Weakness – Threat:
In the past, AstraZeneca has been subject to various allegations regarding the breach of laws and regulations which are strictly applied to pharmaceutical manufacturers. On the other hand, the legal environment is very strict in the sector, it might be possible that the regulatory authority critically monitors the policies of AstraZeneca and slight negligence may result in severe punishments from the regulators.
VRIO Analysis:
For the assessment of competitive advantages now a day many companies uses VRIO test, in order to gain the competitive advantage the resources of the organization should be Valuable, Rare, Inimitable and non sustainable. As per the analysis of the competitive situation of AstraZeneca, its resources are valuable to the organization; the resources of AstraZeneca are not rare as they can be available to other competitors as well. Furthermore, the resources are some extent to inimitable because in the industry AstraZeneca is operating many of the unique resources are inimitable because they are patented and imitation of these resources is illegal so not possible. Finally the resources of AstraZeneca are organized in such a manner that can be beneficial for the organization. It might be said that the competitive advantage of AstraZeneca is sustainable because all the factors are possible to some extent.
ASTRAZENECA Harvard Case Solution & Analysis
Financial Analysis:
Liquidity Ratios:
The cash position of AstraZeneca appears to be destitute. The ideal current and quick ratios should have to be 2:1 and 1:1 respectively, these ratios of AstraZeneca are far too low than the
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